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Table of Contents 1. Executive Summary 2. About the Company 2. 1 Key People 2. 2 Milestones 2. 3 Business Structure 3. Company Analysis of SMRT Corporation Ltd. 4. Company Financial and Data Analysis 4. 1. Profitability ratio 4. 1. 1 Return on Capital Employed (ROCE) 4. 1. 2. Operating Profit Margin 4. 1. 3. Profit Ratio 4. 1. 4. Return on Equity (ROE) Ratio 4. 1. 5. Return on Assets (ROA) Ratio 4. 2. Liquidity Ratio 4. 2. 1. Current Ratio 4. 2. 2. Acid-Test Ratio 4. 3. Stability ratio 4. 4. Efficiency Ratio 4. 4. 1. Sales Revenue per Employee Ratio 4. 4. 2. Asset Turn Over Ratio . 5. Investors ratios 4. 5. 1. Earnings per Share (EPS) 4. 5. 2. Price/Earnings (P/E) ratio 4. 5. 3. Dividend Payout Ratio 4. 5. 4. Dividend Cover 5. Changes in Accounting Policies 6. Key Risk Factors 7. Company’s Growth and Factors Attracting Investor 8. Appendices 8. 1 Accounting Policies 8. 2. Financial Statements 8. 3 The Bibliography 1. Executive Summary: This assignment is designed to provide an overview of Singapore’s premier public transport service (SMRT Corporation Ltd ) provider’s financial condition and results of operations through the use of analytical review techniques.
Ratio analysis is the most common form of financial analysis. It provides relative measures of the company’s conditions and performance. Financial ratios analysis makes two types of comparisons such as industry comparison and trend analysis. The ratios of a company are compared with those of similar companies or with industry averages or norms to determine how the company is faring relative to its competitors. In trend analysis, a company’s present ratio is compared with its past and expected future ratios to determine whether the company’s financial condition is improving or deteriorating over time.
All the analysis in this report is based on the resource available in the company’s Annual Financial Report which is available on their website. 2. . About the Company SMRT Corporation Ltd (SMRT) is Singapore’s premier multi-modal public transport service provider offering integrated transport services island-wide. Established in 1987, SMRT has been listed on the Singapore Exchange since July 2000. It is the second-largest public-transport company in Singapore after ComfortDelGro. It operates bus, rail, taxi and other public-transport services via several wholly owned subsidiaries.
Here some information about this company is enlisted. IndustryPublic transport ProductsBus and Rail Services RevenueS$879. 0 million SGD (FY2009) Operating income S$188. 7 million SGD (FY2009) Net incomeS$162. 7 million SGD (FY2009) Employees6620 (2QFY10) ParentTemasek Holdings Pte Ltd Websitewww. smrt. com. sg 2. 1Key People: Mr Choo Chiau Beng (Chairman) Mdm Saw Phaik Hwa (President and Chief Executive Officer) Mr Yeo Meng Hin (Deputy President and Chief Operating Officer) Mdm Lim Cheng Cheng (Executive Vice-President and Chief Financial Officer)
Its major competitor in Singapore’s duopoly transport system is SBS Transit Limited, which also operates bus, rail, taxi and other transport services. SMRT was recently ranked among the best in the Governance and Transparency Index. The index measures companies’ governance, transparency and investor relations. It is collaboration between Corporate Governance & Financial Reporting Centre (CGFRC) and the Business Times, and is backed by CPA Australia and the Investment Management Association of Singapore. Source: http://www. channelnewsasia. com/stories/singaporebusinessnews/view/420610/1/. tml 2. 2 Milestones 2009Received three awards including ‘Best Metro’ and ‘Best Metro (Asia Pacific)’ awards at international Metro Awards Circle Line Stage 3 to open from May 2009 2007First major overseas contract in Dubai 2001Awarded license to operate Circle Line Acquired TIBS Holdings – added bus and taxi services 2000Listing of SMRT shares on SGX 1999Awarded licence to operate Bukit Panjang light rail 1987Commenced first revenue train service 2. 3 Business Structure SMRT business is structured around the following units: Subsidiary Description
SMRT Trains LtdIncorporated in 1987 and operates the first MRT system in Singapore. The 89. 4 km MRT system, which consists of the North South and East West lines, stretches over 51 stations. System will expand to include the Circle Line (33. 3 km), which will interchange with the North South Line, East West Line and North East Line. SMRT Investment Pte LtdSet up on 9 March 2000. Principal activities are in the marketing and leasing of media spaces as well as the marketing, leasing and management of commercial spaces within the SMRT network. SMRT Engineering Pte LtdSet up on August 1999.
