Oxford Brookes University

Bsc (Hons) in Applied Accounting

Research and Analysis Project

An analysis of the financial and business performance of

Singapore Telecommunications Limited (SingTel Ltd.) Between 1 April 2011 and 31 March 2013

Jozua Pung Wei Dong

ACCA Student No: 2191194

May 2014

Word count: 7499PART 1: Project objectives and overall research approach

The topic that I have selected for my RAP is The Business and financial performance of an organisation over a three year period.The organisation I chose is SingTel Telecommunications Limited (SingTel).Reasons for choosing the topic:

To manage any organisation effectively and efficiently, it is vital to manage its strategies, operations and finances. The business and financial performance of an organization significantly affects the prospects of the company. Which is why I chose this topic, as it allows me to refine my knowledge and expand my understanding in financial and business analysis. Also, it allows me to use this practical analytical skill to do a detailed analysis of any company that I may be interested to invest in.

Reason for choosing SingTel:SingTel is a telecommunications company that was founded over 130 years ago. They provide a wide range of multimedia and information communications technology (ICT) such as mobile networks, broadband, satellite services amongst many others to their growing base of consumers and enterprises, serving 468 million mobile customers around the world as at 31 March 2013.Furthermore, SingTel is a major player in the regional communications market and is the largest listed company on the Singapore Exchange by market capitalisation.

SingTel has a vast network of offices in countries and territories throughout Asia Pacific, in Europe and the USA, while Optus has a network of offices around Australia. The Group employs more than 21,000 staff worldwide. (SingTel Ltd, n.d.)Since SingTel is a well-established public listed company in Singapore, it makes their companys business information more accessible for analysis. Also, it has many stakeholders (I.e. Consumers, employees, shareholders, etc.) whom will be interested in the stability of the business and financial performance of SingTel. Specifically, many individuals and business requires stability in the communication services, which SingTel provides. Therefore, an analysis into their sustainability would be essential to provide future expectations to those they serve. In addition, an analysis and evaluation of SingTel would help potential investors and stakeholders obtain greater knowledge, and to be better informed about the organization and help with their investment decisions.Reason for choosing Starhub as a competitor:Starhub provides a wide range of services like SingTel. They offer a full range of information, communications and entertainment services for both consumer and corporate markets. (Starhub Ltd, n.d.) Since SingTel and Starhub are full service operators and are involved in a wide range of telecom services, including fixed line and fixed broadband, which makes both of them comparable as they are considered to, be direct competitors. Starhub biggest threat to SingTel is the provision of paid television and the provision of corporate services. (BuddeComm, 13 June 2013)Project objectives:

Carry out the financial analysis of SingTel to:

To analyse and assess financial and business performances of SingTel Ltds Group over the three year period from year 2011 to 2013. Research questions: Will the company continue to grow in terms of market share in Singapore? Is Starhub Limited (Starhub), a competitor, a threat to SingTels future growth? To analyse the profitability, liquidity, shareholder returns and financial structure of the company.

To look at the financial standing of SingTel as compared to its competitors in Singapore.

To analyse the impact of companys activities on its working capital.

To analyse the impact of companys activities on its financials.

Is it advisable to invest in SingTel?Research approach:

First, I will gather information of the telecommunications companies in Singapore to gain an understanding of the performance of the companies and the factors affecting it. Using the available information, I will understand SingTel in greater depth so as to recognise their business models and strategies of their company. Second, using the financial reports from the companys website, three profitability ratios, two debt and gearing ratio, one efficiency ratio, two liquidity ratios and one investor ratios will be calculated and interpreted. Concurrently, a comparison with SingTels competitor; Starhub will be made. A sound financial analysis would provide an understanding on how SingTel has fared against Starhub in terms of financial performances. Also, it allows us to review profitability, efficiency, and liquidity position to measure the achievement of corporate objectives of the company. In addition, it helps to identify if there are any current or potential weaknesses in the company. (Kaplan Publishing UK, 2013)Third, I will use selected business models such as SWOT analysis instead of PESTLE or Porters five forces as it allows us to examine the impact of the internal and external environment on the companys policies, strategies and its impact on the financial statement (JRC European Commission, n.d.). The PESTLE model evaluates only the external environment (Sidharth, T. and Edwards, G. ed., 2010), while Porters five forces model is difficult to apply to large organisation with synergies and interdependencies achieved from a portfolio of businesses (Wilkinson, J., 2013). Concurrently, I will verify the effects through secondary sources to provide greater credibility. Fourth, both the financial analyses and business analyses will be examined together as any business decisions would have either a direct or indirect impact on the companys financials.Last, I will form an evaluation regarding the companys ability for further growth, and I will conclude and give any recommendations accordingly based on the analysis I have done.Part 2: Information Gathering and accounting/ business techniquesSources of information:

The main source of information would be gathered from secondary sources. Secondary information:

Many secondary sources of information were used to gather information and to validate interpretations made in the financial and business analysis.

