STRATEGIC MANAGEMENT REPORT ON WATEEN TELECOM LTD.

PROGRAM: MBA/M.PHILL 

DUE DATE:28-APRIL-2011

SPECIAL THANKS TO:DR. IMTIAZ SUBHANI

SUBMITTED TO: UZMA BASHEER GHAUS

 SUBMITTED BY:

SYED ADNAN KALEEM (8631) MUHAMMAD FARHAN FARHAT (9312)

INTRODUCTION

Wateen Telecom Limited provides international voice retail and wholesale communication services to carrier, corporate, and individual customers in Pakistan. It offers various networking services, such as WiMAX, a wireless broadband access; direct to home television; Long-Haul OFC network; metro OFC network for high bandwidth connectivity in various cities; and hybrid fiber coaxial network, as well as VSAT products and solutions in support of various applications, such as carrier class telephony networks; broadband, Internet, and multimedia access; corporate enterprise private networks, including banking; rural telephony public network extensions; government and military networks; and GSM and cellular applications. The company also sells and deploys telecom equipment, as well as provides system integration services; and offers international routing and termination of direct dial telephony traffic via voice grade switched circuits to international carriers.

ORGANIZATION CHART

Naeem Zamindar Chief Executive Officer

Furqan Qureshi

Adviser to

CEO

Syed Jibran Ali

Chief Commercial

Officer

Sajjeed Aslam

Chief Financial Officer

Faisal Sattar Chief

Technology Officer

VISION StatementWateen’s vision is to take Pakistan into the digital revolution of the 21st century by offering complete communications and media solutions such as Telephony, Internet, Data and TV / Multimedia to the public at large based on quality, affordability, availability and reliability. To make Pakistan a regional communications hub, inter-connecting the East with the West and Central Asia to the Middle East.

MISSION Statement•Offer affordable communication services that cater to the needs of our customers•Deliver high quality, flexible solutions that allow customers savings, choice and enhanced efficiency•Make ‘Broadband Pakistan’ a reality•Achieve maximum customer satisfaction at all levels•Provide innovative, efficient and creative solutions

PRODUCT & SERVICES

•WiMAX •Metro Fiber •Managed Capacity•DPLC / IPLC & IP-transit•VSAT [Very Small Aperture Terminal]•Co-location / Tele-Housing•Broadband Internet•Telephony – Consumer•Calling card / calling account•Content &Media•Online Gaming

SWOTStrengths Weaknesses

Strong management Decreasing profit margin

Sales Lack of skilled human resource

Own satellite HUB High Employee Turnover

Metro Fiber in major cities Increase in Debts

Own Long-Haul Customer Retention

Largest WiMAX Network Strategic direction

Investors Low revenue per user (ARPU)

No research and development programs

Opportunity Threats

Huge market size Satellite Provisioning by Mobilink

LTE Technology Metro Fiber by Multinet

Broadband services PTCL’s smart TV

Satellite solutions Managed Services

IP Transit DSL for WiMAX

Telephony [voice/video] Un-licensed or local fiber provider

Increasing un employment rate Increase in tax rate

Removal of international trade barriers High inflation rate

New competitor in broad band industry

Price war

Political Instability - Security issues

Overall Industry Attractiveness

S# FACTORS Unfavorable Neutral Favorable

< 2.5 3 > 3.5

1 Threats of New Entrants 3.8

2 Exit Barriers 2.25

3 Competitive Rivalry 3 4

4Bargaining Power of Buyer

2.75

5Bargaining Power of Supplier

2.25 5.75 7.8Average 3.16

PORTER FIVE FORCES MODEL

    Wateen   Worldcall   PTCL

    2010 2009CHANGE   2010 2009CHANGE  2010 2009CHANGE        %       %       %Operating Ratio                        Gross Profit Margin % 25.67 31.17 (17.65)   11.58 16.31 (29.01)   33.08 36.30 (8.87)

Net Profit Margin % (25.38) 6.02 (521.56)   (15.37) (5.84) 163.24   16.26 15.45 5.23                          Performance                        

return on Operating Assets % (11.85) 6.60 (279.51)   (8.96) (4.05) 121.19   10.54 10.45 0.81 Debtors' turnover times times 2.44 5.55 (56.04)   3.70 3.97 (6.81)   5.62 5.50 2.11

