BCAF008 Finanical Analysis Assignment (Group 1) Essay

COMPANY BACKGROUND

The ComfortDelGro (CDG), a Singapore-based transport provider was incorporated in 2003 as the largest transport provider which consist total fleet of 46,000 taxi, rentals vehicles and buses. The former CEO Kua Hong Pak, Chairman Lim Jit Poh and his team ended the rigorous competition in taxi industry through the merger of Delgro (CityCab) and Comfort Group. CDG has great influence over its global workforce and affecting shareholder’s decision in its industry.

Apart from their local market, CDG look for opportunities beyond city-state due to constraint of population and demand in the industry.

They have over 22,000 staffs in its organisations across seven countries namely Singapore, United Kingdom, Australia, China, Ireland, Vietnam and Malaysia.

Its business consists of 9 segments: Public Transport Services; Taxi; Automotive Engineering Services; Inspection and Testing Services; Driving Centre; Car Rental and Leasing; Bus Station; Insurance Broking and Advertising Service as well as Pump Stations (local market) to sell fuel and fast charger for electric cars.

Its primary focus is on its transport industry and management services.

CDG’s subsidiaries are the London-based city bus operator Metroline, ComfortDelGro Austraila, CityFleet Networks, Irish Citylink, New Adventure Travel. CDG is the major shareholders SBS Transit (75%) and Vicom Ltd (68.19%).

As at Nov 2018, it has accumulated a total revenue of $3,970.9 million with a fleet size of 18,769 vehicles and about 12,632 employees in Singapore.

60 percent of the operating profit were generated from its local market ($2,787.8 million) while remaining are generated from oversea businesses like UK, Australian, China,Ireland, Vitenam and Malaysian. Majority of the group revenue was generated through the two major business: Public Transport and Taxi business.

ECONOMIC ANALYSIS HYPERLINK “

A healthy economic environment is very important for the growth and expansion of the industries of the Country. Economic Analysis help to find out whether the economic situation is conducive for the prosperity of the Industry. Accelerated Industrial growth will lead to the Economic development and high GDP rate of the country. Economic analysis implies the examination of the country’s GDP that is Gross Domestic product, Govt Borrowing and Loan, consumer and Goods market, Capital market, saving rate, interest rate, inflation rate, tax rate, foreign direct investment, money supply and demand. All these Economic factors and developments will determine the current and future performance of the Industries of the Country.

Assessing current and future performance of Comfortdelgro Corporation Limited by considering Economic factors and Economic Developments of Local and Global markets

Effects of Economic Developments in Comfortdelgro’sPerformance in Local market(Singapore)and Overseas

Gross Domestic Product: – GDP is the measurement of the growth and strength of the economic activity of the country. If the GDP rate is higher, it is favourable for the rapid growth of the industries and the industries can concentrate the product diversification and expansion of business locally and overseas.

ComfortDelgro Corp has successful local and global markets for its business and variety of product diversification and business segments.

The below table and graph show the GDP rate of the local and overseas countries and group revenue by geographical segment of CDC: –

Evaluating the performance of CDC comparing the GDP rates and Revenue of a given periods: –

This analysis will help us to know whether the management of the CDC has implemented successfully its plans and policies, product diversification, marketing strategies to make more revenue from the favourable economic environment. To examine the CDC’s excess capacity to maintain Revenue, in case of variations in Business cycles.

Evaluating the Local Performance of CDC :-

As per the Group revenue by geographical segment, CDC’s major and steady contribution of revenue – S$ 2,483.3 (in Mil) which is of 62.5% of the total revenue was from the Local market of Singapore. The following Economic development conducive the company to earn more revenue from Singapore (local market):-

Singapore economy has a strong and improved GDP rate (Year 2017- GDP rate of Singapore was 3.6% and the current rate is 4.7%) as a result of the increase of the household income of the Singaporeans and people has more disposable income and also has strong spending power. It would create more opportunities for transport industry of the country. CDC Not only that the transport industry contributes 1.1% of Singapore’s GDP. The public transportation in Singapore is a necessity in local market, it is unlikely to have a massive shift on consumer’s demand prior to the variation of its disposable income.