Sources includes:

1. The Internet: The Internet provides a vast range of information about the company. Such as company announcements, news, etc. It allows efficient and effective collation of information, although some information may not be reliable.

2. Newspaper articles: Used to gather the historical and current news regarding the company.

3. Analysts Reports: It provides a detailed analysis of the company performance and the views on the prospects of the company.

4. ACCA and other reference books: It allows easy referencing to financial ratios, business models which is applied to the business and financial analysis of the company.

Limitations of information gathering:

Searching for relevant and credible information over the Internet might be a challenge because there are wide arrays of sources, thus it is important to carefully select those from reliable sources. Information gathering is a challenge as most companies disclose the bare legal requirement on their annual report.

Gathering information needed to give an in-depth analysis; apart from those in the companys financial report (FR) will be a limitation, as this requires insider information. If the companys FR does not disclose, it is unlikely that outsiders of the company will be able to obtain this to do an analysis as well. There could be potential conflicting views on different analytical reports making it difficult to come to a conclusion on which views which would be more appropriate and relevant to this analysis. Hardcopy of newspapers articles are almost impossible to get as it dates back to 3 years ago. However, the local library does have an archive of newspaper articles but they require a fair bit of time to sieve through relevant information.

Secondary information (i.e. Analysts Reports) that is used as a source could have had misinterpretations of primary data, and may even contain the subjective views of the author and thus there is a need to exercise careful judgment to decide on whether the information can be used. A typical financial statement of a company would tend to highlight the good parts of their business so that they can attract more investors. Thus, it is difficult to spot potential weaknesses, which could be important to make a fair and accurate analysis of the company.

Ethical Issues: As a professional accountant, I have to observe ACCAs code of ethics when preparing this report. These code of ethics includes: Integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. (Kaplan Learning Institute Pte Ltd, 2011)A great deal of integrity is needed to ensure that my report is done up by myself and not reusing other students work as part of mine.Confidentiality is not a pressing issue as all the information gathered was publicly available.To ensure professional competence, research has to be done to keep myself updated of the latest news and regulations.

It is required to remain objective during the writing of this report, and not allow my personal bias affect the conclusion and outcome of the project.

In addition, I needed to be prudent to cite and give credit to all relevant sources I received my information from. Also, I have to be aware not to fabricate or falsify information just to suit my project outcome desired. As this is plagiarism and it is not ethical.Financial Models Used:The techniques I used for financial analyses are:

Ratio Analysis:

Ratio analysis is used to evaluate the relationships among financial statement items. The ratios are used to identify financial performance for one company or to compare two or more companies at the same time.(Cliffnotes, n.d)Components of ratios used:

1. Profitability and return ratios are to assess performance and the value of the overall business.2. Debt and gearing ratios are to assess the risk profile of the business.

3. Efficiency ratios measure how effective the company utilizes assets and manage its liabilities.4. Liquidity ratios are a guide to the risk of cash flow problems and insolvency.

5. Investor ratios allow a review of the share of profit after tax generated by the company.(Kaplan Publishing UK, 2013)Advantages:

Able to compare current and previous performance.

Allows fairer comparison of firms performance with its competitors.

Ratios help to monitor and identify issues that can be highlighted and resolved.

(BBC, n.d)

Disadvantages:

Ratio analysis information is based on historical information, but not current ones.

Ratio analysis does not take into account external factors such as a recession. Ratio analysis does not measure the human element of a firm.(BBC, n.d)

Business Models Used:

The model I used for business analysis is:

SWOT Analysis:SWOT analysis is an analytical method that is used to identify and categorise significant internal (Strengths and Weaknesses) and external (Opportunities and Threats) factors faced by an organisation.(JRC European Commission, n.d.)Advantages:

It concentrates on the most important factors affecting the business.

It enables me to understand the business better. It would be able to address the weaknesses that are identified.(Queensland Government, 13 March 2014)Disadvantages:

It is only a single stage of the business planning process. Although it produces a lot of information, not all of it is useful.

It does not prioritise issues.

It is difficult to address uncertain or two-sided factors, such as factors that could either be strength or weakness or both. (Queensland Government, 13 March 2014)Part 3: Results, analysis, conclusion and recommendation

Industry information:

As the population in Singapore increases, the demand for telecommunication increases as well. There are many telecommunication companies in Singapore. However, the dominant players are SingTel, Mobile One (M1) and Starhub.By late 2012, the number of mobile subscribers had reached almost 8 million and an overall mobile penetration rate of 150%. Although there is competition in the fixed-line market, SingTel continues to dominate with more than 90% of fixed subscribers. (BuddeComm, 13 June 2013)From Infocomm Development Authority of Singapore (IDA) Survey, figure 1 below, statistics shows that there is a steady increase of mobile subscriptions over the years from 2001-2013. However, from 2011 2013 the growth of subscriptions has been slowing down. (Infocomm Development Authority of Singapore (IDA), n.d)

