financial analysis report ptcl

8/22/2019 Financial Analysis Report PTCL

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1 Financial analysis of Pakistan Communication Company Limited-Year ended 30-06-2012

Pakistan Telecommunication Company Limited

Financial Analysis Report

Period coverage: 1st

July 2011 to 30th

June 2012

Prepared and Presented by:

Dr. Babur Zahiruddin Raza,

Corporate Office

Consultant in Human Resources & Master Trainer in H.R Applications

Research Consultant Mr. J. S Khan

IT Consultant Mr. Raheel Rustam

Ph: 051-5584905, 5792836

Cell: 0332 4923235

Email:[email protected],
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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TABLE OF CONTENTS

SR no Description Page no

1 Financial analysis approach ------------------------------------------ 3

2 Key discussion points for AGM--------------------------------------- 4


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1. FINANCIAL ANALYSIS APPROACH

We have tried to perform holistic and integrated financial analysis of PTCL with the help

environmental analysis, industry analysis, company operational review and annual report.

1.1 Flow chart of analysis approach

2.2 Requisite essential documents for financial analysis

The under mentioned documents are essential to perform comprehensive analysis of financialposition, performance and cash position of PTCL

1. Financial plan-Year 2011 to 20152. Audited financial statements-Year 20123. Internal audit reports4. Management letter /. Letter of internal control from external auditors5. Minutes of board meetings

Environmental analysis

Industry analysis

Operational review of PTCL

Financial analysis


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Key discussion points for AGM

HUMAN RESOURCES PAGE NO. (27)

VSS only 33% response why is that a voluntary scheme ended up with arm twistingand coercion. Was it that the scheme was not lucrative and rosy?

EHTISILAT MANAGEMENT FEE TERM

After the term of expiry why is it that the management fee was ratified by the BODand not by the EOGM?

Page 76 of Annual Report and notes to accounts 27

Point no 1: Provision for obsolete stores, spares and loose tools

The financial statements reveal that there is substantial increase in the provision of obsolete

stores, spares and loose tools and it is evident from following table

2012 2011 Variance in

amount

Variance

in %age

Rupees Rupees Rupees

Provision for obsolete stores, spares &loose tools 284,623,000 73,992,000 210,631,000 285%

We make request to directors of PTCL to clarify the reasons of recognizing the provision for

obsolete items in the financial statements as per IAS 2: Inventories


Point no 2: impairment loss on property, plant and equipment

The financial statements reveal that there is substantial increase in the impairment loss on

property, plant & equipment and it is evident from following table


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amount

Variance

in %age


Impairment loss on fixed assets 191,759,000 191,759,000 100%

We make request to directors of PTCL to explain the reasons of recognizing impairment loss in

the financial statements as per IAS 36: Impairment of assets

Pages 18 and 48 of Annual Report

Point no 3: Non declaration of dividend: The statutory report of directors reveals the fact (page

18 of annual report) that dividend has not been declared by directors due to liquidityrequirements for:

1. Voluntary separation scheme2. Expansion and diversification of PTCL Network3. Post 3G scenario

Under section 249 of Companies Ordinance 1984, the PTCL has sufficient accumulated profits

for the payment of moderate dividend and it is explicitly evident from following extracts of

statement of change in equity (page 48 of annual report)

A. Accumulated profits / un-appropriated profits as at June 30 2011: PKR 14,376,349,000B. Profit for the year: PKR 7,212,079,000C. Transfer to insurance reserve: PKR 293,196,000D. Accumulated profits / un-appropriated profits as at June 30 2012: PKR 21,295,232,000

In the light of above mentioned facts, we would make request to directors to elaborate the

underlying reasons of non-declaration of dividend.

We would also make request to honorable board of directors to share the projected cash

outflows for voluntary separation scheme, expansion and diversification during the period 1-07-

2012 to 30-06-2013.