Offers one-stop consulting services from project conceptualization to operations, maintenance and related assignments. SMRT Light Rail Pte LtdSet up in 1997 and operates Singapore’s first fully automated LRT system. Stretches over 7. 8 km along 14 stations in Bukit Panjang. SMRT Taxis Pte LtdManages a fleet of over 3,000 taxis, including Prestige Mercedes, London taxis and SMRT SPACE MPV taxis. SMRT Automative Services Pte Ltd SMRT Buses LtdProvides maintenance and repair services. Operates out of three workshops in Ang Mo Kio, Woodlands and Kranji.
Operates a fleet of over 800 buses and provides bus services between Western and North-Western part of Singapore. Bus-Plus Services Pte LtdIncorporated in 1994 and operates a fleet of 47 air-conditioned chartered buses. Transit Link Pte LtdA service company set up by SMRT and SBS Transit to ensure efficient and effective fare and network integration. SMRT Engineering FZEProvision of operations and maintenance services to the Palm Jumeirah Rail Transit System for the Nakheel project in the United Arab Emirates. 3. Company Analysis of SMRT Corporation Ltd.
SWOT analysis assesses the strategic position of a company by identifying its strength, weakness, opportunities and threat. This can be found out from the table below: StrengthWeakness Proven track record Main operator of Singapore’s public transport backbone network, MRT systemFares are regulated by PTC, beyond SMRT’s control Operations and services subject to Licensing and Operating Agreement by LTA Subject to fluctuation in energy costs OpportunitiesThreats Doubling of Rapid Transport System by 2020 Various initiatives by Singapore government to promote public transport
Expansion of transport and engineering servicesDeregulation and competitive bidding of public transport Services Affected by potential security, safety and disease outbreak risks 4. Company Financial and Data Analysis Ratio Analysis is a tool used by individuals to conduct a quantitative analysis of information in a company’s financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Financial Ratios of SMRT Corp. Ltd Profitability Ratios20082007200620052004
Return on Capital Employed (ROCE)17. 11914. 58711. 84612. 6406. 989 Operating Profit Margin20. 62721. 19618. 21218. 15411. 699 Profit Ratio18. 51%18. 69%18. 27%14. 56%18. 84% Return on Equity (ROE) Ratio22. 54%22. 14%21. 21%17. 61%22. 85% Return on Assets (ROA)Ratio10. 84%10. 43%9. 85%7. 49%9. 30% Liquidity Ratios20082007200620052004 Current Ratio0. 9421. 5461. 5920. 6290. 982 Acid-Test Ratio0. 8681. 4071. 3970. 5390. 732 Stability Ratio20082007200620052004 Gearing Ratio68. 82%76. 29%77. 37%71. 06%81. 06% Efficiency Ratio20082007200620052004 Sales Revenue per Employee Ratio141. 129144. 397136. 78124. 539116. 617 Asset Turn Over Ratio1. 6661. 1531. 0241. 2860. 846 Investment Ratio20082007200620052004 Earnings per Share (EPS)10. 79. 996. 98. 4 price/earnings (P/E) ratio14. 29918. 38416. 55616. 23211. 071 Dividend Payout Ratio72. 21%78. 30%78. 06%81. 64%61. 55% Dividend Cover Ratio1. 3851. 2771. 2811. 2251. 625 The data in the following table are taken from the annual reports of the company to calculate the financial ratios listed above. 4. 1. Profitability ratio Profitability ratios are the financial statement ratios which focus on how well a business is performing in terms of profit.
