FIN CIAL AN AN ALYSIS STATU REPO T S R

M odule N o. Version N o. Author

: M BA 401 : 1.0 D raft : Sam uel Christopher

MBA ASSIGNMENT MBA 401

D CUM T R O EN EVISIO H N ISTO RY

Version # 1.0 Date 12/01/2010 Author(s) SAMUEL CHRISOTPHER Comments

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MBA ASSIGNMENT MBA 401

Table of Contents

TABLE

OF

CONTENTS

..............................................................................................................................................................3 2.0 INTRODUCTION............................................................................................................................5

2.1 PURPOSE OF REPORT.......................................................................................................................................5 2.2 ABOUT UNITED ENGINEERS........................................................................................................................5 2.2.1 VISION.............................................................................................................................................................5 2.2.2 MISSION..........................................................................................................................................................5 2.2.3 GROUP VALUE CHAIN.........................................................................................................................................6 2.2.4. STRATEGIC ISSUES.............................................................................................................................................7 2.2.5. SWOT ANALYSIS.......................................................................................................................................7 3.0 RATIOS...............................................................................................................................................................8 3.2 EFFICIENCY RATIOS...............................................................................................................................................9 3.3 LIQUIDITY RATIOS.................................................................................................................................................10 3.4 GEARING RATIOS............................................................................................................................................11 3.5 INVESTMENT RATIOS..............................................................................................................................................11 LIQUIDITY RATIOS......................................................................................................................................................22 GEARING RATIOS.................................................................................................................................................23

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MBA ASSIGNMENT MBA 401

1. EXECUTIVE SUMM ARY

The Singapore economy had a challenging year in 2009. Being globalised and opened, it was affected by the fallout in the global financial crisis. The economy was particularly weak in the first half, with two consecutive negative growth quarters. It recovered by the second half, and for the whole year, growth was at negative 2.1 per cent. Despite the global economic slowdown, United Engineers Limited (the Group) had a busy year partly due to the lag effect where contracts earlier secured in 2007 and 2008 created many on-site activities during the year. Strong Profit Growth Underpinned by Sales For the year ended 31 December 2009, revenue increased 13 per cent to $703.7 million mainly due to the progressive recognition of property sales. Arising from the increased revenue, gross profit rose 12 per cent to $162.0 million. Other income increased 133 per cent to $10.6 million mainly due to fair value gains from the Groups short-term investments. Other expenses decreased 65 per cent to $17.7 million. The Groups attributable profit increased to $52.2 million as compared with $6.0 million in 2008. Improved Balance Sheet and Gearing The Group received gross listing proceeds of $128 million from the Rights Issue* in March and balance sale proceeds of US$60.4 million (of the total sale proceeds of US$85,367,662.51) in June arising from the disposal of 67 per cent shareholding interest in Anhui Hefei United Power Generation Company Limited in China. As at 31 December 2009, the Group had a cash position of $318 million and gearing ratio of 0.51x**. Improving Workplace Safety and Health The Group continues to strive towards improving workplace safety and health standards. Currently, 21 of the Groups subsidiaries in Singapore, Malaysia and Brunei have been certified to comply with OHSAS18001 standards. The certification seeks to integrate the Groups safety programme into its existing management system, thereby improving overall performance and lowering risk liabilities. Expecting Recovery, Remaining Cautious The Groups outlook for Singapore, where the bulk of its businesses are based, is of a faster economic recovery, although its pace will depend on the economic recovery in the other advanced economies. As such, the Group will remain cautious in its overseas expansion plans and investments, but at the same time, capitalize on good business opportunities, particularly in water and property projects. Page 4 of 24

MBA ASSIGNMENT MBA 401

2.0 IN TRO UCTIO D N

2.1

PU RPO SE O REPO F RT

The purpose of this report is to provide information about the financial position, performance and changes in financial position of United Engineers Limited that is useful to a wide range of users in making economic decisions. 2.2 ABO T U ITED EN IN U N G EER S

Established in 1912, the UE Group is a reputable corporation with key activities in Engineering, Construction and Integrated Facility Management. One of the first listed companies in Singapore, the Group today has more than 5,000 employees and operations in about 12 countries across the Asia Pacific region. United Engineers Limited, as the name suggests, is an engineering company at heart. Amidst the vast playing field of engineering, the Group today specializes in property and environmental-related engineering. What distinguish the Group from the market competition are its end-to-end capabilities spanning Design, Build and Manage & Operate essentially overseeing a project from blueprint, to construction, to asset management and property management when it is eventually built. As such, the Group is adept at undertaking large-scale Build-Operate-Transfer; Public-Private-Partnership; Design-Build-Operate typed projects in the forms of water plants to commercial buildings. 2.2.1 VISIO N

To be the company of choice recognized worldwide, for unparalleled first-class solutions. 2.2.2 M ISSIO N To be the leader in our chosen markets, delivering one-stop solutions to customers.

