Evaluation of DP World: Capital Structure and Financial Performance

This report provides a critical evaluation of DP World's capital structure, examining its debt and equity financing, and assessing its alignment with the company's strategic goals, including mergers and acquisitions. The analysis delves into DP World's financial performance over several years, interpreting key financial statements, including revenue, profit, and debt levels, to assess its approach to managing stakeholder expectations. The report highlights the company's revenue growth, the impact of acquisitions, and the overall financial health, including its capital expenditure and return on capital employed. The report also discusses the impact of financial leverage and the company's strategic goals. Finally, the report concludes with recommendations for improvements in financial decision-making, focusing on how DP World can optimize its capital structure and stakeholder management practices to enhance its long-term financial success.

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EVALUATION OF DP WORLD
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Evaluation of DP World
Part A: Critically Analysis of DP World Capital Structure
Capital structure is mainly a mixture of debt and equity finances used by an organization in
financing its total operations. Some firms could be all-equity funded with no debt while others
could have significantly high debts and low equity. Thus, decision on what mixtures of debt and
equity capital to have is referred to financing decision. In the year 2018, DP World implemented
multi-tranche bonds transactions as well as liabilities management practice and raised around
$33 billion of the fresh long-term capitals at an eye-catching rate. This lead to net debt
snowballing to around $10,553 million in comparison to $7.739 million in 2017, the net debt for
the financial year 2018 was approximate $7.938 billion in comparison to approximate $6.255
billion reported in the year 2017 while the total cash on organization’s balance sheet remained at
around $2,615 million as a result of fund raising (DP World 2018). The amount of cash from the
company operating activities stood strong at approximate $2,161 million.
It financial leverage or the net debt to the adjusted EBITDA was stable and stood within the
range of it guidelines at around 2.8 times in the year 2018 in comparison to 2.5 times reported in
2017. On overall, DP World balance sheet was strong with consistent and robust cash generation.
Generally, the company upgraded its rating to Baa1 from Baa2 as well as maintained stable
financial outlook in reflecting its resilience and stable track records in maintaining significantly
strong financial metrics (DP World Plc 2018). This is supported by the company diversified
global operation, positive projected long-run development in the global container circulation,
solid liquidity and profitability outline as well as its projected adherence to the financial leverage

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targets. It mainly focuses on the destination and origin of the ports that are less subtle to the
repeated slumps against transshipment ports. Its financial metric is healthy with total adjusted
funds from the operations interest coverage of around 5.3 times and its adjusted funds from the
operation debts of around 19%.
Additionally, the company has significantly high debt finances in comparison to the equity
finances. This has posed a major uncertainty in its mergers and acquisitions operations due to
increased gearing level. In fact, with its high debt to equity finance, the company net financial
leverage over the year has increased from the 0.99 times to 1.21 times in 2018. To be more
specific, DP World total debt increased from $11,489 million in the year 2917 to around $14,514
million in 2018 while total equity increased from $11,625 million in 2018 to around $11,999
million in 2018 (DP World Plc 2018). This denotes that the net debt commitment for the firm in
2017 was significantly below its net equity whilst in 2018, the net debt for the company was
quite greater than its equity; meaning that the company relied on debt financing than equity
finances unlike in the year 2017.
DP World capital structure is in line with its strategic goals. For instance, its increased debt
aimed at increasing its mergers and acquisitions would help the company offer clear guideline on
how it aims to be the leading firm in future of the world trade. Furthermore, this would help the
company accomplish its aims of maximizing shareholders’ value by leveraging its portfolio of
the world-class infrastructure assets, solidification of the international supply chains as well as
creating a bearable economic development (DP World Plc 2018).
In fact, through increased debt finance in 2018 to finance its acquisitions activities, the company
would achieve its strategic goal of changing the trade landscape and enable it evolve as the

