Its not looking good for WorldCall Telecom (KSE: WTL). The Lahore-based telephony and broadband firm had recorded a whopping net loss of Rs2.3 billion last year (CY13). Now, it has closed the half year ending June 2014 with another net loss, of Rs818 million.
WorldCall's problems are rooted in its dwindling top line. In 1H CY14, net revenues went down by nearly 29 percent year on year. Sales hemorrhage is an ongoing and intensifying agony for the firm. Its revenues have been slumping since CY09, and last year, the top line had gone down by 55 percent year on year.
Heightened competition and limited investment in core operations--broadband and telephony--have been behind the financial troubles. The management is aware of them, but one wonders if the turnaround strategy espoused in the board meetings is even operational.
The management had secured last year a $35 million funding from Omantel (the sponsor) and HBL (investor) through the issuance of 350,000 convertible preference shares. The investment strategy focuses mainly on major network up-gradation investments in the wireless broadband segment in major cities. Done right and sooner, these investments can help WTL reposition itself in the new telecom ecosystem that is developing after the 3G/4G spectrum license auction in April this year.
Drooping revenues in the period meant that there was hardly any life left in the profit margins. Direct costs went down by a proportionally-lower 11 percent, but it wasn't enough to keep margins intact at last years level. Direct costs are a bit stubborn to be brought down. On one hand, higher depreciation charges are hitting the firm. On the other, fixed charges--on account of interconnection and bandwidth contracts, and networks maintenance and insurance--do not respond to lower sales.
No points for guessing that all ensuing profit margins were in deep red. Towards the end, a 38 times higher other income and zero other expenses provided a jolt but they weren't good enough to resuscitate the firm to profitability. In the end, the net margin was a negative 63.47 percent in 1H CY14, and the basic loss per share was Rs1.06, about 1.5 times the loss seen in the same period of last year.
If it goes like this, WTL is on its way to close the year with another big net loss, making it a third consecutive loss-making year and fourth such year in the last five. For now, it seems difficult for the management to help restore order at the top line. But the key to revival lies in continued capital investment in network infrastructure, marketing and after-sales services, which the management has avowed. The journey is a long one, so the shareholders will do well to remain patient!
==============================================
WORLDCALL TELECOM LIMITED
==============================================
Rs (mn) 1HCY14 1HCY13 Chg
==============================================
Revenue-net 1,289 1,815 -29%
Direct cost -1,618 -1,813 -11%
Gross margin -25.50% 0.10% -
Operating loss -866 -595 46%
Other income 523 14 3658%
Loss after tax -818 -616 33%
Net margin -63.50% -33.90% -
----------------------------------------------
Source: KSE announcement
==============================================
Comments
Comments are closed.