Singtel 2007 - 2008 Financial Report Analysis

Accounting for Managerial Decision TABLE OF CONTENTS 1.0 INTRODUCTION -------------------------------------------------------------------- 2 2.0 INCOME STATEMENT ANALYSIS-------------------------------------------- 2 2.1 Horizontal analysis of income statement -------------------------------------------------- 2 2.2 Vertical analysis of income statement ----------------------------------------------------- 3

3.0 BALANCE SHEET ANALYSIS-----------------------------------------------------2.1 Horizontal analysis of balance sheet ------------------------------------------------------- 2 2.2 Vertical analysis of balance sheet -------------------------------------------------------- 3

4.0 CASH FLOW STATEMENT ANALYSIS----------------------------------------5.0 RATIO ANALYSIS 5.1 Profitability ------------------------------------------------------------------------------------ 2 5.2 Liquidity --------------------------------------------------------------------------------------- 3 5.3 Financial gearing-------------------------------------------------------------------------------5.4 Investment ratios --------------------------------------------------------------------------------

REFERENCES----------------------------------------------------------------------------13

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Accounting for Managerial Decision

2

Accounting for Managerial Decision 10 INTRODUCTION Singapore Telecommunications Limited, commonly abbreviated as SingTel, is Asia’s leading communication group with operation and investment in more than 20 countries and territories around the world. The group provides a diverse range of innovative communication services including fixed, mobile and data communications, Internet, information technology (IT) and consultancy, pay television and satellite. Established in 1992, SingTel was listed on the Singapore Exchange in November 1993 and on the Australian Stock Exchange in September 2001. SingTel has expanded aggressively outside its home market and owns shares in many regional operators, including 100% of the second largest Australian Telco, Optus, which was acquired in 2000 from Cable & Wireless and other shareholders of Optus, and Bharti Airtel, the largest Telco in India. Today, SingTel is the largest company listed on the Singapore Exchange in term of market capitalization and is majority owned by Temasek Holdings. Financial Years 2008 targets of SingTel group:  Revenue to growth at single-digit level.  Operational EBITDA (Earnings before interest, tax, depreciation, amortization) (exclude strategic initiative) comparable to previous year.  Telecom margin at mid-40% level.  Overall EBITDA margin at 40%.  CAPEX (Capital expenditure) as 0% of revenue at low double digit level.  Free cash flow (exclude associated dividend) to decline slightly.

10 INCOME STATEMENT ANALYSIS

3

Accounting for Managerial Decision 1.1 Horizontal analysis of income statement 2008

∆ Change

YOY Change %

S$ Mil

2007

14,844.40

1,467.50

10.97%

S$ Mil 13,376.9 0

Mobile communications

5,976.30

584.40

10.84%

5,391.90

Data and internet

3,057.00

406.80

15.35%

2,650.20

National telephone Information technology and engineering

2,267.30

-7.70

-0.34%

2,275.00

1,230.70

204.20

19.89%

1,026.50

Sale of equipment

1,086.40

209.80

23.93%

876.60

International telephone

786.60

-26.80

-3.29%

813.40

Pay television

180.60

35.20

24.21%

145.40

Others

259.50

61.60

31.13%

197.90

Operating expense

-10,392.50

-1,180.40

12.81%

-9,212.10

Traffic expenses

-2,706.80

13.50

-0.50%

-2,720.30

Selling and administrative costs

-3,410.50

-587.00

20.79%

-2,823.50

Staff costs

-1,943.70

-221.00

12.83%

-1,722.70

Equipment costs (Cost of Sales)

-1,371.20

-273.30

24.89%

-1,097.90

Repair and maintenance

-229.00

54.60

-19.25%

-283.60

Others

-661.30

-97.20

17.23%

-564.10

-8,951.30

-837.10

10.32%

-8,114.20

78.30

-38.60

-33.02%

116.90

5.80%

4,281.70

Operating revenue

Operating expense (ex - Cost of Sales) Other income

0.00 Total Income

Compensation from IDA Depreciation and amortization

4,530.20

248.50

-

337.00 -1,886.90

-32.30

1.74%

-1,854.60

-50.10

-235.10

-127.08%

185.00

Profit on operating activities

2,593.20

-355.90

-12.07%

2,949.10

Share of result of associated and joint venture companies

2,066.50

528.80

34.39%

1,537.70

Exceptional items

4

Accounting for Managerial Decision Profit before interest, investment income (net) and tax