CDC’s major portion of revenue (60.2%) was from the Public transport (Bus and Rail) of the Local and Overseas markets:

Singapore’s public transport fare system was ranked the second least expensive fare with an affordability index of 4.8% in the world. A typical household in Singapore spends about one-third of their disposable personal income on estimation from $100 to $300 on public transportation on average per month. A typical single trip by public transportation (Bus and Rail) would cost about S$1.70 per entry.

Commuters can also purchase the monthly travel pass at a fixed rate for unlimited bus and rail services

Short Term and long-term Economic Conditions Impact on generating local Revenue of CDC

CDC performance was consistent over the years to generate revenue and operating profit by taking effective sourcing and deployment of resources. One of the stable sources of Revenue of CDC is from the SBS transit (existing and new contracts from LTA ) and taxi services .The management successfully implemented diversification of operations opened diesel commercial pump, fast charges for electric cars, highly sophisticated information technologies using for the booking and mode of payment , product segment intended to the various needs of the society depending on the life style , Income . the customers.

The management of CD is very efficiently controlling its cost of production by the application of marketing strategies concentration and scale/ Learning Economies and for the Year 2017 – S$ S$3970.9(in Mil) compared to year 2016 where Revenue was S$4,059.50(in Mil) . CDC has taken over Uber in the Year 2018.

(extracted from the Annual Report 2017- ComfortDelGro Corporation Limited)

2.Monetary and fiscal policies have been taken by Monetary Authority and Govt. of Singapore.

The revenue and profit capacity of CDC is also influenced by the monetary and fiscal policies of the Govt of Singapore. The monetary and fiscal policies have vital role to decide the liquidity of money revenue and expenditure of the country. When the Singapore dollars weakens / strengths, Monetary Authority of Singapore will take action to make variation in the exchange rate and it will affect the Export and import of goods and services in Singapore. This one of the examples for the monetary policy to enable the industry to sustain its growth.

Fiscal policies of the of the Govt also boost the performance of the industries and also CDC has received the befit from various grants ( SEC, PIC, Double tax Tax deduction for the Overseas Business Expansion , Tax Rebate ) A 4.3% fare sale revision on its public transport effective 29 December 2018. About 5% of collected fare revenue will be side aside for government’s funding under the Public Transport Fare Subsidy Scheme to eligible lower income household in its annual review.

Evaluating the impact of Economic factors and Economic Developments of CDC overseas revenue

Around 37.5% of revenue of CDC was contributed from Overseas markets. GDP rate of the countries relatively good for the growth and expansion of Industries and CDC maintained consistency of the to earn revenue from its overseas markets. The following scenarios help us to determine that CDC is implemented effective measures such as product differentiation, quality of services, excess capacity, relationships, product segment to maintain and expansion of Overseas markets: –

(a) In UK, Metroline first launched learning centre in November 2018 to facilitate and equip staff with hands-on skills and knowledge in the structural training environment. Leading private taxi operator business (Cityfleet Networks) and developed ambulance for the non-emergency patience.

(b) ComfortDelGro invested A$30 million (about S$30.2 million) on National Patient Transport Pty Ltd (NPT), its largest private providers to deliver a series of non-emergency healthcare transport services with current fleet of 150 vehicles. The purchase price before taxes, interest, repayment and devaluation is 5.6 times in NPT’s EBITDA.

(c) Acquired BusLink for $136.5million and Tullamarine for $22 million for expansion of its bus operation in New South Wales and Victoria and In Sydney and Melbourne, own 10,000 taxi licenses in 2017 with a fleet of 1,839.