These ratios are used to find out a business’s earnings relevant to its expenses and other costs during a specific period of time. It can be said that the company is doing well when they have a value higher compared to a competitor’s ratio or the ratio same as that of the previous period. 4. 1. 1 Return on Capital Employed (ROCE): ROCE is a ratio that indicates the efficiency and profitability of a company’s capital investments. It indicates how a company utilizes capital to generate revenue. A high ROCE percentage signifies that a company is profitable.
From the data as shown in the table above it is clear that ROCE of SMRT Corp. steadily increased from 7% to 17% within last 5 years. But in case of SBS Transit Ltd, ROCE is tending down in recent years though it was increased in previous years impressively. 4. 1. 2. Operating Profit Margin: This ratio compares one output of the business(operating profit)with another output(sales revenue) This reveals the operating efficiency of the company – how well the company can convert its sales . The higher the Operating Profit Margin, the more efficient the company’s core business.
As per as the data the trend of the operating profit margin, for last five years ,SMRT’s performance is better than SBS transit. 4. 1. 3. Profit Ratio: It’s a good ratio to benchmark against competitors. A low profit margin ratio indicates that low amount of earnings, required to pay fixed costs and profits, are generated from revenues, the business is unable to control its production costs. Companies with higher profit margins generally have to invest less capital back into the business to make money. The table shows that, other than 2005, SMRT is having a steady growth in the profit ratio.
Whereas SBS Transit’s present performance are week compared to previous years as well as SMRT’s performance. 4. 1. 4. Return on Equity (ROE) Ratio This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a return. The stockholders’ equity includes share capital, share premium, distributable and non-distributable reserves. In case of SMRT, the profitability to ordinary shareholders is strong and showing an upward trend.
SMRT and SBS transit both are having an upward trend, which is recognized as positive sign for the companies.. 4. 1. 5. Return on Assets (ROA)Ratio Return on assets is a key profitability ratio which measures the amount of profit made per dollar of assets that they own. It measures the company’s ability to generate profits before leverage with its own assets, rather than by using leverage in the form of shareholders’ equity or other debt liabilities. Having a low percentage of ROA signals that the business is making very poor use of its assets and will have to improve its ROA or will face serious problems in future..
From the table we can see that for both the companies there are some fluctuations in the last five years, but the average trend is upwards 4. 2. Liquidity Ratio Liquidity Ratios implies whether the company can reimburse its short term creditors out of its total cash. By dividing total cash by total short-term borrowings it can show the number of times short-term liabilities are covered by cash. 4. 2. 1. Current Ratio The current ratio is one of the most famous of all financial ratios. It serves as a test of a company’s financial strength and relative efficiency.
Though there is a beliefe of ideal current ratio (usually 2:1). However, this fails to take into account that different type of businesses require different current ratio. The higher the ratio, the more liquid the business is considered to be. As liquidity is vital to the survival of a business, a higher current ratio might be tough to be preferable to a lower one. Here, the table shows that both the company have maintained their current ratios within 0. 5 to 2 in the last five years. 4. 2. 2. Acid-Test Ratio This test is a more severe test of a business’s solvency than the current ratio.
This ratio compares the liquid assets with the total current liabilities . The acid test ratio excludes inventories from current asset and limits assets to cash and items that the business can quickly convert to cash. The general rule is that the acid-test ratio should be atleast 1. 0, which means that liquid assets equal current liabilities. It is not unusual for the ratio to fall below 1. 0 without causing particular liquidity problem, but if the ratio falls as low as 0. 5 that would be cause of alarm. The table shows that except in 2005 for SMRT and 2008 for SBS transit, the ratio was good regarding the business. . 3. Stability ratio Gearing Ratio measures the percentage of capital employed that is financed by debt and long term financing. The higher the gearing, the higher the dependence on borrowing and long term financing. Whereas, the lower the gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing, the higher the level of financial risk due to the increased volatility of profits. A high gearing ratio is positive; a large amount of debt will give higher return on capital employed but the company dependent on equity financing alone is unable to sustain growth.