4,659.70

172.90

3.85%

4,486.80

216.20

128.90

147.65%

87.30

Finance costs

-392.90

28.50

-6.76%

-421.40

Profit before tax

4,483.00

330.30

7.95%

4,152.70

-522.30

-148.90

39.88%

-373.40

3,960.70

181.40

4.80%

3,779.30

3,960.20

181.40

4.80%

3,778.80

0.50

0.00

0.00%

0.50

-basic(cents)

24.90

1.65

7.10%

23.25

-diluted (cents)

24.76

1.63

7.05%

23.13

Interest and investment income (net)

Tax expense Profit after tax

Attributable to Shareholders of the company Minority interest Earnings per share attributable to shareholders of the company

Look at this table, we can clearly see that SingTel’s operating revenue increases by 1,467.50 (10.97%) between 2007 and 2008. The biggest contribution to this figure is Mobile communications with an increase of 584.40 (10.84%), followed by Data and internet (406.80). However, Sale of equipment soars the most by 23.93% between 2007 and 2008. In contrast, decreases of 7.70 (-0.34%) in National telephone and of 26.80 (-3.29%) in International telephone affect slightly total operating revenue. The reason could be Singaporean and foreigners tend to use less telephone than mobile phone. Furthermore, comparing operating expenses in 2008 and 2007, there is an increase of 1,180.40. Besides, the rate of increase in operating expenses (12.81%) is more than operating revenue (10.97%). In which, Selling and administrative costs, Equipment costs contribute the most to operating expense. Especially, the percentage of equipment costs rises more than equipment revenue (24.89% > 23.93%). This may be because the company reduces the price to attract customers or changes the equipment mix that the company sells more equipment which bring less profit margin. As a result, profit on operating activities fall from 2,949.10 to 2,593.20. On the other hand, Interest and investment income soars 147.65% that contributes to an increase in profit after tax (4.80%).

1.2 Vertical analysis of income statement 5

Accounting for Managerial Decision 2008

Operating revenue Mobile communications Data and internet National telephone Information technology and engineering Sale of equipment International telephone Pay television Others Operating expense Traffic expenses Selling and administrative costs Staff costs Equipment costs (Cost of Sales) Repair and maintenance Others Operating expense (ex - Cost of Sales) Other income Total Income

S$ Mil

%

14,844.40 5,976.30 3,057.00 2,267.30 1,230.70 1,086.40 786.60 180.60 259.50 -10,392.50 -2,706.80 -3,410.50 -1,943.70 -1,371.20 -229.00 -661.30 -8,951.30 78.30 4,530.20

100.00% 40.26% 20.59% 15.27% 8.29% 7.32% 5.30% 1.22% 1.75% -70.01% -18.23% -22.97% -13.09% -9.24% -1.54% -4.45% -60.30% 0.53% 30.52%

Compensation from IDA Depreciation and amortization -1,886.90 Exceptional items -50.10 Profit on operating activities 2,593.20 Share of result of associated and joint venture companies 2,066.50 Profit before interest, investment income (net) and tax 4,659.70 Interest and investment income (net) 216.20 Finance costs -392.90 Profit before tax 4,483.00 Tax expense -522.30 Profit after tax 3,960.70

2007 S$ Mil % 13,376.9 100.00 0 % 5,391.90 40.31% 2,650.20 19.81% 2,275.00 17.01% 1,026.50 7.67% 876.60 6.55% 813.40 6.08% 145.40 1.09% 197.90 1.48% -9,212.10 -68.87% -2,720.30 -20.34% -2,823.50 -21.11% -1,722.70 -12.88% -1,097.90 -8.21% -283.60 -2.12% -564.10 -4.22% -8,114.20 -60.66% 116.90 0.87% 4,281.70 32.01%