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leading firm and tailoring itself to its client’s needs. Besides, the company capital structure that
is signified by increased or relatively high debt finances would help the company achieve its
strategic goals of meeting all needs of the dynamic global supply chain, developing and
operating trade-enabling, state of art and strategically located services and infrastructure (DP
World 2018).
Furthermore, the company capital structure enables the firm to runs development and training
programs worldwide for its workers and industry experts across supply chain. In fact, the
structure has enabled the firm further embed the culture that nourishes innovation and diversity
and therefore, enabling the company meet its commitment to zero damage to individuals and
producing safety culture (DP World Plc 2018). Additionally, the structure has enabled the
company make significant long-run investment through its future or world programme of
fostering innovation and driving the best practices in sustainability across the globe. This would
enable the firm achieve its action plans and commitments in protecting its environment and
taking relevant steps in building resilient, secure and vibrant society.
In essence, DP World capital structure has enabled the company in adopting one of the highest
ethical and professionalism standards. Hence, as a global firm, the company is now compatible
with the international best practices and its technique to managing, measuring and understanding
risks and returns from its investments has helped it maintain its status as the industry leader.
Moreover, the structure is aligned with the company strategic goals since it helps the firm
investment heavily in innovation and technology to offer its client best experience, optimize its
operations and build differentiated capacities (DP World 2018).

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Additionally, the structure is clearly aligned with DP World strategic goals since it enable the
company trade in sustainable and responsible manner to supporting global economies as well as
growing prosperity for numerous individuals. It also enables the company drive sustainable and
profitable growth via world-class portfolio of services and assets (DP World 2018). Furthermore,
DP World capital structure in 2018 enabled the company develop fresh revenue streams by
acquiring new client segments as well as service portfolios. It also enabled the company maintain
some strategic advantage by investing in innovative and digital opportunities.
Generally, despite the fact that DP World has relatively higher debt finances than its equity
finances, it is evident that the company capital structure is clearly aligned with its strategic goals.
In fact, it is evident that it current capital structure has played a significant role in accomplishing
some of its short-run and long-term investment goals.
Part B: Critical Assessment of DP World Financial Performance As well As Its Overall
Technique in Managing Stakeholder’s Expectations
As per DP World financial statements, it is evident that the company total revenue experienced a
significant increase over the last four years. This is evidenced by the fact that DP World moved
from $3,968 million in 2015 to around $4,163 million in 2016, to $4,715 million in 2017 and
later to $5,646 million in 2018 (DP World Plc 2018). In other words, DP World reported
revenues increased by 19.8% to around $5,646 million assisted by the acquisitions and the sound
revenue increment (DP World Limited 2018). Furthermore, its gross profit increased from
$2,355 million in 2017 to around $2,507 million in the financial year 2018 (DP World 2018).
This was in line with its increase in total revenue over the period. Further, profit for the year
grew to $1,333 million in 2018 from $1,331 million in 2017.

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Generally, year 2018 has been one of the most successful years for DP World. In fact, in spite of
increased global economic uncertainties, DP World has experienced significant continued
revenue increment over the years. This was accomplished by placing more emphasis on the high-
value freight, steadily providing value to its clients via smart solutions as well as operational
efficiencies. The company is constantly committed to building on gains in the previous years as
it enters 2019 (DP World Plc 2018). In other words, DP World delivered other significant strong
financial outcomes. Based on reported results, DP World revenues increased by 19.8% whilst it
adjusted EBITDA grew by around 13.7% (Louppova 2018). Furthermore, the company balance
sheet is said to have remained strong and the company has continued generating significantly
high cash inflows that offers it the capacity to capitalize in forthcoming increment of its
contemporary portfolio as well as litheness in making fresh investments in case the right
investments arise (DP World 2018). Going onward, the company aim at integrating its fresh
acquisitions and it continue extending its core businesses into the port-related maritime, logistics
sectors as well as transportation with the aim of removing disorganizations in the world trade,
refining superiority of its incomes as well as motivating returns.
Generally, DP World accomplished robust set of the financial outcomes in the year 2018 and has
continued to generate sturdy monies with its profit attributable to the owners being at $1,270
million (Port Technology 2019). This is evidenced by increase in company profit attributable to
the owners from $1,177 million in the year 2017 to around $1,270 million in the year 2018
(Safety4Sea 2019). It adjusted EBITDA was around $2.808 billion in 2018, while its adjusted
EBITDA margins was mainly diluted to around 49.7% as a result of mix variation effects as the
lower margin firms have currently been consolidated into its portfolio (Owler 2019). The
company expects the trend to continue as it adds more assets in the light logistics operations.