Gearing can be quite high for small businesses trying to become established, but in general they should not be higher than 50%. The table shows that SBS Transit is maintaining a gearing ratio below 50% steadily. SMRT is trying to reduce the ratio, still it’s in a higher range resulting in larger amount of debt. 4. 4. Efficiency Ratio Efficiency Ratios give us the information regarding to what extent the company is successful by making use of its assets to generate sales. 4. 4. 1. Sales Revenue per Employee Ratio This ratio relates sales revenue generated to a particular business resource, i. , labour. It provides a measure of the productivity of the work force. Companies prefer to have a higher value for this ratio, implying that they are using their staff efficiently. As from the table we can see that SMRT is having a graph with upward slope which says that its employee resources are well used. 4. 4. 2. Asset Turn Over Ratio This ratio examines how effectively the assets of the business are being used to generate sales revenue. Higher value of asset turnover ratio is preferred because it suggests that the assets are being used in more productively in the generation of revenue.
From the table we can see that, in this case, both the companies are performing well and a gradual trend of increase in the ratio is in the last five years are reflected. 4. 5. Investors ratios The Investors ratios are mainly used by the investors to find out the performance of a business as an investment. The investors will be interested in the company making some good profit from the investment made. 4. 5. 1. Earnings per Share (EPS) This ratio relates the profit of the year to the number of shares issued. It is said to be the fundamental measure of share performance.
Sometimes EPS is important because it is difficult to compare companies of vast sizes, but it is not very helpful to compare the EPS of one company to other where there are differences in the constituents of equity (eg-in the nominal value of share issued or the relative levels of shares and reserves). It is very useful to monitor the change that occurs in this ratio for a particular business over tome. Here the table shows a growing trend of EPS for SMRT from 2004 t0 2008, but there is a sudden fall in 2005.
But in case of SBS transit the ratio had maintained good performance till 2006, but the last two years performance are gradually decreasing and which is not good for the company. 4. 5. 2. price/earnings (P/E) ratio This ratio relates to the market value of a share to the earning per share(EPS). This ratio is a measure of market confidence in the future of the business concerned. The higher the P/E ratio, the greater the confidence in the future earning power of the business and also more investors are prepared to pay in relation to the earnings stream of the business.
Difference in accounting policies between companies can lead to different P/E ratio figure. Though the performance regarding P/E ratio of SMRT is not so well in 2008, but the previous year’s trends were quite positive. 4. 5. 3. Dividend Payout Ratio Measures the proportion of earnings that a business pays out to stock holers in the form of dividends. SMRTs performance regarding this ratio shows that more than 50% of the earnings are paid out bt the company to the stockholders in form of dividends. There is no steady trend regarding this ratio in last five years.
It also helps in analysing that how much amount of the profit company can use for its future growth. 4. 5. 4. Dividend Cover : This ratio shows the number of times that the ordinary dividend could be paid out of current earnings. This dividend is usually described as being x times covered by the earning(where x =dividend cover). So, if the dividend is covered twice, the company would be paying out half of its earning as an ordinary dividend. The table shows that in 2004 SMRT had higher dividend cover and an immediate decrease in 2005.
Then a gradual upward slope is maintained till 2008. Peer comparison (19 Mar 2009) Source: Bloomberg, OIR estimates For analysis. 5. Changes in Accounting Policies 6 . Key Risk Factors Regulatory and operational risksSMRT operates in a regulated environment in which its operations and services have to meet operating performance and service standards specified by the respective license agreements with the Singapore government. The permission to operate the MRT System is derived from the License and Operating Agreement (LOA) signed with the LTA.
Although the term of the LOA is for a period of 30 years starting from 1 April 1998, it may be terminated prematurely for various reasons, including breaching of any provisions of the LOA and failure to meet the prescribed operating performance standards. Hence, if happen, this would adversely affect its financial performance and business viability. In addition, its Bus services are also subject to Quality of Service (QoS) standards, which have in place a penalty framework to enforce compliance. The penalty for non-compliance ranges from S$100/day/bus service to S$10,000/month/standard.