(Figure 1) (Infocomm Development Authority of Singapore (IDA), n.d)

(Figure 2) (Infocomm Development Authority of Singapore (IDA), n.d)In addition, it could be seen from Figure 2 above, the total info communications industry revenue has been increasing yearly. However, the share of this increased revenue for telecommunications services have been decreasing. Profitability Analysis:

Net Profit (NP) Margin:

(Figure 3) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)From years 2011 to 2013, SingTels NP margin has declined marginally from 21.15% to 19.31% as seen in figure 3. This is due to the fall in operating profit by 5.34% during the 3 years period leading to the overall decrease in profit after tax (PAT) of 8.16%. Although during the period 2011-2012, PAT increased by 4.36% but it was overpowered by the 12% decrease in 2012-2013.The fall in operating revenue between 2012-2013 of 3.41% was due to a decrease in revenue from Australia subsidiary; Optus and adverse currency movements. (SingTel Ltd, 2013). Since SingTel relies on its Australian unit Optus for two-thirds of its revenue, (Eveline, D. and Kevin, L., 14 November 2012) any changes in Optus revenue or activities will have a significant impact on SingTel.However, at the end of the 3 years period, revenue improved marginally by 0.62%, due to higher revenue during 2011-2012 periods.Profitability was also affected due to the increased in depreciation on existing assets over the years of 8.06% since 2011, resulting in higher operating expenses. (Ser, C, 15 May 2013) There was an overall loss of $40.1M in 2013 on exceptional items due to divestment loss of Warid Pakistan of S$225 million, Optus ex-gratia costs on its workforce restructuring of S$101 million and net off other exceptional gain. (SingTel Ltd, 2013) Which resulted in a 5.43% lower operating profit at the end of 3 years.Operating expenses have not been an issue as operating expense has been consistently at the 72% range, with minor deviations over the years, with the exception of depreciation.In comparison, Starhub NP margin has been increasing over the years from 16.43% to 18.95% in 2013. This is partly due to the increase in PAT by 17.5% since 2011.Similarly, although Starhub suffered a fall in operating revenue of 2.57% in 2012-2013, but for the 3 years period it had managed to increase its revenue by 2.05%, consistent with SingTels performance where a fall 3.14% in 2012-2013 eventually lead to an overall increase by 0.62% although their performance faired poorer than Starhubs.Unlike SingTels -5.43% growths in operating profit, Starhubs showed a positive change over the 3 years for an overall increase by 16.32% since 2011. This was due to Starhubs growth of 6% in fixed network and voice services revenue increased 13 percent higher for the full year. (Jamie, Y., 7 February 2013)

