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Financial Analysis Report on
Singapore Airlines
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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
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Financial Analysis Report on Singapore Airlines
1 Introduction
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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.
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Financial Analysis Report on Singapore Airlines
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.
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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
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Financial Analysis Report on Singapore Airlines
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
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Financial Analysis Report on Singapore Airlines
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.
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Financial Analysis Report on Singapore Airlines
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.
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Financial Analysis Report on Singapore Airlines
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
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Financial Analysis Report on Singapore Airlines
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
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Financial Analysis Report on Singapore Airlines
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.
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Financial Analysis Report on Singapore Airlines
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.
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Financial Analysis Report on Singapore Airlines
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.
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Financial Analysis Report on Singapore Airlines
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
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Financial Analysis Report on Singapore Airlines
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.
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Financial Analysis Report on Singapore Airlines
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
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Financial Analysis Report on Singapore Airlines
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.
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Financial Analysis Report on Singapore Airlines
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
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7.3.2 Investing Activities
7.3.3 Financing Activities
8 Comparison to Industry Benchmark
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9 Recommendations
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10 Conclusions
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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
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14. pg 53
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15. pg 82
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16. pg 83
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20. pg82
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21. pg 83
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22. pg82
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23. pg82http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/annual/SIA_AR_0910.
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24. pg 83
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25. Chapter 27, pg399
Frank Wood’s Business Accounting 2 Frank Wood & Alan Sangster Financial Times Prentice Hall, 11th Edition, 2008
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26. pg 64
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27.pg 2
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32. pg 197
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34. pg 197http://www.singaporeair.com/saa/en_UK/docs/company_info/investor/annual/SIA_AR_0910.
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36 .
http://www.investopedia.com/terms/d/debtratio.asp
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