-12.71% -0.34% 17.47%

337.00 -1,854.60 185.00 2,949.10

2.52% -13.86% 1.38% 22.05%

13.92%

1,537.70

11.50%

31.39% 1.46% -2.65% 30.20% -3.52% 26.68%

4,486.80 87.30 -421.40 4,152.70 -373.40 3,779.30

33.54% 0.65% -3.15% 31.04% -2.79% 28.25%

20 BALANCE SHEET ANALYSIS 3.1 Horizontal analysis of balance sheet 6

Accounting for Managerial Decision Balance sheets Horizontal analysis of balance sheets 2008 YOY S$ Mil Change Current assets Cash and cash equivalents Trade and other receivables Financial assists at fair value through profit or loss ("FVTPL investments") Derivative financial instruments Inventories

Non-current assets Property, plant and equipment Intangible assets Subsidiaries Associated companies Joint venture companies Available-for-sale ("AFS") investments Derivative financial instruments Deferred tax assets Other non-current receivables

Total assets

YOY Change (%)

S$ Mil

1,372.00 2,540.90

-18.10 81.60

-1.30% 3.32%

1,390.10 2,459.30

11.00 2.50 123.60 4,050.00

-330.50

-96.78%

341.50

30.20 -234.30

32.33% -5.47%

93.40 4,284.30

10,124.20 10,056.50 1,086.90 7,453.00 352.60 358.00 1,083.00 150.10 30,664.30

394.60 -34.90

4.06% -0.35%

993.00 375.50 310.20 166.40 35.30 50.00 2,290.10

1057.51% 5.31% 731.60% 86.85% 3.37% 49.95% 8.07%

9,729.60 10,091.40 93.90 7,077.50 42.40 191.60 1,047.70 100.10 28,374.20

34,714.30

2,055.80

6.29%

32,658.50

3,360.10 12.7 345.80 1,874.30 0.30 162.50 5,775.70

293.50 1.50 2.40 1,678.00 -0.30 144.70 2,139.80

9.57% 13.39% 0.70% 854.81% -50.00% 812.92% 58.85%

3,066.60 11.2 343.40 196.30 0.60 17.80 3,635.90

5,668.20

-603.00

-9.62%

395.50 40.10 1,334.40

34.80 23.80 325.80

9.65% 146.01% 32.30%

6,271.20 0.30 360.70 16.30 1,008.60

Current liabilities Trade and other payables Provision Current tax liabilities Borrowing (unsecured) Borrowing (secured) Derivative financial instruments

Non-current liabilities Borrowings (unsecured) Borrowings (secured) Advance billings Deferred income Derivative financial instruments

2007

-

-

7

Accounting for Managerial Decision Deferred tax liabilities Other non-current liabilities

329.50 188.60 7,956.30

14.10 -11.50 -216.30

4.47% -5.75% -2.65%

315.40 200.10 8,172.60

Total liabilities

13,712.00

1,903.50

16.12%

11,808.50

Share capital and reserves Share capital Reserves

2,593.70 18,405.80

31.60 120.70

1.23% 0.66%

2,562.10 18,285.10

Equity attributable to shareholders of the company Minority interests

20,999.50 2.80

152.30

0.73%

20,847.20 2.80

Total equity

21,002.30

152.30

0.73%

20,850.00

Total liabilities and shareholders' equity

34,714.30

32,658.50

3.2 Vertical analysis of balance sheet Vertical analysis of balance sheets 2008 S$ Mil % Current assets Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss ("FVTPL investments") Derivative financial instruments Inventories

2007 S$ Mil

%

1,372.00 2,540.90

3.95% 7.32%

1,390.10 2,459.30

4.26% 7.53%

11.00 2.50 123.60 4,050.00

0.03% 0.01% 0.36% 11.67%

341.50

1.05%

93.40 4,284.30

0.29% 13.12%

9,729.60 10,091.4 0

29.79%

-

Non-current assets Property, plant and equipment Intangible assets

10,124.2 0 10,056.5 0

29.16% 28.97%

30.90% 8

Accounting for Managerial Decision Subsidiaries Associated companies Joint venture companies Available-for-sale ("AFS") investments Derivative financial instruments Deferred tax assets Other non-current receivables

-

Total assets

Current liabilities Trade and other payables Provision Current tax liabilities Borrowing (unsecured) Borrowing (secured) Derivative financial instruments

Non-current liabilities Borrowings (unsecured) Borrowings (secured) Advance billings Deferred income Derivative financial instruments Deferred tax liabilities Other non-current liabilities

Total liabilities Total equity Share capital and reserves Share capital Reserves Equity attributable to shareholders of the company Minority interests

