Page 26 - AMANGO MODEL ANSWER 1

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5.3 Earnings impact analysis -OPTION 1 versus OPTION 2

In USD$ millions Calculations( 2017 projected OPTION 1 OPTION 2
(results are rounded)
REVENUES (A) Repeat 2016 if productivity initiatives and 20,455
commodity future prices fixed
2016 Operating costs before adjustments
24,567
Operating cost savings –(maintenance 6% * 24,567 = (1,474)
of residential apartments)
Operating cost savings –wages 19% * 24,567 = (4,668)
(closure of mines)
Once-off retrenchment costs Given = 1,000
Cost of productivity enhancement Given = 500
initiatives

NET IMPACT ON OPERATING COSTS (4,642)

ADJUSTED OPERATING COST (B) (19,925)
Share of net profit//loss from associates Limited influence so assume break even -
and Joint ventures) from loss of 221 in 2016
EBIT 530
Take after tax effect, EBIT (1-t) 530 * 0.69 366
Investment income lost (after tax) 14% * 6400 * 0.69 (618)
NET EFFECT ON EARNINGS BEFORE 278 278 278
COMPARISONS OF OPTIONS 1 and 2
Add back interest saved (net of tax) 50% * 6400 * 6.2% * (1-t) i.e. 0.69 137

Reduction in credit spread on six year debt 50% * 6400 * 0.003 * 0.69 7
2017 Projected Earnings 422 278
No. of shares 772/0.25 –Option 1 3,088 1,380
345/0.25- Option 2
IMPACT 0.14 0.20

This analysis is done to isolate the effects of the property sale on the financial performance of
AMANGO ONLY. So it has ignored many other items on the income statement not mentioned.
Option 1 adds extra 14 cents per share and Option 2 adds 20 cents per share.

Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2017'
www.charterquest.co.za | Email: thecfo@charterquest.co.za