fa project- angela editing[1]

8/8/2019 FA Project- Angela Editing[1]

http://slidepdf.com/reader/full/fa-project-angela-editing1 1/26

Financial Analysis Report on

Singapore Airlines



Financial Analysis Report on Singapore Airlines

Table of contents

1. Introduction

………………………………………………………………………………………...3

2. Company’s Background………………………………………………………………..…………4

3. Business Environment ……………………………………………………………………………5

4. Developments and Competition in the Air Industry Market…………………………………...6

5. Overview of Annual Report for Financial Year (FY) ended

31 March 2008/2009 and 2009/2010

Group Balance

Sheet ………………………………………………………………………..7

Group Income Statement …………………………………………………………………...8

Group Cash Flow Statement ………………………………………………………….

…….9

6. Financial Ratios for two years 2008/2009 - 2009/2010

Profitability Ratios…………………………………………………….......................10 -11

Solvency Ratios…………………………………………………….........................12 - 13

Efficiency Ratios……………………………………………………........................14 - 15

Shareholders Ratios……………………………………………………........................16

Capital Structure Ratios……………………………………………………...................17

7. Annual Report Analysis and Interpretation for Financial Ratios

7.1 Company’s performance…………………………………………………………18

7.2 Financial position …………………………………………………………………18

7.3 Cash Flows ………………………………………………………………………..18

7.3.1 Operating Activities……………………………………………………….18

7.3.2 Investing Activities………………………………………………………..18

7.3.3 Financing Activities……………………………………………………….18

8. Comparison to Industry Benchmark………………………………………………………..….19

9. Recommendations……………………………………………………………………………….20

10.

Conclusion……………………………………………………………………………………….21

11. Appendix A: Reference List……………………………………………………………....22 -

24




1 Introduction




2. Company Background

Singapore Airlines began with the

incorporation of Malayan Airlines

(MAL) on 12 October 1937, by the

Ocean Steamship Company of

Liverpool, the Straits Steamship

Company of Singapore and Imperial

Airways. The airline's first flight was a

chartered flight from the British Straits

Settlement of Singapore to Kuala

Lumpur on 2 April 1947 using an Airspeed Consul twin-engine airplane In 1972 MSA ceased

operation when political disagreements between Singapore and Malaysia resulted in theformation of two entities: Singapore Airlines and Malaysian Airlines System.1

Over the decades, Singapore Airlines has grown to become one of the most respected

brands in the world. It has grown from regional airlines into one of the most leading carriers.

Their quality service and innovative offerings are the tradition and future of Singapore

Airlines. Their fleets are among the youngest, most modern and comfortable in the world.2 In

August 2007, SIA made aviation history when the Airline became the first to operate world’s

largest aircraft, the A3803.

http://en.wikipedia.org/wiki/Imperial_Airways



http://en.wikipedia.org/wiki/United_Kingdom


http://en.wikipedia.org/wiki/Straits_Settlement


http://en.wikipedia.org/wiki/Singapore


http://en.wikipedia.org/wiki/Kuala_Lumpur



http://en.wikipedia.org/wiki/Airspeed_Consul

http://en.wikipedia.org/wiki/Malaysia_Airlines










http://en.wikipedia.org/wiki/Airspeed_Consul





3 Business Environment

Singapore Airlines does not only provide air transportation services. It also expand its

businesses to related industries including ground handling, leasing, aviation engineering, air

catering and tour operations. With wide range of products, it provides flexibility to meet all

types of needs to get cargo to anywhere in the world, anytime. 4

Subsidiaries such as SilkAir is regional wing of Singapore

Airlines which travel to exotic location where each

offering a unique “unwinding experience”

through its natural and man made wonders,

local cultures and customs.

Tradewinds Tour and Travel provides wide

range of tour packages and special deals to

many destinations around the world. S IA

Engineering Company which handles aviation

engineering provides services to more than 85 international carriers and aerospace

equipment manufactures. SIA Cargo which operates destination around the world with its

large fleet and most technologically advanced commercial freighters – the B747-400

Freighter.