(Figure 4) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)In addition, PAT was significantly different between the two companies. Starhub displayed a 16.32% increased over 3 years while SingTel had a decreased of 8.16%, shown in Figure 4 above. This is because SingTels foreign operations faced a fall in revenue mentioned above, while Starhub remains focus on its business in Singapore. Return on assets:(Figure 5) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)As seen from figure 5, SingTels return on assets (ROA) has decreased slightly over the 3 years period to 8.78%. This was mainly contributed by the fall in PAT in 2013 by 8.16%, accompanied by a minor fall in total assets from 2012-2013 of 1.07%, but an overall increase for the 3 years of 1.73%. The decrease in ROA was partly contributed by decreasing ROA of Optus, which contributes 31% to SingTels bottom-line and Optus 6.1% ROA in 2011 was ranked the lowest. (Kyith, Ng., 11 July 2011) and thus, it could be seen that Optus has a huge impact on SingTels performance and efficiency. SingTels biggest subsidiary, Optus, has been slowing growth down in general for SingTel where Optuss drop in revenue was caused by a slowdown in the mobile services market and a falling Australian dollar with Optuss mobile customer base remained flat over the past year. (The Australian Financial Review, 14 August 2013)Singtel has considered Optus affect on its own financials as Singtel is looking to auction the satellite communications arm of its wholly-owned Australian subsidiary Optus, seeking a sales price of at least $2 billion. (Andrew, S., 29 May 2013) Which is an obvious signal that Optus is no longer a prospect to increase SingTels value.Looking at Starhubs ROA of 20.04% in 2013, an increased of 1.73% since 2011. It is significantly greater than SingTels 8.78%. In addition, ROA for Starhub has been consistently improving yearly. This is mainly contributed by the consistent increase in PAT of 17.5% since 2011, accompanied by a slight increase in assets of 7.36% over the 3 years. It shows that Starhubs ability to generate profits from its assets is more than double of SingTels, although both are capital-intensive industry. This proves that SingTel is way behind its competitor in generating profits with its asset. The main reason for such a difference is contributed by SingTel recent business expansion. Where they have spend a total of S$697.9m in 2013 on acquisitions on companies like restaurant review portal, hungry go where and mobile advertising solutions provider Amobee, among others. (Ser, C, 15 May 2013)Inevitability, this will lead to an increase in its non-current assets mainly under associates, where it increased by 13.4% since 2011. Which in turn led to a smaller ROA since assets increased while PAT decreased.Return on capital employed (ROCE):(Figure 6) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)SingTels ROCE has been decreasing every year. Since ROCE was 10.43% in 2011, 9.24% in 2012 and 8.87% in 2013 as seen from Figure 6. ROCE declined as current liabilities fell by 32.19% during the 3 years period 2011-2013 due to the overall repayment of unsecured borrowings of 86.9%. This was accompanied with a slight change in total assets of 1.73% due to SingTels expansion and an overall fall in operating profit of 5.43% for the 3 years period. Which in turn, was affected by an increased in depreciation, exceptional loss and lower revenue from year 2012-2013, mentioned earlier. Starhub on the other hand, had an overall increased in ROCE from 40.54% in 2011 to 43.58% in 2013. Which is contributed by a slight increase in overall operating revenue of 2.05% for the 3 years, netted off with slight fall in current liabilities of -0.19% and an increase in total assets of 7.36%. Comparing Starhubs ROCE with that of SingTel, Starhub is almost 4 times more efficient and profitable, since ROCE is a ratio indicates efficiency and profitability of a companys capital investment. (Valuebasedmanagement.net, n.d.) This shows that Starhub is more efficient in utilizing its capital to generate revenue. Showing consistency between SingTels weaker ROCE and ROA. Debt and gearing analysis:Interest cover:(Figure 7) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)As seen in figure 7, SingTels interest cover declines in 2011-2012, from 13.10 times to 10.79 times, due to the fall in profit before interest and tax (PBIT) by -2.14% and an increase in borrowing by 20.7% due to its expansion. Leading to an increase in finance cost of 7.4%. However, SingTels 9.84% fall in borrowings in 2012-2013 lead to a fall in finance cost of 12.57%. Overall, SingTels position worsens marginally to 12.97 times in 2013 due to an aggregate fall in PBIT of 7.15% and 8.83% increased in borrowings, and ended with a fall in finance cost of 6.1%. Indicating SingTels ability to pay interest on existing debts did not change much. Starhub interest cover has been improving significantly from 19.42, 22,37 and 24.64 for 2011, 2012 and 2013 respectively, gaining at least 5 times since 2011. This is largely due to the increased in PBIT of 16.32% for the 3 years period and a fall 8.29% in finance cost paid with a slight increase of 3.77% in borrowings.

This shows that Starhubs ability to pay its interest on existing debt is much more efficient. But overall, SingTel interest cover of 12.97 times is more than sufficient to meet its interest payments requirements.Debt to equity ratio:(Figure 8) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)From figure 8, SingTel displays a very low debt to equity to ratio. Being 0.26 in 2011, an increase to 0.48 in 2012 and a marginal fall to 0.43 in 2013. The slight increase and decrease was due to an increase of short and long term borrowings of 20.7% in 2011-2012, and a subsequent fall of -8.84% in 2012-2013. Resulting in an overall increase in debt of 8.83% over the 3 years. The main reason for an increased in debt was due to the expansion and acquisition of the many businesses in recent years, as mentioned earlier. In Addition, there was a negligible effect of the change in equity of -1.48% over the 3 years period. Which was a minor contribution to the increased in debt to equity ratio. The Optimal debt-to-equity ratio is considered to be about 1. (Ready Ratio, n.d.)Therefore, it indicates that SingTel is way below the optimal debt to equity ratio. It could be said that SingTels low debt to equity ratio indicates that a company is not taking advantage of increasing its profit with increasing financial leverage.The theory for increasing financial leverage to increase value of the firm was proposed by Modgliani and Millers Proposition II, With corporate taxes, where an increased in debt to an optimal level and mixture with equity maximizes value of the firm. (P. Frantz, R. Payne, J. Favilukis, 2011)SingTels capital structure could be said as safe since it is clear that SingTel is able to afford a greater debt. However, with a large reserve and a low debt to equity ratio, SingTel is capable to generate internal funds as well as afford an increased debt to finance any future expansion. (Trumsosg, July 2011)Starhub extravagant debt to equity ratio, is stunningly high; 35.27 in 2011, 20.37 in 2012 and 10.47 in 2013. Indeed Starhubs leverage has been decreasing over the years. However, when compared to SingTels leverage, Starhub can be seen as over-trading, which explains Starhubs increasing profitability of 16.32% over the 3 years. An explanation for this is that Starhub has been increasing its dividend to its shareholders over the years, which explains the huge negative reserves of $240m in 2011, and only recently has it improved by 21.44% in 2013, providing further evidence of its reduced leverage. However, Starhubs net debt position has steadily declined over the years suggesting that they are not only taking on debt to pay out dividends to shareholders. But also to commensurate growth in sales, earnings and cash flow. Otherwise, that could be a signal of Starhub overreaching in trying to pay its dividends. (Ser, C., 28 January 2014)Therefore, it emphasizes on the lack of SingTels use of leverage to generate higher growth like Starhub. However, a balance needs to be made to ensure that the company is not subject to liquidity risks.Debt to Equity

