POST MODULE ASSIGNMENT

FINANCIAL ANALYSIS & CONTROL SYSTEMS

V.GOPINATHAN
Student ID: P079264

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CONTENTS

Page 1. 2. 3. 4.1 4,2 4.3 5. 5.1 5.2 5.3 5.4 Introduction The Directors Report The Statement of Accounting Policies The Balance Sheet The Profit and Loss Accounts The Cash Flow Statement The Ratios Liquidity Ratio Profitability Ratio Efficiency Ratio Investent Ratio 3 4 6 7 11 12 13 13 14 15 18

APPENTICS -1 Annual Reports APPENTICS II Ratio Calculations

REFERENCES i) WWW.hi-p.com for annual reports. ii) FACS Class Notes By Mr.Anthony Marsh iii) Journal Papers

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Q1. I have examined a Contract manufacturing Company Hi-P International Limited Annual Report and Accounts to provide an in depth analysis of the business and its financial performance.

1.Introductions
Hi-P International Limited is globally vertically integrated manufacturer, serving the wireless telecommunication, Consumer electronics, Computing and Automotive Industries. Its Headquarter in Singapore and has manufacturing plants globally. They are in Singapore, China, Mexico, Thailand and Poland. It also has marketing and engineering support centres at USA, Finland and Germany. Its currently employing 11,500 people. It was listed on the main board of the Singapore Exchange on 17th December 2003 .

Hi-Ps range of products and services include,

Product design and Development Process Automation Project Management Design and Making of precision plastic injection moulds and Dies for metal stamping Precision plastic injection moulding Post moulding operations like spray painting and IMD technology Assembly and supply chain Management.

Hi-Ps VISION Our vision is to become a global integrated contract manufacturing services provider to offer a broader, more diversified and vertically-integrated range of products and turnkey services to our global customers.

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2. The Directors Report

2.1 Performance of the Group 2008 is not only Hi-Ps fifth anniversary of listing on SGX (Singapore Exchange) main board and 28th anniversary of the beginning of the company, and also marks its major breakthrough of achieving more than S$1 Billion in Revenue. Hi-P has achieved both record revenue of S$ 1.077b and record Net profit of S$ 102mil versus S$977mil revenue and S$ 60 mil net profit achieved in year 2007. It has also received bonus of three good news that, i) Gross margin improved from 13.3% in 2007 to 18.3% in 2008. ii) Return on shareholder equity increased from 13.2% in 2007 to 18.3% in 2008. iii) Net cash generated from operating activities was a strong S$ 165 mil. Most importantly, in the current credit climate we closed this year accounting with a healthy net cash position of S$ 126 mil. .This Revenue growth because of our efforts of building closer customer relations through Early Supplier Involvement (ESI), New Product Introduction (NPI) and the continued diversification of our customer base. 2.2 Strategies for Challenging Environment As Hi-P has delivered record earnings to its loyal shareholders, its in the most challenging business environment since its started. Due to this financial crisis, its facing key issues such as orders slowdown, increased competition higher currency volatility and the business partners might experience financial difficulties. Hi-P still confident that with its management teams continuous efforts in setting up strategies and committed execution of these plans and be able to cope with the recession. First it will intensify its core teams fighting sprit to rise above the challenges. Also will fight for new businesses and cherish existing customers

Post Module Assignment FACS It is actively seeking ways to lower its breakeven point through strict cost control to compete more effectively and maintain profitability. Also prudent credit management will be exercised for all supplier and customers and will continue to keep a tight control on capital expenditure. However they are pen to strategic investment opportunities. 2.3 Hi-Ps Positive Areas Its strong financial position with a low gross Gearing of 1.0% and Net Cash balance of S$126 mil, will allow navigating through these difficult times. With above mentioned strategies in place and the existing main customers businesses remaining stable, Hi-P has confidence that it will overcome this financial crisis and will emerge stronger. 2.4 Rewarding Loyal Shareholders - Dividend I am pleased to announce that the Board has recommended a first and final exempt one-tier dividend of 2.2 Singapore cents per share, to reward our loyal shareholders in this challenging time. Hi-P rewarding highest dividend of S$0.022 per share despite lowering market price per share. It might be helpful to increase shareholders level of confident thus can increase share price for the upcoming years.

