WorldCall Telecom Limited

WorldCall Telecom Limited is a telecommunication and multimedia services provider in Pakistan, and is listed on the Karachi Stock Exchange. The company has been operating in the market for over 16 years in various segments including data, entertainment and voice. Oman Telecommunications acquired majority shareholding of 56.8 percent in WorldCall in 2008.
The official website of the company states that WorldCall holds licenses in key ICT segments like fixed local loop (FLL) telephony, wireless local loop (WLL) telephony, long distance & international (LDI) telephony, and broadband. As per official statistics maintained by the Pakistan Telecommunication Authority, WorldCall had 518,340 WLL subscribers and 9,830 FLL users, as of June-end last year.
WorldCall offers its customers wireless voice telephony based on CDMA technology, often clubbed with cable TV. It is also one of the largest LDI operators in the country. Its broadband subscriber-base came under threat as various new wireless broadband service providers entered the market in the last two to three years and aggressively focused on major Pakistani cities.
WorldCall offers different broadband technologies like DSL, wireless and EvDO. The company contributes to the two ICT-promotion funds in Pakistan - the Universal Service Fund (USF) and the R&D fund. It has participated in the USF-funded broadband projects in the telecom regions of Multan and Gujranwala.
WorldCall faces competition in all telecom segments it operates in. For the company to grow, the fixed line business seems too insignificant, so the fortunes rest in wireless business, both in data and telephony.
FINANCIAL PERFORMANCE WorldCall returned to profitability in CY11 after successive years of making losses. However, the company plunged back into net loss in CY12. A step-by-step financial analysis of the income statement follows:
REVENUES The company's net revenues went down by 11 percent in CY12 on a year-on-year basis. That is a worrying sign for it, and comes only a year after (CY11) the firm saw a decent 7.19 percent growth, which led many to believe that the top-line will see better days in the future. It appears that despite having a diversified portfolio, WorldCall hasn't been able to offset the declining revenues from the FLL and WLL segments.
There is an overall growth in wireless broadband subscriptions in Pakistan, which WorldCall must have benefited from, though not to a large extent. Competition in this segment is immense, as the telecom giant PTCL and many relatively new companies are fighting it out in major urban cities. However, this is a growth area, one which can turn things around for WorldCall with a better market strategy. Revenues can also increase from the LDI segment, which is enjoying better call termination tariffs for incoming calls this year relative to the previous year.
DIRECT COST The fall in revenues was compounded by a 9.6 percent rise in the direct cost of the company in CY12. It appears that the effects of an improved cost control regime visible in CY11 are gone. The direct costs for the company include overheads like inter-connect and settlement charges, bandwidth charges, and network maintenance fees.
These costs got out of control in CY12, exhausting Rs 93 out of every hundred rupees of net revenue earned, compared to Rs 75 in CY11, and Rs 89 in CY10. Increased payments on interconnection and settlement charges, and network maintenance and insurance were responsible here. Revenue dip and direct cost spike led to a 73.4 percent drop in gross profits during CY12, and the gross margin dropped to 7.4 percent compared to 24.8 percent the previous year.
OPERATING COST WorldCall's operating costs (summation of selling, marketing and administrative expenses) also showed a voluminous increase of 34.3 percent in CY12, which led to an operating loss. The operating costs consumed 28 percent of net revenues in CY12, up from 18 percent in CY11 and 22 percent in CY10. An Rs 788 million 'provision for doubtful debts and other receivables' was primarily responsible for the significant growth in operating costs in CY12 (Rs 119 million in CY11).
NON-OPERATING PERFORMANCE The non-operating performance was as abysmal as the operating performance in CY12. WorldCall has been incurring the "impairment loss on available for sale securities" for four successive years now. In CY12, the company lost Rs 265 million under this head, which is nine times the loss reported in CY11. Moreover, finance costs jumped by 74 percent to reach Rs 1.24 billion in CY12, as the company paid more in its loan mark-ups. It also paid Rs 631.3 million in 'discounting charges' during CY12.
The 'other operating expenditures' nearly doubled over the CY11 figure, to settle at Rs 370 million. The only breather came from the company's 'other operating income', which clocked in at Rs 694 million, showing a year-on-year growth of 37.6 percent.
PROFITABILITY WorldCall's financial performance in CY12 was a reversal of the gains made a year earlier, and mirrored CY10. The company reported Rs 1.65 billion in after-tax loss, which is largest among its loss-making years in previous five years. Dismal operating and non-operating financial results are responsible here, leading to a Rs 1.92 loss per share.
FUTURE OUTLOOK Pakistan's telecommunication industry is gradually shifting to data services from voice. WorldCall is an established market player, and can expand its business to avail the growth opportunities that lie in segments such as wireless broadband. Post-3G milieu will also throw up many opportunities which the company can exploit.
The management seems aware of that and has indicated in the latest annual report that various expansion plans are under consideration, contingent on funding availability, especially in the broadband segment. In short, the company needs to work on its top-line growth, while simultaneously devising strategy for cost rationalisation and debt management, in order to return to, and sustain profitability.