PTCL annual Report by Usman

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***** Assignment ***** Title: Accounting Final Report

Submitted By: UsMan FArOoq. BBC-10-08

Submitted To: Sir Nadeem

Institute of Management Sciences

Bahauddin Zakariya University

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Annual Report of PTCL

Pakistan TeleCommunication Company Limited

For the year ended on 31st Dec, 2010

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Pakistan TeleCommunication Company Limited

Introduction of PTCL:

PTCL is the largest telecommunications provider in Pakistan. PTCL also continues to be the largest CDMA operator in the country with 0.8 million V-fone customers. The company maintains a leading position in Pakistan as an infrastructure provider to other telecom operators and corporate customers of the country. It has the potential to be an instrumental agent in Pakistan’s economic growth. PTCL has laid an Optical Fiber Access Network in the major metropolitan centers of Pakistan and local loop services have started to be modernized and upgraded from copper to an optical network. On the Long Distance and International infrastructure side, the capacity of two SEA-ME-WE submarine cable is being expanded to meet the increasing demand of International traffic. With the promulgation of Telecommunication (Re-Organization) Act 1996, the Pakistan Telecommunication Authority was established as the Telecom Regulatory body. Following the open licensing policy in BUY @ PKR 45.40 accordance with the instructions of Government of Pakistan and in exercise of powers conferred by Pakistan Telecommunication (Re-Organization) Act 1996, the basic telephony was put under exclusivity and PTCL was given a seven years monopoly over basic telephony which ended by December 31, 2002. The year 2009-2010 in the telecom sector witnessed a phenomenal growth in the mobile phone sector in Pakistan, which doubled its subscriber base to 60 million. The Teledensity increased from 26% to 40%, helping to spread the benefits of communication technology across the country. PTCL's mobile phone subsidiary Ufone's subscriber base grew by more than 87%, from 7.49 million to 14 million. The year also witnessed the entry of major telecom companies, most notably China

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Telecom and SingTel, into the market. Restructuring and re-engineering are in their final stages along with the implementation of ERP system. From the end customer's perspective, a major initiative was put in place in the shape of 'Broadband Pakistan' service launch as a first step towards providing its customer with more value added service and convenience. With this offering, the PTCL not only bringing the benefit of high speed Internet access to subscribers in major cities but will also generate new revenue streams for future growth. The company also continued to invest in infrastructure development and addition of network capacity with a view to enhance services and to expand its reach across the country.

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‘‘Introduction to me’’ I am Usman Farooq. Roll number BBC-10-08. BBA 2nd Semester. I have been assigned a task to make an annual report of PTCL for the year ended on 31st December 2010.

All the data used here is FAKE as per it was assigned to do... This Report is made under the assistance of

MAAN AUDITORS that is me myself. ☺☺☺☺

My report has no official value. Its only for the assignment, to be submitted, to Sir Nadeem.

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History Of PTCL

From the 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

Pakistan Telecommunication Corporation (PTC) took over operations and functions from Pakistan Telephone and Telegraph Department under Pakistan Telecommunication Corporation Act 1991. This coincided with the Government's competitive policy, encouraging private sector participation and resulting in award of licenses for cellular, card-operated pay-phones, paging and, lately, data communication services. Pursuing a progressive policy, the Government in 1991, announced its plans to privatize PTCL, and in 1994 issued six million vouchers exchangeable into 600 million shares of the would-be PTCL in two separate placements. Each had a par value of Rs. 10 per share. These vouchers were converted into PTCL shares in mid-1996 In 1995, Pakistan Telecommunication (Reorganization) Ordinance formed the basis for PTCL monopoly over basic telephony in the country. The provisions of the Ordinance were lent permanence in October 1996 through Pakistan Telecommunication (Reorganization) Act. The same year, Pakistan Telecommunication Company Limited was formed and listed on all stock exchanges of Pakistan PTCL launched its mobile and data services subsidiaries 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.

http://en.wikipedia.org/wiki/Privatize

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Recent DSL services launched by PTCL reflects this by the introduction of a new brand name and operation of the service being directly supervised by PTCL. A shop of Pakistan Telecommunication Company Ltd (PTCL) in Islamabad. As telecommunication monopolies head towards an imminent end, services and infrastructure providers are set to face even bigger challenges. The post-monopoly era came with Pakistan’s Liberalization in Telecommunication in January 2003. On the Government level, a comprehensive liberalization policy for telecoms sector is in the offering. In 2005 Government of Pakistan decided to sell 26 percent of this company to some private corporation. 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. Government's plan of privatizing the corporation were not welcomed in all circles; countrywide protests and strikes were help by PTCL workers. They disrupted phone lines of institutions like Punjab University Lahore along with public sector institutions were also blocked. Military had to take over the management of all the exchanges in the country. They arrested many workers and put them behind bars. The contention between Government and employees ended with a 30% increase in the salaries of workers. In 2009 PTCL launched its new product with the name of EVO

http://en.wikipedia.org/wiki/Islamabad

http://en.wikipedia.org/wiki/Pakistan%E2%80%99s_Liberalization_in_Telecommunication

http://en.wikipedia.org/wiki/Pakistan%E2%80%99s_Liberalization_in_Telecommunication

http://en.wikipedia.org/wiki/Etisalat

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***** Table of Content *****

Sr. No.