Singapore Telecommunications Limited0.37 times

Total Access Communication Public Company Lim0.96 times

StarHub Ltd8.31 times

M10.63 times

Telechoice International Limited0.28 times

S i2i Limited0.18 times

(Macroaxis, n.d.)Above is an extract illustrating debt to equity ratio of different companies in the industry. As seen, Starhub is way beyond the industry benchmark, while SingTel remains within the benchmark showing that it is acceptable to have such low gearing in the telecommunications industry. Measurement of efficiency:

Trade receivable days:

(Figure 9) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)SingTels trade receivable days has increased during the 3 years period. Being at 69.67 days in 2011, an increase to 76.14 days in 2012 and a slight drop in 2013 of 73.87 days. This was contributed by the increased in receivables by 13.85% from 2011-2012 and a fall by 6.29%. The movement of both corporate and individual debtors contributed to the changes in trade receivable days. There was an increased in monies owed by corporations of 14.34%, netted off with the increased in individual debtors of 20.4%, from 2011-2012 (SingTel Ltd, 2012), followed by a fall of 15.82% owed by corporations and the increased in individual debtors of 32.24%, from 2012-2013. Creating an overall increased of 6.69% in receivables over the 3 years. (SingTel Ltd, 2013) In addition, there was an increased in handset receivables of SingTels subsidiary, Optus. (SingTel Ltd, 14 February 2013)Sales fell by 5.43% over the 3 years, further aggravating the trade receivables position. SingTels overall trade receivables were significantly contributed by its subsidiarys increasing trade receivables. Cash flow fell drastically over the 3 years period of 66.73%. This indicates that SingTel has difficulties in collecting its debt partially affecting SingTels cash flow position. (SingTel Ltd, n.d.)Starhubs trade receivable days has been decreasing over the 3 years as shown in figure 9. From 24 days in 2011 to 19.11 days in 2013. This was a result of an overall fall in trade receivables of 18.75% over the 3 years. Despite an overall increased in Operating revenue of 2.05%, Starhub has managed to reduce its trade receivable days, contributing to an overall increase in cash of 48.94%. SingTels receivable days is more than 3 times that of Starhub indicating that SingTels efficiency in collecting its short-term payments is considerably poorer than Starhub. This is clearly reflected by the difference in cash flow movements ignoring cash used for investments. It shows that SingTels cash flow is declining while Starhubs has been improving. Liquidity ratio:

Current ratio:(Figure 10) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)Current ratio for SingTel ended in 2013 at 0.83 times, a minor improvement from 2011. In 2012, it increased to 1.05 times as seen in figure 10. This movement was contributed by a fall in current liabilities of 32.19%, but was partially counter balanced decreased in current asset over the 3 years period of 26.69%. The fall in current liabilities was contributed by a significant fall of unsecured borrowings after 2011 of 86.9% due to the repayments of loans. While current assets was impacted by the large decreased in cash and cash equivalents of 66.73% due to the investments done and repayments of loans during the 3 years period. (SingTel Ltd, 2013)Since current ratio is less than 1, this shows that for every $1 of current liabilities in 2013, it has only $0.83 to pay. Meaning that SingTel may face liquidity issues when unforeseeable circumstances arise in the short-term. This will increase the risk to both shareholders and bondholders. (Accountingsimplified.com, n.d.)However, when compared to Starhub, Starhub faces a worst current ratio of 0.59 times in 2011 to a minor improvement to 0.68 in 2013. This was due to minor changes in the items of current assets, partially offset by an insignificant fall in current liabilities. This shows that SingTel has a slightly better ability to meet its short-term needs but SingTels ability to meet its short-term liquidity requires improvement to be in the safer zone or SingTel might face an increased in liquidity risk.Quick ratio:(Figure 11) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)SingTels quick ratio rose to 1.01 times in 2012 compared to 0.73 times in 2011. Subsequently, it ended slightly higher at 0.79 times. Similarly, quick ratio was affected by the reduction in current assets and current liabilities. Since there was an overall fall in inventory of 28.6% in 2013, removing inventory in the calculation, pushing the quick ratio up. It could be noted that from year 2011-2013, inventory contributed 0.04 times for current ratio. This shows that SingTel keeps a small amount of inventory, suggesting they are good in controlling their inventory. However, since inventory is not readily/easily converted to cash, lenders are more interested more liquid assets. Since quick ratio is 0.79 times in 2013, for every $1 it owes, SingTel is only able to pay $0.79 of it. This affirms that SingTel may face liquidity issue should current liabilities due.