On 1st September 2009, Singapore Airline diversified its one of largest subsidiaries, SATS

(Singapore Airport Terminal Services) which core businesses are handling ground handling

and air catering5. In which where Minister Mentor Lee Kuan Yew mentioned on Dec 29,

2005, that SIA should consider divesting SATS (and SIA Engineering Company) to focus on

its core business of flying so as to remain competitive6.




4 Developments and Competition in the Air Industry Market

The Airline faced a global economic downturn in the second half of its financial year in 2008.

It continued to feel the downturn in the first year of financial year in 2009 as well as H1N1

outbreak in April 2009. The twin impact had resulted of reduced the operational cost and

staff cost. The Airline announce in March 2009 to reduce 11% in overall capacity starting in

April 2009, introducing shorter work month scheme for employees and deferment of non-

essential projects7.

Despite the challenging economic environment and keeping its commitment to product and

service excellence, the Airline continued to invest in product enhancement and rolled out a

cabin renewal programme for selected aircraft. SIA introduce SIA mobile where SIA

customers can now book flight and access KrisFlyer services using selected mobile phones,

Blackberry and iPhone devices. Customers can choose their seats immediately after making

their SIA Mobile booking, or during their SIA Mobile check-in, which in anytime during two

and 48 hours prior to flight departure. Singapore Airlines Service Centre moved to ION

Orchard which gives greater convenience and accessibility for customers

Besides feelings the effect of the global economic crisis, SIA also faced challenges from its

competitor in providing affordable flight services. It’s status as a well-known Airport may be

in jeopardized as more airports are upgrading and improving their facilities and services to

attract more visitors and businesses to invest in those countries8. Hence SIA increases their

flights services to remain competitive9




5 Overview of Annual Report for Financial Year (FY) ended

31 March 2008/2009 and 2009/2010

Group Balance Sheet

0

5,000

10,000

15,000

20,000

25,000

Total Assets Total Liabilities Total Equity

FY 2008/2009

FY 2009/2010

Findings:

• Total Assets

Total Assets for FY 2009/2010 and FY 2008/2009 are $22 484.30 million and $24,818.50

million respectively. A decrease of $2344.2 million in Total Assets was resulted from the

deconsolidation of SATs group’s assets which amounted to $2,045.1 million10.

• Total Liabilities

Total Liabilities for FY 2009/2010 and FY 2008/2009 are $8,735. million and $10,328.1

million respectively. A decrease of $1,593.1 million in Total Liabilities were resulted from

several factors such as dispossess of SATS Group, reduction of fair value losses for

outstanding fuel hedges and decrease of trade creditors

11

.

• Total Equity

Total Equity for FY 2009/2010 and FY 2008/2009 are $13,749.3 million and $14,490.4

million respectively. A decrease of $461.7 million in Total Equity was resulted from the

distribution of dividends in specie in regards to deconsolidation of SATS groups, payment of

final dividends and increase in fair value reserve12




Group Income Statement

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Total Revenue Total Expenditure

FY 2008/2009

FY 2009/2010

Findings:

• Total Revenue

Total Revenue for FY 2009/2010 and FY 2008/2009 are $12,707.3 million and $15,996.3

million respectively. A decrease in Total Revenue was amounted to $3289 million. This

was resulted to economic crisis, decrease in contributions of airline, cargo, airport terminal

and food operations as well as the disposed of SATS Group13

.

• Total Expenditure

Total Expenditure for FY 2009/2010 and FY 2008/2009 are $12644.1 million and $15092.7

million respectively. A decrease in Total Expenditure was amounted to $2448.6 million.

This was resulted to decrease in jet fuel prices, staff cost and other variable cost savings14.




Group Cash Flow Statement

-2,000

-1,500

-1,000

-500

0

500

1,000

1,5002,000

Operating

Activities

Investing

Activities

Financing

Activities

Net cash

flow

FY 2008/2009

FY 2009/2010

Findings:

• Operating Activities

Net Operating Activities for FY 2009/2010 and FY 2008/2009 are $12644.1 million and

$15092.7 million respectively. An increase in net operating activities was amounted to

$299.2 million.