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Point no 4: Substantial decrease in accrued liabilities

The financial statements reveal that there is substantial decrease in the accrued liabilities and it

is evident from following table


amount

Variance

in %age


Accrued liabilities 4,397,888,000 7,300,434,000 2,902,546,000 40%

We make request to directors of PTCL to explain the reasons of decrease in the accrued

liabilities because it contains following suspected material misstatement

- Understatement of liabilities

- Overstatement of profits

Page 62 of Annual Report and notes to accounts 12.1

Point no 5: Failure to quantify financial impact of 1,744 cases which were filed against PTCL

The directors assertion in note # 12.1 on page 62 regarding 1,744 cases

A total of 1,744 cases (2011: 1,684 cases) have been filed against the Company primarily

involving subscribers and employees.Because of the number of cases involved and their

uncertain nature, it is not possible to quantify their financial impact at present. However, the

management and the Companys legal advisors, are of the view that the outcome of these

cases is expected to be favourable and a liability, if any, arising on the settlement of these

cases is not likely to be material. Accordingly no provision has been made in these financial

statements in this regard

As per the requirements of IAS 37 and fundamental principle of prudence, the financial impact

of 1,744 lawsuits against PTCL should be measured and recognized in the financial statements

to ensure true and fair view of financial position and performance.

The non-incorporation of provision for lawsuits gives rise to following material misstatementsin the financial statements of PTCL for the year ended 30

thJune 2012

A. Understatement of liabilitiesB. Overstatement of net assetsC. Overstatement of profits


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Page 70 of Annual Report and notes to accounts 16.1

Point no 6: Rationale for paying loan of 11 billion rupees to PTML

The note # 16.1 on page 70 of annual report contains following disclosure regarding payment ofloan to PTML

First loan Second loan Third loan Fourth loan

Loan in PKR 3,000,000,000 2,000,000,000 2,000,000,000 4,000,000,000

Disbursement date Nov 15 2008 Nov 09 2009 May 18 2010 July 05 2010

We would make request to directors of PTCL to explain the purpose of paying loan of 11 billion

rupees to PTML. Moreover, we need confirmation that PTCL have been receiving repayments

from PTML in the post balance sheet period for instance on August 18 2013 and October 02

2013.


Point no 7: Doubtful Trade Debts of 9.4 billion rupees

The note # 18 on page 72 of annual report contains fact that amount of doubtful Trade Debts of

PKR 9,490,723,000

We would make request to directors of PTCL to share the details of doubtful trade debts of PKR

9,490,723,000 for the information and understanding of shareholders.


Point no 8: Policy and nature of Liabilities written back

The note # 35 on page 80 of annual report contains fact that liabilities written back amounting

to PKR 1,800,660,000 during the financial year ended 30th

June 2012.

We would make request to directors of PTCL to share the policy and nature written backliabilities of PKR 1,800,660,000 for the information and understanding of shareholders of

Company.


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Point no 9: Change in classification of last year figures amount to 2.6 billion rupees

The note # 43 on page 90 of annual report contains change in classification of PKR

2,633,759,000 pertains to Capital work in progress cost which was incurred in last year. Wewould make request to directors of PTCL to share the reasons of transferring 2.6 billion rupees

from the account head of capital work in progress to Long term loans and advances.

Page 34 of Annual Report

Point no 10: Acquisition terms and conditions of Bank Limited

The statutory report of directors reveals the fact that Company management has been finalizing

the acquisition of ROZGAR Microfinance Bank Limited. We would make request to directors toshare the terms and conditions of acquisition of bank for instance estimated purchase price,

due diligence assignment and valuation of net assets of ROZGAR Microfinance Bank Limited.

Conclusion

The management of PTCL is making tall claims that they have pulled the company out of the red

but have omitted and skipped paying the dividend despite a hefty balance sheet as enumerated

in point no. 3 of discussion.

There is need to pay emphasis on HUMAN Resources and change the mind set of the employee

for which a drastic cultural change is required which the hierarchy of PTCL is not cognizant of

and is miss guiding the BOD (foreign investors). Certain SEVPs have outlived their utility and

need to be shown the door for more progressive and competent successors.

Shareholders are advised in their own interest to look for safer heavens and greener pastures.

DR. BABUR ZAHIRUDDINShareholder

financial analysis report ptcl

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