ISLAMABAD: The Board of NESPAK has approved a five-year Business Plan (2023-2028) with directions to audit reasons for losses in the foreign offices and deficiencies in the business model, well-informed sources told Business Recorder.
At a recent meeting, the board was apprised that the management is projecting to acquire more business share in the emerging international business stream and to increase its business share of international projects by 40 per cent, whereas, 60 percent would be the share of domestic projects by the end FY 2027-2028.
The board was further informed that the current gross margin of six percent is projected to increase by 21 percent at the end of 2027- 2028.
The projected business targets and business performance of the foreign subsidiaries since incorporation were also presented to the board. Upon query on the reason for losses incurred by the foreign offices, the MD informed that flaws in the business model were the main reason for losses, and in addition to that the absence of business diversification and lack of supervision were the other reasons. He added that a business model of working as a joint venture with foreign/ locals is not viable in the current era.
He informed that management is proposing to change the name of NESPAK to NESPAK International for working independently and to target huge market share globally.
The management is also putting its efforts into reviving its relations with old clients in foreign markets and planning for project diversification through new ventures into new international markets such as Azerbaijan and Africa.
Asif Haider Mirza, one of the directors, added to the conversation and opined that improper contract management and the absence of due diligence of contracts which resulted in receivables, are also the reasons for losses.
The board discussed that the lack of proper invoicing and a substantial growth of receivables reflects the mismanagement and failure of concerned divisional heads and, hence should be held responsible for that. Knowing that NESPAK’s JV companies in foreign are not sharing losses as per service agreements, the board considered it to be another reason for losses and growing receivables.
After brief deliberations, the board directed the management to do due diligence on business agreements with the foreign JV companies to cater this issue.
The Power Division secretary, who is also chairman of the board, was of the view that management should study the business model of Chinese and European companies working abroad to analyse their business practices and how they successfully operate in foreign markets.
He noted the views of the chairman and informed that as directed by the audit committee, the manager internal audit would be sent to conduct a special audit of NESPAK’s foreign offices. Accordingly, his audit findings shall be taken into consideration for improving the performance of foreign offices.
The management presented short-term, mid-term, and long-term business objectives to the board and informed that the company is targeted to increase profit margin by 2.5 per cent in the first year, seven percent in 2nd and 3rd year, and then 15 per cent in the fourth and fifth year.
Brief discussions were held on the business acquisition in the local private market, whereby, the MD informed that upon recommendation of the HR committee, the management is to start collaborating with small local consultancy houses, to target the local market share. The board directed the management to study the current private market and come up with an analysis in the next meeting, of how NESPAK can penetrate the private sector market.
Another Director Board Pir Saad Ahsanuddin informed that the HR committee had given a target to the management of achieving a percentage of 30 percent and 70 percent as competitive and non-competitive projects in the domestic market.
Upon this, Asif Haider Mirza advised that management should devise a policy to generate more profits out of this 70 per cent of government-to-government (G2G) projects, since as per experience, most of the G2G projects resulted in trade receivables which was agreed by the board and directed to put extensive efforts into recovering the outstanding receivables pending from government departments.
Mirza informed that the audit committee has given a recovery schedule to the management to recover the long outstanding targets, suggesting making that schedule a part of the Business Plan document. For the recovery of receivables, the board advised that the MD NESPAK may write a request letter for recovery of dues, to those directors of the board who are representing those government and semi-government departments, which owe a substantial amount of NESPAK’s receivables. Following the directions of the Board, the MD NESPAK has written letters to the concerned stakeholders for recovery of receivables.
Moreover, the board discussed the SWOT (strengths, weaknesses, opportunities, and threats) analysis, risk analysis, and observed that standard risks were not included in the Business Plan document. Therefore, management was directed to include basic business risks such as market risk currency risk, credit risk impairment risk, and liquidity risk, in the business plan.
After much deliberations, the board finalised the business plan for the next five years and decided to forward the business plan to the Power Division for its consideration/ comments, after incorporating the following points; (i) to provide steps to achieve projected targets; (ii) Include an organisational culture; (iii) provide timelines for the projected targets; (iv) provide quantitative numbers to targets; and (v) strategy to trigger down the business targets to all the organizational tiers.
The board also directed the management to study the trend of the current private market and come up with an analysis in the next meeting, of how NESPAK can penetrate the private consultancy sector.
Copyright Business Recorder, 2024
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