• Investing Activities

Net Investing Activities for FY 2009/2010 and FY 2008/2009 are -$962.6 million and

-$1,568.2 million respectively. A decrease in the net Investing activities was amounted to

-$605.6 million.

• Financing Activities

Net Financing Activities for FY 2009/2010 and FY 2008/2009 are -$335.6 million and

-$1,402.8 million respectively. A decrease in the net Financing activities was amounted to

-$1067.2 million.

• Net Cash Flow

Net Cash Flow for FY 2009/2010 and FY 2008/2009 are $668 million and

-$1,304 million respectively. There is an inflow of cash amounted to $636 million.




6 Financial Ratios for two years 2008/2009 – 2009/2010

Profitability Ratios

Return on turnover for year 2008/2009 (in $ millions)

Net profit after tax------------------------*100%Revenue

Net profit = 1146.8

Revenue = 15996.3

1146.8---------- *100% = 7.2%15996.3

Gross profit after tax---------------------------*100%Revenue

Gross profit = 1198.6

Revenue = 15996.3

1198.6---------- *100% = 7.5%15996.3




Return on turnover for year 2009/2010(in $ millions)

Net profit after tax------------------------*100%Revenue

Net profit = 279.5

Revenue = 12707.3

279.5---------- *100% = 2.2%12707.3

Gross profit after tax---------------------------*100%Revenue

Gross profit = 285.5

Revenue = 12707.3

285.5---------- *100% = 2.25%12707.3

The Group profit for the financial year ended 31st March 2009 was $1146.8 million. Thegroup earned $682 million the first half of the financial year despite of fuel high prices. The

second half of financial year saw lower profit as demand for air travel fell because of the

global economic slowdown.

For financial year ended 31st March 2010, the Group saw a much lower profit compared to

the previous year. Profit for the financial year was $279.5 million. This was because the

Group was hit by twin challenges of the global economic downturn and outbreak of Influenza




A (H1N1). Positive signs of recovery could be seen in the second half of financial year but

operating conditions remained challenging.

Solvency Ratios

Current Ratio for FY (2008/2009):

= Current Assets__ Current liabilities

= 6,836.515 __

5,918.716

= 1.16: 1

∴ (1.16 times)

Current Ratio for FY (2009/2010):

= Current Assets__ Current liabilities

= 6,548.717

4,519.618

= 1.45: 1

∴ (1.45 times)

Findings:

During the year 2009 shows that every $1 of current liability owed, the company has $1.16

of current assets to pay while in the year 2010 the company has a $1.45 of current assets to

pay. It can be seen that there is an increase of $0.80 of current assets to pay off. The

increase might be due to the economy recovery therefore the company has higher amount

to pay off.




Acid Test Ratio for FY (2008/2009):

= Current Assets - InventoryCurrent liabilities

= 6,836.519 - 503.2 20

5,918.721

= 6333.3_

5,918.7

= 1.07: 1

∴ (1.07 times)

Acid Test Ratio for FY (2009/2010):

= Current Assets - InventoryCurrent liabilities

= 6,548.722 - 429.5 23

4,519.624

= 6119.2_

4,519.6

= 1.35: 1

∴

(1.35 times)

Findings:

Therefore this shows during 2009 every $1 of current liability owed, the company has $1.07of liquid assets to pay and in 2010 the company has a $1.35 of liquid assets to pay. It can beseen that there is an increase of $0.28 of liquid assets to pay off. The increase might be dueto the economy recovery therefore the company has higher amount to pay off.




Efficiency Ratios

Asset Turnover (2009):

Sales----------Total Assets

= $15996.3

---------------

$24818.5

= 0.64 times

.