Content Page number

01 Corporate Vision 09 02 Mission 10 03 Core Values 11 04 Board of Directors 12 05 Management 13 06 Bankers Detail 14 07 Auditors Detail 15 08 Contacts 16 09 Financial Highlights 17 10 Graphs 19 11 CEO Message 21 12 Directors Report 23 13 Attendance of Members 27 14 Auditors report to Members 28 15 Balance Sheet 31 16 Profit and Loss Account 34 17 Cash Flow Statement 35 18 Statement changes in Equity 36 19 Notes to and forming part of the

Financial Statement 38

20 PTCL Stock Price 52 21 Patterns of Stock Holding 53 22 Categories of Share Holders 56 23 Notice of Meeting 57 24 SWOT Analysis 58 25 Conclusion 64 26 Recommendations 65 27 Bibliography 66

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Corporate Vision

à To be the leading Information and Communication Technology Service Provider in the region by achieving customer satisfaction and maximizing shareholders' value.

à The future is unfolding around us. In times to come, we will be the link that allows global communication. We are striving towards mobilizing the world for the future. By becoming partners in innovation, we are ready to shape a future that offers telecom services that bring us closer.

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Mission

à To achieve our vision by having Ø An organizational environment that fosters professionalism, motivation and quality

Ø An environment that is cost effective and quality conscious

Ø Services that are based on the most optimum technology

Ø "Quality" and "Time" conscious customer service

Ø Sustained growth in earnings and profitability

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Core Values

Ø Professional Integrity Ø Customer Satisfaction Ø Teamwork Ø Company Loyalty

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Board of Directors àààà Chairman and CEO: Usman Farooq (Executive President) àààà Chairman PTCL board: Sara Rizwan (Secretary IT division) (Ministry of IT) àààà Member (Telecom): Wajahat Ali (Ministry of IT) àààà Ambassador: Zeenat Khan (Embassy of Pakistan) (UAE) àààà Secretary (Finance): Zohaib Mailk (Ministry of finance) àààà Chief HR Officer : Abdul Shakoor ☺☺☺☺ (Etisalat UAE) àààà General Manager: Sameed Umair (North Emirates)

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Management �� Mr. Usman Malik �� Mr. Salman Siddique �� Mr. Mushtaq Ahmad Bhatti �� Mr. Khurshed Ahmed �� Mr. Fadhil Ansari �� Mr. Abdul-Aziz �� Dr. Ahmed Al Jarwan �� Dr Kamran Saliq

�� Zeeshan Guffar

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Banker

© Askari Bank © Muslim Commercial Bank © Habib Bank © Allied Bank © Meezan Bank © United Bank © Citi Bank © Faisal Bank © National Charted bank

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Auditors

Maan Auditors

Usman Farooq Charted Accountants & Co.

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Contacts Head Office: PTCL Headquarters Block E Islamabad Ph. No. 051-55443322 Email: [email protected]

Registered office: PTCL Headquarters Abdalian Town Lahore.

Ph. No. 042-55443322 Email: [email protected]

Share Office: FAMCO Associates (pvt) Limited Ground floor Multan Cant. Ph. No. 061-55443322 Email: [email protected]

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Financial Highlights

2010 2009 2008 2007 2006 2005

Key Indicators

Operating

Gross Margin (Operating Profit Margin)

% 28.67 39.66 47.86 56.58 52.24

48.07

Pre Tax Margin (EBIT Margin)

% 37.16 45.32 52.32 59.41 55.93 50.17

Net Margin % 23.96 30.07 35.02 39.35 34.35 29.83

Cash flow from Operation after Tax

% 54.45 50.94 49.34 51.11 52.63 43.94

Performance Return on Operating Assets

% 20.56 27.98 36.47 38.51 28.69 24.04

Debtor's Turnover Times

4.46 4.14 4.65 4.67 4.15 3.65

Return on Equity % 14.45 20.21 25.43 28.20 24.75 23.33

Leverage Debt: Equity Rati

o 14:86 14:86 13:87 13:87 16:84 25:75

Leverage % 27.92 31.27 25.64 23.91 26.14 32:81

Liquidity Current Times Tim

es 2.22 1.66 1.91 2.78 2.02 1.72

Quick Times Times

2.06 1.54 1.74 2.67 1.91 1.61

Valuation Breakup Value RS 21.75 20.68 19.63 21.39 19.17 17.39

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Earning per Share RS 3.07 4.07 5.22 5.72 4.53 3.88

Payout Ratio % 65.22 122.73 38.34 87.42 77.34 70.79

Market Price to Breakup Value

Times

1.88

1.96

3.58

1.97

1.48

0.99

Dividend per share Rs. 2.00 5.00 2.00 5.00 3.50 2.70

Market Value per Share (as on June 30)

Rs 57.00 40.60 70.25 42.15 28.45 17.15

Historical Trends Trading Results

Revenue Rs. (m)

65,277 69,085 75,972 74,124 67,202 66,427

Profit Before Tax. Rs (m).

23,744 30,974 39,296 43,360 36,563 30,895

Profit After Ta Rs. (m)

15,639 20,777 26,606 29,170 23,081 19,812

Dividend declared Rs. (m)

10,200 25,500 10,200 25,500 17,850 14,025

Financial Position Share Capital Rs.