Lastly, PTC must also approve its fare adjustments, and hence its primary influence of revenue is outside its control. Energy cost risksSMRT is exposed to energy cost risks that is outside its control, such as fluctuations in oil and diesel prices. This would directly affect its energy costs, and in turn its profitability. To mitigate the rising electricity costs, the group typically enters into electricity contracts for at least half a year or longer at fixed rates. In addition, it may also engage in forward currency exchange contracts to mitigate the currency risk arising from purchases of diesel in foreign currency 7.
Company’s Growth and Factors Attracting Investor RevenueFare revenue for Train and Bus is expected to be lower due to an effective 4. 6% reduction in bus and train fares from April 2009. Dividend payoutSMRT will endeavour to maintain or increase its dividend payout each year, targeting a minimum payout ratio of 60% of net profit per year for its interim and final dividends. Over the past three fiscal years (FY06-08), SMRT has actually delivered cash dividends with payout ratios in excess of 60%, in line with what it has committed. In its latest 1HFY09 results, SMRT has again proven its ability by paying an interim dividend of 1. 5 S cents (62. 3% of 2QFY09 net profit), maintaining its dividend payout from the previous corresponding period. Hence, looking ahead, we can expect similarly attractive dividend payouts from SMRT, as its profitability, as well as operating cash flows, is likely to remain relatively defensive despite the recessionary conditions in global economy. Ratio AnalysisFrom the different ratios analyzed in the assignment we can get the clear view that SMRT is is in a rising trend in its performance regarding profitability and efficiency and the investment ratios also shows a positive trend.
So, for investors SMRT is a quite positive company to invest in. Energy costs and proactive costIn FY10 earnings growth would outpace its revenue growth due to a positive impact from lower energy costs and proactive cost containment, partially offset by higher staff and related costs from the commencement of the CCL. Future expectationFor FY11-12,Expectation is ,the growth in revenue and net income to stabilize in the range of 4. 5-5. 5% from higher ridership/better utilization in its existing lines and CCL(circle line) (which will be opened up in phases), but impacted possibly by a recovery in energy prices and higher operating costs . Appendices 8. 1. Accounting Policies Basis of Preparation The financial statements are prepared in accordance with Singapore Financial Reporting Standards (FRS) including related Interpretations promulgated by the Council on Corporate Disclosure and Governance. In the financial year ended 31 March 2006, the Group adopted the following new/revised FRSs which are relevant to its operations: FRS 1 (revised) Presentation of Financial Statements FRS 2 (revised) Inventories
FRS 8 (revised) Accounting Policies, Changes in Accounting Estimates and Errors FRS 10 (revised) Events After the Balance Sheet Date FRS 16 (revised) Property, Plant and Equipment FRS 17 (revised) Leases FRS 21 (revised) The Effects of Changes in Foreign Exchange Rates FRS 24 (revised) Related Party Disclosures FRS 27 (revised) Consolidated and Separate Financial Statements FRS 28 (revised) Investments in Associates FRS 32 (revised) Financial Instruments: Disclosure and Presentation FRS 33 (revised) Earnings Per Share
FRS 39 Financial Instruments: Recognition and Measurement FRS 102 Share-based Payments The financial statements are presented in Singapore dollars and rounded to the nearest thousand, unless otherwise stated. They are prepared on the historical cost basis except for certain financial assets and financial liabilities. The preparation of financial statements in conformity with FRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of revision and future periods, if the revision affects both current and future periods.
Judgements made by the management in the application of FRSs that have a significant effect on the financial statements and in arriving at estimates with a significant risk of material adjustment in the following year are discussed in Note 32. ConsolidationSubsidiaries Subsidiaries are companies controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain benefits from its activities. Investments in subsidiaries are stated in the Company. balance sheet at cost less impairment losses. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the Group. interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is credited to the profit and loss account in the period of the acquisition. Associates Associates are companies in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group. s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases.
When the Group. s share of losses exceeds the carrying amount of the associates, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations or made payments on behalf to satisfy obligations of the associates that the Group has guaranteed or otherwise committed Transactions Eliminated On Consolidation All significant intra-group transactions, balances and unrealised gains are eliminated on consolidation. Unrealised gains resulting from transactions with an associate are eliminated to the extent of the Group. interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment Accounting Policies Of Subsidiaries And AssociatesWhere necessary, accounting policies for subsidiaries and associates have been adjusted on consolidation to be consistent with the policies adopted by the Group Foreign CurrenciesForeign Currency Transactions Monetary assets and liabilities in foreign currencies are translated into Singapore dollars at the exchange rates approximate to those ruling at the balance sheet date.
