2nd Semester 16/17
Financial StatementAnalysis
Professor Cristina Neto de Carvalho
TeachingAssistant:Sofia Pereira
Group:
Beatriz Loureiro Castelão–151116011 - S2
Maria Margarida Leal Barona Barreiros -151216004 - S2
Pedro Maria Rocha Moreira Teixeira Duarte – 151216008 - S2
ABOUT NOS
The NOS Group was founded in 2014 after the merger of two of the biggest corporations in the Portuguese
telecommunication sector: Zon and Optimus. The purpose of the creation of this company was to combine two mediumsized companies into a Portuguese giant in the sector.
Given the size of both enterprises, after the fusion, NOS entered the restrict lot of one of three main suppliers of
Telecom services in Portugal. Besides Telecommunications, NOS is alsodeeply acquainted within the cinema sector
through its subsidiaries NOS Lusomundo Audiovisuais and NOS Lusomundo Cinemas, being, at the moment, the
largest exhibitor of cinema in Portugal.
Image 1 - NOS Corporate Structure
Source: NOS 2015 Annual Report
The fusion of Zon and Optimus, which had operations in similar markets, but had some subsidiaries performing its
activities in different sub-industries, conceived a company with presence in a wide range of activities, making NOS one
of the most prominent Portuguese companies in the field.
Its business portfolio includes a vast range of operations that go from communications (both within and outside the
country i.e. ZAP, NOS’ subsidiary in Angola), to cinemas and to music (NOS Alive and NOS Primavera Sound, two of
the most beloved music festivals in the country).
All of these prosperousbusinesses contribute to the brand’sreputation and to an ongoing increase in the number of new
customers in the past years.
1
OWNERSHIP
NOS, SGPS, S.A. is a public listed company, issuer of shares admitted to trading on the Euronext Lisbon – PSI 20
regulated market and it is firmly committed to creating sustainable value for its shareholders and other stakeholders.
ZOPT:
NOS’ largest shareholder is ZOPT, SGPS, S.A., with a qualified participation of 52.15% of the share capital and voting
rights of NOS, SGPS, S.A in 2015.Sonaecom holds 50% ZOPT SGPS and the remainder 50% belong to Isabel dos
Santos, through holdings like Kento and Unitel International.
BANCO BPI, S.A., NORGES BANK AND BLACKROCK, INC:
There are three entities who own qualified participations, besides ZOPT. These entities are Banco BPI, which holds
2,77% of share capital by its Pension Fund; Norges Bank (Norway’s Central Bank) holding 2,11%; and Blackrock, an
American global investment management corporation that holds 2,01% of share capital.
Major Shareholders
2014
Major Shareholders
2013
28,78%
41,02%
2,90%
3,00%
3,49%
7,28%
50,01%
50,01%
2,14%
4,53%
2,31%
ZOPT, SGPS, PT
Banco BPI, SA
Sonaecom, SGPS, SA
Fundação José Berardo e Metalgest
Espírito Santo Irmãos, SGPS
Joaquim Alves Ferreira de Oliveira
4,52%
ZOPT, SGPS, PT
Banco BPI, SA
Morgan Stanley
Sonaecom, SGPS, SA
Free Float
Free Float
Major Shareholders
2015
Image 2 - NOS Ownership Structure
40,96%
52,15%
Source: NOS 2013/14/15 Annual Report
2,01%
2,11%
2,77%
ZOPT, SGPS, PT
Banco BPI, SA
Blackrock, Inc
Free Float
Norges Bank
2
INDUSTRY
Given that Communications are NOS core business, Vodafone and PT Portugal are the only companies in Portugal
similar enough to NOS’s business as whole; therefore, we can say that they are its biggest competitors.
2015
2014
2013
GR 13/14
Values
Values
Values
Values
(thousand
%
euros)
(thousand
%
euros)
(thousand
%
euros)
GR 14/15
Values
(thousand
%
euros)
(thousand
%
euros)
Sales
NOS
1.444.000
100
1.384.000
100
1.427.000
100
-43.000
-3,0
60.000
4,2
973.864
67
978.799
71
1.051.860
74
-73.061
-6,9
-4.935
-0,5
2.533.000
175
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
NOS
82.000
100
75.000
100
11.000
100
64.000
581,8
7.000
8,5
Vodafone PT
29.489
36
66.290
88
90.238
820
-23.948
-26,5
-36.801
-124,8
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
NOS
2.976.000
100
2.955.000
100
2.929.000
100
26.000
0
21.000
0,7
Vodafone PT
1.291.627
43
1.136.805
38
989.971
34
-16.484
0
154.822
12,0
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
1.484
I.D.