1,086.90 7,453.00 352.60 358.00 1,083.00 150.10 30,664.3 0

3.13% 21.47% 1.02% 1.03% 3.12% 0.43% 88.33%

93.90 7,077.50 42.40 191.60 1,047.70 100.10 28,374.2 0

86.88%

34,714.3 0

100.00 %

32,658.5 0

100.00 %

3,360.10 12.7 345.80 1,874.30 0.30 162.50 5,775.70

9.68% 0.04% 1.00% 5.40% 0.00% 0.47% 16.64%

3,066.60 11.2 343.40 196.30 0.60 17.80 3,635.90

9.39% 0.03% 1.05% 0.60% 0.00% 0.05% 11.13%

5,668.20

16.33%

395.50 40.10 1,334.40 329.50 188.60 7,956.30

1.14% 0.12% 3.84% 0.95% 0.54% 22.92%

6,271.20 0.30 360.70 16.30 1,008.60 315.40 200.10 8,172.60

19.20% 0.00% 1.10% 0.05% 3.09% 0.97% 0.61% 25.02%

13,712.0 0

39.50%

11,808.5 0

36.16%

21,002.3 0

60.50%

20,850.0 0

63.84%

-

2,593.70 18,405.8 0 20,999.5 0 2.80

7.47% 53.02% 60.49% 0.01%

2,562.10 18,285.1 0 20,847.2 0 2.80

0.29% 21.67% 0.13% 0.59% 3.21% 0.31%

7.85% 55.99% 63.83% 0.01%

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Accounting for Managerial Decision Total liabilities and shareholders' equity

34,714.3 0

100.00 %

32,658.5 0

100.00 %

4.0 CASH FLOW STATEMENT ANALYSIS 2008 S$ Mil

2007 S$ Mil

CASH FLOW FROM OPERATING ACTIVITIES Profit before tax

4483

4152. 7

Adjustments for 1854. 6 -185 -337

OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES

1886. 9 50.1 216.2 392.9 2066. 5 52.6 99.8 4582. 8

CHANGE IN OPERATING ASSETS AND LIABILITIES Trade and other receivables Trade and other payables Inventories Currency translation adjustments of subsidiaries

-35.8 177.4 -30.9 -6.6

-260.9 143.1 46.9 -6.8

CASH GENERATED FROM OPERATIONS

4686. 9

4252. 9

Payment to employees in cash under performance share plans Dividends received from associated and joint venture companies

-11.7 1113. 5

-5.5

Depreciation and amortization Exceptional items IDA compensation Interest and investment income (net) Finance costs Share of results of associated and joint venture companies (post-tax) Other non-cash items

-87.3 421.4 1537. 7 48.9 177.9 4330. 6

672.7

10

Accounting for Managerial Decision Income tax paid

NET CASH INFLOW FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from other investments Interest received Payment for acquisition of a subsidiary, net of cash acquired Investment in associated and joint venture companies Long term loans repaid by joint venture companies Proceeds from sale of joint venture companies (net of withholding tax paid) Proceeds from capital reduction of joint venture companies Long term loans to joint venture companies Investment in AFS investments Proceeds from sale of AFS investments Proceeds from capital reduction of AFS investments Net sale proceeds from FVTPL investments Payment for purchase of property, plant and equipment Advance payment for purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of intangible assets

-335

-335.4

5453. 7

4584. 7

2.1 51.9

4.8 125.9

-

-0.2

1189. 3 2.1

-3.3 85.1

87.8 86.1 -1.1 1.3 14 330.8 -1879

Withholding tax paid on intra-group interest income

-75 0.9 -3.1 177.7

NET CASH OUTFLOW FROM INVESTING ACTIVITIES

2788. 2

86.7 -0.1 -1 12 520 1789. 8 304.8 -2.9 -

-658

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from term loans Repayment of term loans Bonds repaid (Decrease)/Increase in finance lease liabilities Repayment of other borrowings Net proceeds from /(Repayment of) borrowings Settlement of swap for bonds repaid Net interest paid on borrowings and sways

4927. 7 3748. 7 -12.2 -0.6 1166. 2 -

1313. 5 -602.5 1329. 4 0.2 -5.8 -624 -88.1 -412.6

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Accounting for Managerial Decision

