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EXAMPLE CASE-‐STUDIES

FOR EXEMPLIFICATION PURPOSES ONLY. PLEASE DO NOT CITE, QUOTE OR CIRCULATE THIS PRESENTATION WITHOUT THE AUTHORS' PERMISSION

#1


Financial Analysis

ENGINEERING ECONOMICS 15’16 M. SC. IN BIOMEDICAL ENGINEERING AUTHORS: Cláudia Vasconcelos, David Ribeiro, Joana Faria, Rui Lourenço

Overview

v  Portugal Context market

v  Key performance indicators

v  José de Mello Saúde §  Context §  RaCos Analysis §  WACC

v England Context Market

v Spire Healthcare §  Context §  RaCos Analysis §  WACC

v Comparison

v Conclusions

Portugal Healthcare market

In 2011, 206 hospitals in Portugal, of which 103 were private

In 2011, the expenditure per capita in Portugal

was 21% and 22% below OECD and Eurozone,

respecCvely

Total health expenditure, at the end of 2011,

represented 10,2% of GDP

Portugal Healthcare market

José de Mello Saúde ( Millions)

Luz Saúde ( Millions)

PPP 106 47

Private 175 164

1/3 of the total in from PPP

Insurance companies (35 %)

ADSE (38 %)

Private market Out of pocket expenditures (OOPs) (15 %)

Private companies’ employees plans (8 %)

NHS and others (3 %)

Key Performance indicators – 2012


Key operaOng metrics ESS JMS HPP Nr hospitals 9 (1 PPP) 5 (2PPP) 6 (1PPP)

Nr ambulatory clinics 7 5 1 Nr senior care faciliCes 2 1 -‐

Beds 1131 1400 668 Nr consultaCons 1 362 000 1 439 000 596 000

Nr emergency visits 416 400 504 000 283 000 Nr surgery 2300 66 000 25 000


Key financial metrics ESS JMS HPP Revenues (€ mn) 341 451 185 Private Healthcare 289 277 122 Public healthcare 52 174 62

Revenue CAGR (2010-‐2012) 16.8% 13.4% 6.9% Private Healthcare EBIT (€ mn) 29 20 -‐2 Private Healthcare EBIT margin 10% 7.1% -‐

José de Mello Saúde

•  CUF •  Private healthcare sector •  70 years of acCvity •  Many units over the country:

•  Private •  Public-‐private

partnership •  SAGIES •  José de Mello Residences

and Services •  Revenues growth

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014

Sales and Services ( million €)

José de Mello Saúde -‐ Professionals

EvoluCon of the nr of employees

More than 7000 employees in 2014

EducaCon Seniority

José de Mello Saúde -‐ RaCo Analysis

Leverage Liquidity Efficiency Profitability

•  In 2013: Current assets < Current liabiliCes

•  Increased ability to meet short/medium-‐term obligaCons and to pay them

•  Cash raCo > 1 in 2014

José de Mello Saúde – Liquidity raCos

million € 2013 2014

Net working capital -‐11 57

0.95 0.92

0.59

1.29 1.26

0.85

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Current raCo Quick raCo Cash raCo

2013 2014

José de Mello Saúde – Leverage RaCo

Decrease proporCon of assets that are financed by liabiliCes;

Increase in the long term debt;

0.918

0.19

0.87

0.23

0.000

0.200

0.400

0.600

0.800

1.000

Total debt raCo Long-‐term debt raCo

2013 2014

11.26

1.74

6.83

3.19

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Debt to equity Time interest earned raCo

2013 2014

José de Mello Saúde – Profitability raCo

•  Increase in operaConal efficiency

•  Increase in profit margin

•  Decrease in the % of profit generated by the money invested by shareholders

•  Slightly increase in the assets profitability

3.77

2.54

6.57

3.18

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00

Return on sales (%) Net profit margin (%)

2013 2014

43.38

3.54

13.43

28.94

3.70 10.54

0.00

10.00

20.00

30.00

40.00

50.00

Return on equity (%)

Return on assets (%)

Return on capital Employed, ROCE

(%) 2013 2014

José de Mello Saúde – Efficiency raCo

2013 2014

Average collecCon

period( Monthly) 1.69 1.82

Average payment period ( Monthly) 11.11 10.19

ProducCvity 74 192.55 74 538.81

1.40

12.31

1.16

13.14

0.00

5.00

10.00

15.00

Asset turnover raCo Inventory turnover raCo

2013 2014

José de Mello Saúde -‐ WACC

2013 2014

Debt (D) 133262004 138998575

Equity (E) 28878160 58498206

Corporate tax rate (Tc) 0.25 0.25

Cost debt (Rd) 0.0522 0.0522

Cost equity (Re) 0.0818 0.0818

WACC 0.047 0.052

𝑊𝐴𝐶𝐶= 𝐸/𝑉  ∗𝑅𝑒+ 𝐷/𝑉 ∗𝑅𝑑 * (1-‐TC)

UK Healthcare market

Source: ONS

UK Private Healthcare market

§  Spire Healthcare Group plc is the second largest private healthcare provider in the UK.