(Reference www.sharesinvestment.com/articles/3188/)

Conclusion
Although market condition is challenging in the coming year, Hi-P strongly believes on its strategies and dedicative management team and staff to over come its obstacle.

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3. The Statement of Accounting Policies

Corporate Information Hi-P International Limited is a limited liability company, which is incorporated in Singapore and Publicly traded on the Singapore Exchange Securities Trading Limited (SGX-ST). The principal activities of the company are , MDF Mould Design and Fabrication PPIM Precision Plastic Injection Moulding. There have been no significant changes in the nature of business during the financial year 2008.

Basic of Preparation The consolidated financial reports of the group and balance sheet of the company have been prepared according to Singapore Financial Report Standards (FRS). The financial statements have been presented in Singapore Dollars (S$) and all values are rounded to the nearest thousand ($000) except when otherwise indicated.

Subsidiaries A subsidiary is a separate entity over which the group has the power to control the financial and operating policies so that can obtain benefits from its Activities. The Group has power to hold more than 50% of the issued share Capital or control more than half of the voting power or control the percentage of the board of directors.

Associates It is an entity, not being a subsidiary, in which the group has significant control. Groups investments in associates are accounted for using the equity method.

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Interpretation of the Financial Reports for year 2008 as at 31 December 2008

4.1The Balance Sheet

Fixed Asset or Non-Current Asset

(Ref. Hi-P Annual Report 2008)

Property, Plant and equipment The Net Book Value of the Property, plant and equipment amount decreased by 3% from 291.075mil (2007) to 282.544mil (2008), after depreciation. Net cash out flow of purchase for this year is 43.108mil which is less compare to 49.496mil for year 2007. (Ref. Note 13) We could say its one of the cost control measure as mentioned in the Directors report.

Depreciation As mentioned in the Group depreciation policy, the cost of plant and machinery for the manufacture of electric components is depreciated on a straight-line basis over the plant and machinerys estimated economic useful lives. Management estimates the useful lives of these plant and machinery to be within 3 to 10 years. These are common life expectancies applied in the industry.

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Investment in subsidiaries As a company Hi-P Singapore totally invested 193.119mil in its subsidiaries as for year 2008 as shown in the balance sheet. Its represents interest foregone on the interest-free long term loans granted by the company to its subsidiaries. During the year 2008, the company has increased its investment in Hi-P Thailand Co. Ltd. by 199.20% from S$1.000 mil to S$ 2.992mil.

Investment in Associates and Other investments are have not changed much as shown in the balance sheet for the end of year 2008 except Other Receivables. At the balance sheet date the group has impaired an allowance of $17,000 for the impairment of the unsecured amounts due from minority shareholders of a subsidiary with a nominal amount of S$827,000. Differed Tax Asset has been increased from 1.868mil (2007) to 4.381mil for the FY2008. which can be refer this from consolidated Profit /loss account under Income Tax (Note 11a)

Deferred Tax Asset resulted in reduction of Income tax of year ended FY2008. The corporate income tax of the Singapore companies of the Group was waived 2% for the year 2008 by Singapore government from 20% to 18%.

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Current Asset

(Ref. Hi-P Annual Report 2008)

There has been slight increase of 4.5% in Groups current asset compare to previous years due to change in inventories (Includes WIP - 44.2 mil., Raw material 47.5 mil and Finished Goods 22.7 mil.). Trade and other receivables are reduces by 16.3 % to 245.7mil. from 285.3mil (2007) Prepaid operating expenses shrink by 50% compare to 2007 for the same period. Cash and Cash Equivalents are up 218% to 131.5mil from 46.7mil (2007) due to cash at bank and in hand also interest earn by short term fixed deposit for 1 to 6 months.

Current Liabilities

Post Module Assignment FACS Total current liabilities have been reduced by 39% from 306mil (2007) to 220.8mil (2008). Loans and borrowings have been kept lower due to enough cash in hand from previous earning which is resulted in more Income Tax liabilities.