Interim dividends paid to shareholders of the company

410.9 -0.4 2544. 7 890.7

Payment for cancellation of shares on capital reduction Proceed from issue of shares Purchase of performance shares

31.6 -62.5

-584.5 2271. 6 59 -51.5

NET CASH OUTFLOW FROM FINANCING ACTIVITIES

2711. 4

-5310

Dividends paid to minority shareholders Final dividends paid to shareholders of the company

-0.3 1336. 4

Net decrease in cash and cash equivalents Exchange effects on cash and cash equivalents

-5.9 -12.2

Cash and cash equivalents at beginning of year

1390

1383. 3 3 2770. 3

1371. 9

1390

CASH AND CASH EQUIVALENTS AT END OF YEAR

5.0 RATIOS ANALYSIS 5.1 Profitability Profitability

2008

2007

YOY change (%)

Gross profit margin

29.99%

31.13%

-1.14%

Operating expense to sales

70.01%

68.87%

1.14%

Operating profit to sales

17.47%

22.05%

-4.58%

Net profit margin

32.85%

34.19%

-1.35%

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Accounting for Managerial Decision 5.1.1 Gross profit margin This ratio expresses the gross profit as a percentage of total sales and indicates that how many gross profits that SingTel can gain out of each sale revenue. We can clearly see that Gross profit margin reduce slightly by 1.14% between 2007 and 2008. This is because the growth rate of expense (12.8%) is more than the growth rate of revenue (10.9%). There are two factors leading to this problem, the marketing strategies is not effective and the weakness of SingTel’s ability to control expenses. However, the main reason could be the economic crisis and an increase in competition in the market that makes many companies, even SingTel, met difficulties. 5.1.2 Operating expense to sales This ratio illustrates that how many expenses that SingTel spent to earn $1 revenue. There is a slight increase of 1.14% in operating expense to sales in there the selling and administrative cost and staff cost soar by 17%. That explain why gross profit margin decreases softly. This could be SingTel’s portfolio is plentiful; hence SingTel can met many difficulties with controlling expenses. 5.1.3 Operating profit to sales This ratio shows that how many operating profits that SingTel can earn out of each sale revenue. It indicates a small drop of 4.58% in 2008 compare with 2007. This is the result of a rapid increase in expenses and a steadily rise in revenues. This problem requires SingTel need to improve control its expenses and innovate effective marketing strategies to create more market share. 5.1.4 Net profit margin Net profit margin depicts the net profit as a percentage of total sales or how many net profits that SingTel can get out of each sale revenue. A decline in gross profit margin (1.14%) together with a decrease in operating profit to sales (4.58%) lead to a slump in net profit margin (1.35%). However, a slump in net profit margin is less than a drop in operating profit to sales, it show that SingTel have high income from associated and joint venture companies (20066.5m) and other investments (4657.9m).

5.2 LIQUIDITY Liquidity

2008

2007

YOY change

Current ratio

0.703

1.178

-0.474

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Accounting for Managerial Decision Quick ratio

0.682

1.152

0.021

0.025

-0.470

5.2.1 Current ratio This ratio expresses SingTel’s ability to meet day to day debts or with $1 current liability, there are how many current assets are ready to pay. In 2008, current ratio is 0.7 < 1, that means if all current liabilities become due, SingTel will not have enough current assets to pay. This shows that SingTel has liquidity problem and an increased risk of failing to generate any future cash flows. Moreover, there is a fall in current ratio of 0.474 between 2007 and 2008 that indicates SingTel’s ability to pay short-term obligation is reducing. The reason is because the current assets decline () while current liability soar in 2008, especially a huge increase of in unsecure borrowing. This will affect SingTel’s ability to pay current debts and raise the risk for lenders.

5.2.2 Quick ratio In fact, inventory cannot be converted in cash quickly. Therefore lenders tend to care more about quick ratio that excludes inventory. We can clearly see that quick ratio in 2008 is 0.68 < 1. SingTel’s liquidity problem is affirmed again. SingTel will not have ability to pay quickly if current liability is due. Furthermore, there is a slight decrease of 0.4705 in quick ratio between 2007 and 2008. However, comparing current ratio and quick ratio in both 2007 and 2008, there are slight differences of 0.025 and 0.021 respectively. This illustrates that SingTel keeps a small amount of inventory 123.6 (2008) and 93.4 (2007). This is a success of SingTel in controlling inventory.