(m) 51,000 51,000 51,000 51,000 51,000 51,000

Reserves Rs. (m)

32,249 31,992 32,008 32,000 28,500 23,600

Shareholders' Equity Rs. (m)

110,913 105,475 100,114 109, 100

97,773 88,709

Net Operating Fixed Assets

Rs. (m)

76,192 75,938 72,555 73,345 78,161 82,756

Current Assets Rs. (m)

54,203 50,168 39,269 33,548 33,277 33,122

Non Current Liabilities

Rs. (m)

17,460 16,489 15,258 15,126 16,544 22,245

Operational’s ALIS (000)* Nos. 5,455 5,586 5,120 4,429 3,83 3,655

ALIS per Employee Nos. 88 87 84 77 69 62

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Financial Highlights

(Graphs)

Revenue

EBIT and Net Profit

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Dividend Payout Per Share Total Assets

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CEO MESSAGE

The challenges faced by PTCL became even tougher in the past year where Pakistan experienced a spillover from the global recession. However, with unwavering determination and strong passion we have remained steady and focused on our course – to be the leading customer oriented ICT Company in Pakistan. This year PTCL has achieved numerous milestones, from some of which customers can benefit today while other long term initiatives will bring a fruitful tomorrow. Broadband Pakistan became the largest broadband service in Pakistan. EVO launched in June 2010 and made the Company the first 3G wireless broadband provider in Pakistan. This service is set to become one of the primary products of PTCL for years to come as is evident from the excellent reception it has received. PTCL continues to enhance and consolidate its position as the leading and premier broadband provider in the country and undoubtedly the sole Integrated Telecom Service Provider offering Bundled Voice, Data, Internet and TV services at compelling and competitive rates to a wide audience. At the corporate front, we have remained equally successful. PTCL today is the backbone for businesses throughout Pakistan through Voice, Data and Internet services. This year has seen the revolutionary roll out of customized services and state of the art audio and video conferencing facilities. With the launch of our Data Centre in Karachi and subsequently in other cities, corporate customers now have access to highly secure, reliable and networked hosting facilities for critical applications and services.

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Continuing with its efforts to improve and diversify Pakistan’s international connectivity with the rest of the world, PTCL has embarked on an ambitious project to link the country to the future data highway. Along with eight other international telecom providers, PTCL signed the Construction and Maintenance Agreement (C&MA) for IMEWE Fibre Submarine Cable System linking Karachi with Western Europe directly. The capacity of this system, to enter service shortly, will meet and cater to the growing and expanding demand for the broadband internet traffic for years to come. We fully realize in PTCL that while we work dedicatedly to enhance our Systems and Processes, Network, Products and Services our real reward and success originates from our customers, consumers and users from all over the country. It is therefore vital that PTCL continues to strive towards providing the highest quality of customer service to the full satisfaction of our users. In this respect, we continue to work on several projects and initiatives to improve our efficiency and response to customer demands and complaints. Also, we remain confident that our customers will see a marked and noticeable improvement in our services. With this in mind, we shall continue to invest in our people and workforce to cultivate a culture of service and differentiation and inculcate in them a new sense of purpose and self worth for reaching out to our customers. In view of the above achievements and undertakings, I am confident that our future is bright and promising and we look forward to successfully delivering on our commitments.

Best Wishes

Usman Farooq President & CEO

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Directors Report

PTCL is all set to redefine the established boundaries of the telecommunication market and is shifting the productivity frontier to new heights. Today, for millions of people, we demand instant access to new products and ideas. More importantly we want them for their better living standards with increased values in this ever-shrinking globe of ours. We are setting free the spirit of innovation. PTCL is going to be your first choice in the future as well, just as it has been over the past six decades.

Business & Corporate Users: For clear communication the first choice of business circles is PTCL telephone for local, nationwide and international calling. Today businesses can have 10-100 lines with modern day services to meet their needs. Now you get options like Caller-ID, call-forwarding, call-waiting, Call Barring, to name a few. Nationwide Infrastructure: We have the largest Copper infrastructure spread over every city, town and village of Pakistan with over million installed lines. The network has over 6 million PSTN lines installed across Pakistan with more than 3 million working. Furthermore installed capacity of broadband is more than 0.6 million ports spread across 414 cities and town of the country

National Long-haul Core Network: We have over 10,400 km fully redundant, fiber optics DWDM backbone network. It connects over 840 cities and towns with 270G bandwidth. White Label Services: PTCL customers can now provide uninterrupted services to their clients without undertaking large scale investment in infrastructure or developing expertise in their own network.

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PTCL White Label Services are focused on speed and simplicity at minimal capex. This will enable our customer to offer their own branded WLL, DSL etc to customers nationally, together with an array of key support services. EVO Wireless Broadband PTCL EVO 3G Wireless Broadband is Pakistan’s fastest wireless internet which offers its customers – “superior 3G internet experience”. Evo Wireless Broadband is enabling the wireless broadband revolution in Pakistan with flexibility to roam freely like never before. PTCL Evo has revolutionized the way people connect to the internet by offering true mobility. PTCL Evo is currently offering its services in more than 18 cities on EV-DO technology offering speeds up to 3.1 Mbps. PTCL Evo gives its customers the advantage of nationwide roaming with seamless internet connectivity across Pakistan. The coverage of Evo is not limited to 18 cities as Evo customers can enjoy CDMA-1X data rates of up to 153.6 Kbps at more than 1000 destinations across Pakistan. The portable, small & stylish Evo USB device is a multipurpose device which not only delivers fastest wireless internet but can also be used for Voice Calls by inserting a Vfone SIM and for data storage by inserting a standard Micro SD Card Broadband Pakistan PTCL Broadband is the largest and the fastest growing Broadband service in Pakistan. Since its launch on 19th May 2007, PTCL has acquired approximately 432,821 Broadband customers in over 414 cities and towns across Pakistan, leading the proliferation and awareness of Broadband services across Pakistan. With its entry in this market segment, PTCL opened up a broadband culture in Pakistan, where till a couple of years back

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there was very little awareness in the country about broadband & high speed internet services. by geographically bringing the service within the reach of a common user across Pakistan and by continuous improvements in customer care for the service. Pak Internet Exchange: It is the only IP enabled network with 40 (number increase) point-of-presences (POP) in 26 cities. The existing 16G active bandwidth is used for internet, data, video and video-conferencing services and for voice of LDI. All PTCL Broadband users, narrow band users, corporates, mobile operators. International Network SEAMEWE-3 Submarine Cable System: PTCL is a member of SEAMEWE 3 Cable Consortium with its Cable Landing Station at Karachi. SMW-3 cable connects 39 cable landing stations in 33 countries and four continents. SMW-3 is the longest system of the world with a total length of 39,000 Km. SMW-4 Submarine Cable System: SMW-4 is a relatively new submarine cable system (inaugurated in December 2005) and links 14 countries with 16 landing stations across Europe, Middle East and Asia. The system is using Terabit DWDM technology to achieve. Satellite Communication: PTCL has Intelsat Standard Earth Stations near Karachi and Islamabad. These installations provide the diversity for International voice connectivity and also work as Hub for domestic satellite users. There are four Intelsat Standard B Earth Stations at Islamabad, Gilgit, Skardu and Gwadar.