1.434
I.D.
1.422
I.D.
10.696.000
I.D.
Non-Disclosed
I.D.
Non-Disclosed
I.D.
Vodafone PT
MEO
Net Profit
MEO
Insufficient
Data
I.D.
Insufficient
I.D.
Data
Asset Values
MEO
Insufficient
Data
I.D.
Insufficient
I.D.
Data
Nº
Employees
NOS
Vodafone PT
MEO
Insufficient
Data
Insufficient
Data
Insufficient
Data
I.D.
I.D.
I.D.
Insufficient
I.D.
Data
Insufficient
I.D.
Data
Insufficient
I.D.
Data
The Portuguese telecommunications market, with a high level of penetration of telecommunications services and
technological sophistication, has a very high level of investment in communications´ networks when compared with
other international markets. Despite this, the total market revenue has seen a fall of 5.3% over the last 5 years,
attributable to the existing great competitiveness, which made all the companies in the sector to lower prices in order to
increase quantities sold. Nevertheless, NOS has been carrying out its market growth strategy more successfully than it
was expected. They’ve reached 30% total revenue market-share1, a target that had initially been set to 2018, having
grown,
1
on
average,
1,4%
annually
while
the
market
fell
around
4%
a
year.
Telecommunications sector
3
Regarding the different segments, namely the residential services and the personal mobile segments, NOS was able to
counteract the ongoing downward tendencies, strengthen its position as leading operator (increasing its total mobile
customer base to 4.123 million subscribers, corresponding to a market share of 25%, 10.2pp more than at the end of
2013),
and
recover
its
TV
customer
base.
Concerning the business segment, NOS was able not only to convey to large companies, as well as to small and
medium enterprises, their high quality services, but also to prove their competitiveness against the alternatives present
in the market. Thus, NOS managed to increase the volume of services provided to this market segment.
Revenue Market Share
per Operator
2%
30%
48%
20%
NOS
Vodafone
PT
Others
SALES
Sales
Thousands of euros
2015
2014
2013
Growth
2014/201 2013/201
5
4
Values
%
Values
%
Values
%
Telco
48,751
72.89%
40,576
70.38%
16,235
45.55%
20.15%
149.93%
Audiovisuals and cinema exhibition
18,129
27.11%
17,077
29.62%
19,411
54.45%
6.16%
-12.02%
Total Sales
66,880
100.00
%
57,653
100.00
%
35,646
100.00
%
16.00%
61.74%
In 2015, total sales amounted to 66,880 thousands of euros. 72.89% of this amount relates to Telco, namely with the
sale of terminal equipment, telephones and mobile phones; 27.11% concerns to Audiovisuals and cinema exhibition,
4
which includes sales of bar products by NOS Cinemas as well as DVD sales. In 2013, Telco was
responsible for almost 46% of
Sales, whereas Audiovisuals represented around 54%. Since then, the scenario has changed. For the past two years
Telco has had a more significant share in total sales (around 70%).
In regards to total sales, this figure has shown a growing tendency: it grew 62% from 2013 to 2014 (due to the
consolidation of Zon and Optimus), 16% from 2014 to 2015 resulting in an 88% growth in the two-year period between
2013 and 2015.
INVESTMENTS
Investments
Thousands of euros
2015
2014
2013
Values
%
Values
Tangible Assets
262,056
56.01%
251,790
53.64% 146,751
67.48%
3.92%
41.72%
Intangible Assets
146,227
31.25%
134,802
28.72%
65,572
30.15%
7.81%
51.36%
Financial Investments
59,589
12.74%
82,788
17.64%
5,138
2.36% -38.93%
93.79%
Total
467,872
100.00% 469,380
%
Values
Growth
%
100.00% 217,461 100.00%
14/15
-0.32%
13/14
53.67%
As far as investments go, and regardless of the year, the major share is related to TangibleAssets. Being a company
specially focused on telecommunications, NOS invests mainly in network and telecommunications infrastructure such as
fiber optic network and cabling and network equipment, as well as terminal equipment installed on client premises.