5.2.3 Working capital Working capital is a measure of both a company’s efficiency and its current financial health. Positive working capital indicates a company that has ability to pay off its short-term liabilities. Negative working capital indicates a company that is unable to met day to day debts. Working capital = current assets – current liabilities 2008

2007

YOY Change

Current assets

4,050.00

4,284.30

-234.30

Current liabilities

5,755.70

3,635.90

2,119.80

Working capital

-1,705.70

648.40

14

Accounting for Managerial Decision

It is clear to see that in 2008 SingTel has a negative working capital or working capital deficiency (-1,705.70) because there is a drop of 234.30 in current assets while current liability rise rapidly by 2,119.80 between 2007 and 2008, especially a big increase of 1678m in unsecure borrowing. This depict the weakness of SingTel of working capital management and SingTel may run into trouble paying back creditor in the short-term in the coming time.

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Accounting for Managerial Decision 5.3 FINANCIAL GEARING Ratios

Formulas

2008

2007

Debt ratio (%)

Total liabilities/Total assets*100

39.50

36.15

Equity ratio (%)

Capital & reserves /Total

60.49

63.83

Debt equity ratio

assets*100 Total liabilities/capital &

65.29

56.64

(%)

reserves *100

5.3.1 Debt Ratio Debt ratio is ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. Dept to Asset ratio gives an idea to a company’s leverage along with the potential risks the company faces in dept – load. The ratios indicate that the company’s dept has been lesser 50% than its assets for both 2 financial years. Dept ratio has increased from 36.15% in 2007 to 39.50% in 2008, so the level of risk went up when company’s liabilities are concerned.

5.3.2 Equity Ratio The Equity Ratio is a good indicator of the level of leverage used by a company. The Equity ratio measures the proportion of the total assets that are financed by stockholders and not creditors. It also helps the shareholders to know how much they receive in event of company- liquidation. For SingTel, The ratio has fallen in 2008 when compared to 2007; it is a good information for shareholders. Company is using large amount of equity to support its business operations. Obviously, the shareholders may be benefited in liquidity.

5.3.3 Debt Equity Ratio The ratio helps in measuring the financial leverage of the company by taking in to consideration its liability and shareholder’s equity. Both the dept ratio and the dept equity ratio of SingTel have increased since 2007, the high debt/equity ratio generally means that company has been aggressive in financing its growth with debt. The debts are used to finance increased operations (high debt to equity), and company

16

Accounting for Managerial Decision generated more earnings than it would have done. It is a good sign because SingTel has been more effective in its plan in 2008 than that in 2007.

Gearing Ratio 70 60 50 40

De pt Ratio

30

Equity Ratio

20

De pt Equity Ra tio

10 0 2008

2007

5.4 INVESTMENT ANALYSIS Of prime concern to any investor is the return that they will receive from their investment in an organization. Any return must be sufficient to reward the investor for the risk attached to that investment. Based on the SingTel’s financial statements for the financial year ended 31 March 2008, the ratios have been calculated to assess the performance of SingTel in the 2008 financial year as follow: YOY

Name

Formulae

2008

2007 Change (%)

Dividend yield (%)

Dividend per share/ Current market

5.53

share price

(*)

(**)

21.60

11.82

Dividend per share

Dividend announced for the year /

(cents)

number of shares issue

3.60 53.36

82.82

17

Accounting for Managerial Decision Dividend payout

Dividend announced for the year/

ratio (%)

profit available to shareholders

Dividend cover

Net profit available to shareholders /

(times)

Dividend announced for the year

Earnings per share

Profit available to shareholders /

(EPS) - basic (cents)

Number of shares in issue

Earnings per share(EPS) - diluted (cents) Price/ Earnings (P/E) Ratio (times)

Profit available to shareholders / Number of shares in issue Current market share price / EPS

Return on capital

(Profit before interest and taxation /

employed (ROCE)

(Share capital+ reserves + long-term

(%)

loans))*100%

86.75

50.83

70.65

1.15

1.97

-41.40

24.90

23.25

(*)

(**)