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Attendance (of PTCL Board of Members) Sr. No. Name of Member Meetings

Attended 01 Usman Farooq 07

02 Sara Rizwan 07

03 Zohaib Mailk 05

04 Wajahat Ali 06

05 Zeeshan Khan 05

06 Sameed Umair 02

07 Abdul Shakoor 04

08 Usama Ahmad 06

09 Nadeem Aftab 04

10 Salman Baloch 05

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Auditors Report to the Members

We have audited the annexed balance sheet of Pakistan Telecommunication Company Limited as at Dec, 31 2010 and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. It is the responsibility of the company’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:

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An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: (A) In our opinion, proper books of account have been kept by

the company as required by the Companies Ordinance, 1984.

(B) In our opinion:

(i) The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied.

(ii) The expenditure incurred during the year was for the

purpose of the company’s business; and (iii) The business conducted, investments made and the

expenditure incurred during the year were in accordance with the objects of the company .

(C) In our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and give the information required

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by the Companies in the manner so required and respectively give a true and fair view of the state of the company ’s affairs as at Dec 31, 2010 and of the profit, its cash flows and changes in equity for the year then ended. (D) In our opinion Zakat deductible at source under the

Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement.

Maan Auditors

Dated: Usman Farooq December 31, 2010 Charted Accountant & Co.

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Balance Sheet As at Dec 31st 2010

Note 2010 Rupees in

2009 hundreds

Equity and liabilities Share capital and reserves Authorized capital 11,100,000,000 “A” class ordinary shares of Rs 10 each

111,000,000

111,000,000

3,900,000,000 “B” class ordinary shares of Rs 10 each

39,000,000 39,000,000

Total 150,000,000 150,000,000

Issued, subscribed and paid up capital

5 51,000,000 51,000,000

Revenue reserves – Insurance reserve

6 1,683,074 1,683,074

– General reserve

30,500,000 30,500,000

– Unappropriated profit 16,206,485 14,705,300

Total 99,389,559 97,888,374

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Non Current Liabilities

Payable to PTA against WLL license fee

7 – 1,768,839

Long term security deposits from customers– non interest bearing

8 990,055 951,618

Deferred taxation

9 2,379,000 590,000

Employees’ retirement benefits 10 14,142,099 14,240,062

Deferred government grants 11 1,061,044 95,000

Total 18,572,198 17,645,519

Current liabilities Trade and other payables 12 26,114,171 21,731,667

Current portion of payable to PTA against WLL license fee

7 1,953,971

–

Taxation 368,180 182,292

Dividend payable

7,650,000 –

36,086,322 21,913,959

Contingencies and commitments

13 154,048,079 137,447,852

The annexed notes from 1 to 47 form an integral part of these financial statements

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Assets Non current assets Property, plant and equipment 14

77,730,763 82,800,178

Capital work–in–progress 15 9,836,588 7,892,823

Intangible assets 16 3,320,670 3,149,063

Long term investments 17 5,607,439 3,607,439

Long term loans 18 3,332,378 394,943

99,827,838 97,844,446

Current assets Stores and spares 19 5,201,991 4,954,085

Trade debts 20 10,760,974 13,366,216

Loans and advances 21 590,061 888,309

Accrued interest 22 821,027 315,817

Recoverable from tax authorities

23 1,059,608 1,383,766

Other receivables 24 698,270 1,641,617

Receivable from Government of Pakistan

25 2,164,072 2,164,072

Short term investments 26 21,017,790 10,344,379

Cash and bank balances 27 11,906,448 4,545,145

54,220,241 39,603,406

Balance Total 154,048,079 137,447,852

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Profit and Loss Account for the year ended Dec, 31 2010

Note 2010 (Rupees in

2009 thousand)

Revenue 28 59,239,001 66,336,042

Cost of services

29 (37,732,282) (37,346,869)

Gross profit

21,506,719 28,989,173

Administrative and general expenses

30 (8,935,261) (10,823,555)

Selling and marketing expenses

31 (1,817,071) (1,799,946)

Operating profit 10,754,387 16,365,672

Voluntary separation scheme

32 (92,118) (23,937,854)

Other operating income 33 4,267,172 3,957,539

Finance cost 34 (908,524) (847,973)

Profit / (loss) before tax 14,020,917 (4,462,616)

Taxation 35 (4,869,732) 1,637,726

Profit / (loss) after tax

9,151,185 (2,824,890)

The annexed notes from 1 to 47 form an integral part of these financial statements

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Cash Flow Statement for the year ended Dec, 31 2010

Note 2010

(Rupees in 2009 thousand)

Cash flows from operating activities

Cash generated from operations 38 34,337,391 28,091,249

Long term security deposits 38,437 (244,166)

Employees’ retirement benefits paid (1,470,335) (17,373,671)

Payment of other VSS components (840,927) (21,444,052)

Received from Government of Pakistan

----- 15,264,928

Finance cost paid (265,232) (360,407)

