Telecommunication: WORLDCALL TELECOM LIMITED - Analysis of Financial Statements Financial Year 2006 - 1 H 2010
Worldcall Telecom Limited provides various telecommunication and multimedia services in Pakistan. It provides wireless local loop, and long distance and international services, operates and maintains public payphones network.
The company also involves in re-broadcasting international/national satellite/terrestrial wireless and cable television, and radio signals, as well as interactive communication. In addition, it offers Internet over cable, digital television, and cable television services, as well as video on demand. Worldcall Telecom also establishes, maintains, and operates the licensed telephony services. The company was founded in 1996 and is headquartered in Lahore, Pakistan. As of April 18, 2008, Worldcall Telecom Limited operated as a subsidiary of Oman Telecommunications Company.
RECENT PERFORMANCE (1H10)
The company's revenue of Rs 4.422 billion for the period under review was 11% higher compared to the corresponding period last year. Major reasons attributed to this increase were robust growth in data segment and commencement of EVDO operations in major cities. Direct costs increased by 9.7% from Rs 3.34 billion to 3.67 billion in 1HFY10. The increase in direct cost was mainly due to higher depreciation charges, network maintenance and excessive fuel consumption resulting from power outages across the country.
Finance cost more than doubled from Rs 169.022 million to Rs 377.353 million. Due to the high direct cost and high finance cost, there was a loss after taxation of Rs 407.151 million for the period under review. This translated into a Loss per Share of Rs 0.47 as compared to LPS of Rs 0.26 in 1HFY09.
Winding up of the subsidiary "Worldcall Telecommunications Lanka (Pvt) Limited" is in process. The subsidiary has been accounted for as discontinued operations. Loss for the period from discontinued operations was Rs 5.869 million.
There was an increase in current assets from Rs 4.141 billion in FY09 to Rs 4.847 billion in 1HFY10 mainly due to the increase in trade debts. Current maturities of non-current liabilities increased by 21% while trade and other payables increased by 81%, overall increasing the current liabilities by 46% from Rs 5.309 billion to Rs 7.731 billion in 1HFY10.
FINANCIAL PERFORMANCE (FY06-FY09)
The company recorded a 62% increase in its revenue from Rs 5196 million to Rs 8408 million in FY09. This increase was mainly contributed by the LDI (Long Distance and International) segment where the company was successfully able to strengthen its operations and attract healthy volumes of traffic. Direct Costs increased from Rs 3807 million to 7037 million due to the higher APC rates that prevailed during the year as compared to the previous year as well as higher depreciation charges of Rs 1110 million which increased due to significant enhancement in infrastructure and equipment. Even though the company managed to make an operating profit of Rs 15.36 million as compared to an operating loss of Rs 302.55 million, the profit was eroded by the high depreciation costs and high finance costs leading to a net loss of Rs 490.82 million for FY09. The gross margin decreased from 19.23% to 16.31% while net profit margin improved from -6.93% to 5.84% in FY09. Return on Asset and return on equity also deteriorated from their previous levels to -2.24% and - 4.25%. If the financial costs are controlled, the profitability of the company can be improved.
The liquidity position of the company has been deteriorating over the years. The current ratio dropped from 1.15 to 0.80 in FY09. Current assets increased from Rs 3427.9 million to Rs 4262.1 million in FY09, an increase of 24%. Major increase was seen in trade debts from Rs 975.89 million to 2116.74 million. Current liabilities showed an increase of 78% from Rs 2980.2 million to 5309.98 million in FY09. A large portion of non-current liabilities matured this year amounting to Rs 1859 million. Running finance also increased to Rs 1046 million and trade payables increased to Rs 2239 million. The company should take measures to improve its liquidity as it has already entered into the danger zone.
The asset management of WTL has improved over the period. Days Sales Outstanding and Days Inventory outstanding have showed a decline to 8 days and 67 days respectively, reducing the operating cycle. Total asset turnover increased from 21% in FY08 to 37% in FY09. This can be attributed to the sharp rise in revenue. Sales to equity increased from 0.34 to 0.74. The increased turnover ratios show that the company is efficiently using its assets and equity to generate the revenue.
The debt management ratios indicate that the company is mostly financed through equity financing. Debt to asset ratio has slightly increased to 0.28 in FY09. Debt to equity has increased over the year to 0.55 where as long term debt to equity has declined to 0.30 implying that long-term debt has decreased as compared to last year. TIE ratio has improved to 0.03 from -1.85 in FY08. It shows that the company is still not in a position to cover its high finance costs. Measures should be taken to control these costs.
The decline in profitability of the company in FY09 took its toll on Earnings per Share, resulting in a 63% drop in EPS, bringing it down to Rs -0.57 for the year.
The company's stock performance has not been very impressive for the year, as depicted in the graph. The stock remained below the KSE 100 Index for the larger part of the year.
FUTURE OUTLOOK
Telecom has become a highly competitive sector and the strategy of the company plays a very important role in the success of that company. WTL is focusing on increasing the share of data services in its product portfolio. With the growing popularity of cable and advertisement business segment, it also has plans to add nearly 30% new house passes to its network in the coming year. Furthermore, the intense competition in the voice market along with profits attrition due to price wars has negatively affected the segment. Mobile substitution factor has put downward pressures on revenues and margins. Steps need to be taken to win customers loyalty and ensure steady streams of revenue from existing customers. Implementation of various USF projects will also be accomplished by the year-end.
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2006 2007 2008 2009
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LIQUIDITY
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Current Ratio 1.94 1.23 1.15 0.80
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ASSET MANAGEMENT
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Inventory Turnover 3 4 11 8
Days Sales Outstanding 59 68 79 67
Total Asset Turnover 0.28 0.25 0.21 0.37
Sales/Equity 0.39 0.36 0.37 0.74
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PROFITABILITY
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Gross Profit Margin 0.37 0.39 0.19 0.16
Net Profit Margin 0.22 0.14 (0.07) (0.06)
Return on Assets 0.06 0.04 (0.02) (0.02)
Return on Equity 0.08 0.05 (0.03) (0.04)
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DEBT MANAGEMENT
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Debt/Asset 0.14 0.14 0.24 0.28
Debt/Equity 0.20 0.20 0.43 0.55
Long-term Debt/Equity 0.11 0.09 0.35 0.30
Times Interest Earned 3.32 2.00 (1.85) 0.03
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MARKET VALUE
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Earnings per share 1.28 0.83 (0.35) (0.57)
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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