Financial Management

Final Report

Pakistan Telecommunication Company Limited

Cash Flow Comments

Rupees in Thousand

PTCL’s Net cash flow remains positive and it also increased in year 2007
with a nominal 1% as compared to Year 2006. The cash flow in year 2007
was Rs. 35540427 as compared to Rs. 35192215 in year 2006.
Andy how the PTCL’s Net cash flow remained positive and this resulted due
to lower “income Tax” payment in year 2007 as compared to year 2006,
however, the cash itself generated from operations declined by 2%.

WE also notice that there remains negative Net cash flow for PTCL from
investing activities. But a thing to note is that this negative cash flow was
higher in Year 2006, and hence negative cash flow reduced in year 2007.
The negative Net cash flow in year 2007 happens to be (Rs. 6847225) and in
year 2006, it was (Rs. 15553221). This reduction in Negative Cash flow
resulted because PTCL in year 2007 got a handsome amount of Rs. 2879417
as “Return on Deposit”. On other hand PTCL’s fixed Capital expenditure
also went down to a significant level of Rs. 10109953 as compared to
17529722 in year 2006. This all as a whole contributed towards reduction in
negative Net cash flow from investing activities.

Net Cash flow from financing activities for PTCL was negative in year 2006
and it also remained negative in year 2007. In fact in year 2007, the negative
net cash flow increased and reached to (Rs. 16391017) from (Rs. 10127513)
in year 2006. This resulted due to payments to suppliers and dividend
announcements.

Over all cash conditions for PTCL’s Cash flows seems sound. And we can
conclude that PTCL handles it’s cash flow effectively to have enough
positive cash flows. As we see that there remain a total of positive cash
flows with the increment of 65% at the end of year 2007 with a figure of Rs.
31137712 as compared to year 2006 figure of Rs. 18835482. This is also
because the cash and cash equivalents at the beginning of the year (the
ending of 2006) was higher in year 2007 as compared to the cash and cash
equivalents at the beginning of the year 2006.

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Final Report

Pakistan Telecommunication Company Limited

Changes in Equity:
Rupees in Thousand

PTCL’s total equity increased with 5.15% in year 2007. It reached to the
amount of Rs. 110913264 as compared to the previous year of Rs.
105475464.
This increase in equity was obviously due to addition in Revenue Reserves
(Net profit – Dividend). The Net profit earned in year 2007 stood to Rs.
15638753 and dividend declared amounted to Rs. 10200000.
So, overall changes in equity for PTCL remained positive and increasing.

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Pakistan Telecommunication Company Limited

Going Concern:

One of the most basic accounting assumptions is the concept that a business
is a going concern. Unless there is significant evidence to the contrary, it is
assumed that a specific business enterprise will continue to operate for an
indefinite period, or at least for the "foreseeable future"—long enough both
to meet its objectives and fulfill its commitments.
And PTCL, from its financial position seems to be good enough to with
stand and continue to operate for an indefinite period. This is because we see
that PTCL has enough resources to operate in long term. PTCL’s current
ratio in year 2007 increased and reached to 2.22 as compared to Year 2006.
This means that PTCL has current more than double its Current Liabilities.
Even Quick Ratio is also improved in year 2007 and it reached to 2.07.

Leverage:

PTCL’s Debt ratio happens to be 27.42% in year 2007 that can also be
considered a good sign. Where as a positive sign for PTCL is that it’s Debt
to Equity ratio was 27: 73 in year 2007.

Profitability:

PTCL’s profitability in Year 2007 decreased as compared to Year 2006,

because of comparatively lesser sales domestically. However, PTCL’s
revenue from International operations was slightly higher.
As PTCL got reduced Net Income after tax, for the same reason it
announced lower dividend as compared to previous year. Hence, PTCL’s
EPS and DPS went down, and ultimately it recorded a lower payout ratio.