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Basically, it is crucial to note that DP World 2018 financial information are influenced by
number of mergers as well as acquisitions the firm has made within the period with the Drydocks
World being the most important along with merging of the DP World Santos that was formerly
considered as the form of equity accounted investee (DP World Plc 2018).
It capital expenditure was $908 million in 2018 across it portfolio as the company decided to
invest in its assets within UAE, London Gateway, Sokhna among other regions across the globe
(Mena Herald 2018). In essence, DP World capital expenditure was around $140 million.
Furthermore, on like-for-like basis, total revenue for the company increased by 4.2%, adjustable
EBITDA by 6.6% with the adjusted EBITDA margin increasing by 54.1% while earnings or
profits attributable to the shareholders increasing by 7.6% (DP World 2018).
The company ROCE for the financial year 2018 was 8.4% a decrease from 8.8% recorded in
2017. The decrease in the company ROCE is clarified by effectiveness of the company
acquisitions that augmented its asset vile in its third quarter of 2018 (DP World 2018). Basically,
DP World ROCE is projected to continue increased as its overall portfolio matures. It gross
capacity grew significantly by 2.6 million to around 90.8 million as at 2018 reflecting its nonstop
venture in extra capability through the group. Hence, it usage remains relatively great and far
much beyond industry average. Moreover, DP World EPS grew or increased by 5.1% in 2018.
This was mostly attributable to the company acquisitions over the year. In essence, the company
EPS increased from 145.5 in 2017 to around 153.0 in 2018.
Further, the company had relatively strong cash generation as well as robust balance sheet (DP
World 2018). For instance, the total amount of cash from the operating activities was around
$2,161 million while its free cash flow was approximate $1,811 million (Safety4Sea 2019).

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Moreover, total divided per the share for DP World grew by around 4.9% to around 43%. This
reflected growth in the company total earnings reported in the year 2018 (DP World Plc 2018).
The company enhances disciplined investment in relatively high quality long-run assets in
driving the long-run profitable growth as well as creating long-run values for the stakeholders.
For instance, the gross global capability was around 90.8 million while the consolidated
capability was roughly 49.7 million (Economy 2019). It has continued capitalizing in the
solution providers and in acquiring integrated multimodal logistics firms Continental
Warehousing Corporation in Unifeeder Group, and Cosmos Agencies Maritima.
Its global trade has continued to increase in spite of the geopolitical challenges and trade dispute.
Besides, the company continue focusing on maintaining it disciplined technique to project
investments in ensuring that it remain a trade partner of choice and strengthening its products to
play significant function in global supply chain as the trade enabler (DP World 2018).
Additionally, this is anticipated to continue in 2019 and the company is projected to continue
delivering significant growth and experiencing increased contributions from its fresh investment
ventures.
It has also made significant strides in increasing dividends by around 5% to approximately
$365.9 million at about 43% per share, which has been in consistent with its previous policies of
maintaining the dividend payout ratio of 30% (DP World Plc 2018). Hence, it is evident that the
company would continue generating sufficient cash and supporting it future financial growth
while maintaining stable dividend payout.
Further, DP World has made significant strides in delivering its strategies of solidification of its
portfolio to be the worldwide solution providers as well as the trade enhancer with around $2.5

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billion worth of the acquirements being proclaimed and closed in 2018 (DP World 2018). Such
acquisitions provide strong growth opportunities as well as enhance the company existence in
worldwide supply chain as it strive to continue in diversifying its revenue base and looking at
several openings in connecting straight with aggregators of demand and owners of the cargo.
Part C: Recommendations
Generally, DP world seems to have significantly higher debt in comparison to its equity finances.
In other words, the company seems to experience uncertainty in its mergers and acquisition
operations, especially due to the significantly large debt-financed operations. This seems to
hinder its 2020 expansion plans. Nonetheless, it has more than one year thus should demonstrate
strong track record in undertaking its operations while adhering to the self-assigned optimal
financial leverage of around 4 times on its reported basis.
Besides, given that proportion of DP World total operating assets were in overseas currencies
other than practical currency, this could have affected its total equity in 2018. In essence,
shareholder’s equity could have been affected by the currency movement once it was retranslated
at 2018 rate; hence, the decrease. Thus, the company should mitigate impacts of such currency
movements by borrowing finances in similar currencies as the one their assets are presently
dominated. Actually, borrowings are usually considered as denominated in the currencies which
counterpart cash flows that are produced by primary foreign setups of an entity. This offers
profitable hedge deprived of any derivative being arrived at and thus the hedge accounting option
is not necessarily used in such situations. Further, the company should mitigate currency
movement on its operating profits by interest incurring interest costs in the foreign currencies.
This is based on the fact that DP World carry out its operations in some areas where local