As seen in figure 11, SingTel is marginally better in terms of its liquidity position as compared to Starhub. Starhub started at 0.55 times in 2011 and ended with a slight improvement in 2013 of 0.63 times. Unlike SingTel, Starhubs inventory increased over the 3 years and ended 16.13% higher in 2013. Both companies might have trouble repaying its debts should current liabilities fall due, just that SingTel has $0.10 more than Starhub for every dollar owed. Investor Ratio:Earnings per share (EPS):

(Figure 12) (SingTel Ltd, 2011-2013) (Starhub Ltd, 2011-2013)From figure 12, SingTels EPS has decreased by 8.2% at the end of the 2013. EPS was at 24cents in 2011, a slight increase to 25.05 in 2012, and a decreased to 22.03cents in 2013. This was caused by the fall in profit after tax of -8.16% by 2013, as analysed in net profit margin. Total number of shares movement was insignificant, increasing only 0.04%, due to the issue of performance related share to its employees. (SingTel Ltd, 2013)Despite Starhubs 0.26% increased in the number of shares issued, EPS has been increasing consistently over the 3 years. Increasing from 18.38cents in 2011 to 21.54cents in 2013, a remarkable increased of 17.19%. This shows that SingTel is contribution to shareholders decreased, as compared to Starhub. (Bloomberg, n.d.)As seen from the share prices (SP) chart where orange line represents SingTel, and the green represents Starhub. It depicts SingTels share price before 2012 was around the same. However, after 2012, Starhubs SP has been increasing exponentially. This is contributed partially by increasing EPS of Starhub and SingTels decreasing earnings. Share price is usually affected by a wide array of factors, including ratios, industry, ETC, and EPS is one of them. Therefore, SingTels ability to generate earnings for its shareholders is partially reflected in the share price.SWOT Analysis: Strengths:Owned by the Singapore GovernmentTemasek Holdings (Private) Limited, which is Singapore government wholly owned investment arm, has a 51.88% stake in SingTel. (SingTel Ltd, 2013). Since the Singapore government owns such a high percentage of SingTel, this provides significant advantage when it comes to obtaining government projects. In FY2013, S$1.66 million in government grants from Infocomm Development Authority of Singapore (IDA) for near field communications, Marine Port Authority of Singapore (MPA) for Low-Cost Broadband via Hybrid Communication, as well as a one-off grant from the Maritime Port Authority (MPA) for Stereoscopic 3D Television (3D TV) Trial, etc. This provides stable stream of revenue for SingTel. In addition, with the backing of the government, SingTel is well protected and monitored, which partially explains SingTel's more conservative approach of financing, with a smaller debt to equity ratio of 0.43 times in FY2013, which in turn contributes to an almost negligible risk of running into a liquidity issues. Also, this will restrict SingTel taking on excessively risky projects, thus allowing it to be a steadfast company. (SingTel Ltd, n.d.)Ownership of satellitesSingTel is the only Singapore Company to own and operate two telecommunication satellites, placing it at a very powerful and strategic position. Starhub and M1, SingTels major competitors, lease its fibre optic connections from SingTel, among other support services. As a result, a recent fire at one of SingTels facilities caused a disruption in all the other companies. (Newnation, 10 October 2013) Therefore, the profit of its competitors could be said to be dependent on the provision of satellite services of SingTel as cost depends on SingTels charges for the satellite leases.

It also gives a competitive edge over its competitors as it provides a better support for its customers. In addition to its first satellite ST-1, SingTel launched its second satellite ST-2, to meet increasing customer demand for fixed and mobile services across the Middle East, Central Asia, Indian sub-continent and South East Asia. (Natalie, A., 23 May 2011) According to Ms Chua, Group CEO, SingTel, ST-2 will enhance SingTels ability to offer businesses a one-stop ICT experience that will empower them to stay ahead of the competition. In addition, Mr Yong, Vice President of SingTel satellite, added, that it would allow their customers, in the Pacific Ocean to Afghanistan, to make overseas phone calls and access the Internet. (SingTel Satellite Insight, June 2011) As a result, this will allow SingTel to maintain its international competitiveness, as compared to its local based competitors.

Largest listed company

SingTel is the largest listed company on the Singapore Exchange by market capitalisation. They are also listed on the Australian Securities Exchange through Optus. (SingTel Ltd, n.d.)This is significant as it allows SingTel to easily raise funds should the need arises. As a result, SingTel would be able to raise funds easily for expansion projects, apart from retrained earnings and debt. Also, this will allow a higher sustainable growth due to its high asset size and working capital. Allowing SingTel to be viewed as a more stable company. (Geogory, H., n.d.) In addition, due to its size, SingTel is able to be a one-stop solution for businesses. According to Bill Chang executive vice president of business, SingTel, he mentioned that they could provide whatever their customers need. (Ken, W., 23 September 2013) This allows SingTel to seize and maintain a higher market share, stabilizing revenue and creating growth. Weaknesses:Large sizeThe large size of SingTel has compromised the customer service provided to its customers. When a company is as big as SingTel, it is hard to focus its attention on many of its minority stakeholders; mainly its customers. Their customers have been complaining regarding its poor Internet connection, phone lines, customer service, etc. Complaints on SingTel can be found on several websites including http://www.complaintsboard.com/bycompany/singtel-a173208.html and https://www.facebook.com/singtelservicecomplaints.