Transactions in foreign currencies are translated at rates ruling on transaction dates. Translation differences are included in the profit and loss account Foreign Operations Assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on the acquisition of foreign operations, are translated to Singapore dollars for consolidation at the rates of exchange ruling at the balance sheet date. Revenues and expenses of foreign operations are translated at exchange rates ruling at the dates of the transactions. Exchange differences arising on translation are recognised directly in equity.
On disposal, accumulated translation differences are recognised in the consolidated profit and loss account as part of the gain or loss on sale. Property, Plant And EquipmentOwned AssetsProperty, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment
Subsequent Expenditure Subsequent expenditure relating to an item of property, plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred Disposals Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the estimated net isposal proceeds and the carrying amount of the asset and are recognised in the profit and loss account on the date of retirement or disposal Depreciation Depreciation is provided on a straight-line basis so as to write off the cost of the property, plant and equipment and major components that are accounted for separately over their estimated useful lives as follows: Leasehold land and properties . lease period ranging from 6 to 30 years Furniture and fittings, office equipment and computers . 3 to 10 years Motor vehicles . 5 to 6 years Rolling stock . 15 to 30 years Power supply equipment . 20 to 25 years
Signalling, communication and automatic fare collection systems . 3 to 30 years Buses . 10 to 17 years Taxis and vehicles for rental . 6. 67 to 7. 67 years Plant and machinery . 3 to 12 years Other operation equipment . 15 to 30 years No depreciation is provided on unregistered buses and taxis. No depreciation is provided on assets under construction until such assets are completed and put into operational use. Property, plant and equipment costing less than $1,000 per item are expensed off as and when they are purchased. The useful lives and residual values, if not insignificant, are reassessed annually.
During the financial year, the estimated useful life for selected bus models was changed from 12 years to 17 years with effect 1 April 2005. With a robust regular maintenance programme and a planned midlife upgrade, the reliability of these buses will extend beyond the current 12 years to the statutory life of 17 years. Arising from this change in the estimated useful life for selected bus models, the reduction in depreciation of the buses amounted to $8. 7 million for 2006. Intangible Assets Goodwill in a business combination represents the excess of the cost of acquisition over the fair value of the Group. share of the identifiable net assets acquired. Goodwill is stated at cost less impairment losses. Goodwill on the acquisition of subsidiaries is presented as intangible assets. Goodwill on the acquisition of associates is presented together with investments in associates. Goodwill is tested for impairment on an annual basis in accordance with Note 3. 11. Available-For-Sale Financial Assets Equity securities held by the Group are classified as being available-for-sale and are stated at fair value, determined as the quoted bid price at the balance sheet date. Any resultant gain or loss is recognised directly in equity.
The exceptions are impairment losses and foreign exchange gains and losses on monetary items such as debt securities, which are recognised in the profit and loss account. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in the profit and loss account. Where these investments are interest-bearing, interest calculated using the effective interest method is recognised in the profit and loss account. Unquoted equity and other investments are held at cost because of the lack of quoted market prices and the inability to reliably estimate fair value.
Management believes that the carrying amounts recorded at balance sheet date reflect the corresponding fair values. Financial assets classified as available-for-sale are recognised by the Group on the date it commits to purchase the investments, and derecognised on the date a sale is committed. Derivatives Financial InstrumentsThe Group uses forward foreign exchange contracts to partially hedge its exposure to foreign exchange risks arising from operational activities. The Group does not hold or issue derivative financial instruments for trading purposes.
Forward foreign exchange contracts are recognised initially at fair value. Subsequent to initial recognition, these instruments are remeasured at fair value. The fair value is their quoted market price at the balance sheet date, being the present value of the quoted forward price. The gain or loss on remeasurement to fair value is recognised immediately in the profit and loss account. Inventories Inventories comprising engineering spares and consumables used for the maintenance of the MRT and LRT systems, buses and taxis and which are not intended for resale, are stated at cost less allowance for obsolete inventories.
