QANTAS AIRWAYS AND AUSENCO LTD

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[HBC 580 BUSINESS FINANCE AND QUANTITATIVE ANALYSIS]
SUBMITTED BY M. BABUR FARRUKH SAAD ZAFAR IQBAL FREDRICK

[Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

TABLE OF CONTENTS
EXECUTIVE SUMMARY COMPANIES PROFILE QANTAS AIRWAYS History Business and Investments Flights and Routes Fleet AUSENCO LTD History Recent Innovations Business Description Products and Services Ausenco Brand Idea SWOT ANALYSIS QANTAS SWOT ANALYSIS AUSENCO LTD SWOT ANALYSIS IPO PROCESS Step 1: Appoint advisers Step 2: Talk to ASX Step 3: Prepare and lodge Prospectus Step 4: Apply to list Why opt for IPO 4 5 5 5 5 6 7 8 9 9 10 10 10 12 13 13 14 14 15 15 17 17 18 18 19 19 19 20 20

EFFICIENCY RATIO Asset Turnover Inventory Turnover Current Performance PROFITABILITY RATIO Return on Total Assets Gross Profit Margin Net Profit Margin Current Performance

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

TABLE OF CONTENTS
LIQUIDITY RATIO Current Ratio Quick Ratio Current Performance GEARING RATIO Debt Equity Ratio Interest Cover Ratio Current Performance INVESTMENT RATIO Earnings per Share Current Performance Price/Book Value STOCK PRICE EXPLANATION FOR QANTAS AIRWAYS STOCK PRICE EXPLANATION FOR AUSENCO LTD CONCLUSION For Qantas Airways For Ausenco Ltd BIBLIOGRAPHY 21 21 21 22 22 22 23 23 24 24 24 25 26 27 28 28 29 30

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

EXECUTIVE SUMMARY
Ausenco Limited is a global engineering, construction management, procurement and operations service provider to the energy and process industries based in Australia, while Qantas Airways is an Australian based Airline and is a subset of Qantas Group. Both companies are public-listed on ASX (Australian Securities Exchange); Ausenco in 2006, Qantas in 1995. We discussed the Strengths, weaknesses, opportunity and threats to each company while giving an overview of the company as a whole. This report aims at analyzing and evaluating Ausenco Ltd and Qantas Airways, in its financial areas to help ascertain the performance of the company and make better judgment as to whether investment in this company will be worthwhile as at the time of this report. Therefore, ratios regarding profitability, efficiency, gearing, liquidity and investment ratios have been analyzed, thus indicating that investment made in this company will be beneficial and investors are encouraged to invest. Although judging by the figures obtained from the ratios, it may seem unreasonable to invest, but proper analysis indicated that Ausenco has been involve in heavy investments since it was listed on Australia securities exchange (ASX) in 2006. The company is well positioned in the market. However, the investments made are expected to yield returns in the years to come. Thus, immense growth is expected in the future as the company has taken on aggressive strategies such as diversification, acquisition, and merger. Viewing the financials of Qantas it was realized that, although, Qantas has being in existence for a long time and seem to be a successful firm they have not been paying dividends to shareholders even though there has been growth in the gross profit and net profit in recent year, showing that the company is investing on itself. It is also amazing when we observe that Qantas liquidity too was low, but then they have much asset recorded as property, plant, and equipment. For both companies, Ausenco and Qantas, the existing Shareholders have been advised to hold on to their shares as profit is expected to increase in the coming financials years. It is recommended, for potential shareholders, to venture into new shares now that the price is relatively low as more profit and strong return to investment are expected.

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

QANTAS AIRWAYS COMPANY PROFILE

HISTORY

Qantas with its success story and reputation amongst many other things is the world has ranked second oldest airline. The airline was founded in 1920, Queensland, Australia. Qantas lead services from Australia to North America and Europe, thereby standing as one of the worlds long distance carriers. Qantas presently employs about 32,500 people, while offering services across a network covering 182 destinations in 44 countries (including code share partners) in Australia, Asia, the Pacific, America, Europe, the Middle East, and Africa.
BUSINESS AND INVESTMENTS

Qantas Groups main business is the conveying of passengers using two complementary airline brands Qantas and Jet star. Qantas is segmented into three related groups: commercial, customer, Marketing, and Operations. The Commercial group comprises sales and distribution, commercial planning, Qantas Link and alliances. Customer and Marketing includes customer experience, cabin crew, in-flight services, and marketing. The Operations group comprises engineering, airports, catering, flight operations, operations planning, control, and Qantas Aviation Services. Jet star, the Groups low fares airline also manages the Jet star Asia operations based in Singapore. It also operates Qantas Frequent Flyer and Qantas Freight.
FLIGHTS AND ROUTES

Domestically, Qantas Link and Jet star operate around 5,600 flights a week serving 59 city and regional destinations in all states and mainland territories. Jet star also operates 160 domestic flights a week in New Zealand. Internationally, Qantas and Jet star operate more than 970 flights each week .The Groups network comprises 182 destinations in 44 countries, including Australia and those served by code share partner airlines.