Income tax paid (2,894,844) (2,833,459)

Net cash inflow from operating activities

28,904,490 1,100,422

Cash flows from investing activities

Capital expenditure (9,455,527) (11,411,216)

Intangible assets (397,979) (109,270)

Proceeds from disposal of property, plant and equipment

206,039 19,651

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Short term investments other than cash equivalents

26 (1,221,886) ----

Advance to the wholly owned subsidiary against issue of ordinary shares

(2,000,000) ---–

Long term loans–net 62,565 1,214,991

Loan to the wholly owned subsidiary

(3,000,000) ----

Return on bank placements / loan to subsidiary

2,751,824 2,860,719

Government grants received 966,044 95,000

Dividend income – 350,000

Net cash outflow from investing activities

(12,088,920) (6,980,125)

Cash flows from financing activities

Repayment of suppliers’ credit – (172,961)

Dividend paid (2,742) (10,195,524) Net cash outflow from financing activities

(2,742) (10,368,485)

Net increase / (decrease) in cash and cash equivalents

16,812,828 (16,248,188)

Cash and cash equivalents at beginning of the year

14,889,524 31,137,712

Cash and cash equivalents at end of the year 39

31,702,352 14,889,524

The annexed notes from 1 to 47 form an integral part of these financial statements.

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Statement of Changes in Equity For the year ended Dec, 31 2010

Issued, subscribed and paid–up capital

Revenue reserves

Total

Class “A”

Class “B” Insurance reserve General reserve

Un- Appropriate Profit

(Rupees in thousand) Balance as at Dec 2008

37,740,000 13,260,000 1,749,047 30,500,000 27,664,217 110,913,264

Net loss for the Year

-----------

-----------

-----------

-----------

(2,824,890) (2,824,890)

Transfer from Insurance Reserves

-----------

-----------

(65,973) -----------

65,973 -----------

Final dividend for the year ended dec, 31 2010 At Rs. 2 per share

-----------

-----------

-----------

-----------

(10,200,000) (10,200,000)

Balance as at Dec 2009

37,740,000 13,260,000 1,683,074 30,500,000 14,705,300 97,888,374

Net loss for the Year

----------- ----------- ----------- ----------- 9,151,185 9,151,185

Interim dividend for the year ended Dec 2009 AT Rs. 1-5 per share

-----------

-----------

-----------

-----------

(7,650,000)

(7,650,000)

Balance At Dec 31 2010

37,740,000

13,260,000

1,683,074

30,500,000

16,206,485

99,389,559

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Notes to and forming part of the Financial Statements

For the year ended on 31st Dec, 2010

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for the year ended Dec, 31st 2010

1. Legal status and nature of business 1.1 Constitution and ownership Pakistan Telecommunication Company Limited (“the Company”) was incorporated in Pakistan on December 31, 1995 and commenced business on January 1, 1996. The Company is listed on Karachi, Lahore and Islamabad stock exchanges. The Company was established to undertake the telecommunication business formerly carried on by Pakistan Telecommunication Corporation (PTC). The business was transferred to the Company on January 1, 1996 under the Pakistan Telecommunication (Reorganization) Act, 1996 at which date the Company took over all the properties, rights, assets, obligations and liabilities of PTC except those transferred to National Telecommunication Corporation (NTC), Frequency Allocation Board (FAB), Pakistan Telecommunication Authority (PTA) and Pakistan Telecommunication Employees Trust (PTET). The registered office of the Company is situated at PTCL Headquarters, G–8/4, Islamabad 1.2 Activities The Company provides telecommunication services in Pakistan.

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for the year ended Dec, 31st 2010 It owns and operates telecommunication facilities and provides domestic and international telephone services and other communication facilities throughout Pakistan. The Company has also been licensed to provide such services to territories in Azad Jammu and Kashmir and Northern Areas.

2. Basis of preparation

2.1 Statement of compliance

These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall prevail. 2.2 Standards, interpretations and amendments to published approved accounting standards that are effective in current year

During the year ended Dec, 31, 2010 IFRS 7 ‘Financial Instruments: Disclosures’ became effective. IFRS 7 has superseded IAS 30 and disclosure requirements of IAS 32. Adoption of this standard has only resulted in additional disclosures which have been set out in note 42 to these financial statements.

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for the year ended Dec, 31st 2010 Loyalty Programmes” and IFRIC 14 “IAS 19 – The Limit on Defined Benefit Asset, Minimum Funding Requirements and their Interaction” also become effective during the year. However, these interpretations do not affect the Company’s financial statements. 2.2 Amendments and Interpretations to

publish standards applicable to the Company not yet effective

The following amendments and interpretations to existing standards have been published and are mandatory for the Company’s accounting periods beginning on or after their respective effective dates: IAS 1 (Revised), ‘Presentation of financial statements’ (effective for annual periods beginning on or after July 1, 2009), was issued in September 2007. The revised standard requires an entity to present, in a statement of changes in equity, all owner changes in equity. All non–owner changes in equity (i.e. comprehensive income) will be required to be presented separately from owner changes in equity, either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). When the entity applies an accounting policy retrospectively or makes retrospective statement or reclassifies items in the financial statements

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3. Basis of measurement

These financial statements have been prepared under the historical cost convention, except for revaluation of certain financial instruments at fair value and recognition of certain employee retirement benefits and license fee payable at present value. The Company’s significant accounting policies are stated in note 4. Not all of these significant policies require the management to make difficult, subjective or complex judgments or estimates. The following is intended to provide an understanding of the policies the management considers critical because of their complexity, judgment of estimation involved in their application and their impact on these financial statements. Estimates and judgments are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances. These judgments involve assumptions or estimates in respect of future events and the actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows: a) Employees’ retirement benefits The Company uses the valuation performed by an independent actuary as a present value of its retirement benefits obligations. The valuation is based on assumptions as mentioned in note 4.4. b) Provision for taxation The Company takes into account the current income tax law and the decisions taken by appellate authorities.