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currencies are fixed to its presentation currency of the US dollar further decreasing risk of the
currency movements. Besides, as a result of different areas in which DP World operates in, there
are some natural hedging aspects that take place in the company. Hence, once it is viewed that
the currency instability could be having some material impacts on outcomes of operations,
hedging these amounts through overseas currency forward exchange should be conducted to
lessen the short-run impact of the currency arrangements on the organization’s operations.
Furthermore, in reducing their risk exposure of variations in the current interest rates which is
related to their long-term debts, the company should enter into an interest rate swap contracts, in
which they should agree exchanging at particular intervals. This would help in hedging the
underlying debts for the company. In fact, by concentrating on its current operations while
adhering to self-assigned optimal leverage, the company would be able to maximize on its net
income over the period as well as its stock prices. This way it would be easier for investors to
make effective investment decision regarding the company financial health or status.

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REFERENCES
DP World (2018). DP World announces robust financial results reported revenue growth of 20%
in 2018. Available from: https://www.dpworld.com/-/media/DPW-2018_Preliminary-Result-
Announcement_Final_with-financials_final.ashx (Accessed at 9th May 2019).
DP World Limited. (2018). DP World Limited. Available from:
http://dfsa.ae/CMSPages/GetFile.aspx?guid=80c0f898-79c9-4c54-addb-fd833af970be (Accessed
at 9th May 2019).
DP World Plc (2018). DP World annual report and accounts 2018. Available from:
https://www.dpworld.com/-/media/82C51A91422A4AEBB83655E376DD2472.ashx (Accessed
at 9th May 2019).
DP World. (2018). Robust results for DP World. Available from:
https://www.themaritimestandard.com/robust-results-dp-world/ (Accessed at 9th May 2019).
DP World. (2019). DP World. Available from: https://www.dpworld.com/ (Accessed at 9th May
2019).
Economy. (2019). DP World announces revenue growth in first half of 2018 financial results.
Available from: http://english.alarabiya.net/en/business/economy/2018/08/16/DP-World-
announces-financial-results-for-the-first-half-of-2018.html (Accessed at 9th May 2019).
Hellenic Shipping News. (2019). DP World Announces Robust Financial Results. Available
from: https://www.hellenicshippingnews.com/dp-world-announces-robust-financial-results/
(Accessed at 9th May 2019).

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Louppova, J. (2018). DP World reports 14.4% revenue growth in 1H 2018. Available from:
https://port.today/dp-world-reports-revenue-growth-1h-2018/ (Accessed at 9th May 2019).
Mena Herald. (2018). DP World announces robust financial results in first half of 2018 with
revenue growth of 14.4 %. Available from: https://www.menaherald.com/en/business/transport-
logistics/dp-world-announces-robust-financial-results-first-half-2018-revenue (Accessed at 9th
May 2019).
Moody’s Investors Service. (2018). DP World Limited update following upgrade to Baa1,
outlook stable. Infrastructure and project finance. Available from:
https://www.dpworld.com/-/media/0E241E01EC7944EAA717764815018F32.ashx (Accessed at
9th May 2019).
Owler. (2019). P World's Competitors, Revenue, Number of Employees, Funding and
Acquisitions. Available from: https://www.owler.com/company/dpworld (Accessed at 9th May
2019).
Port Technology. (2019). DP World Enjoys Massive Revenue Jump. Available from:
https://www.porttechnology.org/news/dp_world_sees_massive_revenue_jump (Accessed at 9th
May 2019).
Safety4Sea. (2019). DP World announces revenue boost. Available from:
https://safety4sea.com/dp-world-announces-revenue-boost/ (Accessed at 9th May 2019).

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