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

FLEET

As of October 2011, the Qantas mainline fleet consists of the following aircraft: Qantas Fleet * Aircraft Total Orders Passengers F J W Y Total 235 237 301 310 297 Replacing Boeing 747400 and 400ER. Next two to be delivered in 2013; last six deferred until retirement of 747400ERs starting in 2018 Notes

36 199 Airbus A330200 8 3 36 201 36 265 42 268 Airbus A330300 10 30 267

Airbus A380800

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14 72 32 332

450

20 120 16 126 Boeing 737-400 15 12 132 8 138 4 144

140 142 144 146 148 Phasing out from 2013transferring to Alliance Airlines

150 150[30] Boeing 737-800 48 19[27] 12 156 14 66 40 187 Boeing 747-400 20 14 52 32 255 56 40 275 56 356 168 307 353 371 412 Phasing out from 2013 Replacement aircraft: Airbus A380 and Boeing 787 Orders replacing 737-400

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Sole operator of this version of the 747 to be replaced by A380s from 2018 Phasing out from 2012 Replacement aircraft: Boeing 787 Replacing Boeing 767-300ER and 747-400

Boeing 747400ER

14 66 40 187

307

24 204 Boeing 767300ER 24 30 214 30 224 Boeing 7879 Total 143 35 65 TBA

228 244 254

In total, Qantas and its subsidiaries operate 288 aircraft, which includes 62 aircraft by Jetstar Airways, 56 by the various Qantas Link - branded airlines, 10 by Jet connect, 10 by Network Aviation, four by Express Freighters Australia and five by Qantas Freight.

AUSENCO LIMITED COMPANY PROFILE

HISTORY

Formed in Brisbane in 1991, Ausenco Limited is a multi-disciplinary, public, listed company that provides engineering and project management services to the mining and mineral processing industries. Ausencos projects are not limited to Australia alone, but span all the 4 major continents including countries such as Canada, Panama, Argentina (Americas), Laos, Thailand, Malaysia, India (Asia), Italy, Romania, Cyprus (Europe), Kenya, Tanzania, and South Africa (Africa). Ausencos client list varies from the major resource companies such as BHP Billion and Rio Tinto, to the industrys smaller players. The firm has 300 staff and an annual turnover of approximately $100m. Ausencos activities can be classified along the following lines: Plant design, equipment specifications and materials selection; Engineering design to cover the following disciplines process, mechanical, earthworks, civil, structural, electrical, instrumentation, and control; Project management of projects for cost, schedule, and quality; Construction management of projects; and Cover the process plant and associated infrastructure of mining projects.

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

The firms services encompass all the major disciplines of the mining industry such as: Chemical and metallurgical engineering; Mechanical, civil, and structural engineering; Electrical engineering and instrumentation; Project and construction management The company also provides solutions in all aspects involved in managing the project such as engineering control, budgeting, scheduling and construction management. In addition to this, Ausenco provides plant start-up assistance, troubleshooting, and machine operator training. The firm has formed alliances with a number of firms around the globe to execute works. One of these is with GRINAKER LTA: A global construction group, which operates through three companies focusing on different aspects. The alliance allows Ausenco to have a major presence in southern Africa and allowed it access to new process technologies in the area of acid handling and Sulphuric acid production plant design and construction. Ausenco was awarded Queensland Exporter of the Year in 2004 and won the National Exporter of the Year for services in 2002 and 2004. It has also won awards as a supplier to the mining industry and for engineering excellence.
RECENT INNOVATIONS

Ausenco is a very technology-intensive firm. It has a group of people that examine technological processes and a Technical Manager whose role is to develop relationships with external organizations such as CSIRO, JK Tech and other 117 companies, which may approach them with particular technologies of interest. The Managing Director of the firm is also on the board of JK Tech. The firm develops a range of its own technologies in-house and through contract research with external research organizations. It also has a strong relationship with equipment suppliers, who help it develop technology-based innovations for its customers. The company has been growing strongly. It has always been structured as a matrix, with business units concentrated around services to clients and a corporate support group. The major business involves completion of feasibility studies and construction of mining projects. There are also continuous changes in IP and equipment/facilities. The IT Department is responsible for upgrading equipment but is also in charge of document management and control. The firm has implemented a number of changes to improve IT services for clients in recent years, including allowing clients to track the progress of projects live on their website. The firm is also active in video conferencing and internet-based presentations to clients around the world. They acquired Pipeline Systems Incorporation (PSI), vector Engineering and Sandwell. Ausenco Taggart Joint venture was also initiated at the end of 2008. They have also formed an alliance with whittle Consulting and Meteng. Finally, in 2010, One Ausenco was formed-the groups complete breadth of services and locations where repositioned and rebranded under the Australian Masterbrand. The Company, in January 8

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

2012, acquired Reaction Consulting Inc. It operates in about 20 countries and owns 30 to 33 offices globally.
BUSINESS DESCRIPTION

Ausenco Limited provides engineering design, project management, process controls, and operations solutions to energy, environment and sustainability, minerals and metals, process infrastructure, and program management sectors in Australia and internationally. It offers engineering and project management solutions for alternative energy projects; energy transport projects; and power generation projects. The companys environment and sustainability solutions comprise geotechnical, geo-mechanical, and geological engineering services; field services; materials testing services; water resource management services; environmental services; tailings storage and mine infrastructure projects; municipal waste facilities services; and greenhouse gas consulting services. In addition, its services for the minerals and metals sector include engineering, procurement, and technical services; enterprise optimization services; and design and delivery of mineral processing plants. Further, its process infrastructure solutions comprise pit-toport transportation systems; ports and marine facilities; coastal engineering and dredging; offshore and arctic facilities; slurry and liquid pipelines; bulk export and import terminals; mine infrastructure; railway and roadways; tailings management systems; control systems, such as supervisory control and data acquisition, process automation, and data management systems; pipeline optimization and leak detection software; pipeline simulator-operation and accident simulation software; and logistics and supply chain simulation solutions. Additionally, the company offers project management services, such as operations management, asset management, and registered training services; and program management solutions that comprise concept development, planning approval, design, construction, and maintenance services.
PRODUCTS AND SERVICES

