It was a tough quarter for the telecom giant. As per latest financials released to the bourse yesterday, the Pakistan Telecommunications Co. Limited (PSX: PTC) closed the third quarter ended September 30, 2019 with a massive slump in group profitability. Diving into group financials, a picture emerges that is quite the opposite of the recent company performance.
Previously, the group’s dominant arm, the PTCL Company, was affecting the group financials negatively, while the two subsidiaries – Ufone and UBank – had been doing rather well. The roles apparently reversed in the quarter under review, with the subsidiaries, mainly Ufone, becoming more of a cost center for the whole group.
For a change, the PTCL Company grew its top-line by roughly 3 percent year-on-year in 3QCY19. Among the key retail segments, there was a healthy 5 percent growth in wire-line data services (DSL broadband), as both users and revenue per user saw growth. However, the voice business (fixed-line telephony) showed a rather large, 11 percent drop in billings over 3QCY18. The decline was offset by double-digit sales growth in corporate and wholesale services, as well as international business (LDI).
|PTCL Group (consolidated)|
|Cost of services||23,854||23,746||0.5%|
|Administrative & general expenses||5,394||4,823||11.8%|
|Selling & marketing expenses||1,639||1,403||16.9%|
|Profit before taxation||583||2,194||-73.4%|
|Provision for income tax||248||385||-35.6%|
|Profit for the period||335||1,808||-81.5%|
|Source: PSX announcement|
Thanks to controlled growth in core costs and operating expenditures, the company’s operating profits improved by 2 percent year-on-year. Further help came from a nearly twofold increase in ‘other income’ (owing to exchange-related gains and higher mark-up on deposits due to high interest rate) and a sizable decline in finance costs. In the end, the PTCL Company managed to expand its quarterly net profits by over 50 percent year-on-year, with the figure of Rs1.67 billion.
As the PTCL Company comforted the group financials, the two subsidiaries ended up wiping those gains. Ufone’s top-line went down 13 percent year-on-year, mainly due to the impact of a Supreme Court ruling last summer that suspended the deduction of “service charges” by cellular operators on pre-paid re-charge. UBank grew its revenues impressively by 49 percent year-on-year, but it couldn’t offset the Ufone’s top-line fall.
In addition to the two subsidiaries’ collective top-line going down by 10 percent over 3QCY18, the duo together achieved a double-digit growth in marketing and administrative expenses, thanks mainly to higher cost of utilities and branch expansion activities at UBank. The duo managed an operating loss of about Rs300 million in 3QCY19, compared to Rs1.6 billion in operating profits in the year-ago period.
Another blow came in the form of a steep rise in finance costs, mainly on account of Ufone’s debt-financed growth in an era of high interest rate. That led to the subsidiaries contributing a total net loss of about Rs1.3 billion to the group bottom-line. Back in 3QCY18, the two subsidiaries had together provided over Rs700 million in net profits to the group.
It is good to see the PTCL Company returning good quarterly results. Along with a continued growth in the flagship company’s broadband and wholesale revenues, the PTCL Group is also going to need some turnaround from the subsidiaries in the last quarter, if it is to close the ongoing calendar year on a note of bottom-line growth.