Return On Equity % (48.00) 21.53 (322.94)   (11.21) (4.31) 159.94   9.32 9.21 1.19                          Leverage                        Debt equity times 6.06 4.93 22.78   1.15 1.01 14.53   0.51 0.55 (7.02)

Time Interest Earned times (0.57) 3.35 (116.88)   (1.02) 0.03 (3,589.6)   36.42 16.53 120.25                          Liqiudity Ratio                        Current Ratio times 0.34 0.71 (52.34)   0.43 0.78 (44.78)   1.51 1.50 0.19 Quick Ratio times 0.30 0.63 (51.77)   0.39 0.69 (43.86)   1.37 1.36 0.88                          Valuation                        

Earning per Share(Before Tax) Rs (6.78) 3.46 (295.79)   (1.75) (0.72) 142.03   2.80 2.75 1.86

Earning per Share Rs (4.43) 2.22 (299.55)   (1.33) (0.57) 133.33   1.82 1.79 1.56 BOOK Value Per Share Rs 9.23 10.31 (10.49)   11.86 13.21 (10.24)   19.56 19.49 0.37

FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

    Wateen   Worldcall   PTCL

    2010 2009CHANGE   2010 2009CHANGE  2010 2009CHANGE

        %       %       %

Historical Trends                        

Operating Results                        

Revenue Rs(000) 7,961,103 15,410,115 (48.34)  7,464,404 8,408,275 (11.23)  57,174,527 59,239,001 (3.48)

Profit Before Tax Rs(000) (3,091,546) 1,446,824 (313.68)  (3,091,546) 1,446,824 (313.68)  14,281,118 14,020,917 1.86

Profit After Tax Rs(000) (2,020,513) 927,763 (317.78)  (2,020,513) 927,763 (317.78)  9,294,152 9,151,185 1.56

                         

                         

Efficiency Ratio                        

Assets Turnover times 0.27 0.60 (55.54)  0.34 0.37 (7.96)  0.38 0.38 (1.39)

Return on Assets % (6.80) 3.63 (287.44)  (5.21) (2.15) 142.29   6.16 5.94 3.77

Return on EQUITY % (48.00) 21.53 (322.94)  (11.21) (4.31) 159.94   9.32 9.21 1.19

price Earning Ratio times                      

Price To Book Value times                      EARNING POWER(EAT/T.A) % (6.80) 3.63 (287.44)  (5.21) (2.15) 142.29   6.16 5.94 3.77

SG&A to Sales % 19.50 11.86 64.42   21.78 16.13 35.04   16.38 18.15 (9.75)

Sustainable Growth Rate % (0.98) (1.05) (6.59)  (0.92) (0.81) 13.10   (1.20) (2.96) (59.37)

working capital Rs(000) (16,098,958) (3,028,679) 431.55   (4,803,268) (1,167,886) 311.28   15,257,458 18,133,919 (15.86)

External Factor Evaluation Matrix (EFE) Opportunities Weight Rating Score

1 Huge market size 0.08 3 0.242 Broadband services 0.07 3 0.213 Satellite solutions 0.05 2 0.14 LTE Technology 0.06 2 0.125 IP Transit 0.05 2 0.16 Telephony [voice/video] 0.08 3 0.247 increasing un employment rate 0.03 3 0.098 Removal of international trade barriers 0.03 3 0.09

Threats Weight Rating Score1 Satellite Provisioning by Mobilink 0.05 2 0.12 Metro Fiber by Multinet 0.08 3 0.243 PTCL’s smart TV 0.07 3 0.214 Managed Services 0.04 3 0.125 DSL for WiMAX 0.02 1 0.026 Un-licensed or local fiber provider 0.02 3 0.067 increase in tax rate 0.04 2 0.088 high inflation rate 0.05 4 0.29 new compititor in broad band industry 0.05 3 0.15

10 price war 0.08 4 0.32

11 Political Instability - Security issues. 0.05 4 0.2 Total: 1 2.89

MARKETING

Internal Factor Evaluation Matrix (IFE)