Non - Current Liabilities

Which is consist of an Obligations under finance lease (Note 30 (c)) 20092017 5.136 mil and differed tax liabilities. Total Equity has been obtained from Share capital, other reserves by statutory reserve fund, foreign currency translation reserve, capital reserve and Employee share option reserve.

Summary
Healthy Balance Sheet, the over all groups net asset increased by 22.2% to 558.6 mil for FY2008. Good result has been achieved by effective cost control and increase in sales. Which underpins the returns on shareholder equity and should provide an support for upcoming obstacles.

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4.2 The Profit and Loss Account

The Groups Revenue has increased record high as 1.077 Billion which is increased 10.2% from 976 Mil (2007) to 1,077 Mil. in year 20008.

Turnover (S$ "000)

$1,200,000 $1,100,000 $1,000,000 $900,000 $800,000 $700,000 $600,000 2004 Turnover 560,931 2005 632,954 2006 839,081 2007 976,566 2008 1,077,102 $500,000

Gross profit increased form 13.33% (FY2007) to 18.33% this financial year 2008 and Net profit has significantly increased as 102mil. from 6.07% (FY2007) to 9.5% achieved this FY2008.

Profitability Ratios

Gross profit Ratio Net profit Ratio 30% 24% 18% 12% 6% 0%

2004

2005

2006

2007

2008

Other income such as interest income, tax refund on capital investment, sale of scrap materials, incentives from government etc has slightly increased compare to FY 20007.

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Other Expenses Other item of expenses has been controlled very well over this 12 month of period particularly Administrative expenses have been managed efficiently, with the increase of 5.5 % only. Increase in Gross profit and less expenses we could able to achieve record high of 102 million Net Profit this year. Summary The income statement clearly shows that Returns on shareholders equity increased from 13.2% in 2007 to 18.3% in 2008. If we look at the net profit figures over the past five years there is a ups and downs, except FY2006 and 2007 profitability of the Group is growing steadily and acceptable.

4.3 Cash Flow Statement

Groups 5 Year Cash Flow (S$ "000)
$150 $135 $120 $105 $90 $75 $60 $45 $30 $15 $0

2004 5 years Cash Flow 88.195

2005 73.197

2006 33.244

2007 46.764

2008 131.566

The Group started the financial year 2009 with cash balance of record high of 131.5 mil.(2008) which is more than 200% of 46.7 mil (FY2007). Reason behind is on 15th march 2007 the Group acquired 960,000 ordinary share of its 52% own subsidiary for a total consideration of $209,000. The five year summary of cash flow shows the impression that cash is well managed and borrowings kept as low as possible in order to maintain the low gross Gearing of 1%. Also the money not only invested in rapid expansion of fixed assets also wisely kept in reserves and Banks.

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5. Ratios
Ratios can be used to analysis the overall performance of a business and its shows the result of Board of Directors whether the business is on the track or not. Its also provide some focus on areas that need investigations.

5.1 Liquidity Ratios

Current Ratio which is compares Current asset to Current Liabilities. Current Ratio Example, Current Ration for FY2008, FY2008 = 495,132 = 220,848
Current Ratio

Current Asset / Current liabilities

2.24 :1

Liquidity Ratios

Acid test Ratio 3.00 2.80 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20 1.00

2004 Current Ratio Acid test Ratio 1.65 1.17

2005 1.67 1.29

2006 1.49 1.03

2007 1.55 1.11

2008 2.24 1.72

Successful business might have Current Ratio factor as more than 1:1, if we analysis Hi-Ps past five years trend for Current ratios all shows factor more than 1:1 .

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Post Module Assignment FACS Acid Ration for FY 2008 Acid test Ratio =
FY 2008 =

Current Asset - stock /Current liabilities

380,572 220,848 = 1.72 :1

Acid ratio calculate liquidity with out Stock of the Current asset, because its always difficult to sell stocks in case of Liquidation. So shareholders point of view Acid ration more important than Current ratio. Acid Ratio also shows positive result over the past five years of business. As mentioned in The Directors Report, to overcome the current financial crisis they have to be strict in cost control to compete more effectively and maintain its customer base.

