Etisalat's UAE unit remains the primary contributor to Etisalat's overall value with a respective weight of 88.8%. The UAE's growing expatriate population is driving, in particular, the mobile segment of Etisalat's operation, which constitutes the bulk of Etisalat's overall revenue. They forecast that Etisalat's focus on mobile net subscriber acquisition should become secondary, as they believe that it will focus more on providing value-added services to retain its high net-worth customers and sustain its mobile ARPU. Throughout our forecast period, they believe that internet and broadband subscribers will be the next revenue growth driver, with broadband subscribers capturing the bulk of this growth.
Competition in the local market: Despite skepticism concerning sustained mobile subscriber growth at a time when penetration rate in the UAE was already 130% at the end of 2006, with the launch of du, the second mobile operator in February 2007, quarterly net mobile subscriber additions for the total market almost doubled, reaching an approximate 570,000 per quarter during 2007, compared to an average of 247,000 subscribers per quarter in 2006. They do not expect to witness a price war between the two UAE operators in the short term, given the significantly smaller scale of operations that 'du' manages, compared to Etisalat. Given that the level of technology deployed by both operators is similar, they believe that the quality and diversity of bundled services and promotions will be the base for competition in the short term.
Consolidation of international operations: Throughout 2007, Etisalat increased its stakes in most of its international operations, enabling it to fully consolidate them into its financial statements which, they believe, will increase the value of Etisalat in the medium to long term. In the short term, however, they expect Etisalat's operational performance to decrease or slow down, as most of these operations are still loss making.
Strong cash position: Prior to 2006, Etisalat had no debt on its financial statements, generating all of its cash needs internally. However, with Etisalat's increased focus on its international operations, management adopted an external financing policy to fund its growth strategy in these countries. On the other hand, despite Etisalat's new debt policy, net debt/EBITDA remains negative, implying much more room for additional debt capacity and improved weighted average cost of capital.
Foreign stock ownership ban: Currently, Etisalat is in discussions with both the UAE government and the capital market authorities to change it to a corporation governed by commercial law. If Etisalat obtains approval to change to a corporation licensed by commercial law, then it would become eligible for foreign ownership. Currently, only UAE nationals are allowed to trade the stock. In the event that the foreign ownership ban is lifted, they anticipate a rise in turnover and share price.
Objective of the company.
Profile: Etisalat has been the telecommunications service provider in the UAE since 1976, and has built up a modern telecom infrastructure and established itself as an innovative and reliable operator. Â Etisalat stands 140th among the Financial Times Top 500 Corporations in the world in terms of market capitalization, and is ranked by The Middle East magazine as the 6th largest company in the Middle East in terms of capitalization and revenues. The Corporation is the largest contributor outside the oil sector to development programs of the UAE Federal Government, and is an award-winning socially responsible corporation. Etisalat has also won accolades from across the region for its nationalization program. Â Apart from enabling the nation with basic telecommunication services, Etisalat also offers a range of innovative and modern services that have served to position the UAE as one of the most advanced nations in terms of telecom services. Mobile users enjoy the benefits of excellent voice and data applications like WAP, GPRS, 3G, MMS, Push To Talk, BlackBerry services and others. Enterprise and individual customers on the fixed-line network also benefit from services such as ATM (Asynchronous Transfer Mode), Frame Relay, VSAT and ISDN. Â The Corporation offers fixed line services over the Next Generation Network, and has been migrating sections of its users onto the advanced network. The timeline for completion of migration is the end of 2007. By establishing NGN, Etisalat will be able to offer voice, video and data over one single source, enabling true Triple-Play functionality. Â Mobile subscribers exceeded 4.5 million by the end of 2005, up 23% from 2004. This represents penetration of nearly 100 per cent, a remarkable figure regionally and internationally. Internet and broadband penetration also witnessed huge growth during 2005, with penetration at almost 51%. Etisalat has concluded roaming agreements with over 265 operators, and even Etisalat's prepaid mobile subscribers can roam in many of these networks.
Â In 1982, Etisalat was the first telecom operator in the region to introduce a mobile phone service, and was one of the early adopters of GSM technology, introducing it to customers in 1994. Since then it has established itself as a regional pioneer by introducing both 3G and MMS in 2003, and most recently, the BlackBerry service in 2006.