In addition, there has been a Petition Against SingTel's Poor Services for IDA Action Review. Mainly addressing the unreliability of its Internet services, cable television, mobile and phone services. (Anonymous, 24 March 2013)Although such flaw has not impacted the financial statements, this reflects badly on SingTel, and it will potentially affect SingTels future growth if it does not improve its service standards. Size affecting inefficiencyMoreover, due to its size, strategic and operations efficiency is one of the weaknesses. This is because, when there are a huge amount of employees in the company, I.e 21,000 in SingTel. (SingTel Ltd, n.d.) It would be harder to communicate operations and strategies from top-down. Also, it is harder to control and monitor all its employees, leading to greater inefficiency in large firms. Mainly due to the principal-agent problem and diseconomies of scale where there is increasing cost of producing increased output/services. (Gutierrezsally, 27 November 2011)Such inefficiency is reflected in trade receivables days where it is 73.87 days, a much higher deviation than its competitors.

Opportunities:Higher demand in emerging marketsThere has been an increased in demand for mobile services in emerging markets such as Africa and India. In 1999, only 10 percent of the African population had mobile phone coverage, primarily in North Africa and in 2008, 60% of the population could get a signal. (Jenny, C. and Isaac, M., 2010)This signifies that there is a great potential to increase market share globally. SingTel has been taking advantage of such opportunities in India where they recently increased its stake in the Indian company from 30.76% to 32.34% in Bharti Airtel, one of Indias telecommunication networks. (Anandita, S., 19 September 2013). In addition, SingTel has intentions to penetrate the market in Africa through its own. Also, SingTel had supported Bharti Airtel in its bid to merge with South Africas MTN, a deal which failed in October 2009 on political grounds. (Global Telecoms Business, 12 November 2009)Opportunities for emerging markets have been recognized by SingTel. Where Singtel has invested about $13 billion in recent years to acquire shares in mobile operators in high-growth Asian countries, including India and Indonesia. The company is also seeking opportunities in Vietnam, considered to be an untapped emerging telecom market. (Global Telecoms Business, 12 November 2009)Broadcast rights for soccerBroadcast rights for soccer is an opportunity for SingTel to gain extra revenue. SingTel has recently acquired the rights to broadcast 2014 FIFA world cup. Football fans who are not StarHub TV or SingTel mioTV subscribers will have to fork out S$112 to watch the upcoming FIFA World Cup. (John, L., 12 March 2014)This is added advantage for SingTel as it pulls new customers in through tapping through peoples passion for soccer. Therefore, customers who are with SingTel for such services will most likely stay with them, ceteris paribus.Social media

Social media is an opportunity to consider. With the rise in the number of individuals and businesses using social media for their daily activities and only 7% of marketers do not use social media in their businesses. (Belle, B., 18 November 2013)Emarketer predicts that there will be a massive 1.43 billion social network users in 2012, representing a 19.2 percent increase over 2011 figures. (EMarketer, 5 March 2012).

(EMarketer, 5 March 2012)From the extracted diagram above, it shows that social media has growing number of users. And as an increasing number of people are addicted to social media, there is potential growth in tapping into the market. It may be a challenge to set up a completely new social media, however, investing through existing platforms like Facebook, twitter, etc., or doing a tie up with them would allow SingTel to grow and tap into a new and larger market. Mark Zuckerberg, Chairman and CEO, Facebook, mentioned that in 2014, they are going to focus on enhancing relationships with mobile operators around the world and work to develop new models for Internet access. (Katherine, R., 3 February 2014)Since social media like Facebook are already looking to tie up with mobile operators, SingTel can take advantage on such business opportunities. Mobile applicationsMobile applications are another area to look into. As the growth of both iOS and Android mobile platforms increase, mobile applications for these platforms are increasing. (Zoe, F., 15 January 2014)As seen from the extracted figure above, there has been year-over-year growth to the usage of applications, with messaging and social applications with the highest growth. As such, SingTel had recognized such an opportunity and has started investing in this area through a subsidiary called Innov8 to specifically look at acquisitions that will be able to boost SingTels growth and one of the companies that Innova8 had invested in is EverythingMe, a launcher for Android devices that adds contextual capabilities to mobile phones. (Victoria, H., 15 May 2013)Jeff Karras, Managing Director, SingTel Innov8 mentioned that Everything.me offers a fundamental change to the mobile experience providing access to a broad universe of mobile applications and unlocking the power of HTML5. (Business wire, 28 November 2012)This allows SingTel to remain competitive and boost SingTels financial earnings in the future.Threats:Highly saturated domestic market