UK Private Healthcare -‐ Spire

§  Spire’s principal market is private acute healthcare, worth, as a sector, an esCmated £7.17 billion in 2013, according to LaingBuisson.

The Spire difference

Spire Healthcare Group plc

Spire Healthcare – Liquidity raCos

Liquidity raCos

0.32 0.29 0.13

2.19 1.96

0.68

0

0.5

1

1.5

2

2.5

Current raCo Quick raCo Cash raCo

2013 2014

(£ million) 2013 2014

Net working capital -‐ 590.2 130.6

§  The company i s showing increasingly liquidity, therefore reducing risks by ensuring the ability to react to market moves.

Spire Healthcare – Leverage raCos

1.16

0.41

0.63

0.34

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Total debt raCo Long-‐term debt raCo

2103 2014

-‐7.31

0.68 0.65 0.7

-‐8 -‐7 -‐6 -‐5 -‐4 -‐3 -‐2 -‐1 0 1 2

Debt to equity raCo Times interest earned raCo

2103 2014

Leverage raCos

§  Both total debt and long-‐term debt raCos have decreased, thus proving that the company is reducing their financing relying on liabiliCes.

§  Debt to equity raCo has been reverted from negaCve to a posiCve value due to the entrance in the stock market, which generated an increase in Equity.

Spire Healthcare – Profitability raCos

-‐39.89

6.33 13.52

0.62 0.37 0.40

-‐50.00

-‐40.00

-‐30.00

-‐20.00

-‐10.00

0.00

10.00

20.00

Return on equity Return on assets Return on capital employed

2013 2014

13.03 13.37

7.02

0.70 0.00

5.00

10.00

15.00

Return on sales Net profit margin 2013 2014

•  ↓ Return on sales → increased operaCng costs and lack of sales increase

•  Significant drop in the net profit (£96.6 million)

•  NegaCve return on equity in 2013 → negaCve shareholder’s equity due to accumulated losses; 2014 → Spire entered the stock market

•  Decrease in the return on assets and capital employed

Spire Healthcare – Efficiency raCos

0.47

14.58

0.53

16.79

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Asset turnover raCo Inventory turnover raCo 2013 2014

(£ million) 2013 2014

Average collecCon

period( Monthly) 2.06 1.96

Average payment period ( Monthly)

2.73 2.7

ProducCvity (£) 106 625.80 119 386.63

Spire Healthcare -‐ WACC

(£ million) 2013 2014

Debt (D) 1628.9 498.8

Equity (E) -‐ 256.2 960

Corporate tax rate () 0.2 0.2

Cost debt () 0.0522 0.0522

Cost equity () 0.0818 0.0818

WACC 0.034 0.068

(1-‐)

SuggesCons to improve raCos

LEVERAGE RATIOS •  Examine the company’s debt to uncover áreas needing improvement and create a

long range acCon plan to address these áreas and pay down debt; •  Increase equity by increasing earnings; •  Minimize the overall amount of debt to decrease interest expenses; •  Reduce interest payments by evaluaCng financing alternaCves and possibly

refinancing exisCng debt.

LIQUIDITY RATIOS •  Consider paying off short-‐term obligaCons if the cash posiCon (cash raCo) of the

company is favourable; •  Consider converCng short-‐term debt to long-‐term debt; •  Reduce levels of non-‐moving inventory.

SuggesCons to improve raCos

PROFITABILITY RATIOS •  Require management to uClize budgets to track expenses on a regular basis, and idenCfy those

that are out of line; •  Reduce operaCng costs; •  Consider leasing instead of purchasing assets; •  Consider liquidaCng under-‐uClized assets or creaCng alternaCve uses to generate revenue from

under-‐uClised assets; EFFICIENCY RATIOS •  Carefully evaluate all asset purchases to determine how the asset will directly and indirectly

affect sales. •  Eliminate any unnecessary, extravagant assets; •  Prepare schedules to determine how long receivables have been outstanding. Communicate

with customers and apply increasing pressure to pay as the number of days outstanding increases.

