Pakistan Telecom profits down, skips final dividend
Pakistan Times Business & Commerce Desk

KARACHI: Pakistan Telecommunication Co. Ltd. [PTCL] on Tuesday posted a 9 percent fall in annual net profit, as the impact of competition on international call revenue outweighed strong subscriber growth.

PTCL skipped a final cash dividend, surprising the market and pulling its share price down by 2.05 rupees to 64 rupees by the close of trade on the Karachi Stock Exchange.

It had in December made an interim payout of 2.0 rupees.

"No announcement of a final cash dividend was a big surprise as the market was expecting a payout of 3 to 3.50 rupees per share," said Mohammad Sohail, director at Jahangir Siddiqui Capital Markets. "PTCL's dividend is a major source of government revenue."

But Junaid Khan, president of PTCL, said the firm did not consider a payout. "With the privatisation process of the company so near completion, we did not consider it appropriate to announce any dividend," he told Reuters.

PTCL said it had not declared a final cash dividend on the advice of the Privatisation Commission.

In June, Emirates Telecommunications Corp bought 26 percent of PTCL for $2.59 billion in Pakistan's biggest ever privatisation. The government sold 1.33 billion shares, or 26 percent of the total 5.1 billion shares.

The new owner will take over the management after payment of the $2.59 billion in the coming weeks.

Khan said the profitability of the company in the past year was good given cut throat competition.

Deregulation of the telecom sector since 2002 has deprived the national telecoms carrier of a near-monopoly in land-line business and dented profits, but analysts said the firm had its best year for fixed-line subscriber growth, adding about 922,000 subscribers for a 27 percent increase.

PTCL's 56-year monopoly on land lines ended in December 2002 when the government introduced deregulation that enabled private companies to set up telephone services.

PTCL, the country's second-largest listed company behind Oil & Gas Development Corp with a market value of about $4.1 billion, said net profit fell to 26.60 billion rupees ($445.6 million) in the year from 29.17 billion a year earlier.

After-tax profit was well below expectations. A consensus of seven analysts polled by Reuters was for net profit of 28.98 billion rupees, in a 28.44 billion to 29.41 billion range.

Earnings per share fell to 5.22 rupees from 5.72.

Anwar Ahmed, an analyst at Capital One, said the decline in net profitability was caused by poor performance of the long distance and international (LDI) segment.

"The emergence of new players on the LDI scene has intensified competition that forced PTCL to cut down its international calling rates, thus squeezing growth in volume and revenue," he said in comments made ahead of the results.

"A sizable decline in LDI revenue of PTCL in coming years is expected as new players, including mobile phone operators, are offering exceptionally low international call tariffs."

Khalid Iqbal Siddiqui, head of research at Investcap Securities, said the main reason for reduced profitability was a sharp cut in international settlement rates for international incoming calls, which have fallen to 13.7 cents per minute from over 18.5 cents in 2003/04, he said.

Analysts say PTCL had increased its subscriber base including wireless local loop (WLL), to more than five million, which contributed domestic revenue growth above seven percent during the last fiscal year.

PTCL also owns Pakistan Telecommunication Mobile Ltd, one of five mobile phone operators in Pakistan, as well as an Internet service provider.●