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MBA ASSIGNMENT MBA 401 2.2.3 G UP VALU CH RO E AIN

ENGINEERING Building Engineering Air conditioning & ventilation systems Building automation systems Fire protection systems Low voltage electrical distribution systems High volt age electrical systems Plumbing & sanitary systems Environmental Engineering Water Treatment of surface and groundwater for potable use Industrial & process water supply Water recovery Treatment of waste water Seawater desalination Sludge treatment & disposal Odour treatment Aquaculture water treatment Medical Waste Onsite waste assessment & training services Collection services Central disposal facilities Waste manifest/ Tracking system CONSTRUCTION General Construction Design & Build Residential Institutional & Industrial Recreational & Commercial Specialized Construction Rental of Construction Equipment & Related Services Telecommunication Structures Formworks Power generators Transformers Load banks Boom lifts

INTEGRATED FACILITY MANAGEMENT Project Management Services Asset Management Services Hospitality Management Services Property Development

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MBA ASSIGNMENT MBA 401 2.2.4. STRATEG ISSU IC ES

As the bulk of the Groups operations are in construction and engineering, it firmly believes that a safe and healthy workplace will translate into higher productivity and profitability and also better workers welfare. The below issues are need to be improved by company. 1: 2: 3: 4: 5: Enhancing the Professionalism of the Industry Raising the Skills Level Improving Industry Practices and Techniques Adopting an Integrated Approach to Construction Best safe and healthy workplace practice. SW T AN O ALYSIS Weakness pricing Policies Skilled Labor

2.2.5.

Strength Strengthened board OHSAS18001 certified Good Location Established in 1912 Opportunities Overseas expansion Capitalize on good business Support of Government Internationally Funded Projects

Threats Risk of increased Competition Government Policies Business Recession

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3.0 RATIOS
3.1 PROFITABILITY RATIOS 3.1.1 Gross Profit Margin & Net profit Margin

Gross Profit & Net Profit Margin (%)

40 30 20 10 0 2009 2008 Gross Profit Margin 2007 Net Profit Margin 9.38 2.08 23.2 23 33.18 19.3

The above graph shows the information about the gross profit & net profit Margins of United Engineers in the year 2009, 2008 and 2007. Gross profit Interpretation A low Gross profit Ratio will suggest decline in business which may be due to insufficient sales, higher cost of production with the existing or reduced selling price or with in- efficient management. Significant managerial decisions can be taken by calculating the percentage of Gross Profit on sale. There was increased profit from the year 2007 to 2009 slowly. It also means that United Engineers gross profit is rising now and remains stable. However, the graph shows that it was the same profit in the year 2008 and 2009 that was 23%. A high Gross Profit ratio is a sign of good and effective management. Net profit Margin Interpretation Net profit is a good indicator of the efficiency of a firm. It is determined by relating net income after taxes to net sales. This ratio is widely used to measure of overall profitability and is very useful for proprietors. A higher ratio indicates better position. It shows that it obtained 33% in the year 2007 and 2.08% in the year 2008. It was decreased 31.1% from the year 2007 to 2008 due to the economic crisis. However, the graph shows net profit in the year 2009 was increased by 6 %. Which means the company is regaining the profit.

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MBA ASSIGNMENT MBA 401 3.1.2 Return on Assets (ROA)

Return on Assets(%)
16 14 12 10 8 6 4 2 0 14.9

4.9 2.6 2009 2008

Return on Assets

2007

The above graph shows the information about Return on Assets (ROA) of United Engineers in the year 2009, 2008 and 2007. Return on Assets (ROA) Interpretation In Year 2009, although the total profits were higher than in Year 2008, there was an only slight increase in the amount of profits relative to the size of business. ROA increased from 2.6 % to 4.9 %, suggesting expansion in profit performance in spite of the growth in profits and asset values.

3.2

EFFICIEN CY RATIO S

Capital & F ed assetsT ix urnover Ratio(% )

60 40 20 0 2009 Capital 2008 Fixed Assets 2007 52.97 36.33 48.42 33.63 44.64 32.42

The above graph shows the information about Capital & Fixed Assets Turnover Ratio of United Engineers in the year 2009, 2008 and 2007.

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Capital & Fixed Assets Turnover Ratio Interpretation In Year 2009, the total sales revenue were higher than in Year 2008, so was an increase in Capital & Fixed Turnover from 48.42% to 52.97% and 33.63% to 36.33%, the rise in the ratios means its good for the company which helps to pay its short term debt obligations.