As the mobile market reaches saturation, growth in this market has begun to slow down. Where SingTel holds about 45% of the mobile market, followed by StarHub (29%) and MobileOne (M1) (26%), reported in 2011. (Infocomm Development Authority of Singapore (IDA), n.d)This means that revenue for SingTel will be restricted and correlated to population growth in Singapore. Because Singapore in general is a mature market for such telecommunications services, and any potential for growth is limited to its population, pricing strategies and market share. In the year 2011, Experts foresaw the mobile market to reach a corresponding penetration rate of 160.5% by 2015 despite the saturated market. (Enterprise Innovation, 25 February 2011)Also, OCBC Investment Research predicts that Singapore telecommunication firms will only achieve mild revenue growth in 2014 mainly due to a very modest mobile growth, broadband services are getting very competitive and pay TV market may shift in Starhubs favour. (Singapore Business Review, 3 December 2013)This indicates that SingTel must look for opportunities outside the Singapore market, or introduce new services to aid in the growth of SingTel, as discussed in the previous section.Highly competitive domestic market

Highly competitive domestic market may affect profitability. As SingTel faces increasing competitions from its major competitors, pricing strategies have to be adopted, as well as advertising and marketing campaigns since the telecommunications market could be seen as a near perfect competitive market as any price increase will reduce quantity demanded for these services. This is evident as the latest change by SingTel in its pricing S$59.90 pricing of its pay TV services is said by experts that this could cause subscribers to covert back to StarHub. (Singapore Business Review, 3 December 2013) This signals to SingTel the importance and relevance of price competitiveness.

This will decrease SingTels profitability margin due to reduced pricing from competitive pricing strategies and increasing costs to due heavier advertising and marketing. This impact is evident in SingTels 5.43% decreased in operating profit during the period 2011-2013.Conclusion:Due to the saturated telecommunications market in Singapore, SingTel opportunity to grow in terms of market share seems bleak. Starhub can be seen as a threat to SingTels domestic market share. If SingTel does not improve its efficiency and customer service, it will eventually impact SingTels long-term growth and may cause SingTel to lose domestic market share if its competitors are more efficient and provides better customer services. The performance of SingTel has not been satisfactory as compared to Starhub. Revenue increased marginally during the 3 years period, while Starhub showed a higher revenue growth. In addition, profitability has declined, mainly due to the poorer performance of Optus. ROA and ROCE showed wide differences in the ability and efficiency to generate profits from its assets when compared with Starhub. However, this was explained due large investments been made to acquire different companies. This diversifies SingTels threat of domestic market saturation in the telecommunications industry and may provide improvements in the financial performance should the investments be worthy.

Overall, debt and gearing of the company did not change much and when compared with Starhub and the industry, SingTels gearing position is acceptable. However, SingTels low debt to equity ratio allows them to increase their debt to fund investments should the need arise.

The liquidity of SingTel does not signal any financial instability at the end of 2013. However, as SingTel has been investing large amount to diversify its business to overcome threats as mentioned, it must care not to over commit to avoid any potential liquidity issues.

EPS has not been satisfactory as SingTels overall EPS has fell, which was due to a fall in net profit margin in 2013. This resulted in a lower share price than Starhubs. If SingTel does not improve its earnings, eventually, its share price will be adversely affected. However, since the fall in net profit margin was due to SingTels expansion in businesses, it may propel SingTels earnings up in the long run. Since SingTel has been expanding internationally and in different products and services, it may be advisable to invest in SingTel for long run returns. However, the results of such expansions are uncertain on the impact on SingTel. For example: The investment in Optus has not been satisfying due to increasing competition in Australias telecommunications industry.

Therefore, the impact of SingTels global investment does not necessarily mean potential growth. Investors have to be prudent when investing in SingTel and should adopt the wait and see approach. Which means, looking at how SingTels new investment impacts the following years financial statements before making any further investments in the company shares, keeping in mind that not all investment affects the financials of the company in such a short period of time.

Recommendation:Since SingTel is partially owned by the Singapore government and has partial ownership in two satellites. SingTel should take advantage and seize more government projects to increase the stability of revenue. Also, having control of satellites would allow SingTel to raise leasing price to its competitors. Since there is a positive correlation between its competitors business and the increasing need for satellites services. This would allow increased rental revenue for its satellites. However, this is subject to Singapores government legislation on satellite rental pricing.SingTel should take advantage of cheaper debt as a source of borrowing to fund its expansion and diversification because the over usage of internal resources may adversely affect cash flow and liquidity. Therefore the company should consider improving its short-term liquidity needs, which will result in a healthier working capital. (P. Frantz, R. Payne, J. Favilukis, 2011)In addition, it must be cautious not to neglect its main business; which is to provide telecommunication services in Singapore. This will adversely impact SingTels financial standing, defeating the purpose of diversifying.SingTel needs to address its weaknesses, including growing dissatisfied customers and its operational inefficiency. SingTel has to ensure that strategies and operations are communicated efficiently and effectively to all its employees. This will significantly reduce unnecessary costs due to potential miscommunication. With such reduction, SingTel will be able to set more competitive pricing, resulting in increased customers and therefore increased market share domestically, ceteris paribus.