Ausenco product and services includes engineering design, project management, process controls, and operations solutions to energy, environment and sustainability, minerals and metals, process infrastructure, and program management sectors in Australia and internationally. It offers engineering and project management solutions for alternative energy projects; energy transport projects; and power generation projects. Examples are Greenfield Kraft Pulp Mill Paper Machine, Fibrelines & Recaust for Mill Expansion St. Mary's Paper Inc. No. 5 Paper Machine Hog Fuelled Power Boiler OCC-to-Lightweight Linerboard Mill Modernization Studies for Nagaon and Cachar Paper mills Definition & Detailed Design for Cluster Rule Implementation Project. 9

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Ground Breaking Solution for Wastewater Treatment Upgrade
AUSENCO BRAND IDEA

Ausenco brand idea is ingenuity by example. It is the single thought that drives the people of Ausenco and represents what they stand for, believe in and value. In everything they do they strive to be true leaders and set the standard. They understand the necessity of extraordinary innovation and outstanding delivery. They understand the power of partnerships where their success is interconnected and shared. They strongly believe is only by working together, and with their clients, communities, and environment will they achieve more, as they strive to make a genuine impact on the world around them. It seems that is why their brand idea is ingenuity by example.

QANTAS AIRWAYS SWOT ANALYSIS

Qantas has announced the strategies of its 5-year plan in August 2011. These changes are expected to strip tens of millions of dollars of operating costs from Qantas. These include cutting 1000 jobs from its 36000 workforce (including pilots, engineers and cabin crew). Shifting its base closer to Asia by creating a new premium airline based in with a new name, new aircraft, new looks, and launches a new Jetstar Japan as a new low cost carrier together with Japan Airlines and Mitsubishi. Changing its plan by buying lots of fuel efficient Airbus A320 has to support its growth, which will increase its gearing. Seeking more strategic alliances, joint business agreement with American Airlines. Qantas will also restructure the joint services agreement with British Airways and explore opportunities with Malaysian Airlines. (Source: www.businesscasestudy.com.au)

Strength
Along with its subsidiaries served destinies, a number of international flights include almost all the continents like Africa, Oceania, Asia, Europe, and the Americas.

Weaknesses

Children travelling unaccompanied are not allowed to sit along with male travelers, which compel the men to feel sex discriminated as females can equally be suspected for child abuse. (Morisson and Being the most oldest in age, Qantas Winston 1997) airways is far ahead in experience, Despite being the oldest among the operational accountability, technology and airlines, Qantas airways had gone through services. one air accident in almost each decade For all classes including economy class, a which indicates inefficiency in technicality. luxurious entertainment system is provided Due to environmental constraints, some along with in flight internet facility, with long route direct flights are often delayed. every seat having a LCD screen. (Tayeh, 2006) Promising a comfortable journey, 10

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

traveling by Qantas effective. airlines is cost

A complete cabin system is provided with first class, business class, premium economy class and economy class categorization. A paramount commitment is assured through a proper customer charter including customers safety, in time departure and arrival, proper caretaking in case of any mishap and securing personal information of their customers. (Smith, 2002) An environment friendly approach through group environment policy considering all contemporary issue regarding environment for the attainment of green planet. Airway team has always been working for providing every possible route that is extending day by day. Shows their goodwill gestures at the time of emergency in their own region or for their own people settled abroad in the course of evacuation charter. Qantas airways had been declared as World Skytrax Airline of the Year (for five consecutive years), Skytrax Best Airline Australia (2005, 2006, 2008), and Skytrax Best Regional Airline Australia from 2006 to 2008 for their services along with several wine design and entertainment awards.

Opportunities
Proper policies are launched for regular flyers by points earning through any type of activity that includes money spending, through either hotel staying, credit card usage, car rentals, dining and much more. Members are also given different types of bounties time to time. Growing points increases customer value from silver, gold to platinum. 11

Threat
Strong response to global fuel price increase, by approximately half doubling the ticket on nearly 10% increase in fuel prices that has recently been noticed. Certain attempts of extortion were made that had an adverse effect on airline reputation but now they are almost sorted. Qantas were accused in 2006 and had

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Leases have been announced for new aircraft fleet to cater more passengers, employment opportunities, services efficiencies, and extending flying business. To promote easy access to executives, around the world, a club has been organized for uninterrupted and luxurious travel with priority check in and certain business related and personal facilities. Subscription can be made which range from one to several years. (George, 1982) been proved guilty for price fixing. They had to pay they were fined a huge deal of money, if this happens in future will prove a dire threat to airline reputation.

AUSENCO SWOT ANALYSIS

This analysis is to point out or identify in an organization or company or generally in business, its strength, weakness, opportunities, and finally its treat. This technique is credited to Albert Humphrey, a man who led research project at Stanford University in the 1960s and 1970s.

Strengths

Weakness

Diversification business operations Strong brand position Acquisition of Papua New Guinea based engineering company (PNG Kramar group) Expanding market share in sector Strong Liquidity

Declining operating margin Low return on equity Legal proceedings

Opportunities

Threat

Geographical spread Energy efficiency initiatives Expansion of service offerings

Foreign currency Risk Stringent regulations Intense competition

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

IPO PROCESS
ASX can provide your company or trust with invaluable access to retail and institutional investors and exposure throughout the world. By listing with ASX, a company will enter a new phase in its organizations development where it will become part of a select group of organizations on the global capital stage. Listing on ASX has helped thousands of companies achieve their growth ambitions and successfully make the transition to public ownership or by raising debt through the public market. The timetable for listing depends on the complexity and scale of the transaction, how quickly the listing can be prepared, and how quickly funds are received from investors. The amount of time taken to list can range from three months to two years, with six months being typical. The road to an initial public offering (IPO) usually involves the following steps:

Step 1: Appoint advisers

Professional advisers play an integral role in achieving a successful listing. They can help with a wide range of issues including legal, financial, accounting, valuation, and prospectus preparation, due diligence, underwriting, and marketing of the IPO. There are also specialist advisers such as independent valuation experts for specific industries such as the mining industry. Professional advisers may be able to assist you with are:

Corporate structure, prospectus, and legal matters Financial matters Marketing and distribution of securities Communication Key advisers who can assist you in these areas include:

Stockbrokers and Investment Banks - offer advisory services that can assist with the management of the listing process Underwriters agree to purchase any shares not taken up by investors under the IPO, to ensure the receipt of sufficient funds Lawyers assist with the legal aspects of a float Accountants advise on such aspects of the float as financial, taxation and valuation issues Share registries manage the register of share holders, process applications for the IPO and handle the share register on an ongoing basis. 13

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Step 2: Talk to ASX
There are usually numerous regulatory, structural and organization constitutional issues that a company needs to be aware of prior to listing. ASX recognizes that all organizations are different, and hence encourage the firms to meet with them in order to discuss specific circumstances. A. Preliminary stage - The ASX listings business development team is able to visit the company to find out more about the business, and to help the firm with general guidance on the IPO process. B. Advanced stage - If the company decides that listing on ASX is the correct course for their business, then ASXs experienced listings operations team can answer their queries regarding the ASX Listing Rules and general business issues including:

Constitution documents Related Party transactions Employee incentive schemes Listing timetables Meeting initial and ongoing listing rule obligations generally

Step 3: Prepare and lodge Prospectus

A prospectus is a document issued by a company setting out the terms of its equity issue (or debt raising). It provides the background, financial and management status of the company so that investors are able to make an informed decision about whether to invest. In most cases, a prospectus or similar disclosure document is required to list. The prospectus must be lodged with both the Australian Securities and Investments Commission (ASIC) and ASX. Amongst other things, a prospectus is required to contain all information that investors and their advisers would require to make an informed assessment of the following:

The assets, liabilities, financial position, profits and losses, and prospects of the organization; and The rights attaching to the shares. The due diligence process surrounds the preparation of the prospectus, allowing all parties to satisfy themselves of their legal responsibilities and the structure of the transaction.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Step 4: Apply to list
Having prepared and lodged the prospectus with ASIC, the company is then able to submit their listing application to ASX. The application form is contained in the ASX Listing Rules and has to be received by ASX within seven days of lodging ones prospectus with ASIC. ASX will review the application and prospectus and may seek additional information to assess the application and ensure that sufficient information is available for investors to make informed decisions once the organizations shares start trading. Qantas listed on ASX on 31 July 1995 while Ausenco Ltd listed on 15 June 2006. Why opt for IPO? The purpose of the Offer is to: Provide additional working capital to assist in funding Ausencos growth strategy. Provide Ausenco with an appropriate capital structure and the flexibility to pursue growth opportunities. Allow some of the existing shareholders to realize part of their investment in Ausenco. Provide an opportunity for Personnel to invest in Ausenco.

Ausenco, under the prospectus, offered 25,921,000 shares with the total number accumulating to 81,950,000 following the offer. The price for each share will be $1.00. The shareholding structure will be as follows: -

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Use of proceeds Sale of existing shareholders interests Net expenses of the Offer Working Capital Total amount raised $ raised 15,921,000 1,131,000 8,869,000 ----------------25,921,000

The offer has been underwritten by ABN AMRO Morgan Corporate Limited, which means that in the event the IPO is unable to raise the full amount of $25.9 million under the offer, ABN AMRO will procure subscriptions for any shortfall. Applications under the offer must be for a minimum of 2,000 shares ($2,000) and then in multiples of 100 shares. A portion of the offer has been reserved for Eligible Employees. Applications under the Employee Priority Offer must be for a minimum of 1,000 shares (at a cost to the Eligible Employee of $1,000) and thereafter-in multiples of 100 shares. Participating organizations of ASX will receive a handling fee of 1.0% on stamped application forms that receive an allocation of shares under the offer other than shares forming part of a firm allocation or the Employee Priority Offer. The Underwriter will pay this fee. The broker for this deal is Computershare Investor Services Pty Limited

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

EFFICIENCY RATIO
Efficiency ratios are to analyze how well a company utilizes its assets and liabilities internally. Qantass Efficiency Ratios Year/ Ratio Asset turnover Inventory Turnover Debtors turnover 1994 79.40% 6227.7% 11.12% 1995 80.23% 6207% 11.52% 1996 82.18% 1997 78.71% 2009 72.58% 5820.8% 5.66% 2010 69.17% 2011 71.41%

5736.8% 5351.2% 11.48% 11.14%

4317.2% 4003.7% 5.93% 5.63%

Ausencos Efficiency Ratios Year/ Ratio Asset turnover Inventory Turnover Debtors turnover 2004 3.15% 0.12% --2005 0.00% 0.00% --2006 214.83% --19.04% 2007 197.75% 2893.69% 6.52% 2008 130.42% 1605.80% 15.82%