Furthermore, NOS invests in Intangibles, mostly in Industrial Property and other Rights. These include licensing deals,
contracts, capitalized costs related to customers’ loyalty contracts and future rights to use movies and series.
EMPLOYEES
In NOS’ executive team, we can find Miguel Almeida (CEO); José Pedro Pereira da Costa (CFO); Ana Paula Marques;
André Almeida andalso Manuel Ramalho Eanes.
The number of employees is an information that is not disclosed in the financial statements.
5
STRATEGY
NOS presented its strategic plan for 2014 to 2018 in February 2014, in which they identified their main goals,
which included both growth and efficiency targets.
The following points represent a few highlights from the company’s strategic report:
 Strengthening the competitive market position in the residential segment
 Growing market share in the business segment
 Network expansion and technological strengthening
 Increasing the EBITDA margin as well as operating efficiency
 Reinforcing leadership in the Pay – TV segment
 Consolidating the leading position in the Audiovisual and Cinemas´ segment.
To sum up, we can conclude that this company’s main strategic focus is on ensuring technological leadership
and maximizing their efficiency as well as competitiveness while making full use of the entertainment and
brand-awareness synergies to leverage the NOS brand in the targeted segments of their business.
Analysis of NOS 2013-2015 Annual Reports
Statement of Financial Position
1. Asset analysis 2015: Values, structure and changes
At 31st December 2015, NOS reported a noteworthy value of total assets: 2 976 494 thousand euros.
Non-current assets represented 84.33% of total assets.
Tangible assets, as well, as Intangible assets were the main reason for such a large percentage. Tangible assets, which
accounted for 39.23% of assets, were composed essentially by basic equipment, namely network and
telecommunications infrastructure2; Intangible assets, which represented 39.60% of assets, were composed mainly by
Goodwill (21.56% of assets), licenses, loyalty contracts and future rights to use movies and series3.
2
Fiber optic network and cabling, network equipment and also terminal equipment installed on client premises (Note 8 – Tangible
Assets)
3
Note 9 - Intangible Assets
6
Current assets represented 15.67% of assets. Accounts receivable (from companies and
individuals) regarding trade, prepaid expenses and Inventories were the most relevant items concerning Current assets.
Accounts receivable (trade)
accounted for 11.69% of assets. The Days Sales Outstanding in the period were steady in the 87/88 days; Prepaid
expenses (2.17% of assets) were related to litigation costs, discounts to new customers under loyalty programmes,
insurance; Inventories, which mainly included mobile phones, customer terminal equipment and DVDs, represented
1.03% of assets.
In what concerns the changes regarding the years 2015, 2014 and 2013, their asset base has been virtually the
same: registered a growth of 0.89% (+26 059 thousands of euros) from 2013 to 2014, a growth of 0.70% (+20 562
thousands of euros) from 2015 to 2014, resulting in a small growth of 1.59% from 2013 to 2015. This increase in the
total amount of assets was primarily motivated by the increase in tangible assets, accounts receivable and prepaid
expenses over the years.
In terms of structure, it remained constant throughout the period under analysis, with Non-current assets representing
about 84% of total assets whereas current assets represented roughly 16% of total assets.
2. Liabilities / Equity analysis 2015: Values, structure and changes
In 2015, NOS financed their assets with both Liabilities (64.27%) and Equity (35.73%). Total equity amounted to 1 063
522 thousands of euros and total liabilities to 1 912 972 thousands of euros.
Non-current liabilities financed 38.66% of total assets.
It was mainly composed of borrowings (which represented 32.91% of total assets) and provisions (4.69% of total assets,
mainly for litigations and for the dismantling and removal of assets regarding the space where there are
telecommunication towers and cinemas).
Current liabilities financed 25.61% of total assets.
The main items were accounts payable (trade) which financed 11,00% of assets and were related to their suppliers;
borrowings (5.98%) and accrued expenses (5.91% of assets) which relate mainly to invoices to be billed by operators,
mainly international operators, regarding interconnection costs related with international traffic and roaming services
amongst other items.
In what concerns the changes regarding the of years 2015, 2014 and 2013, equity registered a growth of only 0.31%
from 2013 to 2015, which was the result of a 0.32% growth from 2014 to 2015, preceded by a residual decrease of
0.01% from 2013 to 2014.
