Corporate results: PTCL’s consolidated earnings grow 36% over the year

However, unconsolidated profits decline 3% year-on-year2012.

KARACHI:

The Pakistan Telecommunication Company Limited (PTCL) has announced financial results for fiscal year 2012 (FY12) on Tuesday, largely in line with analyst expectations. On an unconsolidated basis, the company has posted an after-tax profit of Rs7.212 billion, as compared to Rs7.459 billion in FY11 – a decline in earnings of 3% over the year, says a note from Shajar Capital Research.

The profit translates into earnings per share (EPS) of Rs1.41 in FY12, as compared to an EPS of Rs1.46 posted in FY11. On a consolidated basis, however, PTCL witnessed an earnings growth of 36% over the previous year, and after-tax profits reached Rs11.438 billion in FY12, translating into EPS of Rs2.24.

Contrary to analyst expectations, PTCL has not declared a dividend payout, likely to fund its upcoming Voluntary Separation Scheme (VSS) for employees. In July, when the VSS was announced, The Express Tribune quoted PTCL Senior Executive Vice President Syed Mazhar Hussain as saying that the company’s human resource cost is 22% of total revenues, while this ratio in other telecom companies is below 10%, making it difficult to compete in the market. The VSS is expected to cost around Rs8-10 billion to the telecom operator, and lead to the redundancy of 16,000 employees.

While the telecom giant’s unconsolidated earnings were down 3% year-on-year, its gross income – for the first time in five years – grew 9% to Rs60.038 billion in FY12 on account of growth in its DSL and wireless broadband segment. The segment contributes almost 25% to the company’s revenue stream, according to BMA Capital analyst Zoya Ahmed. Compared to the last five years, during which the company posted negative 4% average annual growth, this is an encouraging development.

On a quarter to quarter basis, PTCL’s saw net income improve 2.22 times from the third quarter of FY12, to yield a profit of Rs3.011 billion in the fourth quarter. Net income for the period was 23.5% higher compared to the same period of the previous year, according to Zoya Ahmed.

The growth was achieved primarily due to a 364% increase in ‘other income’ in the last quarter of FY12, likely aided by a sizable dividend from Ufone, PTCL’s wholly-owned cellular subsidiary, said analysts.

Furthermore, analysts were quick to point out that although the company’s operating margin has been on a decline in the last five years, the VSS it has offered to employees may translate into a marked improvement in the future.

Forecasts

Shajar Capital predicts that after an initial hit in FY13 and FY14 earnings, due to the implementation of the VSS, efficiency gains should lead to an improvement in earnings before interest, taxation, depreciation and amortisation. The move is also expected to raise the company’s average employee productivity. Additionally, with the implementation of the International Clearing House exchange, PTCL may witness an
improvement in chargeable rates due to
increased monitoring of telephony traffic.

Published in The Express Tribune, September 12^th, 2012.