Asset Turnover: - Commonly, the higher a firms total asset turnover, the more efficient its assets have been utilized. Before IPO, Qantas Airways Asset turnover ratio, in terms of utilizing their assets increased steadily, increasing from 79.40% to 80.23%. Post IPO, the same trend was observed for the year 1996 but it dropped by approximately 4% in 1997, from 82.18% to 78.71%, clearly showing a period in the companys history where efficiency in terms of utilizing their assets was decreasing. This pattern continued for an extended period, with the Asset Turnover ratio going as low as 64.60% in 2004 before stabilizing somewhat. Pre IPO, Ausenco Ltds Asset turnover ratios were abysmal to say the least, going on a downward trend; 3.15% in 2004 to 0.00% 2005, implying that they were unable to utilize their assets efficiently. However, Post IPO, the scenario is quite the opposite, with Asset turnover shooting up to 197.75% before coming down to 130.42% in 2008, which is still quite high when compared to other companies of the same industry (avg is 60.54%). Inventory Turnover: - This ratio shows how many times a company sells and replaces its inventory over a period. A low turnover for this ratio implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. On the other hand, high inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Qantas Airways has extremely high figures for Inventory Turnover, primarily, because in the airline industry new purchases, the latest and up-to-date Airplane maintenance machinery was bought. This new machinery helps Qantas maintain their fleet much more efficiently as well as keep them on the cusp of innovative technology. With new technology coming in the old machinery becomes obsolete, since there is little or no resale value for it. That is primarily because all the competitive airlines want to acquire the new machinery. Pre IPO the figures were steady; 6227.7% in 1994 and 6207% in 1995. Post IPO, the figures decreased; 5736.8% in 1996 to 5351.2% in 1997. This trend continued with the value going as low as 2643.41% (a very low figure for this industry) in 2003 before making its way back to higher figures, going as high as 8411.37% in 2007. Prior to IPO, for Ausenco Ltd, the Inventory Turnover Ratio was extremely low, 0.12% and 0% respectively, implying poor sales for the company. However, Post IPO, Inventory Turnover, like Asset Turnover ratio took a steep climb reaching figures of 2893.69% in 2007, primarily because Ausenco acquired a complete range of new equipment, with the old equipment going obsolete. They ratio came down to 1605.80% in 2008. Debtors Turnover: - It is a component of current assets and as such has direct influence on working capital position (liquidity) of the business. Normally higher the debtors turnover ratio better it is. Higher turnover signifies speedy and effective collection. Lower turnover indicates sluggish and inefficient collection leading to the doubts that receivables might contain significant doubtful debts. For, Qantas Airways, the Debtors turnover ratios are extremely low, overall. The ratio was on the upward trend Pre IPO, improving from 11.13% to 11.52% from 1994 to 1995. However, Post IPO, the ratio started a downward trend, 11.48% in 1996, and 11.14% in 1997, going as low as 6.68% in 2003 before recovering for a bit. For, Ausenco Ltd, there is no record available for Debtors turnover Pre IPO. Post IPO, the ratio was decent, 15.82% in 2007, going down to 10.09% in 2008. This trend continued until 2010 where the value reached 8.54%, after which it recovered to get to 13.36% in 2011. Current Performance: Qantas was less efficient in utilizing its resources to generate income from year 2009 2011 compared to Post IPO next 2 years. In 2010, Qantas was least efficient as company experiences low turnover in utilizing its assets to generate sales. Qantas Inventory turnover also decreased gradually between 2009 2011 valued at 4003.7% (least) due to mismanagement by Qantas of machineries for maintenance check of aircrafts and hence poor sales. Qantas also resulted in inefficient collection, due to significant continuous low Debtor turnover between 2009 2011 decreased respectively, and this low debtor turnover will also result in higher doubtful debts.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

PROFITABILITY RATIO
Profitability ratios show how well a company is able to perform and return profits to the business. In order to gain insight to Qantas Airways Companys performance, to determine profit relative to sales, total assets and net worth, our analyzing were based the Ratios, which is categorized under Return on Total Assets (ROA), Net Profit Margin and Gross Profit Margin. Qantass Profitability Ratios Year/ Ratio Return on total assets Gross profit margin Net profit Margin 1994 2.62% 9.64% 3.16% 1995 3.75% 12.29% 2.51% 1996 4.11% 1997 4.00% 2009 1.52% 11.13% 0.98% 2010 1.76% 10.97% 1.24% 2011 2.28% 11.39% 1.76%

12.34% 12.60% 3.25% 3.46%

Ausencos Profitability Ratios Year/ Ratio Return on total assets Gross profit margin Net profit Margin 2004 30.2% 10.5% 10.1% 2005 32.1% 9.65% 15.4% 2006 20.12% 13.88% 9.31% 2007 23.35% 14.66% 11.73% 2008 13.10% 14.26% 9.57%

Return on total assets: - It measures how well a company is using its assets to generate profits. Before IPO, in 1994 and 1995, Qantas Airways improved its ROE ratio in 1995 (3.75%) compared to 1994 (2.62%). After IPO, it improved its companys performance compared to before. However, in 1997, companys performance decreased when compared to 1996 (4.11%), primarily because the Capital expenditure for the year increased by 21.3% over the previous year, but still Qantas performance was better in terms of using its assets compared to before IPO. Before IPO, in 2004 and 2005, Ausenco Ltd managed its assets with higher generating profits especially in 2005 (32.1%). Post IPO, Ausenco assets ROE shows that it did not perform well as Ausenco is relying too much on debt financing. Hence it did not perform well and showed more poor performance in 2008 (13.10%) as its trade creditors in 2008 were $43,786 compared to 2007 (23.35%) which were valued at $10,995. Companys ROE will be low if it is relying too much on debt financing. Gross Profit Margin: - The gross profit margin provides an indication of how well a company is setting its product's prices and controlling its production costs. 19