•  Invoice customers in a Cmely manner;

Comparison

12.31 13.14 14.58 16.79

0.00

10.00

20.00

Inventory turnover raCo

Inventory turnover raOo JMS vs Spire

2013 JMS 2014 JMS 2013 SPIRE 2014 SPIRE

0.92 0.92 1.26

0.87

0.32

1.16

1.96

0.41

0.00 0.50 1.00 1.50 2.00 2.50

Quick raCo Total debt raCo

Quick raOo and Total debt raOo JMS vs Spire


2.54 3.54 3.18 3.70

13.37

6.33

0.70 0.37 0.00

5.00

10.00

15.00

Net profit margin Return on assets

Net profit margin and Return on assets JMS vs Spire


Conclusions

§  Acquire a larger financing through the entrance in the stock market to permit a bigger expansion;

§  Beter operaConal efficiency to

achieve augmentaCon of profit percentage;

§  Achieve posiCve retained earnings to avoid accumulated deficit for the next years;

§  Generate higher net profits to increase profitability;

§  UClise equity financing efficiently to reduce debt in contrast to increasing equity;

References •  htp://www.ons.gov.uk/ons/index.html •  htp://www.laingbuisson.co.uk/ •  htp://www.pordata.pt/Municipios/Hospitais+total+e+por+natureza

+insCtucional-‐247 •  (24th March 2014),” Espírito Santo Saúde” ,BPI Equity Research; •  htps://www.josedemellosaude.pt/ResourceLink/11465/Relat

%C3%B3rio2014_JM_FINAl++PT.pdf

QuesCons

#2


Financial Analysis of Vestas vs. Royal Dutch Shell

Robin Merl & Francesco Guzzi

Instituto Superior Tecnico – Engineering Economics

Agenda 1.   IntroducOon 2.   Industry Comparison 3.   Background on Companies 4.   Financial Analysis Indicators 5.   Analysis and Comparison 6.   Conclusions

Agenda 36

Why compare Wind with Oil?

• Both industries are connected to energy producCon

• One presenCng the “old school” and the other the “new

school” in the energy industry

• Another comparison, currently

sCll accurate, would be the “big

player” against the “small guy”

Introduction 37

ObjecCves

• How do the earnings potenCals of both companies look like?

• What are Vestas and Royal Dutch Shell

current and past financial condiCons?

• How do the two industries develop in the

future and what role does each company

play? Introduction 38

Agenda 1.   IntroducOon 2.   Industry Comparison 3.   Background on Companies 4.   Financial Analysis Indicators 5.   Analysis and Comparison 6.   Conclusion

Agenda 39

The Wind Energy Industry -‐ Past

•  Modern wind power industry began in 1979

with serial producCon of wind turbines

•  Order of new power •  installed in 2014 [1]

1.  Asia (first since 2009)

2.  Europe

3.  North America

Industry Comparison 40

The Wind Energy Industry -‐ Future

• Average Annual Investments PredicCons

[Billions USD-‐2012] [2]


2000-2013 2014-20 2021-25 2026-30 2031-35

43 76 81 97 113

The Oil Industry -‐ Past •  In 1825 Imperial Russia produced 3.500 tons of

oil. By mid-‐century the first modern oil

refineries were built and the industry grew

thanks to the popularity of kerosene lamps.

•  ProducCon and ConsumpCon of Oil & Gas (1989-‐2014) [3]


The Oil Industry -‐ Future

•  Average Annual Investments [Billions USD-‐2012] [2]

•  New technologies (e.g. shale gas and Cght oil) will increase

•  investments and producCon.

2000-2013 2014-20 2021-25 2026-30 2031-35

Oil 427 637 608 613 621

Gas 252 357 388 414 453



Agenda 44

Vestas

•  World’s only global energy company dedicated enCrely to wind power

Background on Companies 45

Products and Services •  Turbines & Technology •  Operations & Maintenance •  Options & Solutions

Vestas


1 DKK ~ 0.13 € Current Stock Price = 56.57 €

€(2,000)

€(1,000)

€-‐

€1,000

€2,000

€3,000

€4,000

€5,000

€6,000

€7,000

€8,000

2014 2013 2012 2011

Revenues and Net Pro/it/Loss

Revenue (m €) Net Profit/Loss (m €)

Royal Dutch Shell

•  Created through merger of Royal Dutch Petroleum and Shell Transport and Trading


Third largest company of the world based on revenue for 2015

In 2013 Royal Dutch Shells revenue was equal to 84% of the Netherlands GDP

Royal Dutch Shell


Current Stock Price = 23.80 €

-‐ €

50,000 €

100,000 €

150,000 €

200,000 €

250,000 €

300,000 €

350,000 €

400,000 €

450,000 €

500,000 €

2013 2012 2011 2010

Revenue and Net Pro/it/Loss

Revenue (m €) Net Profit/Loss (m €)


Agenda 49

Where from acquire financial informaCon?

Income Statement → Profit/Losses

•  Organizes and reports real cash that is generated and used

•  Is compared to net income to see if turns into cash

Financial Indicators 50

Balance Sheet → Assets/LiabiliCes

•  A statement of the assets, liabiliCes, and capital of a business

•  detailing the balance of income and expenditure over the preceding period.