A world where people's reach is not limited by matter or distance. People will effortlessly move around the world, staying in touch with family, making new friends as they go, as well as developing new interests. Businesses of all sizes, no longer limited by distance, will be able to reach new markets. Innovative technologies will open up fresh opportunities across the globe, allowing the supply of new goods and services to everyone who wants them.
To extend people's reach. At Etisalat, we are actively developing advanced networks that will enable people to develop, to learn and to grow.
A world in which technology extends our reach. Already, music, books and services no longer have to have a physical format to be sold online. Advanced networks will increasingly provide education, healthcare and other services and goods. For instance, telemedicine already allows patients to seek the best advice from doctors around the world; now robotic aids are beginning to make remote surgery possible. As the pace of technological change increases, Etisalat will extend its reach into new technologies, services and markets to create opportunities for our customers.
Business Divisions: Etisalat University College UAEnic (United Arab Emirates Network Information Center) e-vision Ebtikar The Contact Centre e-Academy
E-marine. Etisalat has been in the submarine cable business since 1990 through an in-house cable maintenance division. In 1998, this activity was spun off as an independent entity incorporated into Emirates Telecommunications and Marine Services FZE (e-marine). The next phase of growth and development for e-marine is the planned restructuring of the business with a proposal to offer a share of its equity to strategic partners. Partnerships will complement the company's existing strengths, open up new markets, and enhance regional coverage. Specific plans for 2007 are in place with the scheduled delivery in July of a multi purpose DP2 Vessel, which will serve mainly in the lucrative offshore oil industry. In the third quarter, the berthing arrangements on the Arabian Gulf will be shifted to a new port with a much larger depot. A second berthing/depot facility is under construction on the Arabian Sea in Oman and when commissioned in the fourth quarter will extend e-marine's reach to the Red Sea, down the coast of East Africa and further into the Indian Ocean.
Emirates Cable TV and Multimedia E-Vision: E-Vision is the UAE's leading cable TV provider, offering close to 200 channels in over 21 languages and offering diverse programming suited to the diverse population base of the UAE. With the basic package alone containing 85 channels, and other options including Showtime Cable, Orbit Vision, ART, Firstnet and Pehla, E-VISION is the most comprehensive cable TV provider in the Middle East. Service is now available in Abu Dhabi, Dubai, Sharjah, Ajman and Al-Ain, and is expected to be rolled out across the nation soon.
Emirates Telecommunications and Marine Services FZE- e-marine. E-marine operates in the field of submarine cable installation, maintenance and repair throughout the region and beyond. E-marine is the only company of its kind in the Middle Eastern region, and handles regional and international projects with ease. This subsidiary owns three fully equipped cable ships and a modern cable depot in Abu Dhabi. Major international projects have been undertaken by e-marine including the recent block-2 of the SMW-4 cable, FOG and FLAG.
Carrier and Wholesale. Etisalat's Carrier & Wholesale Services Division (C&WS) is dedicated to delivering a comprehensive portfolio of high quality wholesale services, extending the reach of mobile operators, carriers and ISP's globally.Â We operate the region's most extensive international network, with direct links to over 118 destinations; an international mobile network that reaches over 450 destinations. We are the region's largest internet hub and the regional hub for intercontinental cable systems. C&WS also provides national wholesale services to the UAE competitive market. Etisalat's Carrier & Wholesale Services Division provides the following services: e-Voice e-Mobile Emix - IP Transit Services e-Capacity e-Connect e-Broadcast ETISALAT INTERNATIONAL: Etisalat management recognizes the importance and responsibility of balancing profitability and growth with long-term sustainability. Over the last five years, the Corporation has continued its high growth trajectory and has been progressively looking beyond the borders of the UAE.Â All of these initiatives are geared towards fulfilling its vision of joining the league of major telecommunication players in the world. Â Its core strategy for market selection remains woven around low penetration and high population. This is backed by strong market research on high growth potential, consumer behavior, and value creation opportunities. Today, customers demand not only basic services but also want to take advantage of the value chain in terms of product and service segments. Innovative technology offerings from Etisalat's stable produce a strong 'me too' element. Etisalat's UAE strategy of delivering the latest technology has established its reputation across the world, so its subsidiaries find it easier to enter new markets. As a result, Etisalat is warmly welcomed as a new entrant whose new products and services are eagerly anticipated. As it expands its global footprint, the Corporation has been conscious of ensuring that it optimizes the synergies existing in regional markets such as the Middle East or West Africa. In addition, it encourages sharing lessons learned in one operation with others. It has effectively utilized its experience of setting up Greenfield operations in Mobily in Saudi Arabia to the market in Egypt. This ensured Etisalat's Egyptian operations passed the 1 million subscriber mark within 50 days of starting operations. Over the years, Etisalat's brand equity has grown in profile. In order to leverage its strong brand, the Corporation launches all Greenfield projects under the 'Etisalat' brand. However, in acquired assets where there is an existing strong brand (like 'Moov' in West Africa), it nurtures and strengthens the existing brand. In 2007 Etisalat acquired new assets and consolidated its position in existing markets. It entered two new and exciting markets Nigeria and Indonesia. With their large populations and relatively low penetration, these markets match Etisalat's core corporate strategy perfectly. Aligned with the Corporation's mission of extending people's reach, other promising additions to Etisalat's investment portfolio can be expected in 2008 and beyond.