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Before IPO, in 1995, compared to 1994, gross margin increased by 2.65 % as Qantas continued improving its engineering and maintenance efficiency. Post IPO, company gradually increased till 1997 (12.60%), when Qantas airways maintenance check reduced the average time spent by an aircraft on the ground from 41 to 31 days, further, elapsed days required for the inspections of airplanes reduced from 42.4 to 33.5 in 1997, which reduced cost of production and resulted in increase in Gross profit margin (3.46%). Before IPO, Ausencos performance decreased in 2005 (9.65%). Although the sales revenue increased in year 2005 ($79,240,000) compared to 2004 ($70,115,000), However, due to expansion of engineering services, Ausencos faced increase in cost of production and workforce, which increased from 340 to over 770 worldwide. Post IPO, Ausencos Gross profit margin improved compared to 2006, IPO year, due to massive increase in sales revenue in 2007. Although the revenue increased, further the following year, due to global engineering resource expansion in production, there was a slight decrease in 2008 gross profit margin. However, Post IPO is still higher as compared to before IPO. Net Profit Margin: - The Net Profit Margin ratio shows a company's after tax profit per dollar of sales. Sub-par profit margins indicate the firm's selling prices are relatively low or that its expenses are relatively high, or both. Pre IPO, Qantass Net Profit Margin decreased in 1995 (2.51%) compared to IPO in 1994 (3.16%). Post IPO, Qantass revenue increased gradually and in 1997, revenue increased by 3.1% to $7.8 billion, which eventually increased Net Profit margin. Before IPO, Ausenco performance was highest in 2005 (15.4%) as companys sales were high and Ausenco approved projects started after 2005. Post IPO, companys performance increased when compared to IPO year. Net profit after tax, in 2007, of $41.5 million, up by 209%, from $13.4 million in 2006. This result was achieved on record operating revenue of $356.9 million, a 125% increase from 2006, IPO year. Although in 2008, there was Net Profit after Tax increase of 36% to $56.3 million, still Net Profit margin was a little low compared to 2007, due to increase in expenses of about $9.3 million. Further from the annual report 2008, the reduced net profit margins are partly a reflection of acquisition costs being expensed. Current Performance: - According to the ratios, it indicates that Qantas is becoming more profitable in year 2010 and 2011 which shows the company is better prepared to handle down trends brought on by adverse conditions of the global financial meltdown during year 2007 2009, which had great impact on the revenue.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

LIQUIDITIY RATIO
Liquidity Ratio is the ability of an entity to earn profit, pay its debts and ability of a corporation to meet its long-term fixed expenses, which is to accomplish long-term expansion and growth. The better a company's solvency, the better it is financially. Qantass Liquidity Ratios Year/ Ratio Current Ratio Acid Test Ratio 1994 0.71325 0.65257 1995 0.74896 0.69965 1996 0.74456 0.64856 1997 0.66358 0.62356 2009 0.88859 0.85136 2010 0.93447 0.88335 2011 0.90473 0.84507

Ausencos Liquidity Ratios Year/ Ratio Current Ratio Acid Test Ratio 2004 1.61 1.60 2005 1.67 1.66 2006 1.62 1.62 2007 1.35 1.25 2008 1.13 0.93

Current Ratio: - Current ratio is the number of times current assets cover currents liabilities. It is a measure of the companys solvency or its ability to meet current liabilities as they fall due. Pre and Post IPO, Qantass ratio is below one, which means Current Liabilities, especially Qantas Creditors and borrowing of Qantas airways is more than Current Assets, specifically receivables, and hence company is facing liquidity problems. Before and after IPO, Ausencos ratio is above one, which means currents can cover its liabilities. Ausencos management policy implies maintaining sufficient assets to meet liabilities as they fall due. The companys liquidity was best in 2005 (1.67), as one of their strategies was to leverage off project success up to date. However, Post-IPO was low when compared to Pre-IPO. Quick Ratio: - The current ratio may be defined by removing inventories, which is the least liquid current assets, from current assets before dividing by current liabilities. Before IPO and Post IPO, for every dollar of Qantas Airways current liabilities, the firm has below $1 to cover those immediate obligations, which is not a good sign as liquidity shows they are insolvent. Post IPO, in year 2008, where the acid test ratio is 0.93 and is insolvent. It happened because Ausencos liquidated damages claim at the Lumwana project following the fire in July 2008 and other working capital commitments. As Ausenco has fallen below $1 to

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

cover those immediate obligations which is not a good sign as Ausenco have is facing liquidity issues in 2008. Current Performance: - The Current Ratios show Qantas Airways having a higher current ratio during fiscal years 2009, 2010, and 2011, ranging from 0.89, 0.93, and 0.90. This shows Qantas Airways had more liquidity during these years and was able to satisfy its short-term obligations. Quick ratio, as well, showed higher ratio in fiscal year 2007, 2010 and 2011 proving that Qantas Airways had higher liquidity, and lower ratio during year 2008 shows a lower liquidity while the Operating Cash Flow Ratio at Qantas Airways is less than 1.0 throughout its fiscal years from 2007 2011.