Asset Turnover (2010):

Sales

----------Total Assets

$12707.3---------------$22484.3

=0.57 times

Based on the calculations above, every $1 asset the group own for year ending March 2009,

it sold 0.64 cents worth of goods and services. For year ending March 2010, every $1 asset

owned, the group sold 0.57 cents worth of goods and services. Asset turnover rate is used

to measure the effectiveness on the usage of assets to generate sales25. There is a drop in

the asset turnover rate comparing FY 2008/2009 with FY 2009/2010. There was a slight

decrease in the year ending March 2010 as the group was faced with global economic

downturn and economic crisis, the outbreak of Influenza A (H1N1) which decrease the

number of air travelers choosing the option to travel by air 26.




Inventory Turnover (2009):

Cost of goods sold-------------------------Average Inventory

$10810.2---------------$505.45

=21.4 times

Inventory Turnover (2010):

Cost of goods sold------------------------Average Inventory

8722.1

----------466.35

= 18.7 times

The inventory turnover in year ending March 2009, mark the services added to London and

Tokyo for Airbus A380. New services to Kuwait and Riyadh were introduced to tap into the

market’s potential and strengthen the Airline’s presence in the Middle East.

New aircraft type, enhancements to products and services were introduced to give greater

value to customers.

Declined in numbers of air travelers in the first half of financial year ending March 2010, the

group carried out a carefully planned reduction in capacity. It also came out with difficult

decision in suspending Singapore-Karachi-Lahore and Singapore-Nanjing services which

both serve twice-weekly routes. Though in the second half of the year saw a signs of

recovery in market conditions, capacity adjustments were made in certain sectors where

there was a constant upward trend. There are two sides to look at the decrease in the




inventory when the figures for FY2008/2009 are compared with FY2009/2010. This

reduction would mean drop in aviation demand due to economic crisis or it may be the firm’s

effectively managing their inventory.

Shareholders Ratios

Earnings per share (EPS) 2008/2009

Net profit attributable to ordinary share------------Weighted average number of ordinary share

1061.5---------- =89.6 cents1184.7

Earnings per share (EPS) 2009/2010

Net profit attributable to ordinary share------------Weighted average number of ordinary share

215.8--------- =18.2 cents1184.8

With the global economic turndown, the price share for the group fell to 89.6 cents. Drop by

46.8 percent which to compare with the previous year.

\Further with global economic turndown and the outbreak of Influenza A (H1N1), the price

share for the group drop further to 18.2 cents which is fell by 79.7 percent.




Dividend Cover (2009):

Net profit attributable to ordinary shareholders-----------------Total dividend

$1061.5------------

$1185.8

= 0.9 times

Dividend Cover (2010):

Net profit attributable to ordinary shareholders-----------------Total dividend

$215.8-----------$143

= 1.5 times

For financial year ended 31 March 2009, the Board recommended a total distribution of 40

cents per share comprising 20 cents interim dividend paid on 4 December 2008 and a

recommended final dividend of 20 cents per share.

For financial year ended 31 March 2010, the Board recommended a final dividend of 12

cents per share. A total of approximately of $143 million payout based on the number of

issued shares as at 31 March 2010. It is to show the company made a profit of 1.5 times to

compare to dividend paid




Capital Structure Ratios

o Net Worth : Total Asset

For FY 2008/2009 the ratio is:

$13,930.6027:$24,818.5028

= $13,930.60$24818.50

= 56.13%

For FY 2009/2010 the ratio is:

$13,468.9029:$22,484.3030

= $13,468.90$22484.30

= 59.90%

Findings:

From the above ratios it is observe that there is a decline in both net

worth and total asset in FY2009/2010 as compared with FY2008/2009’s

ratio. The main contributing factor is due to the separation of SATS from

SIA group31. With their withdrawal from the SIA group, it impacted on the

net worth and total asset figures.




o Debt ratio = Total Liabilities

Total Asset

For FY 2008-2009 = $7,432.2032

$24818.5033

= 29.95%

For FY 2009-2010 = $5,957.7034

$22,484.3035

= 26.5%

Findings:

The above calculation gives investor an overview of the company’s risk of

bankruptcy and potential risks the company faces in terms of its debt-

load36

. It is perceive that SIA group have more assets than the debts theyare liable. Hence, they will be able to manage the debts