7
Despite the fact that Net Income has increased substantially in the period (665.22% over the course
of three years), equity did not follow the same trend. That is an interesting fact, since it would be expectable that along
with an augmentation of net profit, a growth in equity would follow. The main reasoning behind this lies in the company
shareholders’ remuneration policies, which gave to shareholders (in the form of dividends), and to employees (in the
form of bonuses) almost the entire profits for the period.
Moreover, the weight of liabilities has also been increasing: in 2013, they represented 63.81% of assets, in 2014
64.14% and now in 2015 they represent 64.27%, which culminates in a growth of 2.32% over three years mainly due to
an increase in non-current borrowings.
To sum up, we may conclude that this company is financially stable, distributing most of its profits year after year and
with equity and liabilities keeping constant in financing the assets at the same rate (approximately 1/3 and 2/3,
respectively).
DEBT RATIOS
2015
2014
35,73%
64,27%
35,86%
64,14%
2013
36,19%
63,81%
100,00%
100,00%
100,00%
38,66%
25,61%
26,86%
37,28%
37,80%
26,02%
64,27%
64,14%
63,81%
Non-current Interest Bearing Liabilities/ Total Assets
Current Interest Bearing Liabilities/ Total Assets
32,91%
5,98%
20,86%
17,03%
31,68%
7,28%
Interest Bearing Liabilities/ Total Assets
Non-Interest Bearing Liabilities/ Total Assets
38,89%
25,38%
37,89%
26,24%
38,97%
24,85%
Equity/ Total Assets
Total Liabilities/ Total Assets
Non-current liabilities/ Total Assets
Current-liabilities/ Total Assets
Analysis of NOS 2013-2015 Annual Reports
Income Statement4
1. Total Operating Revenues and Net Profit – overview
During 2015, NOS generated a Net profit of 82 492 thousand euros, which represented an increase of 9,87% when
compared with the previous year.
Total operating income was 1 444 305 thousand euros in 2015, which compares with
1 383934 thousand
euros in 2014 and 990 259 thousand euros in 2013.
4
We will give focus on financial statement elements that we think that have not residual values (equal/above 5% of Op. Revenues),
elements that we believe that will have a significant growth in the future
8
2. Structure
Total operating revenues were 1 444 305 thousand euros in 2015. This value is mainly composed by:
 Services rendered=1 362 988 thousand euros; 94,37% of operating revenues.
This item mainly includes revenue relating to basic and premium channel subscription packages, terminal
equipment rental, box office revenue and publicity at the cinemas of NOS Cinemas, among other elements;
 Sales= 66 880 thousand euros; 4,63% of operating revenues.
This component encompasses revenue relating to the sale of terminal equipment, telephones and mobile phones
as well as sales of bar products by NOS Cinemas and DVD sales.
Total operating expenses represented 89,59% of total operating revenues. These expenses are mainly:





Direct costs =436 705 thousand euros; 30,24% of operating revenues.
This item comprises mostly exhibition, traffic and capacity costs.
Depreciation, amortisation and impairment losses =366 406 thousand euros; 25,37% of operating revenues.
This relates mainly to basic equipment depreciation and Industrial property and Other Rights.
Supplies and external services =183 719 thousand euros; 12,72% of operating revenues.
This component takes into account maintenance and repair, rentals, electricity expenses amongst others
Support services=93 721 thousand euros; 6,49% of operating revenues.
This element is made up of call centres and customer support, information systems and administrative support
Wages and salaries = 89 103 thousand euros; 6,17% of operating revenues.
This comprises mainly Remuneration and Social Taxes expenses.
These 5 items, represent 80,99% of operating revenues, and are the most significant part of total operating expenses.
After deducting all the operating expenses to the operating revenues, it was obtained an Income Before Financial
Results and Taxes in the value of 150 359 thousand euros (EBIT Margin=10,41%), which represented an increase of
2,01% when compared with the year before and an increase of 91,53% vs 2013. This can be explained by the fact that
the continuous growth in total operating revenues has more than offset the simultaneous increase in operating
expenses. Despite these changes, the weight of each expense in the scope of total operating expenses has remained
quite similar over the years.
Financial gains and losses and financial expenses
Financial costs account for 24 057 thousand euros in 2015 and accounted for 36 299 thousand euros in 2014; these
figures represented 1,67% and 2,62% of operating income in the respective years. The figures shown in this category
are the net between interest expenses and interest earned: the interest expense relates essentially to borrowings and
financial leases, whereas interest earned corresponds to default interests charged to customers.