FINANCIAL STATEMENT ANALYSIS Financial ratio analysis is an important topic. It is widely used to summarize the information in a company's financial statements in assessing its financial health. In today's information technology world, real time financial data are readily available via the Internet. We can use several tools to evaluate a company, but some of the most valuable are "financial ratios". Ratios are an analyst's microscope: they allow us get a better view of the firm's financial health than just looking at the raw financial statements. Ratios are useful both to internal and external analysts of the firm. For internal purposes: ratios can be useful in planning for the future, setting goals, and evaluating the performance of managers. External analysts use ratios to decide whether to grant credit, to monitor financial performance, to forecast financial performance, and to decide whether to invest in the company. Calculating financial ratios is a pointless exercise unless we understand how to use them. One overriding rule of ratio analysis is this: A single ratio provides very little information, and may be misleading. We should never draw conclusions from a single ratio. Instead, several ratios should support any conclusions that we make. With that precaution in mind, there are several ways that ratios can be used to draw important conclusions. With this "Financial Statement Analysis Tools" post series, describe what financial ratios are and who uses them, define the five major categories of ratios (liquidity, efficiency, leverage, coverage, and profitability), calculate the common ratios for any firm by using income statement and balance sheet data, use financial ratios to assess a firm's past performance, identify its current problems, and suggest strategies for dealing with these problems, calculate the economic profit of a firm. We will look at many different ratios, but you should be aware that these are, of necessity, only a sampling of the ratios that might be useful. Furthermore, different analysts may calculate ratios slightly differently, so we will need to know exactly how the ratios are calculated in a given situation. The keys to understanding ratio analysis are experience and an analytical mind.
We will divide our discussion of the ratios into five categories based on the information provided: Liquidity Ratios, describe the ability of a firm to meets its current obligations. Consisted of: The Current Ratio= (current assets / current liabilities) The Acid Test Ratio= (current assets-inventories/current liabilities) Average Collection Period= (account receivable/daily credit sales) Â Efficiency Ratios, (profitability) describe how well the firm is using its investment in assets to produce sales, consisted of: Inventory Turnover Ratio= (cost of goods sold/ inventory) Fixed Asset Turnover Ratio= (Sales/ net fixed assets) Total Asset Turnover Ratio= (sales / total assets) Account Receivable Turnover= (credit sales/ account receivable) operating income return on investment = ( operating income / total assets) Â Leverage Ratios, (Financing decision) reveal the degree to which debt has been used to finance the firm's asset purchases, consisted of: The Total Debt Ratio= (total Debt / total assets) Times interest earned= (operating income / interest expense) Return on equity = ( net income / common equity )
Return On Equity (ROE) it shows how are the firms mangers are maximizing shareholder welth.
ROE = (net income / common equity ) statement. And here are "Income Statement" and "Balance Sheet" of ETISALAT for the years 2006, 2007, 2008 and 2004 as data sourceÂ we are going to use through this main topic.
Â The Income Statement. The income statement is a fairly simple document that begins by listing a firm's revenues (perhaps by sources or in total) followed by all of the firm's expenses. The result of the income statement is the net income for the period. Net income represents the accounting profit left over after all expenses have been paid from the revenue for the period, and below is the ETISALAT's Income Statement for the year of 2006, 2007, 2008 and 2009.