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4. Significant accounting policies The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated. 4.1 Insurance reserve The assets of the Company are self insured. The Company has created an insurance reserve. Appropriation out of profits are made on discretion of the Board of Directors. The reserve is to be utilized to meet any loss resulting from theft, fire or natural disasters. 4.2 Borrowings Borrowings are initially recorded at the proceeds received. Finance cost is accounted for on an accrual basis and is either added to the carrying amount of the instrument or disclosed as interest and mark–up accrued to the extent of amount remaining unpaid. 4.3 Taxation Current Provision of current tax is based on the taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if enacted.

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for the year ended Dec, 31st 2010 Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except in the case of items credited or charged to equity in which case it is included in equity. 4.4 Employees’ retirement benefits and other obligations (a) Pension obligations The Company operates an approved funded pension scheme through a separate trust called the “Pakistan Telecommunication Employees’ Trust” (PTET) for its employees recruited prior to January 1, 1996 when the Company took over the business from PTC.

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(c) Accumulating compensated absences

The Company provides a facility to its employees for accumulating their annual earned leave. Under the unfunded scheme, regular employees are entitled to four days of earned leave per month. Unutilized leave can be accumulated without limit and can be used at any time subject to the Company ’s approval up to 120 days in a year without medical certificate, 180 days with medical certificate and 365 days during the entire service of the employee. Up to 180 days of accumulated leave can be encashed on retirement provided the employee has a minimum leave balance of 365 days. Leaves are encashed at emoluments applicable for monthly pension 4.5 Trade and other payables

Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in the future for the goods and / or services received, whether or not billed to the Company Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in the future for the goods and / or services received, whether or not billed to the Company. Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in the future for the goods and / or services received, whether or not billed to the Company.

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4.6 Property, plant and equipment

Property, plant and equipment, except freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss. Cost includes direct cost, related overheads, mark up and interest referred to in note 4.19. Depreciation on all property, plant and equipment is charged to profit on the straight line method so as to write off the depreciable amount of an asset over its estimated useful life at the annual rates mentioned in note 14 after taking into account their residual values. Depreciation on additions to property, plant and equipment is charged from the month in which an asset is acquired or capitalized while no depreciation is charged for the month in which the asset is disposed off. Impairment loss or its reversal, if any, is also charged to profit. Where an impairment loss is recognized, the depreciation charge is adjusted in future periods to allocate the assets’ revised carrying amount over their estimated useful life. Where an impairment loss is recognized, the depreciation charge is adjusted in future periods to allocate the assets’ revised carrying amount over their estimated useful life. Where an impairment loss is recognized, the depreciation charge is adjusted in future periods to allocate the assets’ revised carrying amount over their estimated useful life

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for the year ended Dec, 31st 2010 4.7 Investments

Investments intended to be held for less than twelve months from the balance sheet date or to be sold to raise operating capital, are included in current assets, all other investments are classified as non–current. Management determines the appropriate classification of its investments at the time of the purchase and re–evaluates such designation on a regular basis 4.9.1 Investments in equity instruments of subsidiaries and associated companies Investments in subsidiaries and associates where the Company has significant influence are measured at cost in the Company’s financial statements. Cost in relation to investments made in foreign currency is determined by translating the consideration paid in foreign currency into rupees at exchange rates prevailing on the date of transactions. The Company is required to issue consolidated financial statements along with its separate financial statements, in accordance with the requirements of IAS 27 ‘Consolidated and Separate Financial Statements’. Investments in associated undertakings, in the consolidated financial statements, are being accounted for using the equity method. 4.9.2 Other investments The other investments made by the Company are classified for the purpose of measurement into the following category

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4.9.2.1 Available for sale The financial assets including investments in associated undertakings where the Company does not have significant influence that are intended to be held for an indefinite period of time or may be sold in response to the need for liquidity are classified as available for sale. Investments classified as available for sale are initially measured at cost, being the fair value of consideration given. At subsequent reporting dates, these investments are re-measured at fair value (quoted market price), unless fair value cannot be reliably measured. The investments for which a quoted market price is not available, are measured at cost as it is not possible to apply any other valuation methodology. Unrealized gains and losses arising from the changes in the fair value are included in fair value reserves in the period in which they arise. All purchases and sales of investments are recognized on the trade date which is the date that the Company commits to purchase or sell the investment. Cost of purchase includes transaction cost. At each balance sheet date, the Company reviews the carrying amounts of the investments to assess whether there is any indication that such investments have suffered an impairment loss. If any such indication exists, the recoverable amount is estimated in order to determine the extent of the impairment loss, if any. Impairment losses are recognized as expense. In respect of ‘available for sale’ financial assets, cumulative impairment loss less any impairment loss on that financial asset

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for the year ended Dec, 31st 2010 previously recognized in profit and loss account, is removed from equity and recognized in the profit and loss account. Impairment losses recognized in the profit and loss account on equity instruments are not reversed through the profit and loss account. 4.9.2.2 Held–to–maturity

Held–to–maturity investments are financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. These are recorded at amortized cost using the effective interest rate method, less any amounts written off to reflect impairment. 4.8 Stores and spares

Usable stores and spares are valued principally at moving average cost, while items considered obsolete are carried at nil value. Items in transit are valued at cost comprising invoice value plus other charges paid thereon. 4.9 Trade debts

Trade debts are carried at original invoice amount less an estimate made for doubtful debts based on a review of all outstanding amounts at the year end. Bad debts are written off when identified.