In comparison, with the year before, financial costs have registered a decrease of 33,73% which was caused by a
reduction in almost every component that makes up this Income Statement item.
With this being said, in 2015, Income before Taxes reached an amount of 114 630 thousand euros and the Profit before
Tax Margin stood at 7,94%. Such value (Profit before tax margin) has been steadily increasing (vs 2,80% 2013 & 6,67%
2014)
In the overall, and taking into account that Income taxes have been taking an increasingly larger proportion of the
company’s operating revenues, NOS ended 2015 with a Net Consolidated Income of 82 492 thousand euros.
The growth from 2014 to 2015 was not as significant as from 2013 to 2014, but it represented a slightly larger portion of
the total operating revenues vis-à-vis the previous years.
9
Profitability Ratios
2015
2014
Ratios Formulas:
2013
EBITDA Margin = (Net Operating Profit +
EBITDA Margin
35.78%
35.17%
32.47%
Depreciations and Amortizations)/ (Operational
EBIT Margin
10.41%
10.65%
7.93%
Revenues)
Margin Before Income Tax
7.94%
6.67%
2.80%
Tax Rate
28.04%
18.62%
59.34%
Net Profit
5.71%
5.43%
1.14%
EBIT Margin = (Net Operating Profit)/ (Operational
Revenues)
Margin before Income Tax = (Profit before Taxes)/
(Operational Revenues)
Tax Rate = (Income Tax)/ (Profit before Taxes)
Net Profit Margin = (Net Profit)/ (Operational Revenues)
I/S by nature was the guideline for our analysis
STATEMENT OF CASH FLOW ANALYSIS
1. CASH FLOW FROM OPERATING ACTIVITIES: 552 461 thousand of euros
From their clients, NOS was able to collect 1 712 123 thousand of euros (increasing 5,5% in 2014 and 40,8% in 2013),
a value that compared to Sales + Services Rendered (1 429 868 thousand of euros) may mean that clients are
reducing their debt towards NOS – reducing not only accounts receivable and Average Receivable Days, but also
increasing Receivables Turnover.
The Cash Flow from Operating Activities was significantly reduced by payments to suppliers, which amounted to 1 018
088 thousand of euros, having increased by 41,3% from 2013 to 2014 and 13,00% in the last year.
Besides these figures, NOS also made payments towards employees (110 166 thousand of euros) and relating income
taxes (3 011 thousand of euros), while in the previous year there was a positive cash flow relating income taxes (12 839
thousand of euros).
2. CASH FLOW FROM INVESTING ACTIVITIES: - 458 866 thousand of euros
In what comes to investment, the negative balance results from higher cash payments (long term assets, which
amounts to 471 982 thousand of euros) than receipts that include, in addition to the ones already mentioned, Interest
and related income of 8 million euros, Available-for-sale financial assets and applications of 2 225 thousand euros.
The figure regarding cash flows from investing activities in 2015 reveals a growth of 20,9% YoY, which indicates that the
company is willing to invest in more projects.
3. CASH FLOW FROM FINANCING ACTIVITIES: -142 364 thousand of euros
The cash receipts resulting from financing activities relate to Borrowings and subsidies (note that subsidies are only
relevant in the year of 2013), in the value of 156 0708 thousand euros, a number that has seen a decrease of 36,1%
from the previous year. By deducting the payments related to borrowings of 1 559 000 thousand euros to these cash
receipts, we are left with 1 708 thousand euros of increasing debt. Apart from this, NOS has also paid dividends in the
amount of 72 216 thousand euros (which have increased significantly since 2013), interest and related expenses of 40
817 thousand of euros, lease rentals of 23 017 thousand of euros and the acquisition of own shares by the price of 8
022 thousand of euros.
10
By summing these three figures, we reach a Change of Cash and Cash equivalents of -48 769
thousand of euros and, in consequence of this, to an ending position of -29 348 thousand of euros.