ComfortDelGro Corporation Limited – Future Prospectus

DCD stands as a number one leading transport company in Singapore and Overseas. The current group working capital of CDC is S$221 (in Mil) – This indicated the CDC group has enough cash flow to operate day to day operations for the next 12 months.

(*extracted from the Statements of Financial Position of ComfortDelGro Corporation Limited Year 2017)

CDC Group has healthy Net Debt Ratio of 2.69%. , also indicates lower credit rate and major part of Equity is free from leverage. Projected GDP rate of Singapore for the Year 2018, 4.7% and The Group can increase the capital by debt capital or borrowed capital to expand its product segment and geographical Segment.

Introducing strategic planning and new technologies

CDC has taken over Uber in the Year 2018 to concentrate the market and lesser the industry competition as result to earn more revenue and also received the new contract from LTA under BCM model to ensure the stable revenue. CDC has received project for the Thomson-East Coast Line, Expecting the margin of 30%.

The Group focus research of Electrical vehicle autonomous vehicles for the sophisticated infrastructure of local and Global markets.

Extended Competition from Private Hires

CDC needs to expect competition from the competitors as well as customers willingness to switch the product. CDC has taken necessary steps to meet the challenges.

Due to outgrowth in private-hire vehicles, the fleet size of ComfortDelgro has declined by 22% from 15,800 in FY 2017 to 12,800 in FY 2018. Singapore taxi fleet could move back up to 13,000 by FY 2019. With the departure of Uber from its local ride-hailing platform, ComfortDelgro is likely to have a positive outlook despite the competition against its competitors like Grab, Go-Jek’s and other taxi companies remains unpredictable.

ECONOMIC ANALYSIS HYPERLINK “

Assess the competitive structure of the industry in which the company operates using Michael Porter’s model for industry analysis.

Rivalry Among Existing Firms

Rail Segment

With only two main rail operators in Singapore, SMRT Trains Ltd and SBS Transit, the rivalry intensity is low. Land Transport Authority being the Regulator, regulates and oversees the rail segment to ensure that the operators meet safety and service standards. The rail operators mainly responsible for the daily operations of trains and their maintenance.

Bus Segment

The rivalry intensity is medium for the bus segment. With the “Bus Contracting Model” scheme launched by Land Transport Authority (LTA), it will now own all bus assets such as buses, bus depots, bus interchanges, fleet management systems etc. And also being the central bus planner, it will decide on bus services to be provided, and the service standards which operators have to meet.

Hence the existing Bus operators now no longer directly competing with one another for market share and fare revenue. Instead now they will need to bid for bus route packages through a competitive tendering process, and be paid a fixed fee to operate the bus services. Running costs are considered separately and will be paid fully by the Government. All fare revenue will be retained by the Government and to ensure the affordability of public transport fares.

Taxi Segment

The rivalry intensity is high for the taxi segment. Since 1998, taxi fares were deregulated to allow taxi companies to set their own fares and be more responsive to market conditions. And from 2003 onwards, the taxi market was further liberalised to allow entry of new companies to encourage competition in the industry to benefit commuters. A new Taxi Service Operator Licence (TSOL) framework was introduced to license taxi companies and service standards were introduced to ensure good service.

Threat of New Entrants

The threat of new entrants is low as infrastructure and demographic size cannot support too many players in the transport industry.

In addition, there are several barriers to entry for new entrants in the transport industry. Such as stringent Licensing requirements imposed by the Regulator (LTA) in the public transport segment; High start-up costs to own a fleet of taxis in the taxi segment etc, all these barriers will make new entrants find it more difficult to penetrate the transport industry.

Threat of Substitute Products

The Threat of substitutes is low to moderate. The various modes of public transport are substitutes to each other, differentiating themselves through trade-offs between cost, speed, connectivity, convenience, reliability and comfort. Although substitute modes of transport do exist, but as the Fare revenue segment of the public transport sector is a duopoly, the consumer could quite possibly end up using a mode of transport that is operated by the same operator anyway.