All other inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any allowance for write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any allowance for write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
Trade And Other ReceivablesTrade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment Cash And Cash EquivalentsCash and cash equivalents comprise cash balances and bank deposits. Impairment The carrying amounts of the Group. s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated. Goodwill is tested for impairment annually and as and when indicators of impairment are identified.
An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. All impairment losses are recognized in the profit and loss account. When a decline in the fair value of an available-for-sale financial asset has been recognized directly in equity and there is objective evidence that the value of the assets is impaired, the cumulative loss that had been recognized directly in equity is recognized in the profit and loss account even though the financial asset has not been derecognized.
The amount of the cumulative loss that is recognized in the profit and loss account is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognized in the profit and loss account Calculation Of Recoverable Amount The recoverable amount of the Group’s receivables carried at amortized cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i. e. the effective interest rate computed at initial recognition of these financial assets).
Receivables with a short duration are not discounted. The recoverable amount is the greater of the assets. net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash generating unit to which the asset belongs.
Reversals Of Impairment An impairment loss in respect of a held-to-maturity security or receivable carried at amortized cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through the profit and loss account.
If the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the profit and loss account, the impairment loss shall be reversed, with the amount of the reversal recognized in the profit and loss account. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. However, an impairment loss in respect of goodwill is not reversed. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the arrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized Liabilities And Interest-Bearing BorrowingsTrade and other payables are recognized initially at fair value. Interest-bearing liabilities are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, trade and other payables and interest-bearing liabilities are stated at amortized cost with any difference between cost and redemption value being recognized in the profit and loss account over the period of the borrowings on an effective interest basis Provisions
A provision is recognised in the balance sheet when the Group and the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability Accident Claims A provision for accident claims is recognised when an accident has occurred.
The amount of provision is based on the claims outstanding and estimated amounts payable. The expected reimbursement from insurance policies and other parties in respect of the expenses required to settle a provision, is recognised as a separate asset disclosed as . Recoverable in respect of accident claims. included in . Other receivables, deposits and prepayments Employee BenefitsDefined Contribution PlansObligations for contributions to defined contribution plans are recognised as an expense in the profit and loss account as incurred.
Defined Benefit PlansThe Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, that benefit is discounted to determine the present value. The discount rate is the market yield of quoted Singapore Government Bonds at balance sheet date. The calculation is performed using the projected unit credit method.
When the benefits of a plan change, the portion of the increased benefit relating to past service by employees is recognised as an expense in the profit and loss account on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the profit and loss account. In calculating the Group’s obligation in respect of a plan, any actuarial gain or loss is recognised in the profit and loss account in the period that the gain or loss arises
Short-Term Accumulating Compensated AbsencesProvision is made when services are rendered by employees that increase their entitlement to future compensated absences Equity And Equity Related Compensated BenefitsThe SMRT Employee Share Option Plan (. SMRT ESOP. ) allows the Group’s employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options.
At each balance sheet date, the company revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates in employee expense and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transactions costs are credited to share capital when the options are exercised. The SMRT Corporation Restricted Share Plan (. SMRT RSP. ) and the SMRT Corporation Performance Share Plan (.
SMRT PSP) allow the Group to award employees fully paid shares, their equivalent cash value or combination thereof, free of charge, provided that certain prescribed performance targets are met and, in the case of awards under the SMRT RSP, upon expiry of the prescribed vesting period. For shares granted pursuant to awards under these plans, and the amount of cash which may be paid upon the release of such awards, the fair value of the awards is measured at grant date and spread over the vesting period. At each balance sheet date, the Company may revise the fair value of the awards based on actual performance achieved.
