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 0.13
Operating expenses $ (6,184) $ (6,270) $ (6,416) 0.04
EBITDA $ 2,353 $ 2,963 $ 3,255 0.38
Net interest expense $ (130) $ (143) $ (148) 0.14
Taxation $ 198 $ 201 $ 203 0.02
Depreciation & amortisation $ (743) $ (753) $ (759) 0.02
Net profit $ 1,678 $ 2,269 $ 2,550 0.52

Operating Revenue & Expenses Composition

Mobile Service $ 2,812 $ 3,375 $ 3,690 0.31
Others $ 5,725 $ 5,858 $ 5,980 0.04
Operating revenue $ 8,537 $ 9,233 $ 9,670 0.13

Operating expenses $ 6,184 $ 6,270 $ 6,416 0.04

Mobile Subscribers ('000s) 4,085 4,195 4,409 0.08

ARPU* 57 67 70 0.22
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 2.84% 2.53%
Operating expenses $ (6,153) $ (6,372) $ (6,470) 3.56% 5.15%
EBITDA $ 2,631 $ 2,661 $ 2,536 1.14% -3.60%
Net interest expense $ (158) $ (194) $ (189) 22.78% 19.62%
Taxation $ (356) $ (341) $ (305) -4.21% -14.35%
Depreciation & amortisation $ (1,416) $ (1,507) $ (1,469) 6.43% 3.74%
Net profit $ 2,117 $ 2,126 $ 2,042 0.43% -3.52%

Operating Revenue & Expenses Composition

Mobile Service $ 5,465 $ 5,641 $ 5,764 3.22% 5.47%
Others $ 3,371 $ 3,363 $ 3,102 -0.24% -8.00%
Operating revenue $ 8,784 $ 9,033 $ 9,006 2.84% 2.53%

Operating expenses $ 6,153 $ 6,372 $ 6,470 3.56% 5.15%

Mobile Subscribers ('000s) 9,106 9,281 9,324 1.92% 2.39%

ARPU* 50 51 52 1.27% 3.01%
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
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 metri
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
2a. Estimate industry average growth rates by combining the data for Company A and Company B for the
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

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
g Sheet
he key
to find thesteps you impact
incremental needoftointroducing
arrive at the answer?
handset leasing. To do this, you need to estimate what
not introduce leasing.
solving this task
he metrics that are most important
ate the no leasing case, you apply the industry average growth rates for the relevant metrics for Company X
ate the leasing case, you apply Company A growth rates
ical estimates for all other figures, using historical data
e the impact of handset leasing for Company X

fy the 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

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

timate the leasing case, you apply Company A growth rates to Company X

logical estimates for all other figures, using historical data

s are likely to be a fixed ratio of revenue or profits
he best estimate is just to assume it will remain constant

late the impact of handset leasing for Company X

difference in Company X's key metrics with and without handset leasing, you subtract the numbers in step (2) from s
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 $ 2,653 $ 2,822
Operating expenses $ (1,796) $ (2,017) $ (2,146)
EBITDA $ 566 $ 636 $ 676
Net finance expense $ (27) $ (30) $ (31)
Taxation $ (45) $ (45) $ (45)
Depreciation & amortisation $ (294) $ (298) $ (300)
Net profit $ 200 $ 264 $ 301
15%
Operating Revenue & Expenses Composition
Mobile Service $ 1,354 1,624.80 1,773.74
Others $ 1,008 $ 1,028 $ 1,048
Operating revenue $ 2,362 $ 2,653 $ 2,822 0.12

Operating expenses $ 1,796 $ 2,017 $ 2,146

Mobile Subscribers ('000s) 2,341 2,402 2,528

ARPU* 48 56 58

16.96% 21.30%
inancial statement figures

Company X Financial Statement (handset leasing not implemented)

Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 2,362 $ 2,456 $ 2,480
Operating expenses $ (1,796) $ (1,868) $ (1,886)
EBITDA $ 566 $ 589 $ 594
Net finance expense $ (27) $ (32) $ (32)
Taxation $ (45) $ (43) $ (39)
Depreciation & amortisation $ (294) $ (311) $ (303)
Net profit $ 200 $ 202 $ 221

Operating Revenue & Expenses Composition

Mobile Service $ 1,354 $ 1,408 $ 1,422
Others $ 1,008 $ 1,048 $ 1,058
Operating revenue $ 2,362 $ 2,456 $ 2,480

Operating expenses $ 1,796 $ 1,868 $ 1,886

Mobile Subscribers ('000s) 2,341 2,435 2,458

ARPU* 48 48 48

0.00% 0.00%
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 $ 2,362 $ 196 $ 342
Operating expenses $ (1,796) $ (149) $ (260)
EBITDA $ 566 $ 47 $ 82
Net finance expense $ (27) $ 2 $ 1
Taxation $ (45) $ (2) $ (6)
Depreciation & amortisation $ (294) $ 14 $ 3
Net profit $ 200 $ 61 $ 79

Operating Revenue & Expenses Composition

Mobile Service $ 1,354 $ 217 $ 352
Others $ 1,008 $ (20) $ (10)
Operating revenue $ 2,362 $ 196 $ 342

Operating expenses $ 1,796 $ 149 $ 260

Mobile Subscribers ('000s) 2,341 -33 70

ARPU* 48 8 10