Technology & Communication: PAKISTAN TELECOMMUNICATION COMPANY LIMITED - Year Ended June 30, 2004

The Pakistan Telecommunication Company Limited (PTCL) was incorporated on December 31st 1995 and is listed at all the three stock exchanges of Pakistan. PTCL took over the business of Pakistan Telecommunication Corporation (PTC) on January 1, 1996, and it is the main supplier of telecommunication services in Pakistan. It owns and operates a substantial part of the telecommunication facilities within the country.
The government's policy of deregulation of this sector has ended the company's monopoly and soon we would be able to see competition emerging that should be a healthy sign for the consumers. In order to maintain its competitive edge over the new entrants and to keep the customers' base intact, the company has introduced several structural changes that should give it the edge on its competitors. These include, reduction in tariffs, increased collaboration with the private sector for new avenues for partnership, introduction of new value-added services and development of technologies like WLL and IP in the access loop that will make telecommunication even more cost-effective.
The company's total paid up capital is divided into Ordinary "A" Class shares and Ordinary "B" Class shares of Rs 10 each. Total "A" Class shares amount to 3774 million with a total paid-up capital of Rs 37.740 billion. Out of this paid-up capital the government of Pakistan holds 31.73 billion rupees and that amounts to almost over 84% of the total shareholding of Class A. In Class "B", entire shareholding of 1326 millions is held by the government and there is no public participation. The company's total capitalisation as at the year-end was 215 billion rupees compared with the last year's 145 billion. This shows an improvement of over 48 percent in its market price.
As the government of Pakistan holds more than 88% of the total capital that comprises Class A and Class B shares, it nominates the directors. It has been stated in the directors' report that all of them are non-executive directors. However, it is not clear whether the non-executive directors are also independent or not. This has not been disclosed in the report. It has also not been disclosed in the report what are the appointment criteria of these non-executive directors. Being one of the biggest organisations within the government-owned sector, good corporate governance demands that the selection of non-executive directors should be with utmost care that demonstrates full transparency at the time of appointment and the appointees should be fully committed to overseeing the performance of the executive management. It is uncertain if that is the case.
YEAR 2004 FINANCIAL RESULTS
TOTAL REVENUES: The company earned a total revenue of 74.1 billion rupees as against 67.2 billion rupees last year. This amounts to a growth of over 10% during the year under review. The directors' report discloses that there was a substantial growth of over 9% in domestic revenue that touched 54.4 billion rupees compared with last year's 49.6 billion rupees. Revenue from international sources also increased from 17.5 billion to 19.7 billion rupees that amounts to an increase of 12%. Combined revenue from these two sources increased by almost 10%.
PROFITABILITY: The company's profitability improved substantially from 23.1 billion to 29.2 billion rupees, that is an increase of over 26% over the last year. It is interesting to note that the 10% increase in revenue has generated a 26% increase in net after-tax profits whereas profits before tax increased almost over 18% over the last year's. This is a very impressive performance and indicates that the company has been able to contain its expenses within a reasonable limit.
The total operating cost amounts to 43.42% of the total revenue compared with last year's 47.75%. This reconfirms the company's claim that it has managed its operating costs well within its target and this containing of cost has contributed towards increase in its profitability during the year under review.
It is also noticeable from the financial accounts of the company that its financial charges have also gone down from 1.22 billion to 673 billion rupees during the year that works out to be almost 65.76% of the last year's and reflects a saving of 34.23% amounting to 350 million rupees.
The company has provided 32.73% of its taxable income as provision for taxation compared with last year's 36.87% of its taxable income. This lower provision for income tax has a favourable impact also upon the bottom line, amounting to 1.79 billion rupees.
PROFIT DISTRIBUTION: The company has distributed a profit of 50% out of its earnings. It amounts to Rs 5 per share as against the last year's profit distribution of Rs 3.50 that was 35% distribution on its paid-up capital. This is a growth of over 42% over the last year. This profit distribution surprised most of the investors and the share price immediately surged to over Rs 45 per share. The share provides a yield of over 11% if calculated at its cumulative dividend price.
EARNING PER SHARE: The company has managed to show a higher earning per share of Rs 5.72 as against 4.53% last year. This is a 33% improvement in its earnings per year over the last year. This is no doubt a remarkable achievement. If the company is able to maintain its current income and its share price is stabilised at Rs 41; its price-earning ratio would works out to be 7.16.
Its price-earning ratio may fluctuate between 6.75 and 7.50 during the year. That means that the price of the share should be trading between Rs 38.60 and 42.90 during the year.
RETURN ON CAPITAL: The annual report indicates that the company has been able to earn a 25% rate of return on its capital employed compared with the last year's 20.3%. There is an improvement of almost 23% in the rate of return on capital employed. This improvement indicates that the management has been able to manage its capital utilisation to its optimum level that has helped to improve its return.
COMPANY'S LIQUIDITY: The company's cash and bank balances increased during the year from 13.39 billion to 24.023 billion rupees. This is an increase of over 79% over the last year. The company's cash flow statement for the same period reflects net increase in cash and cash equivalents of 10.332 billion as compared with last year's of 4.609 billion rupees. This depicts the healthy financial position of the company.