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for the year ended Dec, 31st 2010 4.10 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flow statement cash and cash equivalents comprise cash in hand, demand deposits, other short term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value and short term borrowings 4.11 Government grants

Government grants are recognized at their fair value and included in non–current liabilities as deferred income when there is reasonable assurance that the grant will be received and the Company will comply with the conditions associated with the Grant. Grants that compensate the Company for expenses incurred are recognized in profit and loss account on a systematic basis in the same period in which the expenses are recognized. Grants that compensate the Company for the cost of an asset are recognized in the profit and loss account on a systematic basis over the expected useful life of the related asset upon capitalization.

4.14 Financial instruments Financial assets and financial liabilities are recognized at the time when the Company becomes a party to the contractual provisions of the instrument and derecognized when the Company loses control of contractual rights that comprise the financial assets and in the case of financial liabilities when

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for the year ended Dec, 31st 2010 the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on derecognition of financial assets and financial liabilities is included in the profit and loss account for the year. Financial instruments carried on the balance sheet include long term investments, long term loans, trade debts, loans, advances, deposits and other receivables, cash and bank balances, long term security deposits from customers, trade and other payables and interest . All financial assets and liabilities are initially measured at cost, which is the fair value of consideration given and received respectively. These financial assets and liabilities are subsequently measured at fair value or cost as the case may be. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 4.12 Offsetting of financial assets and liabilities

Financial assets and liabilities are offset and the net amount is reported in the financial statements only when there is a legally enforceable right to set off the recognized amount and the Company intends either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously. 4.13 Derivative financial instruments

These are initially recorded at cost value on the date a derivative contract is entered into and are remeasured to fair value at subsequent reporting dates.

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for the year ended Dec, 31st 2010 14.16 Foreign currencies

All monetary assets and liabilities in foreign currencies are translated into Rupees at exchange rates prevailing at the balance sheet date. Transactions in foreign currencies are translated into Rupees at the spot rate. All non–monetary items are translated into Rupees at exchange rates prevailing on the date of transaction or on the date when fair values are determined. Exchange differences are included in income currently. Revenue from international calling services and foreign operating cost is translated into local currency at the month end rate. The financial statements are presented in Pak Rupees, which is the Company ’s functional and presentation currency.

I have read almost all the above written Financial Notes. I will be explaining them in detail, in the, Presentation to be

held on 4th January, 2011

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PTCL STOCK PRICE For the year ended 31st Dec, 2010

PTCL Stock Price

Symbol PTC Open Rate 19.55

Bid Volume 295 Bid Price 19.58

Ask Volume 2500 Ask Price 19.59

High Rate 19.74 Low Rate 19.40

Current Rate 19.58 Turnover 177419

Price Change 0.03

Percent Change 0.15%

Outstanding Shares 3774000000 Market Capitalization 73894920000

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Pattern of Share Holding As at Dec, 31st 2010

Having Shares No of Share

Holders Share Held

% From To 001 100 90 10 0.51 101 500 80 11 0.61 501 1000 90 12 0.60 1001 5000 80 13 0.91 5001 10000 50 14 0.33 10001 15000 50 15 0.71 15001 20000 30 16 0.71 20001 25000 40 17 0.58 25001 30000 20 18 0.45 30001 35000 40 19 0.37 35001 40000 10 20 0.28 40001 45000 20 21 0.17 45001 50000 83 22 0.81 50001 55000 14 23 0.15 55001 60000 27 24 0.31 60001 65000 13 25 0.016 65001 70000 11 26 0.15 70001 75000 15 27 0.22 75001 80000 9 28 0.14 80001 85000 5 29 0.8 85001 90000 13 30 0.23 90001 95000 6 31 0.11 95001 100000 34 32 0.66 100001 105000 8 33 0.16 105001 110000 8 34 0.17

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PPattern of Share Holding As at Dec, 31st 2010

110001 115000 8 45 9.18 115001 120000 3 36 9.07 120001 125000 8 37 9.19 125001 130000 2 38 5.05 130001 135000 3 39 5.08 135001 140000 2 40 5.05 140001 145000 3 41 5.08 145001 150000 11 42 5.32 150001 155000 3 43 5.09 155001 160000 2 44 5.06 160001 165000 1 45 5.03 165001 170000 3 46 0.80 170001 175000 5 57 0.77 175001 180000 5 48 0.18 180001 185000 4 49 0.14 185001 190000 4 50 0.15 190001 195000 1 51 0.04 195001 200000 13 52 0.51 200001 205000 4 53 0.16 205001 210000 1 54 0.04 210001 215000 5 55 0.21 220001 225000 1 56 0.04 225001 230000 1 57 0.04 235001 240000 3 58 0.4 240001 245000 2 59 0.10 245001 250000 3 66 0.15 250001 255000 2 61 0.10

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PPattern of Share Holding As at Dec, 31st 2010

82.276 255001 260000 20 62 0.10 270001 275000 1 63 0.50 280001 285000 1 64 0.60 285001 290000 1 65 2.60 295001 300000 6 66 0.35 300001 305000 1 67 0.60 310001 315000 2 68 0.80 320001 325000 1 69 0.80 340001 345000 1 70 0.80 345001 350000 5 81 0.80 350001 355000 3 72 0.76 365001 370000 2 73 2.16 370001 375000 3 74 0.45 395001 400000 6 76 0.404

Total:

1000

3350

100

1000 of 150000000 share holders displayed

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Categories of Shareholders as at Dec, 31st 2010

Sr. No.