Strengths Weight Rating Score1 Strong management 0.08 3 0.242 Sales 0.1 3 0.33 Own satellite HUB 0.03 4 0.124 Own Long-Haul 0.04 3 0.125 Metro Fiber in major cities 0.04 4 0.166 Largest WiMAX network 0.04 3 0.127 investors 0.05 4 0.2

Weaknesses Weight Rating Score1 Decreasing profit margin 0.1 2 0.22 Lack of skilled human resource 0.08 2 0.163 High Employee Turnover 0.07 3 0.214 Increase in Debts 0.08 2 0.165 Customer Retention 0.08 3 0.246 Strategic direction 0.08 2 0.167 Low revenue per user (ARPU) 0.08 2 0.168 No research and development programs 0.05 1 0.05

Total: 1 2.6

SO Strategy

1) Having own Long-Haul and Metro-Fiber can provide reduction in cost offerings to the customer [S5:S4:O1]: Product development2) Satellite penetration in remote areas of Pakistan and Afghanistan can provide high earning in cost and overall reduce overheads [S3:O4]: Market Penetration

3)We can increase our sales by starting a new campaign and provide new technology ( telephony Voice/Video) [S2:O6]

4) Largest WiMAX network can provide feasible solution to cater huge market size[S6:O1]

TAWS MATRIX

WO Strategy

1) Wateen has decreasing profits and lack of skilled workforce to address huge market size [W1:W2:O1]

2) Using diversified portfolio, can retain customers and improve service quality and penetrate in triple play services

[W5:O6]

3) We can work on our profit margin by expending our business by providing our service to other countries [W1:O8)

TAWS MATRIX

ST Strategy

1) Metro fiber can provide an edge over PTCL smart TV service [S4:T3]2) Satellite HUB deployment and market penetration by other providers like Mobilink can be catered by taping the remote areas of Pakistan and Neighbouring region of Afghanistan [S3:T1]3) To cater managed solutions by rivals, bundled services can be offered related to corporate solutions [S4:S5:S6:T4]4) Use Fiber & WiMAX as a alternate solution for regulations from PTA related to unlicensed fiber provider [S4:T6]

TAWS MATRIX

WT Strategy

1) Increase in Debts & reduced profit margin can be a threat to Smart TV applications & managed services [W1:W4:T3:T4]

2) Metro fiber and managed services can be a threat to customer retention [W5:T2:T4]

3) Low strategic direction can result in unmanaged services, Triple play and IP transits [W6:T3:T4]

TAWS MATRIX

SPACE MATRIX

THE GRAND STRATEGY

Rapid Market Growth

Quadrant II Quadrant I Wateen Telecom

Weak Competitive Position

Strong Competitive Position

Quadrant III Quadrant IV

Slow Market Growth

EVALUATING STRATEGIES BY MATRICES

Strategic Alternative1 2 3

QSPM Matrixlower Price (Value Chain) Market

Penetration or Increase Market

Shares

Improving or Development

New & Innovative

Product

Market Development or

Finding or Searching New

Market

key factors   Weight AS TAS AS TAS AS TAS

  Strengths              1Strong management 0.08 3 0.24 4 0.32 4 0.322 Sales 0.1 4 0.4 3 0.3 3 0.33Own satellite HUB 0.03 4 0.12 3 0.09 1 0.034Own Long-Haul 0.04 3 0.12 3 0.12 1 0.045Metro Fiber in major cities 0.04 3 0.12 3 0.12 2 0.086Largest WiMAX network 0.04 3 0.12 3 0.12 3 0.127investers 0.05 4 0.2 3 0.15 3 0.15

Strategic Alternative1 2 3

QSPM Matrixlower Price (Value Chain) Market

Penetration or Increase Market Shares

Improving or Development

New & Innovative Product

Market Development or

Finding or Searching New

Marketkey factors   Weight AS TAS AS TAS AS TAS

  Weaknesses1Decreasing profit margin 0.1 3 0.3 3 0.3 3 0.3

2Lack of skilled human resource 0.08 1 0.08 3 0.24 2 0.163High Employee Turnover 0.07 2 0.14 3 0.21 2 0.144 Increase in Debts 0.08 3 0.24 1 0.08 3 0.245Customer Retention 0.08 3 0.24 2 0.16 2 0.166Strategic direction 0.08 3 0.24 2 0.16 2 0.167Low revenue per user (ARPU) 0.08 3 0.24 1 0.08 1 0.08