GEARING RATIO
The gearing ratio is the proportion of a company's debt to its equity, where a high gearing ratio represents a high proportion of debt to equity, and a low gearing ratio represents a low proportion of debt to equity. Qantass Gearing Ratios 1994 Debt Equity Ratios Interest Cover Ratio 140.02% 7.5495 1995 1996 1997 2009 95.46% 10.409 2010 95.60% 4.16 2011 98.05% 3.9646

134.01% 127.79% 121.22% 2.9312 4.5365 5.3707

Ausencos Gearing Ratios 2004 Debt Equity Ratio Interest Cover Ratio 1.19% --2005 1.67% --2006 2.51% -155.97 2007 2.34% -18.14 2008 62.06% 41.66

Debt Equity Ratios: - The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors, and obligors have committed to the company versus what the shareholders have committed. Before IPO, especially in 1994 (140.02%), high debt-to-equity for Qantas Airways may not be able to generate enough cash to satisfy its debt obligations. However, Post IPO, Qantas Debt Equity Ratio is gradually decreasing. Cash flows from operations rose to $936.4 million from $853.8 million in 1996, largely due to increased sales and reduced net interest. Qantas continued its program of debt reduction, repaying a further $685.7 million during 1996 compared to $555.4 million in 1995, however, still not enough to pay back its debts completely as all current ratio shows that it is below one.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Before IPO, in 2004 and 2005, the Debt Equity Ratio is low i.e. Ausenco is not taking advantage of the increased profits that financial leverage may bring. However, in 2005 company was involved in a project, which has combine value of $2billion. Post IPO, especially in 2008 (62.06%), as Debt Equity is highest, hence compared to before IPO, Ausenco did not generate enough cash to satisfy its debt obligation. Under companys current performance 2009, 2010 & 2011, where Qantas airways, for every dollar own by shareholder, Qantas owes less than $1 to shareholder. Low debt-toequity ratios may also indicate that a Qantas airway is not taking advantage of the increased profits that financial leverage may bring. Interest Cover ratio: - The interest coverage ratio is a measure of how well a company can meet its interest-payment obligations. Before IPO, in 1994, the company has high interest cover ratio, which indicates that Qantas is too safe and not taking enough risks, however it dramatically decreased in 1995 (2.9312). Ratio above 1.5 indicates that a company can easily meet its interest obligation. It is under the policy of Qantas airways that, Cross currency swaps were used to convert long-term offshore borrowings to currencies in which the Economic Entity has forecast sufficient surplus revenues to meet the principal and interest obligations under the swaps. If Interest cover ratio is below one, it means company is not able to meet interest obligation. However, Qantas airways, Pre IPO and Post IPO, have ratio are above 1.5 and hence its ability to pay taxes may not be questionable. Post IPO, companys interest cover ratio gradually increased again in 1996(4.5365) and 1997(5.3707). Post IPO, in 2007, Ausenco has too low interest cover ratio, which indicates that Ausenco if borrows more money, would face difficulty in paying off its debts, compared to 2008 (41.66), which is because Ausenco, is too safe and not taking enough risk compared to previous year especially 2005, where Ausenco made investment on a project worth $2billion. Under current performance, companys gearing ratio is the highest in 2009, which is valued at 10.409, with high operating income compared to other Pre and Post IPO years, is a better sign for Qantas airways in term of paying its interest obligation.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

INVESTMENT RATIO
Investment ratios help to determine whether an investment in a particular entity is likely to be profitable and safe. Qantass Investment Ratios 1994 Earnings per share Price/Book value 0 0 1995 0 0 1996 14.54 0.91 1997 14.85 1.29 2009 2.60 0.79 2010 5.04 0.83 2011 7.42 0.94

Ausencos Investment Ratios 2004 Earnings per share Price/Book value ----2005 --0 2006 20.45 9.19 2007 31.21 22.44 2008 3.54 1.1

Earnings per share: - It is for calculation of company's profit allocated to each outstanding share of common stock. EPS measure of profitability and it allows shareholders to compare one year's earnings with that of another year. More the profit greater the earnings per share will be. Historically, the average P/E ratio for the broad market has been around 15. Post IPO, for Qantas Airways, from 1996 to 1997, the EPS increased primarily due to the increase in revenue, $8,142,600,000 to $8,423,400,224. With the expenses kept in check, the net profit margin increased, thus increasing the Earnings per share. Current Performance: In 2009, when the financial crisis hit, many people who had lost their jobs had to reduce their expenses. Travelling from air was one such expense. With the revenue coming down from 2008s $15.75 billion and the expenses staying the same, $14.55 billion, the net gross profit fell down, decreasing EPS, dramatically, to 2.60. In 2011, it recovered to move to 7.42, primarily due to Qantas keeping their expenses in check while the revenues continued to increase steadily. For Ausenco Ltd, 2006 (the year of IPO) showed high earnings per share, primarily due to the high revenues earned. Post IPO, the revenue earned in 2007 was almost 250% more than earned in 2006, $144.1 million to $353.8 million in 2007, with expenses not suffering the same kind of inflation. Ausenco also signed some big projects during this year, which provided them with extra revenue. However extremely low EPS were observed in 2008, although the net profit margin was better than what it was in 2006, year of the IPO. This happened because, instead of distributing the profit as dividends amongst the shareholder, the company reinvested most of the money back into the company. 24

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Price/Book value (P/B): - It is the ratio of market price of a company's shares (share price) over its book value of equity. The book value of equity, in turn, is the value of a company's assets expressed on the balance sheet. As with other ratios, P/E varies a fair amount industry by industry. Those, which require more infrastructure capital (for each dollar of profit), will usually trade at P/B ratios much lower than, for example, consulting firms. A higher P/B ratio implies that investors expect management to create more value from a given set of assets, else equal (and/or that the market value of the firm's assets is significantly higher than their accounting value). P/B ratios do not, directly, provide any information on the ability of the firm to generate profits or cash for shareholders. Qantas Airways p/b ratio values are very small primarily because the company requires more infrastructure capital. Due to that, prospective shareholders are reluctant to invest in the company. Due to low earnings per share, fewer people were interested in investing their money in Qantas. For Ausenco Limited the p/b ratio should again be small, since it requires infrastructure capital. However, after the IPO, we observe a very strange statistic; i.e. shareholders getting high dividends, which encouraged more shareholders to invest in Ausenco. 2007 and 2008 invited a lot of investment into Ausenco primarily because of the high earnings per share.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Qantas Airways Limited (ASX: QAN) Year 1999 2000 2001 2002 2003 Stock Price 4.28 16.45 2.91 4.46 3.18