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Final Report

Pakistan Telecommunication Company Limited

Conclusion:
PTCL’s overall financial performance is considered to be very good. PTCL
has enough resources to meet it’s current obligations as this is obvious from
the current and Quick ratio.
PTCL’s Debt/Asset and Debt/Equity ratios have also improved, though in
Year 2007 the net Operating Profit and Net Profit after Tax earned by PTCL
went down, but over all it made a good revenue to stand in the competitive
market. This is because the tough competition put by competitors in telecom
industry domestically.
Profitability for PTCL in year 2007 went down, so it also announced
relatively lower dividend in the same year. Despite that PTCL still had a
good ROE and ROA in year 2007.
PTCL’s EPS and DPS also declined in year 2007.
But PTCL’s Overall Cash flows remained in good condition and it remained
increasing in year 2007. PTCL has been good at dealing its cash flows
effectively. Changes in equity were also positive in year 2007. We foresee
that PTCL can still perform well in the market by adopting the needed
marketing strategies being followed by PTCL’s competitors.
Also, the telecommunication sector is growing fast and this itself would help
in getting a greater share in this sector for PTCL.

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LETTER OF ACKNOWLEDGEMENT

I would like to thank Mr. Sohail Sarwani for his valuable guidance and
teaching throughout the course of Financial Management, that provided us
the insights and a through knowledge of Financial Management.

Through this report, Mr. Sohail Sarwani gave me the opportunity to apply
the concepts and theory learned in the course. This report also helped us to
know the practical side of the course.

I would also like to say my thanks to Mr. Kashif Khan at Atlas, who
provided me with the Annual report of PTCL & Mr. Shehzad Butt, Chief
Internal Auditor – AL-ABid Silk Mills for helping me out and providing me
additional guidance. I am thankful to all of their support and precious input
in this regard.

Abdul Manan Shaikh

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Table of Contents

1. Introduction to PTCL

2. Financial Ratios and Comments on PTCL

3. Cash flow Comments

4. Changes in Equity

5. Going Concern, Leverage & Profitability

6. Conclusion

7. Attached – PTCL’s Balance Sheet as at June 30, 2007

8. Attached – PTCL’s Profit & Loss Account for the year ended

June 30, 2007

9. Attached – PTCL’s Cash Flow Statement for the year ended

June 30, 2007

10. Attached – PTCL’s Statement of Changes in Equity for the

year ended June 30, 2007

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Introduction to PTCL

Pakistan Telecommunication Company Limited (PTCL) is the largest

telecommunication company in Pakistan. This company provides telephony
services to the nation and still holds the status of backbone for country's
telecommunication infrastructure despite arrival of a dozen other telcos
including telecom giants like Telenor and China Mobile . The companay
consists of around 2000 telephone exchanges across country providing
largest fixed line network. GSM, CDMA and Internet are other resources of
PTCL, making it a gigantic organization. The Government of Pakistan sold
26% shares and control of the company to Etisalat in 2006.

From the humble beginnings of Posts & Telegraph Department in 1947 and
establishment of Pakistan Telephone & Telegraph Department in 1962,
PTCL has been a major player in telecommunication in Pakistan. Despite
having established a network of enormous size, PTCL workings and policies
have attracted regular criticism from other smaller operators and the civil
society of Pakistan.

PTCL launched its mobile and data services subsideries in 2001 by the name
of Ufone and PakNet respectively. None of the brands made it to the top
slots in the respective competitions. Lately, however, Ufone had increased
its market share in the cellular sector. The PakNet brand has effectively
dissolved over the period of time. Recent DSL services launched by PTCL
reflect this by the introduction of a new brand name and operations of the
service being directly supervised by PTCL instead of Paknet.

As telecommunication monopolies head towards an imminent end, services

and infrastructure providers are set to face even bigger challenges. Pakistan
also entered post-monopoly era with deregulation of the sector in January
2003. On the Government level, a comprehensive liberalization policy for
telecom sector is in the offing.

In 2005 Government of Pakistan decided to sell at least 26 percent of this

company to some private agency. There were three participants in the bet for
privatization of PTCL. Etisalat, a Dubai based company was able to get the
shares with a large margin in the bet.

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Many big change events are happening in PTCL at the moment after its
privatization. these include the VSS (Voluntary Separation Scheme for its
employees), ERP (SAP based), restructuring, B& CC (Billing and Customer
Care Software) etc. Another seemingly minor change was change of brand
identity (logo) that will present PTCL's new face after privatization, with
greater focus on customer satisfaction and bringing about of new
advancements in telecom for Pakistani consumers.

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