Telecommunication: WORLDCALL TELECOMMUNICATIONS LIMITED - Analysis of Financial Statements fiscal year 2004 - fiscal year 2006
WorldCall Telecommunications Group was established in 1955 when First Capital Securities Corporation Ltd started incubating WorldCall Payphones, now known as WorldCall Communications Limited.
WorldCall is part of a larger conglomerate and along with First Capital Securities Corporation Ltd. It owns a mix of telecom, print and media, technology, financial services, retail and property development businesses with both national and international coverage.
WorldCall Communication had the wide payphone network in the country and through its two subsidiaries has laid a wire network in the most affluent areas of Karachi and Lahore. WorldCall Group is one of the private telecom operators in the country with an extensive and diversified telecom businesses including Wireless Local Loop (WLL) through CDMA 2000 1X technology in over 40 cities, nationwide presence of Long Distance & International (LDI) network with 44 POPs, over 70,000 payphones, largest broadband HFC networks in Pakistan providing triple play (CATV, broadband internet, telephony), the pioneer prepaid calling card "Hello" and rights to dark fibers in a national long haul network being built across Pakistan.
WORLDCALL HOLDS THE FOLLOWING LICENSES:
-- Local Loop license in all 14 telecom regions of Pakistan (WLL) & Fixed local loop license in Lahore & Karachi telecom regions
-- Long Distance & International (LDI) license
-- Cable TV license
-- Card Payphone Service license
-- Prepaid Calling Card service license
-- Audio Tex license
-- Internet Service Provider License
-- Non Voice Communication Network license
-- Electronic Information Services license
-- Data Network Operator License
WC pioneered "Supervised Payphones" business model in the country. Moreover, WC Phonecards was the first company to introduce prepaid calling card service in the country. WC also developed the first ever broadband HFC convergence infrastructure in Pakistan and is the only operator in Pakistan and one of the few in the region to provide a triple play (CATV, internet and telephony).
In order to maximize operational depth, WorldCall Multimedia Limited ("WML"), WorldCall Broadband Limited ("WBL") and WorldCall Communications Limited ("WCL") have been merged into WorldCall Telecom Limited, WTL, to form a single operating entity. The merger was completed and came into effect from 1st July 2005.
WorldCall Telecom Limited provides various telecommunications services in Pakistan. The company operates through two segments, Telecom and Broadband. The Telecom segment engages in the provision of wireless local loop, long distance and international telephony services, as well as in the operation and maintenance of public payphones network. The Broadband segment offers Internet over cable and cable television services. The company is headquartered in Lahore, Pakistan. WorldCall Telecom Limited is a part of the WorldCall Telecommunications Group.
Following the merger, WorldCall Telecom has now become the single largest fixed-line payphone operator and single largest HFC/Cable Operator (CATV, IOC, VoIP/MSAN Telephony) in Pakistan. It is also positioned as a premium WLL and LDI operator. Post merger, WorldCall Telecom is now positioned as the only Multi Services Operator (MSO) in Pakistan capable of offering a variety of telecom services.
WorldCall is expanding its state of the art Hybrid Fiber Coaxial (HFC) networks to new localities in Lahore and Karachi. This venture has received a good response, reflected in a high number of subscribers. It has also initiated VoIP over cable service in Karachi.
In March 2007, WorldCall Telecom Ltd announced the launch of its new high-speed fiber optics network titled Optical Metro Access Networks (OMAN). The company announced that launched high-speed fiber optics network would be accessible to Small & Medium Enterprises (SMEs), banks, financial institutions, bandwidth providers and wireless operators both GSM & CDMA.
The merger of WorldCall Telecom was completed and came into effect from 1st July 2005. The Company started commercial operations of LDI on 1st of December 2004 and WLL on 8th of June 2005 respectively. The FY'06 became the first complete year of operations as merged company.