• Cash flow statement → Liquidity of company

•  Shows how changes in balance sheet accounts and income affect cash

•  Presents all cash in- and outflows

•  Statement of stockholders’ equity

•  Shows all of the changes to the various stockholders' equity accounts

•  Changes within equity section of balance sheet are displayed

Financial informaCon Profitability RaOos

•  OperaCng margin / Return over sales

•  Net margin

•  ROE

•  ROA

Financial Indicators 51

Liquidity RaOos

•  Net working capital

•  Current raCo

•  Quick raCo

•  Cash raCo

• Leverage RaOos

•  Total debt raCo

•  Long-‐term debt raCo

•  Debt to equity raCo

•  Times interest earned raCo

•  Efficiency RaOos

•  Asset turnover raCo

•  Inventory turnover raCo

•  Average collecCon period

•  Average payment period


Agenda 52

Profitability RaCos

Analysis and Comparison 53

-‐1% -‐3% -‐6% -‐2% -‐10% -‐13%

-‐59%

-‐14%

2%

-‐1% -‐5%

-‐1%

[WERT] 6%

16%

6%

RETURN ON SALES NET PROFIT MARGIN ROE ROA

Vestas - Profitability Ratios

2011 2012 2013 2014

8%

5%

10%

4%

10%

6%

14%

6%

12%

7%

19%

9%

11%

6%

15%

8% 8%

4%

9%

5%

RETURN ON SALES NET PROFIT MARGIN ROE ROA

Shell - Profitability Ratios

2009 2010 2011 2012 2013

Analysis and Comparison

Liquidity RaCos

54

103%

36%

9%

118%

57%

23%

104%

55%

23%

108%

71%

46%

CURRENT RATIO QUICK RATIO CASH RATIO

Vestas - Liquidity Ratios

2011 2012 2013 2014

114%

44%

11%

112%

43%

13%

117%

39%

11%

118%

51%

19%

111%

43%

10%

CURRENT RATIO QUICK RATIO CASH RATIO

Shell - Liquidity Ratios

2009 2010 2011 2012 2013

Analysis and Comparison

Liquidity RaCos

55

127

662

110

339

NET WORKING CAPITAL

Vestas - Net Working Capital [m €]

2011 2012 2013 2014

11668 12342

17755 17118

10085

NET WORKING CAPITAL

Shell - Net Working Capital [m $]

2009 2010 2012 2011 2013


66%

14%

198%

77%

24%

330%

73%

15%

270%

66%

4%

194%

TOTAL DEBT RATIO LONG-‐TERM DEBT RATIO DEBT TO EQUITY RATIO

Vestas - Leverage Ratios

2011 2012 2013 2014

Leverage Ratios

Little long-term debt, high debt over equity for Vestas

54%

11%

119%

55%

11%

123%

53%

9%

111%

50%

9%

99%

49%

10%

97%

TOTAL DEBT RATIO LONG-‐TERM DEBT RATIO DEBT TO EQUITY RATIO

Shell - Leverage Ratios

2009 2010 2011 2012 2013


76%

201%

103%

286%

108%

364%

99%

380%

ASSET TURNOVER RATIO INVENTORY TURNOVER RATIO

Vestas - Efficiency Ratios

2011 2012 2013 2014

Efficieny RaCos

Increasing inventory turnover shows strong sales, higher values for Shell

97%

741%

116%

965%

139%

1277%

133%

1201%

126%

1177%

ASSET TURNOVER RATIO INVENTORY TURNOVER RATIO

Shell - Efficiency Ratios

2009 2010 2011 2012 2013


68.73

114.62

62.92 59.18 59.39 61.28 56.26

62.79

AVERAGE COLLECTION PERIOD AVERAGE PAYMENT PERIOD

Vestas - Collection/Payment Period [days]

2011 2012 2013 2014

Efficieny RaCos

Decreasing collection and payment time is positive

89.86

128.96

78.42

104.15

68.91

85.58

58.13

76.03

58.91

76.66

AVERAGE COLLECTION PERIOD AVERAGE PAYMENT PERIOD

Shell - Collection/Payment Period [days]

2009 2010 2011 2012 2013


Agenda 59

Conclusion

Conclusion Vestas •  Higher Leverage raCos à More debts

•  Will need to fight against growing compeCCon (especially emerging players from China)

•  Has been able to regain compeCCve advantage in the last few years a�er a slump during the financial crisis (took orders from 27 different countries in first half of 2015)

•  Higher short term liquidity raCos

Royal Dutch Shell •  Very likely to be able to retain their revenues on

short-‐term •  In comparison with less debt than Vestas •  Higher inventory raCos, which show strong sales

60

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