4. FREE CASH FLOW
Free Cash Flow
2015
2014
2013
Change 13/14
GR 13/14
Change 14/15
GR 14/15
thousands of euros
Cash-Flow from operating activities
552.461
527.142
329.253
197.889
60,10%
25.319
4,80%
Dividends paid
-72.216
-62.012
-37.273
-24.739
66,37%
-10.204
16,45%
Interest paid
-40.817
-59.972
-46.269
-13.703
29,62%
19.155
-31,94%
0
0
3
-3
-100,00%
0
0,00%
8.000
7.846
5.066
2.780
54,88%
154
1,96%
-366.397
-339.201
-243.070
-96.131
39,55%
-27.196
8,02%
81031
73803
7710
66093
857,24%
7228
9,79%
-107,81%
Dividends received
Interest received
Replacement of tangible and intangible assets
Free Cash flow
Has been used to:
Reduce debt (if negative)
1.708
-21.880
-324.745
302.865
-93,26%
23.588
-23.017
-24.424
-22.908
-1.516
6,62%
1.407
-5,76%
-100.469
-48.263
124.316
-172.579
-138,82%
-52.206
108,17%
-8.022
-30.472
-5.354
-25.118
469,14%
22.450
-73,67%
-48.769
-51.236
-220.981
169.745
-76,81%
2.467
-4,81%
Lease rentals
Expand
Acquisitions of own shares
Net changes in Cash and cash equivalents
Free cash flow is the amount of cash that a company has left after paying for its obligations. The concept of obligation
varies from company to company, or manager to manager, but generally this includes interest and dividends paid, the
replacement of tangible and intangible assets – which reduce operating cash flows plus interest and dividends received,
leaving what is left for the company to expand, reduce debt or another activity that they find pertinent. For NOS, in 2015,
free cash flow was 81 031 thousand of euros. Nevertheless, this amount was not enough for the expansion they’re
performing (-100 469 thousand of euros), and, in addition of paying lease rentals and acquiring own shares, this led to a
negative change in Cash and cash equivalents.
In the overall, NOS cash position is not the best. Even though their CFO is enough cover investment or their obligations
separately (resulting in a positive free cash flow), it is not enough for both. Thus, ending cash and cash equivalents
position, in 2015, was negative. This figure is different from the figure shown in the balance sheet for a simple reason:
the accounting policy they report under, considers Bank Overdrafts as borrowings and, for that reason, they’re not
discounted from Cash and Cash equivalents. From the previous year, Bank Overdrafts have seen a large rise of 2
556,9%. In 2014, cash and cash equivalents were 21070 thousand of euros discounted by bank overdrafts of -1 479
thousand of euros, resulting in 19591 thousand of years in the end of the year, while in 2015, cash and cash equivalents
accounted for only 9948 thousand of euros and bank overdrafts for -39 296 thousand of euros, which made up for a
negative ending balance of -29 348 thousand of euros.
CASH-FLOW RATIOS
thousands of euros
Interest paid
Dividends paid
2015
2014
2013
40.817
72.216
59.972
62.012
46.269
37.273
Interest coverage ratio
552.461
40.817
13,54
527.142
59.972
8,79
329.253
46.269
7,12
Interest and dividends coverage
552.461
113.033
4,89
527.142
121.984
4,32
329.253
83.542
3,94
0,38
527.142
1.383.934
0,38
329.253
990.259
0,33
0,29
1895801
0,28
1869660
Cash Flow to sales
Debt Coverage
552.461
1.444.305
552.461
1912972
527.142
329.253
0,18
11
After the computations of some cash flow we may conclude the following:
 Interest Coverage Ratio=13,54 which means that the Cash flow from operations is sufficient to cover
13,54 times the interest expenses for the year. This ratio has been steadily increasing which was a
reflection of the slight increase of CFO and the decrease of the average cost of debt
 Interest and Dividends Coverage=4,89 is the number of times that CFO, in 2015, covers interest
expenses and dividends coverage. This item has also been on an upward trend, however at a lower
rate than Interest Coverage Ratio because Dividends have been progressively increasing.
 Cash Flow to Sales=0,38 means that 38% of the Sales were generated into cash flow in 2015
 Debt Coverage=0,29 representing that if all the CFO, in 2015, was employed into paying the Debt
Outstanding then it would pay 29% of it
Short-term Financial Equilibrium
After computing NOS’ Working Capital, Working Capital Needs and Net Cash Position for 2015, one is able to conclude
the following:



Long-term funds were not enough to finance non-current assets, which left 295 867 thousand euros needing to be
financed by permanent operating funding and/or cash;
Permanent operating funds were larger than permanent operating needs, which meant that there were 127 793
thousand euros available to fund part of the non-current assets that required financial support;
Since Working capital was not able to, alone, cover all the non-current assets’ needs for financing, this led to a
negative cash position of -168 074 thousand euros.