Bargaining Power of Buyers

The Bargaining Power of customers is low. The majority of public transport users have not much bargaining power on prices. The only way to avoid public transport is either to walk, ride a bicycle or own a car. Although the bargaining power of customers is low and there is low customer concentration, the public transport operators do not have the ability to set prices either, as fares are controlled by the Regulator. Hence customers of fare based transport do not have the ability to directly influence prices on the PTOs, but indirectly through the Regulator.

Customers also have little bargaining power over taxi fares. When fares do increase, customers can either choose to change their spending pattern by taking trains or buses, or just accept the new fare adjustment.

Bargaining Power of Suppliers

The Bargaining Power of suppliers is moderate in terms of fuel and manpower. The main inputs to the PTOs’ business are fuel and manpower. The two fuels used by the PTOs are diesel (for buses) and electricity (for trains). PTOs do not have any bargaining power over fuel costs and they do engage in fuel hedging activities. Under the new Fare Formula, some of the risk of rising fuel costs has been mitigated with the introduction of the Fuel Index component into the formula.

In terms of Suppliers of vehicles, Comfort can change from one supplier to another, hence the bargaining power of suppliers is low in this perspective.

In doing so, evaluate the company’s relative position compared to other major player/s in the same industry.

Despite intense competition, ComfortDelGro being the biggest player in the transport industry in Singapore, remains stable.

Knowing disruptive technology and changing demographics will shape the local land transport landscape, the Management anticipate and embrace the changes. In May 2017, ComfortDelGro Taxi and RYDE signed a strategic partnership to give RYDE app users access to its taxis, and its taxi drivers access to 100,000 users. This partnership will ensure efficiency as it better incentivises supply to match demand during peak periods, as opposed to meter pricing with discrete peak-hour surcharges.

ComfortDelGro also recognises the importance of having a skilled and dedicated workforce to manage and grow the businesses in an increasingly competitive and challenging environment. It therefore places great emphasis on motivating staff through engagement, recognition and an alignment of rewards to the performance and long-term interests of the Group.

By being innovative and receptive to new ideas and opportunities, and solving problems in a prompt and effective manner, ComfortDelGro maintains a competitive edge over its competitors.

4. Conclusion

Summarise your overall assessment using the SWOT model.

Strengths

Market leader in Singapore in public transit systems

Dominant taxi operator in Singapore through its two subsidiaries Comfort and CityCab; with combined 60% market share.

Dominant bus operator in Singapore through its subsidiary SBST, with 74% market share.

Largest foreign taxi operator in China.

Experienced team of Senior Managers with track-record of seeking out earnings accretive businesses overseas.

Existing distribution and sales networks

High growth rate due to increasing commuter base with strong YOY growth in commuters

Expansion into new sectors such as monorails and high speed tram services.

More than 20,000 people are employed with the brand

It has global presence in over 7 countries with more than a fleet size of 40,000+

Weaknesses

Competitive market with several taxi/bus operators plying and ferrying visitors Land transport business subject to regulations.

Inability to set train and bus fares in Singapore, as fares are controlled by the Regulator, thus putting a ceiling on the revenue.

Relatively unknown brand compared to competitors with established brands

Opportunities

Population growth leading to the opening of new MRT stations and bus routes to new residential / commercial areas.

Well-positioned in Australia and UK in Bus business, and strong contender if and when new routes are opened up.

New acquisitions of local brands possible to increase market share and customer base

Growing demand for transportation with increase in tourism and local working population

Income level is at a constant increase

High growth rates can translate into profitability if costs are taken care of

Threats

Loss of licence to operate any of its services.

No revamp to Singapore Bus model by Regulator, resulting in continued loss-making core Bus business in Singapore.

Heavy fines imposed by Regulator when there is service lapse in Rail business. (up to 10% of revenue)

Foreign currency risks arising from extensive overseas operations.

Growing competition among travel services in Singapore

Increasing growth of private vehicles as a status symbol

Fuel costs and low profit margins