2004 3.44

2005 2006 3.52 3.65

2007 5.14

2008 3.71

2009 1.85

2010 2.85

2011 2.09

With Qantas buying Jetstar and integrating, it into Qantas group there was no competitor. Qantas had total monopoly over the Australian sky. Revenues went sky high in 2000, since there was only one carrier in Australia. People started to invest due to the company showing high revenues for the year 1999 and 2000, which further increased their cash flow and investing power. Qantas Airways Ltd raised the fuel surcharge on its domestic and international tickets by $4 and $7, respectively, because of the high price of oil which overnight topped $US48 per barrel. The domestic fuel surcharge rose to $10 from the $6 per sector charge introduced in May 2009. The surcharge on international sectors rose to $22 from $15, reducing its revenue since people started looking for alternatives. Year over year, Qantas Airways Limited has been able to grow revenues from $11.8 billion to $12.9 billion. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 84.25% to 83.05%. This driver led to a bottom line growth from $112.0 million to $250.0 million from year 2010 to 2011. 26

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

Ausenco Limited (ASX: AAX) Year 2006 2007 2008 Stock Price 4.00 15.07 15.04

2009 4.24

2010 2.21

2011 2.90

Up until 2008 Ausenco (AAX) was a darling of the market indeed it had reason to be. It had a record of accomplishment of being a profitable business and in 2007 was generating a profit of $41.5 million on only $56 million of equity a stellar 95% return. A 2007 estimate of AAXs intrinsic value would be something like $15.07. By the end of 2008, growth was turbocharged. The combination of substantial acquisitions however saw an additional $106.6 million of equity raised and debt jumped to $66 million. In other words, shareholders equity ballooned by 325%, to $182 million, compared to the previous year. In addition, by 2009 the numbers agreed. A profit of $20.3m was reported, but $260 million was needed to produce it. So the profit was lower than 2007, but significantly, more money had been contributed. Ausenco shares closed up 29 cents, at $3.75 after the company on Wednesday reported a net profit for the 2011 calendar year of $26.4 million, compared to a net loss of $10.7 million for 2010. 27

HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

CONCLUSION
For Qantas Airways: Although Qantas has not given any dividend in the past two year, they do have positive net profit; implying that they have been investing all of the profits into the firm for further expansions and acquiring of new assets. Another fact to note is that their net profit is increasing yearly since the financial crisis in 2009. The main point of concern when it comes to Qantas is the liquidity. The company is not liquid, which raises concerns for future investors, whether they, Qantas, would be able to meet their short-term debts. We compared the liquidity ratios with a direct competitor of Qantas Airways in the same region; Air Newzealand. Current Ratio 2008 1.25 0.74 2009 1.29 0.89 2010 1.05 0.93 2011 0.81 0.90

Air Newzealand Qantas Airways

Quick Ratio/Acid Test Ratio 2008 1.17 0.71 2009 1.21 0.85 2010 0.95 0.88 2011 0.72 0.85

Air Newzealand Qantas Airways

It is quite visible from these statistics that Air Newzealand was more liquid than Qantas a few years back. Now, though, Qantas Airways is just in front of their counterparts. However, with the net profits on the rise, and what with Qantas having many fixed assets it will not be a problem for them to cover their short-term debts. Worse comes to worse they can always liquidate some of their fixed assets to cover the immediate short fall if need be. Another plus point for Qantas is their close affiliation with the government. With the future forecast, the new strategic plans by Qantas and the recent growth and improvement recorded in the last two financial years, the existing Shareholders are advised to hold on to their shares as profit is expected to increase in the coming financials years. Potential shareholders are recommended to venture into Qantas shares now that the price is relatively low as more profit and strong return to investment are expected.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

For Ausenco Ltd: This research work is not without limitations such as availability of data; nonetheless, with the available data and proper analysis of the data, Ausenco ltd is a well-positioned company in Australia, which has spread its tentacles all over the world. Further growth of the company is expected especially as the company is not relenting in expansion effort. In fact, from the year of its listing in ASX, the company has been doing major meaningful investments, acquiring and merging, diversifying and innovating. These are strong character of a company reaching for the sky. In fact, up until 2008, Ausenco (AAX) was a major player in the market. It had a record of accomplishments, of being profitable business and in 2007; the company was generating a profit of $41.5million on only $56million of equity, thus a stellar 95% return. However, by the end of 2008, growth was increased. The combination of substantial acquisitions however saw an additional $106.6million of equity braised and debt jumped to $66million. In other words, shareholders equity grew by 32% to 182 million, compared to the previous year. Furthermore, by 2009, a profit of $20.3 was reported, but $260million was needed to produce it. Therefore, the profit was lower than that of 2007, even at that, more money has been contributed significantly. Ausenco shares closed up 29cent at $3.75 after the company on Wednesday reported net profit for the 2011 calendar year of $26.4million. Compared to a net loss of $10.7million for 2010. Therefore, prima facie, Ausenco (AAX) is doing well amongst company of its kinds, although lots need to be improved in the profit making, but it seems obvious that is only a matter of little time, since the company took earlier initiatives of not allowing idle money remain idle for long so to speak. In a nutshell, shareholders in Ausenco (AASX) are encouraged to retain their shares, while new investors or intending investors are advice to take a chance with Ausenco, because is a company with lots of achievable promises.

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

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HBC 580 BUSINESS FINANACE AND QUANTITATIVE ANALYSIS 2012

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