3.3

LIQ ID U ITY RATIO S

Current & Quick Acid Ratio

2 1.5 1 0.5 0 2009 2008 Current Ratio Quick Acid Ratio 2007 1.4 1.36 1.5 1.46 1.72 1.7

The above graph shows the information about Current & Quick ratio of United Engineers in the year 2009, 2008 and 2007. Current & Quick ratio Interpretation: United Engineers has a better liquidity position, with both the current ratio and the quick ratio being normal to the industry average. So United Engineers current ratio and quick ratio for year 2009 of 1.46 and 1.36, respectively, compares favorably to the industry. This, combined with the observation that both ratios are above one, leads to the conclusion that United Engineers is in a solid short-term liquidity position even though both the values decreased from last year 2008. While this favorable absolute liquidity position is important, perhaps just as important to debt investors in United Engineers is the trend over time in the ratios.This is obviously a good position for the firm to be in. It can meet its short-term debt obligations with no stress.

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3.4

G EARIN RATIO G S

Debt Ratio (%)

56 54 52 50 48 2006 48.5 2007 2008
Debt Ratio

54.93

54.38

2009

2010

The above graph shows the information about Debt ratio of United Engineers in the year 2009, 2008 and 2007. Debt Ratio Interpretation

The debt ratio was high in Year 2008 at 54.93%, it decreased to 54.38% at the end of Year 2009. This indicates that creditors financing are decreasing of the company business. The company is clearly a medium credit risks. Any request by its purchasing department for even more trade credit or for extra bank loans ought to be met with a medium reluctance, and in all probability a medium refusal. United Engineers, debt ratio is more than 50%, the company needs to look at its financial statements more carefully and compare itself to other companies in the industry as it may be in financial difficulty. The ratio has raised dramatically over time, United Engineers needs to take a closer look at its borrowing practices and why it has need for more debt financing.

3.5

IN VESTM T RATIO EN S

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MBA ASSIGNMENT MBA 401 The above graph shows the information about Earnings per Stock Unit & Net Dividends per Ordinary Stock Unit of United Engineers in the year 2009, 2008 and 2007.
Earnings per Stock Unit & Net Dividends per Ordinary Stock Unit Interpretation

After the fall of the Earnings per Stock Unit during Year 2008 from 80.4(c) to 2.7(c), the Earnings per Stock Unit had a steep rise for the Year 2009 from 2.7(c) to 22.1(c) a rise of 19.4(c) which means the Earnings per Stock Unit is increasing and company is at growing its earnings. The Net Dividends per Ordinary Unit remains to be stable for the last three years from 2007 to 2009 which means the company dividends is safer. 4.0 CONCLUSION / RECOMMENDATION The objective of this report was to analyze the current financial position of United Engineers in the light of financial data of preceding three years of its performance. The analysis concluded: Graphical analysis of Gross Profit Margin, Net profit Margin and Return on Asset reflected that financial position of United Engineers improved over its prior years after the financial crunch. Large variable and fixed expenses (relative to the level of sales) are negatively impacting ROA, and these expenses, especially variable expenses (selling, general, and administrative expenses) since they are perceived to be more easily controllable, need to be closely evaluated. Increases in sales revenues may also help the ROA situation. Although poor overall market conditions can be blamed for a portion of United Engineers low sales figure, United Engineers also needs to critically evaluate why it has lost market share in some of its key business areas over the last few years making the operating results from poor market conditions even worse. The liquidity situation of the United Engineers has been tremendously improved over its prior years, although it is a good sign but it might also indicate that United Engineers is not using its current resources adequately to generate profits. United Engineers, debt ratio is mote than 50%, the company needs to look at its financial statements more carefully and compare itself to other companies in the industry as it may be in financial difficulty. The ratio has raised dramatically over time, United Engineers needs to take a closer look at its borrowing practices and why it has need for more debt financing. United Engineers is working very efficiently in terms of inventory control, but it needs to give attention to improving its credit control system or revise the payment terms of the debtors; whereas the working capital period also need to be improved. Furthermore, United Engineers expects that its global network expansion will boost net profit by the year 2010.

Strategies to achieve these financial objectives are:

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MBA ASSIGNMENT MBA 401 Focus on the business on the groups core skills in forming end-to-end capabilities from Design, Build to Manage & Operate, particularly for property and environmentalrelated projects. Differentiate by using world class technology and continue to invest significantly in research and development to develop new methods and manufacturing processes. Maintain strong relationships with major customers, suppliers, government bodies and other stakeholders by investing resources on joint projects to ensure the group is well positioned for future market development. Continue to invest in United Engineers employees to ensure they are well trained, motivated and encouraged to meet the challenges of the future. Ensure the business is run in a sustainable way by using resources efficiently, minimizing waste in our manufacturing processes and designing new innovative ideas in construction that help the customers to be more sustainable and competitive. 5.0 REFLECTION REPORT I have noted that there are some difference between how I see myself and how others see me. One difference that I noted was my work initiative. I believe I am a "self-starter and always request for additional work" when I have completed my task. My company (United Engineers) has rated me as someone who "displays initiative consistently". The different rating might be a result of my shy nature as I only ask once in order to avoid constantly disturbing them. In the future I plan to regularly let them know that I am available for additional work and willing to help any way possible. There is also a variation in the rating for my quality of work. I believe my work is "satisfactory and that I have a normal number of errors", whereas others may believes that I have "few errors". Since I am still learning the way to document properly and right approach to do I am constantly re-checking my work for any errors which results in fewer errors being noted by the reviewer. I plan to continue reviewing my work in order to avoid any careless mistakes. The last difference that I noted between the two evaluations was in my problem solving abilities. Once again I rated myself as having "satisfactory problem solving abilities", whereas United Engineers rated me as being "adept at solving problems". Once again, I am still learning the procedures and constantly request the assistance of the senior when faced with issues. Due to my lack of experience, once I have attempted to solve the problem I usually request the assistance of the senior in order to verify that what I have done is correct.

6.0 REFERENCE:

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MBA ASSIGNMENT MBA 401 http://www.uel.com.sg/ Financial Statement Analysis By K. R. Subramanyam, John J Wild Understanding Corporate Annual Reports By: William R Pasewark Financial Reporting and Analysis By: Lawrence Revsine, Daniel W. Collins, Bruce Johnson, Fred Mittelstaedt Financial Statement Analysis and Security Valuation By: Stephen H Penman Interpreting and Analyzing Financial Statements 5th Edition Karen Schoenebeck, Mark Holtzman Beaver, W. (1977), "Financial Statement Analysis", Handbook of Modern Accounting, eds Davidson, S. and Weil, R., 2nd ed. McGraw-Hill. Bernstein, L. (1989), Financial Statement Analysis: Theory, application, and interpretation. Richard D. Irwin, 4th ed. Brealey, R., and Myers, S. (1988). Principles of Corporate Finance. McGraw-Hill, 3rd ed. Committee for corporate analysis (1990). Corporate analysis of the financial statements (in Finnish). Painokaari. Cowen, S.S., and Hoffer, J.A. (1982), "Usefulness of financial ratios in a single industry", Journal of Business Research 10/1, 103-118. Foster, G. (1978), Financial Statement Analysis. Prentice-Hall, first ed.

7.0 APPENDIX

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MBA ASSIGNMENT MBA 401 CALCULATIONS RATIOS PROFITABILITY RATIO 1. 0 Gross Profit Margin Revenue - Cost of Goods Sold Revenue
2008 624,560 - 479,929 --------------------- = 23 624,560 2007

= Year Gross Profit Margin (%) 2009

703,732 - 541,694 --------------------- =23.2 703,732

539,772 - 435,408 ------------------------ = 19.3 539,772

2. 0 Net Profit Margin Profit before Interest and Taxation Turnover

2009 66,063 --------- =9.38 703,732 2008 12,733 ------- = 2.08 624,560 2007 179,113 ----------- = 33.18 539,772

=
Year Net Profit Margin (%)

3. 0 Return on Assets (ROA)

=
Year Return on Assets (%)

Profit before Interest and Taxation Capital employed

2009 66,063 --------- =4.9 1328299 2008 12,733 ------- = 2.6 485940 2007 179,113 ----------- = 14.9 1209055

EFFICIENCY RATIO 1. 0 Capital Turnover Ratio

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= Year Capital Turnover Ratio (%)

Net Sales Capital Employed

2008 624,560 ---------- = 48.42 1289628 2007 539,772 --------- = 44.64 1209055

2009 703,732 ---------- =52.97 1328299

2. 0 Fixed assets Turnover Ratio Net sales Net Fixes assets

2009 703,732 ---------- =36.33 1,936,884 2008 624,560 ---------- = 33.63 1,857,108 2007 539,772 --------- = 32.42 1,664,480

=
Year Capital Turnover Ratio (%)

LIQ ID U ITY RATIO S 1. 0 Current ratio = Current Assets

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Current Liabilities
Year Current Ratio 2009 839,559 ---------- =1.4 608,585 2008 841,513 ---------- = 1.5 567,480 2007 785,081 --------- = 1.72 455,425

2. 0 Quick assets ratio Current Assets inventory Current Liabilities

2009 Year Quick assets ratio 839,559- 7,999 ---------------- =1.36 608,585 2008 841,513-10,012 ---------------- = 1.46 567,480 2007 785,081- 9,459 ---------------- = 1.70 455,425

G EARIN RATIO G S 1. 0 Debt ratio Total Liabilities Total Assets

2008 2007

=
Year 2009

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Debt Ratio 1,053,420 ---------- =54.38 1,936,884 1,020,201 ---------- = 54.93 1,857,108 807,410 --------- =48.5 1,664,480

Total Number Words - 2477

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