PARTICULARS

SHARE HOLDERS

SHAREHOLDING PERCENTAGE

1 DIRECTORS, CEO & CHILDREN

50 500 7.5

2 NIT & ICP 40 200 7.7 3 BANKS, DFI & NBFI 40 300 7.5

4 INSURANCE COMPANIES

20 300 7.5

5 MODARABAS & MUTUAL FUNDS

55 300 8.5

6 PUBLIC SECTOR COs. & CORP.

19 200 8.8

7 GENERAL PUBLIC (LOCAL)

200 200 9.9

8 GENERAL PUBLIC (FOREIGN)

300 300 8.5

9 OTHERS 56 300 14.5 10 GOVERNMENT OF

PAKISTAN 50 300 9.5

11 FOREIGN COMPANIES

70 25 5.5

12 HOLDING MORE THEN 10%

100 25 4.6

Sum Total 1000 3350 100.00

Trade in PTCL Shares: The Directors, CEO, CFO, Company Secretary and their spouses and minor children have not traded in PTCL shares during the financial year 2009-2010

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Notice of 14th Annual General Meeting

Notice is hereby given that the Fourteenth Annual General Meeting of Pakistan Telecommunication Company Limited will be held on Saturday, 05th Jan, 2011 at 10:30 a.m. at the S. A. Siddiqui Auditorium, Old Building, Corporate Headquarters, G-8/4, Islamabad, to transact the following business: 1. To confirm the minutes of the last AGM held on 31st October, 2009 2. To receive, consider and adopt the Audited Accounts for the year ended

31st Dec, 2010 together with the Auditors’ and Directors’ reports 3. To approve and declare the interim dividend of 15% (Rs. 1.50 per share)

already announced and paid for the year ended Dec, 31st 2010 4. To elect Directors of the Company for another term of three years

commencing from Dec, 31 2010 in terms of Section 178 of the Companies Ordinance, 1984

5. To transact any other business with the permission of the Chair.

Board Of Director

Dated: 31st Dec, 2010 Mr. Usman Farooq

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SWOT Analysis Of PTCL for the year ended 31 Dec 2010

It refers as

S: Strength

W: Weakness

O: Opportunities

T: Threats

Analysis

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Strengths

ØØØØ Largest operational network and infrastructure within ICT (Information & Communication Technologies) segment.

ØØØØ An integrated Monopoly.

ØØØØ Market leadership in Local loop, Wireless local loop (WLL) and fixed telephony.

ØØØØ PTCL (Ufone) is market challenger in GSM segment.

ØØØØ Ufone is performing well though Warid and Telenor are tough competitors. PTCL, Ufone’s profitability increased by 49.2 percent to Rs 977 million in 1H/FY07 as compared to Rs 655 million in the corresponding period last.

ØØØØ Competitors still depend on PTCL network either directly or indirectly.

ØØØØ Experienced Telecom Resources.

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Weakness

ØØØØ Not been able to nurture its growth around customer services oriented strategy.

ØØØØ Monopolistic culture has further added to its complexities.

ØØØØ Paknet, the internet service provider arm of PTCL continues to incur losses due to poor management and lack of network optimization.

ØØØØ PTCL-V, the fixed wireless phone service is poor.

ØØØØ Over employment & low productivity.

ØØØØ Slow decision making including external interferences.

ØØØØ Corporate culture akin to government departments.

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Opportunities

Ø Low tele-density of Pakistan.

Ø Have vast infrastructure and real estate assets which can be leveraged further.

Ø Global connectivity reliability has been improved. PTCL is Expanding the long distance and infrastructure side through

Ø Spreading out two sea-me-we submarine cables.

Ø Partnership with new entrants in a deregulated environment.

Ø Scope for efficient/cost effective operations.

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Threats

Ø Increased competition in long distance continues to exert pressure.

Ø VOIP use is increasing despite ambiguous and discriminatory policies.

Ø Exposure to market competition.

Ø Migration to Cellular Networks.

Ø Ability to Attract & Retain Quality Professionals.

Ø Reduction in International Settlement Rates.

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Conclusion

Ø PTCL needs innovative service offerings — currently it doesn’t even offer bundles or a single bill.

Ø Has been unclear about its IPTV and Wi-MAX

plan and strategy (trials are in progress) Ø Overall PTCL still behaves as a monopoly … it

has to change its attitude. At a minimum, avoiding billing errors and providing competent and courteous service to its customers is essential if PTCL wants to show that it is transforming itself to a competitive company which cares for its customers.

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Recommendations Ø PTCL is not utilizing its surplus profit in long-term

investment projects which be done. Ø PTCL management should give concentration towards

the Securities of deposit and it should be on maximum level.

Ø PTCL should immediately change its Finance upper

level of hierarchy and should stream line in the good manner.

Ø PTCL should also encourage the Billing On line system

that each and every customer should have to pay his/her bill on line basis.

Ø PTCL should make Customer Care Centers in remote

areas. Ø The cash generated from the operation must be utilized

accordingly. Ø The return on deposit should be checked accordingly. Ø PTCL should take the services of highly qualified

financial analysts

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Bibliography

For successful completion of this project, I have utilized different available resources, that proved to be friendly for gathering the required data.

These resources lie in both digital and analog form. Most of the information is obtain from Internet, while a visit to PTCL Multan had made me to get further information. I am thankful to company management who had welcome and cooperate in order to provide some basic information and in arranging for the Annual report of the previous Year. Resources which I have consulted are:

Ø Company’s website - www.ptcl.com.pk

Ø Company Annual Reports (For Overview)

Ø My respected Teachers (For Explaining)

Ø Economic survey of Pakistan (For Data)

Ø PTA Reports regarding PTCL (For information)

Ø Google.com (many links and graphs)

PTCL annual Report by Usman

Documents

Transcript of PTCL annual Report by Usman