24.82

23.13

7.28

15.70

14.11

11.28

17.47

16.55

5.61

7.13

Note: * - Using share price as S$ 3.91 as on March 31st 2008 ** - Using share price as S$ 3.28 as on March 30st 2007

18

Accounting for Managerial Decision

Look at the above chart; it is very easy to recognize that all the ratios of the 2008 financial year increased remarkably compared with the previous financial year, which implies a good performance of SingTel Group in the 2008 financial year. Specifically, the dividend per share in 2008 upped by 82.82 % to 21.60 cents per share and the earnings per share (basic) grew from 23.25 cents per share (in 2007) to 24.9 cents per share ( in 2008), risen by 7.13%. These increases reflected a significant increasing in net profit to S$3.96billion from S$3.78 billion, an increase of 4.8 per cent from the previous year. Moreover, the return on capital employed (ROCE) also raised from 16.55% to 17.47 % indicated the efficiency of using capital of the Group. This effective investment gave investors a confidence in the success of company in the future that expressed in the increasing in PE ratio from 14.11 to 15.7. Reflecting the good result for the 2008 financial year, the SingTel’s share price rose 19 per cent on the Singapore Exchange (SGX) (from S$3.28 per share to S$3.91 per share) and 18 per cent on the Australian Securities Exchange (ASX) between April 2007 and March 2008.

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Accounting for Managerial Decision SingTel share performance – 1 April 2007 to 31 March 2008 (Compared to StarHub and M1)

(Source: Yahoo Finance)

In conclusion, it is clear that SingTel Group delivered a very strong set of results for the financial year ended 31 March 2008. The group met all its targets against backdrop of highly competitive market. Based on this good result, the investors can hope to see continued growth in the market SingTel operate in next financial years.

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Accounting for Managerial Decision Price Earnings Ratios Analysis The competitor of this company is named StarHub Limited. This table below shows the P/E ratio of two companies and the comparison between these two companies in 2008. Ratio Price/Earning based on financial statement(31 March 2008) Change EPS (%) EPS(cents) P/E

07-08

(times)

Basic

Diluted

Basic

Diluted

StarHub Limited

14.10

2.35

2.05

18.28

18.16

SingTel

15.70

7.13

7.28

24.90

24.82

P/E: Price/Earning EPS: Earnings per Share •

The P/E ratio of a company indicates the market expectation towards the company. In other words, a company who has a higher P/E ratio will be expected more rise in its profits in the future than one who has lower P/E ratio.

•

SingTel has 1.6 times higher than StarHub Limited in term of P/E ratio (15.70 versus 14.10, respectively). It also means that investors are likely to want to invest in SingTel because they sense that in the future SingTel may help them earn more money than StarHub Limited.

Now we will analyze more by the comparison between SingTel and StarHub for the vertical view:

Date SingTel StarHub

31/03/2008 31/03/2008

Open

High

Low

Close

Volume

Adj Close

3.95

3.96

3.9

3.9

86500

3.9

3.1

3.1

3.02

3.04

2008000

3.04

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Accounting for Managerial Decision Comparison to

SingTel

StarHub

Comparison

Share Price (S$)

3.91

3.04

0.87

28.6

EPS (S$)

24.90

18.28

6.62

36.2

P/E Ratio

15.70

14.10

1.60

11.3

StarHub (%)

(Source: Yahoo Finance)

•

The result for such consistency is that SingTel had higher share price (28.6%),P/E Ratio(11.3%) and higher EPS (36.2%) than its competitor, with 3.91S$ against 3.04 S$ for the former, 24.90 cents opposed to 18.28 cents for the second and 15.70 times compared to 14.10 times for the latter. What makes SingTel has higher share price may come from the expectation of investors regarding return on investment when they analyze the cash flow statement of the two companies: (in millions of Singapore dollars, statics from 2008) SingTel

StarHub

Operating Activities

2033

570

Investing Activities

(1775)

(219.7)

Financial Activities

4

(359.9)

•

From the table, investors can know that SingTel was successful and aggressive so make much profit than StarHub. Moreover, SingTel’ investments in non-current assets roughly eight times than StarHub’s ($1775 million against 219.7 million), thus having more potential than StarHub in the future. From these reasons, investors tend to invest in more profits making company like SingTel rather than StarHub.

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Accounting for Managerial Decision

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