Therefore, not only does the company not fulfil the requirements to be considered in a situation of Short-term Financial
Equilibrium, but it is also under a risky financial structure because long term-assets are being financed by sources that
can suddenly disappear.
Moreover, the analysis of the company’ Short-term Liquidity Ratios for 2015 supports the previous statement regarding
the risk in which this company is in what concerns its financial structure:



Current Ratio at 0,61 means that if NOS had to solve its short-term liabilities , with Current Assets, it would only be
able to pay 61% of it;
Quick Ratio at 0,57 means that if the company had to solve its short-term liabilities, with Current Assets minus
Inventories, they would only be able to pay 57% of it;
Cash Ratio at 0,01 means that if the company had to solve its short-term liabilities, with Cash and Cash Equivalents, it
would only be able to pay 1% of it.
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CurrentRatio =
CurrentAssets
CurrentAssets − Inventories
CashandCashEquivalents
QuickRatio =
CashRatio =
CurrentLiabilities
CurrentLiabilities
CurrentLiabilities
A further look into NOS’ past financial records (2015, 2014 and 2013) reveals that the current short-term disequilibrium
has been going on since the beginning of the period under analysis.
Working capital has always been negative and its value ranged from -634 014 thousand euros in 2014 to -295 867
thousand euros in 2015. In order to cover that need for financing, the company had to resort to permanent operating
funding as well as to short-term loans.
In 2013, permanent operating funding financed the most part of the long-term assets that needed funding (working
capital needs were larger than the net cash position in absolute terms). Conversely, in 2014 and 2015, short-term loans
were the main responsible for covering the needs for funding generated by a negative working capital (net cash position
was larger than working capital needs in absolute terms).
On a different note, when discussing NOS’ Short-term Liquidity ratios there are two perspectives to take into account.
Firstly, the creditors’ perspective, from which the above presented ratios are considered to be quite low, due to the fact
that for these entities the Current Ratio, the Quick Ratio and the Cash Ratio are preferred to be high (somewhat above
1), because that would indicate that the company has enough liquidity to pay their liabilities.
Secondly, it is also interesting to discuss the managers’ point of view: their main goal is to maximize the company’s
profit and, one of the consequences of achieving such objective is that the short-term liquidity ratios are low. This will
happen because cash, inventories, accounts receivables and other similar current assets will tend to be of a reduced
nature.
If one takes a further look into some other Liquidity Ratios and Operational Efficiency ratios, one can conclude the
following:






For NOS, on average, it takes 86 days to collect cash from its receivables. This ratio has been increasing over
the last three years because average trade receivables rose faster than their sales per day.
Average receivables were turned into cash 4 times a year in 2015, and this ratio has been quite constant
throughout the last three years.
NOS was able to sell its inventory, on average, 17 days after it was acquired.
This company sells its average level of inventory 21 times during a year.
On average, NOS takes 182 days to pay its suppliers.
NOS’ accounts payable turnover has been 2 since 2013. This is a considered to be a low turnover, which
means that the company is making full use of the credit terms extended by their creditors.
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Finally, and as expected, the Cash Conversion Cycle is negative which means that NOS receives
their money from customers before they have to pay to their suppliers. That is closely linked to the fact that Working
Capital Needs are negative and therefore permanent operating funding is greater than permanent operating needs.
Liquidity & Operational Efficiency Ratios
Thousands of euros
2015
Average Trade receivable 339.682
Average collection Period Sales per day
3.957
(days)
86
Sales
1.444.305
Accounts Receivable turnover Average Trade receivable 339.682
(days)
4
Average Inventory
31.777
Average Inventory Period COGS per day
1.846
(days)
17
COGS
673.822
Inventory turnover
Average Inventory
31.777
(days)
21
Average Trade Payable
334.103
Average Payment Period
Aquisitions per day
1.839
(days)
182
Aquisitions
671.349
Accounts Payable turnover Average Trade Payable
334.103
(days)
2
Average Collection Period
86
Average Inventory period
17
Cash Conversion Cycle
Average Payment Period
182
(days)
-79
2014
304.079
3.792
80
1.383.934
304.079
5
32.796
1.777
18
648.673
32.796
20
318.772
1.778
179
649.107
318.772
2
80
18
179
-81
2013
197.889
2.713
73
990.259
197.889
5
32.080
1.189
27
434.156
32.080
14
227.478
1.192
191
435.154
227.478
2
73
27
191
-91
Return on Equity
After computing NOS’ Return on Equity and its different components, it is possible to observe
thefollowing:
 ROE indicator standing at 7,06% (vs 1,06% 2013).