During the year 2006, the company generated revenues of PKR 4.4 billion, making profits of PKR 947.6 million. Revenue grew 5.4 times for the FY'06, compared to the first period of operations. This was accompanied by a much smaller increase in direct cost, of 3.4 times. As a result, the gross profit of WorldCall Telecom grew by an impressive 23 times. The gross profit margin of the company has also grown significantly during the FY'06 compared to the gross margin for the period from 01 December 2004 to 30 June 2005. This year, the company also posted a profit margin of 21.8% which signifies tremendous growth over the first seven months of operations when the company accounts had recorded a net loss. This shows that the company is now consolidating its position as a merged company in the sector.
The current ratio of WorldCall Telecom dropped drastically in the FY'05 when the company started operating. As the company started functioning, its assets and liabilities have started building up, with trade debtors and creditors coming online. The FY'05 witnessed increases in the levels of creditors and debtors, moreover as the long-term sources of financing came due, the current ratio declined further. In FY'06, investments in short term borrowings component was added to the asset base of the company. Besides, the company's cash and bank balances also built up rapidly. These developments have resulted in an improvement in the liquidity standing of the company.
The inventory management of WorldCall Telecom appears to be very efficient, as suggested by the low inventory turnover (days) ratio for the company. This can be attributed to the level of inventory maintained by the company. Although this figure is much higher than the level of inventory during the first few months of operations in FY'05, it may be reasonable to expect further increases in the level of inventory in the near future as the company establishes itself fully. Hence the low inventory turnover (days) may be misleading and may not be an appropriate measure of the company's asset management ability.
As the asset base of WorldCall Telecom widened and sales revenues increased during the FY'06, the total asset turnover of the company also grew considerably compared to the first period of operation in FY'05. Similarly the sales to equity ratio also improved, despite the growth in equity of the company.
The company is also consolidating its financial position, reflected in the marked decline in all debt ratios. The degree of financial leverage of the company continued to mount up to 2005 but registered a substantial decline in the FY'06. During the year, WorldCall Telecom issued additional share capital and the profits made during the period further added to the equity base of the company. This had the effect of pulling down the debt to equity and long-term debt to equity ratios of WorldCall Telecom. For the same reason, the debt to asset ratio has also posted a decline. The long-term finances component of liabilities has been reduced significantly during the year as the loans mature. This also had the effect of increasing the current liabilities of the company.
The company was also able to safely cover its finance cost during the FY'06, indicated by a TIE of 4.18. Hence the financial position of WorldCall Telecom has now stabilized.
During the FY'06, WorldCall Telecom posted an EPS of Rs 1.38. This represents a significant improvement in comparison to losses incurred during the first period of operations. The book value of the company's shares has also risen considerably. During the year, WorldCall Telecom increased its issued share capital and together with the accumulated profits for the period, this brought about the increase in book value of each share. As final dividend for the FY'06, the Board of Directors of WorldCall Telecom proposed bonus shares at the rate of 15 shares for every 100 shares held.
RECENT RESULTS:
During the first nine months of FY'07, WorldCall Telecom recorded profit after tax of Rs 565.7 million, approximately three times the profit recorded during the same period in FY'06. The revenues for the period declined by a nominal 4% over this period, compared to the same period in FY'06 due to a reduction in rates. However, despite this decline in sales revenue, gross margins of the company improved to 45.2% in 9mths'07 from 32.1% in the matching period last year due 22.5% reduction in direct cost.
Direct cost for the period under review decreased due to reduction in APC and CPP rates. Operating cost also decreased by 4% during the period owing to efforts for best utilization of resources. Moreover, increase in re-measurements at fair value of investments also contributed to the higher profits for the period.
As a result of these developments, the company posted an EPS of Rs 0.75 for the nine months ended 31st March 2007, against an EPS of Rs 0.26 during the same period in FY'06. This reflects a significant growth of 187.67%.