5.2 Profitability Ratios

Profitability Ratios

Gross profit Ratio Net profit Ratio 30% 24% 18% 12% 6%

2004 Gross profit Ratio Net profit Ratio 24.94 15.70

2005 22.41 13.92

2006 14.46 6.89

2007 13.33 6.09

2008 18.33 9.49

0%

Gross Profit Ratio measures amount of profits regarding to total amount of sales for every financial year. Gross profit Ratio =
2008 =

Gross profit / Revenue

S$ '000 197,414 1,077,102 = 18.33 %

Hi-P is making margin of 18.3% (2008) compare to 13.3% for year 2007.

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Net profit Ratio =

2008 =

Net profit / Revenue

S$ '000 S102,228 1,077,102 = 9.49 %

Net profit Ratio used to compare the profitability of different entities internally as the Group applied same accounting polices. The Directors Report says Hi-P received bonus news of Gross margin improved from 13.3% in 2007 to 18.3% in 2008. So business is being more competitive and profitable.

ROCE = Net profit / Capital(Total Equity)

S$ '000 2008 = 102,228 558,650 18.30 %

Returns On Capital Employed

ROCE = Net profit / Capital(Total Equity)

36% 30% 24% 18% 12% 6% 0% 2004 2005 2006 2007 2008

As mentioned in the Director Reports for FY2008, Return on shareholder equity increased from 13.2% in 2007 to 18.3% in 2008. Even the board has recommended 2.2 S$ cents of Dividend per share for its shareholders.

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5.3 Efficiency Ratios

Asset Turnover Ratio indicates how effectively the shareholders funds are at generating Revenues. Asset Turnover Ratio =
2008 = S$ '000 1,077,102 558,650

Sales (Revenue) Capital Employed

1.93 Times

Efficiancy Ratios

Asset Turnover Ratio Fixed Asset Turnover Ratio 3.80 3.40 3.00 2.60 2.20 1.80 1.40 1.00

2004 Asset Turnover Ratio Fixed Asset Turnover Ratio 2.07 3.27

2005 1.74 2.64

2006 2.10 3.05

2007 2.14 3.30

2008 1.93 3.72

Fixed Asset Turnover Ratio Fixed Asset Turnover Ratio =

2008 = S$ '000 1,077,102 289,553

Sales (Revenue) Fixed asset at NBV

3.72 Times

It provides an analysis of how efficiently the fixes assets are at generating sales.(Ref. FACS module notes). There is no significant change in Fixed asset in 2008 (289 mil) compare to year 2007 (294Mil.) also the fixed asset at NBV. So the FA turnover ratios increased from 3.3 times (2007) to 3.7 times (2008).

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Debtor Collection Period This ratio gives an indication of how quickly a business is collecting its debts from customer. Its very useful as credit management is important for cash flow. Debtor collection period =
2008 = S$ '000 265,576 1,077,102

Average Debtors Sales (Revenue)

= 90.0 Days

X 365

Ave. Debtors = Debts 2008 + Debts 2007/ 2

Deptor collection period(No. of Days)

100 90 80 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008

As per Accounting policy Note 18. Trade and other receivables Trade and other receivables are non-interest bearing and are generally on 30 to 90 days terms. They are recognised at their original invoice amounts which represents their fair values on initial recognition.
(Ref. Annua Report Hi-P FY2008)

Although we manage it with in acceptable level we have to target reducing the no. of days from 60 to 90 day which is quite normal for manufacturing businesses.

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5.4 Investment Ratios

Dividend Yield = Dividend per Share(S$) Market price per share(S$)

CLOSING SHARE PRICE ON END OF APRIL 29' 2009 2008 = 0.022 0.520 4.23 %

CLOSING SHARE PRICE ON END OF APRIL 25' 2008 2007 = 0.015 0.540 2.78 %

Dividend yield used to calculate the returns on share holders investments. As per the Directors Reports, Hi-P rewarding highest dividend of S$0.022 per share despite lowering market price per share. It will give shareholders 52% more Dividend Yield compare to last year if the market price of the shares remains same. It might be helpful to increase shareholders level of confident thus can increase share price for the upcoming years.

