Company A Financial Statement Note: Company A launched it's first mobile handset leasing plans at the start of Year 1

Year 0 Year 1 Year 2 It aims to make premium handsets more affordable to customers
S$ Million
Total Total Total
Income Statement
Operating revenue ($ 8,537) ($ 9,233) ($ 9,670)
Operating expenses ($ (6,184) ($ (6,270) ($ (6,416)
EBITDA ($ 2,353) ($ 2,963) ($ 3,255)
Net interest expense ($ (130) ($ (143) ($ (148)
Taxation ($ 198) ($ 201) ($ 203)
Depreciation & amortisation ($ (743) ($ (753) ($ (759)
Net profit ($ 1,678) ($ 2,269) ($ 2,550)

Operating Revenue & Expenses Composition

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

Operating expenses ($ 6,184) ($ 6,270) ($ 6,416)

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

ARPU* 57 67 70
Company B Financial Statement Note: Company B operates in the same market as Company A, and has not launched leasing plans
Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue ($ 8,784) ($ 9,033) ($ 9,006)
Operating expenses ($ (6,153) ($ (6,372) ($ (6,470)
EBITDA ($ 2,631) ($ 2,661) ($ 2,536)
Net interest expense ($ (158) ($ (194) ($ (189)
Taxation ($ (356) ($ (341) ($ (305)
Depreciation & amortisation ($ (1,416) ($ (1,507) ($ (1,469)
Net profit ($ 2,117) ($ 2,126) ($ 2,042)

Operating Revenue & Expenses Composition

Mobile Service ($ 5,465) ($ 5,641) ($ 5,764)
Others ($ 3,371) ($ 3,363) ($ 3,102)
Operating revenue ($ 8,784) ($ 9,033) ($ 9,006)

Operating expenses ($ 6,153) ($ 6,372) ($ 6,470)

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

ARPU* 50 51 52
Guiding Sheet
What are the key steps you need to arrive at the answer?
You are trying to find the incremental impact of introducing handset leasing. To do this, you need to estimate what happens if you introduce leasing vs do not
introduce leasing.

5 steps to solving this task

Step 1. Identify the metrics that are most important
Step 2. To estimate the no leasing case, you apply the industry average growth rates for the relevant metrics for Company X
Step 3. To estimate the leasing case, you apply Company A growth rates
Step 4. Make logical estimates for all other figures, using historical data
Step 5. Calculate the impact of handset leasing for Company X

Step 1. Identify the metrics that are most important

1a. Net profit Ultimately the most important number, but it is a dependant variable, and hence will need to be calculated
1b. Operating Revenue This is the biggest driver of net profit as most other aspects remain constant
1c. ARPU As an additional measure of performance

Step 2. To estimate the no leasing case, you apply the industry average growth rates for the relevant metrics for Company X
2a. Estimate industry average growth rates by combining the data for Company A and Company B for the key metrics
2b. Apply the industry average to forecast Company X performance if handset leasing is not introduced

Step 3. To estimate the leasing case, you apply Company A growth rates to Company X

Step 4. Make logical estimates for all other figures, using historical data
4a. Some metrics are likely to be a fixed ratio of revenue or profits
4b. For others, the best estimate is just to assume it will remain constant

Step 5. Calculate the impact of handset leasing for Company X

5a. To show the difference in Company X's key metrics with and without handset leasing, you subtract the numbers in step (2) from step (3) and (4)
Fill in the blanks in Blue
Note: Company X has not launched leasing mobile plans
Forecast the impact of leasing handsets, on the relevant financial statement figures

Company X Financial Statement (handset leasing implemented) Company X Financial Statement (handset leasing not implemented) Difference in Company X Financial Statement with and without handset leasing
Year 0 Year 1 Year 2 Year 0 Year 1 Year 2 Year 0 Year 1 Year 2
S$ Million S$ Million S$ Million
Total Total Total Total Total Total Total Total Total
Income Statement Income Statement Income Statement
Operating revenue ($ 2,362) ($ - ) ($ - ) Operating revenue ($ 2,362) ($ - ) ($ - ) Operating revenue ($ 2,362) ($ - ) ($ - )
Operating expenses ($ (1,796) ($ - ) ($ - ) Operating expenses ($ (1,796) ($ - ) ($ - ) Operating expenses ($ (1,796) ($ - ) ($ - )
EBITDA ($ 566) ($ - ) ($ - ) EBITDA ($ 566) ($ - ) ($ - ) EBITDA ($ 566) ($ - ) ($ - )
Net finance expense ($ (27) Net finance expense ($ (27) Net finance expense ($ (27) ($ - ) ($ - )
Taxation ($ (45) Taxation ($ (45) Taxation ($ (45) ($ - ) ($ - )
Depreciation & amortisation ($ (294) Depreciation & amortisation ($ (294) Depreciation & amortisation ($ (294) ($ - ) ($ - )
Net profit ($ 200) ($ - ) ($ - ) Net profit ($ 200) ($ - ) ($ - ) Net profit ($ 200) ($ - ) ($ - )

Operating Revenue & Expenses Composition Operating Revenue & Expenses Composition Operating Revenue & Expenses Composition
Mobile Service ($ 1,354) Mobile Service ($ 1,354) Mobile Service ($ 1,354) ($ - ) ($ - )
Others ($ 1,008) Others ($ 1,008) Others ($ 1,008) ($ - ) ($ - )
Operating revenue ($ 2,362) ($ - ) ($ - ) Operating revenue ($ 2,362) ($ - ) ($ - ) Operating revenue ($ 2,362) ($ - ) ($ - )

Operating expenses ($ 1,796) ($ - ) ($ - ) Operating expenses ($ 1,796) ($ - ) ($ - ) Operating expenses ($ 1,796) ($ - ) ($ - )

Mobile Subscribers ('000s) 2,341 Mobile Subscribers ('000s) 2,341 Mobile Subscribers ('000s) 2,341 0 0
ARPU* 48 #DIV/0! #DIV/0! ARPU* 48 #DIV/0! #DIV/0! ARPU* 48 #DIV/0! #DIV/0!