FUTURE OUTLOOK: In Wireless Local Loop, major deployment in the south has started to mature with Hyderabad being put into commercial operations recently. Commercial commencement in Karachi was scheduled for fourth quarter. The inclusion of Hyderabad has enhanced WorldCall Telecom's wireless service coverage to 40.
In Broadband segment, the Company crossed the mark of 500Mbps consumption of international IP bandwidth through its internet over cable (IOC) and CDMA 2000 1x high speed data offerings. Video on Demand (VoD) and digital channel offering, initiated in the second quarter, also received a very positive response from subscribers.
In Long Distance and International (LDI) segment, the Company maintained its market share. Expansions in the network capacity have been initiated to cater for additional volumes being generated from the WLL segment.
In payphone segment major focus on growth was maintained through the company's own deployments and expansions from white label operations segment. Enhancement of cities in coverage footprint continuously contributes towards growth in this segment. In March 2007, WorldCall Telecom Ltd announced the launch of its new high-speed fiber optics network titled Optical Metro Access Networks (OMAN).
These developments will expand the scale of operations of the company and augment future revenues. As a result, the company's profitability is likely to be boosted in future. WorldCall Telecom has also signed a contract with Capital Development Authority (CDA) for Joint Venture operations in Islamabad Capital Territories. The Joint Venture project shall address fiber optic connectivity requirements for all operators and service providers in ICT.
Moreover, the company has signed for WMAX deployment making use of its existing WLL infrastructure deployed in major metropolitan cities of the country. This will lead to a more profitable diversification of the company's portfolio and is aimed at covering areas not already covered by the company through its fiber optic network. The venture will promote growth in these areas. WorldCall Telecom has matured into a true multi service operator (MSO) and has systematically consolidated its position in the local telecom landscape.
Lastly, WTL intends to expand its WLL network and for this purpose it has acquired a loan of 25 million dollars from Amatis Limited. This loan is convertible, fully and partly, to ordinary shares of WTL and for this purpose the company has increased its share capital.
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BALANCE SHEET 2004 2005 2006
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Stores And Spares - 437 56568
Trade Debts - 300367 701434
Cash And Bank 25003 591928 1452789
Total Current Assets 192470 1180218 3870000
Total Assets 394284 5958914 15923909
Current Liabilities 36920 1164227 2047871
Non Current Liabilities 101022 2063905 2646106
Total Debt 137942 3228132 4693977
Paid-Up Capital 35 2750000 6539658
Total Equity 256341 2730782 11229932
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INCOME STATEMENT 2004 2005 2006
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Revenue-Net - 677854 4355859
Direct Cost - 607833 2673303
Gross Profit - 70021 1682556
Operating Cost - 91497 1090851
Operating Profit/Loss - -21476 591705
Other Operating Income - 14300 157137
Finance Cost - 24746 179092
Gains On Remeasurement Of Assets - - 612470
Profit/Loss Before Taxation - -31922 1182220
Taxation - 12704 234610
Profit/Loss After Taxation - -19218 947610
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PROFITABILITY 2004 2005 2006
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Return on Asset - - 0.059509
Return on Common Equity - - 0.084383
gross profit margin - 0.103298 0.386274
Profit margin - -0.02835 0.217548
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LIQUIDITY RATIO 2004 2005 2006
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Current Ratio 5.213164 1.013735 1.889767
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ASSET MANAGEMENT 2004 2005 2006
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Inventory Turnover - 0.135383 4.675193
Day Sales Outstanding* - 93.05406 57.97163
Total Asset turnover - 0.113755 0.273542
Sales/Equity - 0.248227 0.387879
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DEBT MANAGEMENT 2004 2005 2006
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Debt to Asset (%) 0.349854 0.541732 0.294775
Long Term Debt to Equity (%) 0.394092 0.755793 0.23563
Debt to Equity Ratio (%) 0.538119 1.182127 0.417988
Times Interest Earned - -0.28999 4.181326
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MARKET VALUE 2004 2005 2006
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Earning per share - -0.17 1.38
Book value - 9.930116 17.17204
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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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