(Ref. www.sgx-st.com.sg)

Devidend (S$)
SGD 0.024 SGD 0.020 SGD 0.016 SGD 0.012 SGD 0.008 SGD 0.004 SGD 0.000 2003 2004 2005 2006 2007 2008

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Gearing =
S$ '000 5,781 558,650

Net borrowings (Short + Long-Term liability) ShareHolders Funds (Total Equity)

= 1.03 %

FY2008 =

The Gearing ration gives and idea of how risky an investment in a business might be. Here I used to calculate the gearing ration by adding all short and long-term liability of borrowing. Compare to FY2007 Gearing ration of 7.54% Hi-P achieved very low gross Gearing ration of 1.03% this year by in creasing its total equity from 457Mil.(2007) to 558Mil. (2008) and reducing the net borrowing from 34Mil (2007) to 5.7 Mil. (2008).

Gearing Ratio
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

2004 Series1 8.48

2005 3.27

2006 7.00

2007 7.54

2008 1.03

As per the Directors Reports, the strong financial position with a low gross Gearing of 1.0% and Net Cash balance of S$126 mil, will allow the Group to navigate through the upcoming difficult times.

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Annual Reports

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Ratio Calculations Liquidity Ratios

Current Ratio =
2008 =

Current Asset /Current liabilities

495,132 220,848 0.04559 2007 = 473,543 305,375 383,097 257,208 1.55 :1 2.24 :1

2006

1.49

:1

2005

326,863 195,659 271,885 164,306

1.67

:1

2004

1.65

:1

Acid test Ratio =

FY 2008 =

Current Asset - stock /Current liabilities

380,572 220,848 1.72 :1

2007

338,341 305,375 264,601 257,208

1.11

:1

2006

1.03

:1

2005

252,572 195,659 191,607 164,306

1.29

:1

2004

1.17

:1

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Profitability Ratios
Gross profit Ratio
2008 =

Gross profit / Revenue

S$ '000 197,414 1,077,102 18.33 %

2007 =

130,150 976,566 121,319 839,081

13.33

2006 =

14.46

2005 =

141,876 632,954 139,891 560,931

22.41

2004 =

24.94

Net profit Ratio Net profit / Revenue

2008 = S$ '000 102,228 1,077,102 9.49 %

2007 =

59,452 976,566 57,791 839,081

6.09

2006 =

6.89

2005 =

88,128 632,954 88,053 560,931

13.92

2004 =

15.70

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Efficiency Ratios
Asset Turnover Ratio
2008 = S$ '000 1,077,102 558,650

Sales (Revenue) Capital Employed

1.93 Times

2007 =

976,566 457,045 839,081 398,740

2.14

2006 =

2.10

2005 =

632,954 363,780 560,931 271,218

1.74

2004 =

2.07

Fixed Asset Turnover Ratio

2008 = S$ '000 1,077,102 289,553

Sales (Revenue) Fixed asset at NBV

3.72 Times

2007 =

976,566 295,770 839,081 275,539

3.30

2006 =

3.05

2005 =

632,954 239,617 560,931 171,564

2.64

2004 =

3.27

ROCE =
2008 =

Net profit / Capital(Total Equity)

S$ '000 102,228 558,650 18.30 %

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2007 = 59,452 457,045 57,791 398,740 13.01 %

2006 =

14.49

2005 =

88,128 363,780 88,053 271,218

24.23

2004 =

32.47

Deptor collection period =

2008 = S$ '000 265,576 1,077,102

Average Deptors X 365 Sales (Revenue)

90.0 Days

2007 =

256,540 976,566 201,309 839,081

95.9

Days

2006 =

87.6

Days

2005 =

129,413 632,954 76,539 560,931

74.6

Days

2004 =

49.8

Days

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Gearing

Net borrowings (Short + Long-Term liability) ShareHolders Funds (Total Equity)

S$ '000 5,781 558,650 1.03 %

2008 =

2007 =

34,481 457,045 27,900 398,740

7.54

2006 =

7.00

2005 =

11,897 363,780 22,999 271,218

3.27

2004 =

8.48

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