Singapore Telecommunications

Group (ASX: SGT) Financial

Statements Analysis
Abstract
This essay should be able to help current and future investors to gain further
understanding of the company by providing vertical and horizontal analysis on
Statements of Financial Position, Statement of Financial Performance, and
Statement of Cash Flows of Singapore Telecommunications Group (ASX: SGT) with
various focus on some major information and comparisons over the years using
horizontal analysis and significant accounts comparison in common sized analysis
regarding the company. The limitation of this essay is that SGT has very stable
financial annual reports on its account hence creating difficulty for fully analyse the
vertical analysis of the company. This essay will use ten years range for its analysis
for more in depth analysis and use Financial Year 2005 as its base year for both
Horizontal and Vertical analysis. SingTel, or Singapore Telecommunications Group
(ASX: SGT) will be referred as SGT in this essay.

SGT Vertical and Horizontal Analysis Statement of

Financial Position
In this section, we will discuss and analyse the performance of SGT in its
Statement of Financial Position in vertical and horizontal. For vertical analysis, in this
paper we will be focused on its assets, equivalent with liabilities and equities to fully
analyse its liquidity and solvency of the company.
SGT seems to have a very low liquidity over the ten years, this shows that
SGT has very high risk due to low liquidity. The company seems to be taking plenty
of risks, especially after Global Financial Crisis (GFC) in 2008 where the debts
amount skyrocketing and have not fully recovered since then. Furthermore, SGT
maintains a fairly low amount of Cash account over the years with average of 4.75%
from the total asset. SGT depended a lot on the markets to refinance debt when it
comes due. As seen in Figure 1.1 below, SGT countered the liquidity issue by
increasing its Investment account over the years. Using Financial Year 2005 at its
base year, Liquidity seems to keep decreasing over the years, however there is a
spike in Financial Year 2009 and Financial Year 2010 from -4.82% to 14.17% and
finally reached to 40.51% respectively in its Current Liabilities. The sudden
increment of Current Liabilities is caused by Provision which increased by 247.49%
in Financial Year 2010. The Provision account on its Statement of Financial Position
is for liquidated damages in respect of information technology contracts is made
based on managements best estimate of the anticipated liability.
Goodwill of SGT is significant because it helps to indicate the companys
dependency on acquisitions for its growth. Furthermore, SGT does not have much
changes in its goodwill, it spikes to 29.29% from total assets in Financial Year 2009
with the lowest 23.9% in Financial Year 2012. The average of the goodwill over ten
years range is 26.4%. Hence, SGT does not really relied on its goodwill for
acquisitions. Increment on Goodwill on Financial Year 2009 is because SGT just fully
acquired SCS with additional capital injections for expansion and enhancement of
networks to support data growth, submarine cable capacity, and core networks
including satellites capabilities.
Despite the high risk status of SGT, the market capital and share values do
not seem too affected in the ten years range. Most probable reason is that the

company operates in telecommunications industry indeed has low liquidity as

industrys norm, or the fact that it is a Singaporean government owned that makes it
trustworthy for general public to invest on the company despite its high risk and low
liquidity. However, after further in depth analysis on Telstra Corporation Limited
(ASX: TLS), which in the same industry as SGT, TLS also has relatively low Cash to
Debt ratio hence making their liquidity high as well.
Other than components this essay has mentioned above, SGT has very
stable financial statements over the ten years range as mentioned in this essays
Abstract section hence creating limitations for fully analyse SGTs vertical analysis
on its Statement of Financial Position. This shows that SGT was impacted by the
GFC 2008, however managed to recover and withstood the GFC pressure from year
2008 to Financial Year 2014.

SGT Vertical and Horizontal Analysis Statement of

Financial Performance
Despite operating within countries hit hard by Global Financial Crisis (GFC) in
2008, SGT still fared very well financially, especially in Operating Revenue aspect
and overall aspects. As Financial Year 2005 still as its base year, SGT actually
experienced a steady increment on Operating Revenue, steadily increase with
average 33% from base year till the end of Financial Year 2014. In fact, Financial
Year 2014 actually is the second highest margin in the ten years period where it gets
47% with Financial Year 2012 they had 49% margin from base year. Even during the
GFC in 2008, SGT still managed to report increase in Operating Revenue of 19%
from base year of Financial Year 2005.
SGT remains heavily focused on its main revenue stream as stated in its
Operating Revenue account where the average is 97.3% with Total Revenue
Excluding Interest as its base. The remaining of it with average of 2.7% for Other
Revenue should additionally support the statement above. The EBIT and Pre-Tax
Profit has very little difference with average of 28.72% and 26.62% respectively
mean that SGT maintained fairly balanced Interest Expenses and Interest Revenue.
With balanced accounts on Interests, SGT borrowed fairly low debts and small
amount of borrowings given to other parties to keep the Interest Revenue low and
balanced with Interest Expenses with only average of 2.47%.
The relatively lax taxes for big corporation is Singapore is visible from SGTs
Tax Expenses which only amounted average of 3.56% with Total Revenue Excluding
Interest (TREI) as its base. This caused minimal changes towards its Profit before
Tax account with Net Profit after Tax before Abnormal. With SGT maintained an
average of 23.06% of Net Profit after Tax before Abnormal from its TREI, makes SGT
performed greatly considering high amount of Operating Expenses and minimal
Interest Revenue.
The amazing thing about SGT is that even though its Operating Expenses
increased dramatically from its base year, with highest in Financial Year 2012 with
90% increment from base year, it still managed to have even higher EBIT with 2%