7 Annual Report Analysis and Interpretation for Financial Ratios

7.1 Company’s performance

7.2 Financial position

7.3 Cash Flows

7.3.1 Operating Activities




7.3.2 Investing Activities

7.3.3 Financing Activities

8 Comparison to Industry Benchmark




9 Recommendations




10 Conclusions




11 Appendix A: Reference List

. http://en.wikipedia.org/wiki/Singapore_Airlines#Origins

2. http://www.singaporeair.com/saa/en_UK/index.jsp

3.http://www.singaporeair.com/saa/en_UK/content/company_info/siastory/history.jsp?

v=1918103451&

4.http://www.singaporeair.com/saa/en_UK/content/company_info/siastory/subsidiaries.jsp?

v=150163192&

5. http://en.wikipedia.org/wiki/SATS_Ltd

6.

http://web.archive.org/web/20070710110942/http://www.todayonline.com/articles/99578.asp

7.http://www.singaporeair.com/saa/en_UK/content/company_info/investor/annual_report.jsp

?v=26485140&

8.http://www.pmo.gov.sg/News/Transcripts/Minister+Mentor/MM+Lee+

+Let+s+prepare+Changi+to+stay+ahead.htm

9.http://www.singaporeair.com/mediacentre/pacontent/news/NE_2810.jsp?

JSESSIONID=dtQ9MLmGCpGGtBnKSY1zXQStpXdLyrTJQBkp12ZYnQ99sSLZjQbr!

1454804626!-1183536947

10. page 16

http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/financial/SGXAnnFY0910pdf?

11 page 16

http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/financial/SGXAnnFY0

910pdf?

12. page 16

http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/financial/SGXAnnFY0

910pdf ?

13. page 52

http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/annual/SIA_AR_0910.

pdf?

http://en.wikipedia.org/wiki/Singapore_Airlines#Origins

http://www.singaporeair.com/saa/en_UK/index.jsp

http://www.singaporeair.com/saa/en_UK/content/company_info/siastory/history.jsp?v=1918103451&


http://www.singaporeair.com/saa/en_UK/content/company_info/siastory/subsidiaries.jsp?v=150163192&



http://en.wikipedia.org/wiki/SATS_Ltd


http://www.singaporeair.com/saa/en_UK/content/company_info/investor/annual_report.jsp?v=26485140&


http://www.pmo.gov.sg/News/Transcripts/Minister+Mentor/MM+Lee++Let+s+prepare+Changi+to+stay+ahead.htm


http://www.singaporeair.com/mediacentre/pacontent/news/NE_2810.jsp?JSESSIONID=dtQ9MLmGCpGGtBnKSY1zXQStpXdLyrTJQBkp12ZYnQ99sSLZjQbr!1454804626!-1183536947



http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/financial/SGXAnnFY0910pdf


http://en.wikipedia.org/wiki/Singapore_Airlines#Origins

http://www.singaporeair.com/saa/en_UK/index.jsp





http://en.wikipedia.org/wiki/SATS_Ltd














14. pg 53


pdf ?

15. pg 82


pdf ?

16. pg 83


pdf ?

17. pg 82


pdf ?

18.pg 83


pdf ?

19.pg82


pdf ?

20. pg82


pdf ?

21. pg 83


pdf ?

22. pg82


pdf ?

23. pg82http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/annual/SIA_AR_0910.

pdf ?

24. pg 83


pdf ?

25. Chapter 27, pg399

Frank Wood’s Business Accounting 2 Frank Wood & Alan Sangster Financial Times Prentice Hall, 11th Edition, 2008

http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/annual/SIA_AR_0910.pdf















































26. pg 64


pdf ?

27.pg 2


pdf ?

28. pg 2


pdf ?

29. pg 2


pdf ?

30. pg 2


pdf ?

31. pg 54


pdf ?

32. pg 197


pdf ?

33. pg 2


pdf ?

34. pg 197http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/annual/SIA_AR_0910.

pdf ?

35. pg 2


pdf ?

36 .

http://www.investopedia.com/terms/d/debtratio.asp













































1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

fa project- angela editing[1]

Documents