8No research and development programs 0.05 1 0.05 4 0.2 0 0

  Total: 1  2.85  2.65  2.28

Strategic Alternative1 2 3

QSPM Matrixlower Price

(Value Chain) Market Penetration or Increase Market

Shares

Improving or Development

New & Innovative Product

Market Development or

Finding or Searching New

Marketkey factors   WeightAS TAS AS TAS AS TAS

  Opportunities1 Huge market size 0.08 3 0.24 2 0.16 3 0.242Broadband services 0.07 0 0 1 0.07 2 0.143Satellite solutions 0.05 0 0 1 0.05 2 0.14LTE Technology 0.06 1 0.06 3 0.18 2 0.125IP Transit 0.05 0 0 3 0.15 2 0.16Telephony [voice/video] 0.08 0 0 3 0.24 2 0.167increasing un employment rate 0.03 0 0 0 0 0 0

8Removal of international trade barriers 0.03 0 0 0 0 0 0

Strategic Alternative1 2 3

QSPM Matrixlower Price (Value Chain) Market

Penetration or Increase Market

Shares

Improving or Development New

& Innovative Product

Market Development or

Finding or Searching New

Marketkey factors   Weight AS TAS AS TAS AS TAS

  Threats1Satellite Provisioning by Mobilink 0.05 2 0.1 1 0.05 2 0.12Metro Fiber by Multinet 0.08 3 0.24 2 0.16 1 0.083PTCL’s smart TV 0.07 3 0.21 1 0.07 1 0.074Managed Services 0.04 1 0.04 2 0.08 1 0.045DSL for WiMAX 0.02 2 0.04 1 0.02 2 0.046Un-licensed or local fiber provider 0.02 0 0 0 0 0 07increase in tax rate 0.04 0 0 0 0 0 08high inflation rate 0.05 3 0.15 0 0 3 0.15

9new compititor in broad band industry 0.05 0 0 3 0.15 3 0.1510price war 0.08 4 0.32 0 0 2 0.16

11Political Instability - Security issues. 0.05 0 0 0 0 0 0  Total: 1  1.4  1.38  1.65  Total:     4.25  4.03  3.93

Strategies Lower Price For using this strategy, we have to reduce our cost which decreases our profit margin like general and admin expense, interest expense and operating expense. We are paying 1.97 billion Rupees in finance cost which belongs to markup long term and short term loans. Our stocks is now cheaper than our loans so we can reduce this cost by raising money from stocks and paid to loans. The second highest expense is interest expense which makes the income statement negative. The third highest expense is general and admin expense which is based on salaries, rent repair etc., where there are unemployment rate is too high in Pakistan, we can hire the staff at low salary. After cutting cost, we will be able to cut our product selling price which increases our sales and market penetration.

Improving or Development New & Innovative ProductIn second strategy, we have to focus in our research and development department. We have to spend money in this department for invent a new technology or product. It will increase our sales because we will be the only one who will offer that technology. It will built up competitive advantage and market penetration

Market Development or Finding or Searching New MarketIn this third strategy, we have to find some new town and selling present products or services in new markets. We have to take actions like targeting promotions, opening sales offices and creating alliances to operationalize a market development strategy

Strategies Lower Price For using this strategy, we have to reduce our cost which decreases our profit margin like general and admin expense, interest expense and operating expense. We are paying 1.97 billion Rupees in finance cost which belongs to markup long term and short term loans. Our stocks is now cheaper than our loans so we can reduce this cost by raising money from stocks and paid to loans. The second highest expense is interest expense which makes the income statement negative. The third highest expense is general and admin expense which is based on salaries, rent repair etc., where there are unemployment rate is too high in Pakistan, we can hire the staff at low salary. After cutting cost, we will be able to cut our product selling price which increases our sales and market penetration.