 Low average cost of debt 2,27% (vs 3,19% 2013)
 Tax Rate of 28,04% (vs 59,34% 2013)
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Looking through the components, which compose the computations of ROE, there were some factors
we believe they are worth to emphasize.
The ROA, which integrates the Profit Margin and the Asset Turnover, stood at 5,31%.
Compared with other industries this may be a very low figure, however in the Telecommunication Portuguese economic
environment this figure is in line with the industry. Between the 2013 and 2015 this item improved 2,33% which allows
us to conclude that after the merger with Optimus the assets were given better use.
The Profit Margin was 10,95% in 2015. This figure is very well above the ROA, meaning it is one of the main
contributors to the profitability of the company. Between the three years, this figure increased 2,13%.
The Asset Turnover, although increasing, stood at 0.485 which is a low figure comparing with its peers (i.e. Vodafone
Portugal 0.754). Nevertheless, the turnover was improved during the financial periods in the value of 0.147.
Regarding the leverage impact:
1. Dupont Method: the impact in 2015 was of 2.03 (vs 0.88 2013)
 The amount of assets compared with equity is large, which means that a substantial part of the assets
are financed by creditors, thus enhancing the company’ capability to present a better ROE number
 The share of profit that was paid in interest expenses in 2015 decreased to 27,52%
2. ROE: the impact in 2015 was of 5,5% (vs -0,4% 2013)
 The average cost of debt has been decreasing reflecting the good economic and financial indicators
that the company has presented to the market.
 The number of liabilities compared with the equity is also high with a ratio of 1,80 in 2015
The fiscal impact has been different from year to year (28,04% 2015 vs 59.34% 2013) caused by the innumerous
transformations that the company has been through since the consolidation of Optimus SGPS and also due to the
inherent variability that this industry is being subject.
To sum up, we believe that, the important conclusion we get from this figures is that the company is increasing its
profitability. Investment Impact, Leverage Impact and Fiscal Impact have all shown better results and consequently the
future perspectives are good.
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Dividend Policy and Market Ratios
DividendPayout Ratio (DPR)
2015
87,23%
2014
80%
400%
2013
Market Ratios
EPS (Earnings per Share)
BVP (Book Value per Share)
PBV (Price to Book Value)
PER (Price-Earnings Ratio)
2015 2014 2013
0,16 € 0,15 € 0,03 €
2,07
2,06
2,79
3,50
2,54
1,93
45
35
180
It is possible to conclude from the tables above shown that NOS’ management has in the past years provided its
shareholders’ some hefty dividends. The greatest share of Net Profit (82 429 thousand euros) was allocated towards the
shareholders’.
These developments may be seen as a positive sign from the company to investors, since it demonstrates that the
company can transform its profits into cash, in other words, it can generate cash from its operations, however it may
give can also be perceived as a company without growth possibilities, this being, it is returning cash to its shareholders.
However, as we can see from the PER Ratio, the investors are willing to pay a big premium for NOS’ shares compared
with its current ability to generate profits, thus they are expecting that Net Profit will increase in the future.
Conclusion
After all the analysis that has been conducted, the main strengths and weaknesses that the company has revealed are
the following:

NOS has shown to be a big player in the industry, revealing great competitiveness through an increasing market share, a
growing tendency regarding profitability, a clear strategy with well-defined goals, some of which they have already
managed to achieve. Besides, their cash flow from operations is increasing year on year and their cash flow from
investing activities reveals a high propensity to keep innovating through new investments. Moreover, their profit margins
have shown to be way above their peers.

On the other hand, there are also some aspects that we consider not so encouraging. The analysis of the statements
revealed that this company relies a lot on short-term loans in order to finance some of their long-term assets. That
translated into a negative working capital witch had to the covered mainly through a negative cash position. Since this
situation has been going on since 2013, it seems that this will not be a sustainable situation for NOS. Moreover, the fact
that they are distributing a large share of Net Profit has dividends with such a risky financial structure appears to be an
aggressive way of handling their business in the long run. Finally, we have noticed some lack of transparency, namely in
the disclosure of the number of employees and the data related to the disposable of tangible and intangible assets.
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