It recognises the impact of the revision of original estimates in employee expense and a corresponding adjustment to equity over the remaining vesting period. Income TaxIncome tax on the profit and loss for the year comprises current and deferred tax. Income tax is recognised in the profit and loss account except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred Tax Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Temporary differences are not recognised for goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not be reversed in the foreseeable future Fuel Equalisation Account (. Fea. )
The FEA has been set up in accordance with the directive of the Public Transport Council (. PTC. ) as part of the mechanism for regulating public transport fares. The FEA is computed based on the reference electricity tariff and diesel price for the year as determined by the PTC. In the year where the actual electricity tariff and diesel price is below the reference electricity tariff and diesel price for that year, a fuel equalisation account is set up as a charge to the profit and loss account for that year.
In the year where the actual electricity tariff and diesel price is above the reference electricity tariff and diesel price for that year, the fuel equalisation account previously set up is released to that year. s profit and loss account. The amount that can be released to the profit and loss account is limited to the maintenance of a minimum balance (or such other amount as may be approved by PTC) in the FEA equivalent to one year. s fuel consumption calculated based on the reference electricity tariff and diesel price. All transfers to and from the FEA must be approved by the PTC.
The PTC may also direct such transfers that it considers necessary and has the obligation to ensure that the benefits relating to the balance in the FEA will be passed back to the commuting public. Grants Asset-related grants received from the Land Transport Authority for the purchase of eligible operating assets are deferred and amortised in the profit and loss account using the straight-line method and over the same periods in which the related property, plant and equipment are depreciated. Dividends Dividends on ordinary shares are recognised as a liability in the period in which they are declared.
Revenue RecognitionPassenger Revenue Passenger revenue from MRT and LRT systems and buses is recognised at the end of the ride. Taxi Rental And Rental Revenue Rental revenue receivable under operating leases is recognised in the profit and loss account on a straight-line basis over the terms of the leases Advertising Revenue . Advertising revenue is recognised on an accrual basis over the terms of the contract Engineering And Other Services Revenue from short-term workshop and other services is recognised upon completion of services rendered.
Revenue from engineering consultancy and project management services is recognised on the percentage of completion method. The stage of completion is recognised upon completion of work done at designated phases of the contracts. Provision for foreseeable losses, on contracts not yet completed, is made as soon as such losses are determinable Sales Of Goods Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyers. Revenue excludes goods and services or other sales taxes and is after deduction of any trade discounts.
No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. Operating LeasesWhere the Group has the use of assets under operating leases, payments made under the leases are recognised in the profit and loss account on a straight-line basis over the terms of the leases Finance CostsInterest expense and similar charges are expensed in the profit and loss account in the period in which they are incurred Interest And Investment IncomeInterest income from bank deposits and other debt securities is accrued on a time-apportioned basis.
Dividend income from equity investments is recognised in the profit and loss account at gross on a receipt basis. Gain or loss on disposal of investment is accounted for in the profit and loss account as they arise Segment ReportingA segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
APPENDIX B APPENDIX C 8. 3 Bibliography 1. www. ocbcresearch. com/pdf_reports/… /SMRT-090320-OIR. pdf 2. www. smrt. com. sg/ 3. http://www. bized. co. uk/compfact/ratios/index. htm 4. http://www. bizwiz. ca/ratioslist. html 5. http://www. bigfatpurse. com/2009/12/smrt-fundamental-analysis/ 6. http://en. wikipedia. org/wiki/SBS_Transit 7. http://www. channelnewsasia. com/stories/singaporebusinessnews/view/420610/1/. html 8. www. ocbcresearch. com/pdf_reports/… /SMRT-090320-OIR. pdf 9. http://www. investopedia. com/ 10. http://www. sias. org. g/index9. php? handler=ir&action=ir_content&ir_content_title_id=25 11. http://www. smrt. com. sg/main/index. asp 12. http://tutor2u. net/business/accounts/main_ratios. htm 13. http://beginnersinvest. about. com/od/financialratio/tp/financial-ratios. htm 14. Atrill P. and McLaney E. (2008) Accounting and finance for Non-specialists(6th edition). London : Prentice Hall 15. Dyson J. R. (2004) Accounting for Non-accounting students(6th edition) London : Prentice Hall 16. Tracy J. A ( 1997 ) Accounting for Dummies . USA : IDG Books Worldwide Inc.