Improving or Development New & Innovative ProductIn second strategy, we have to focus in our research and development department. We have to spend money in this department for invent a new technology or product. It will increase our sales because we will be the only one who will offer that technology. It will built up competitive advantage and market penetration

Market Development or Finding or Searching New MarketIn this third strategy, we have to find some new town and selling present products or services in new markets. We have to take actions like targeting promotions, opening sales offices and creating alliances to operationalize a market development strategy

Action PlanMarketing planWe have to do Customer analysis by doing customer surveys, analyzing consumer information, evaluating market positioning strategies and developing customer profiles. Right now we are focusing on corporate level user which is not sufficient coverage. We have to target home user also and home users want something more with internet service. We have to focus youth. So in marketing, we spend money in advertising, sales promotion and publicity in which we relate our product with some sports game.Production planAt corporate level, Wateen has to continue with the same enthusiasm and offering as they are doing it today. At consumer level, we have to give something more with internet like TV channels, software, movies, games, etc., for taking competitive edge from our competitor.Financial planR&D PlanRight now we do not work on R & D department. We are already buying new technology from other sources. Some portions of those technologies are still a part work-in-progress in which Wateen group have already invested substantial amount in it. R&D required a lot of investment and time to invent a new product and in our case invent a new product is more costly than purchasing new technology from outsider. But if we invest on R&D and make something new then we will take competitive edge in the market. MIS planWateen have to make MIS department stronger because managerial level takes decision on the basis of information. Management information system receives raw information from both the external and internal evaluation of an organization. It gathers data about marketing, finance, production, and personnel matters internally; and social, cultural, demographic, environmental, economic, political, government, legal, technological, and competitive factors externally. Because organizations are becoming more complex, decentralized, and globally dispersed, the function of information systems is growing in importance.

FY1 FY2 FY3 FY4 FY5

Sales PKR(000) 15,000,000 18,000,000 21,600,000 25,920,000 31,104,000

Cost PKR (000) 9,000,000 11,250,000 14,062,500 17,578,125 21,972,656

Gross Profit PKR (000) 6,000,000 6,750,000 7,537,500 8,341,875 9,131,344

Operating expense PKR (000) 1,800,000 2,070,000 2,380,500 2,737,575 3,148,211

Profit/(loss) before interest and tax or EBIT PKR (000) 4,200,000 4,680,000 5,157,000 5,604,300 5,983,133

Interest PKR (000) 750,000 525,000 367,500 257,250 180,075

Profit/(loss) before tax or EBT PKR (000) 3,450,000 4,155,000 4,789,500 5,347,050 5,803,058

Tax PKR (000) 1,207,500 1,454,250 1,676,325 1,871,468 2,031,070

Profit/(loss) after tax or EAT PKR (000) 2,242,500 2,700,750 3,113,175 3,475,583 3,771,987

Earnings per share PKR 3.02 3.64 4.19 4.68 5.08

PROJECTED PLAN FOR 5 YEARS

ConclusionWe have to take immediate action and raise funds through equity and payout our debt which carry heavy financial cost. Reduce admin expenses by eliminating layers of management and inefficient employee. Work on value chain and curtail irrelevant cost. Immediate lounge marketing campaign with proper targets and pay them accordingly. Create variable pay plan to motivate efficient and effective employee. Requires a policy approved by top management that states objectives and provides a commitment to improve performance. Requires procedures for Hazard Identification, Risk Assessment, Risk Control, Identifying Legal & Other requirements maintaining documented objectives Maintaining Management Programs for achieving its objectives including designating responsibility and authority, means, and timeframes for achievement. Procedures should exist to ensure information is communicated to and from employees and other interested parties. Employees should be involved in development of procedures and consulted when changes affect their workplace. Establish qualitative and quantitative measurement processes, both proactive and reactive. Maintain procedures for handling investigations; mitigating the consequences; initiating & completing corrective actions; and confirming the effectiveness of corrective & preventive actions. Maintain procedures for the identification, maintenance, and disposition of records. Records shall be legible, identifiable, traceable, readily retrievable, and protected against loss and / or damage.