increment from the base year. Again, this figure is included with GFC effects and
impacts still going on.
Although seen as abnormal situation, as seen in the graph below in Figure
2.1, SGT experienced huge amount of Amortisation which probably caused by
extensive reduction on its intangible assets that caused increasing Amortisation over
the years with the highest in Financial Year 2014 with 600% increment from base
year plus average of 248% increment from base year.
SGT has the strangest impact on the Global Financial Crisis in 2008 where its
Net Profit after Tax before Abnormal in Financial Year 2009 is actually the highest
among the ten years range where it has over 28% increment from Financial Year
2005. This negative correlation most probably caused by the type of industry SGT is
operating at, where although GFC made consumers purchase less products and
services, in the modern world almost everyone living especially in the city metropolis
like Singapore need at least a mobile phone and phone services. SGT mostly tied its
services by providing two years contract with a mobile phone that makes a customer
to continue using their products because mobile phone and its services are almost
considered as commodity and necessity in this modern age. Also, at the end of
Financial Year 2009, the very popular smartphone called iPhone 3GS by Apple was
released, hence it helps SGT to increase its massive sales on the smartphone.
The steady increment of Net Profit after Tax before Abnormal, EBIT, and
EBITDA with average of 8%, 8%, and 7% respectively with only lower than base year
in Financial Year 2013 makes SGT a very strong company with steady performance
throughout the years.

SGT Horizontal and Vertical Analysis Statement of Cash

Flows
In this part, this essay will use SGTs Net Increase in Cash as its base for
vertical or common-sized analysis and horizontally still in Financial Year 2005 as its
base year.
In a previous part in this essay, it had mentioned that SGT has performed very
well in terms of its Performance. However, in terms of Cash Flows, SGT does not
fare very well. This has mentioned in the first section of main body of this essay that
it had mentioned SGT has a Liquidity and Solvency problems where it is clearly
depicted on its graphs in Vertical and Horizontal analysis and further analysed by
displaying four graphs in Figure 3.1 to 3.4 in the attachments below.
Out of ten years, SGT has only managed to have higher Net Increase in Cash
(Figure 3.4) twice, in Financial Year 2010 and 2011 in a row. Most probable cause of
the low Net Increase in Cash is because huge reduction in Financing Cash Flows
with average of 29.98% lesser than Financial Year 2005. Another most apparent
reason is because SGT was and still is expanding its infrastructures across its
business to remain competing with its competitors in Singapore and Australia. In
Financial Year 2009, SGT undertook a large project where it ensure all its customers
in Singapore has a HSDPA signal or 4G signal in colloquial term, which costed the
company most of its Cash.
Continues expansion on better signals and services of SGT caused its Net
Cash Flow fairly low even though its Net Operating Cash Flows show positive
amounts with average of 24.07% increment from Financial Year 2005. However, it
does not bode well with its amount on investing where it has average increment of
519.74% and only additional 29.98% from financing activities. Paired with very low
interest on sales from its PP&E contrasted from its huge amount on purchasing its
PP&E, SGT gained plenty of assets but operating its business in very risky way with
very low Cash account in hand.
The way the business operates, future investors should be wary of investing
in SGT. Although its Operating Revenue, EBIT, Assets, and Net Profit after Tax
before Abnormal is steadily increasing while operating in GFC, its extremely low

Liquidity and Solvency should create more awareness on its future and current
investors.

Figure 1.1 Liquidity

Figure 1.2 Solvency

Figure 2.1 Income Statement Horizontal Analysis

Figure 3.1 Net Operating Cashflows

Figure 3.2 Net Investing Cashflows

Figure 3.3 Net Financing Cashflows

Figure 3.4 Net Increase in Cash

Net Increase in Cash

1000.00%
500.00%
0.00%
-500.00%
-1000.00%
-1500.00%