Figures in AED million
2009 Revenues 16,290 21,340 27,095 33,156 Total Operating Expenses -10,694 -14,730 -19,228 -23,173 Total Operating Income (EBIT) 5,596 6,610 7,868 9,983 Depreciation -1,391 -1,368 -2,147 -2,487 Amortization -6 -594 -672 -668 EBITDA 6,993 8,571 10,686 13,139 Interest Income 476 623 722 868 Interest Expense -262 -503 -426 -349 NPBT 5,810 6,843 8,114 10,448 Deferred Tax 0 -122 -122 -122 Net Income Before Minority Interest 5,810 6,720 7,991 10,326 Minority Interest 50 576 390 389
The Balance Sheet: The balance sheet is usually divided in two sections: the assets section at the top or left side, and the liabilities and owner's equity section at the bottom or right side. It is important to realize that the balance sheet must balance (thus the name). That is, total assets must equal the sum of total liabilities and total owner's equity. Each of these sections is usually further divided into subsections. On the asset side, there are two subsections. The current assets section describes the value of the firm's short-term assets. Short-term, in this case, is defined as one year or the time it takes for the asset to go through one cash flow cycle (i.e., from purchase to sale to collection). Typical current assets are: cash, accounts receivable, and inventories. Fixed assets are those assets with lives longer than one year. Examples of fixed assets include vehicles, property, buildings, etc. Like assets, liabilities can be subdivided into two sections. Current liabilities are those liabilities that are expected to be retired within one year. Examples are items such as accounts payable, wages payable, etc. Long-term liabilities are those that will not be paid off within the current year. Generally, long-term liabilities are made up of various types of bonds, bank loans, etc. Owner's equity represents the difference between the value of the total assets and liabilities of the firm. This part of the balance sheet is subdivided into contributed capital and retained earnings. Contributed capital Bali Cumberland is the investment made by the common and preferred stockholders of the firm. Retained earning is the accumulation of the undistributed profits of the firm. And below is the ETISALAT's Balance Sheet for 2006, 2007, 2008 and 2009.
Figures in AED million
2009 Cash 10,304 9,433 14,025 17,657 Receivables 1,091 2,047 3,762 4,509 Stores 66 175 222 272 Other Current Assets 2,093 1,246 1,139 1,276 Total Current Assets 13,553 12,901 19,149 23,713 Net Fixed Assets 8,496 11,876 14,155 15,490 Other Long Term Assets 23,859 27,671 27,949 27,086 Total Long Term Assets 32,355 39,547 42,104 42,576
66,289 Short Term Debt 0 343 3,874 775 Payables 8,568 13,231 14,212 17,212 Other Current Liabilities 5,037 4,092 4,321 4,459 Total Current Liabilities 13,605 17,665 22,408 22,447 Total Grey Area 2,208 1,838 1,448 1,059 Long Term Debt 6,981 3,141 2,635 1,860 Other Long Term Liabilities 3,928 5,746 5,618 4,658 Total Long Term Liabilities 10,909 8,887 8,253 6,518
Net Worth 19,187 24,057 29,144 36,265
Total Liabilities and Equity
Balance Sheet Graph. Cash Flow Statement:
Cash Flow statement
Figures in AED million
2009 Net Profit 5,859,747 7,296,644 8,664,984 8,546,432 Depreciation 1,391,349 1,368,182 1,708,289 2,113,870 Amortization of licenses 5,729 593,756 809,283 982,956 Other adjustments (538,352) (896,711) (2,423,411) (289,594)
Operating cash flows before change in
11,136,663 Stores 38,688 (46,960) (27,638) (40,569) Debtors and Prepayments (375,655) (262,364) (494,944) (875,115) Amounts due from/to other telecom Administrators (81,008) (353,675) (503,094) (235,572) Creditors and Accruals 2,208,252 3,175,454 3,119,591 (930,109)
Net cash from operating activities
9,055,298 Proceeds from disposal of an investment
- Investments (4,823,902) (2,488,938) (2,128,196) (1,968,950) Intangibles
- (706,396) Dividends Received 259,796 194,931 136,371
- Purchases of fixed assets (1,432,084) (3,460,275) (3,661,196) (2,641,489) Acquisition of Subsidiaries
- (875,560) License Fees Paid (11,236,127) (126,696)
- (1,399,501) Interest income received 475,704 622,715 425,804 677,692
Net cash used in investing activities (16,756,613) (6,012,729) 2(2,902,223) (6,914,203) Due from Associates
- 1,174,579 (256,616) (123,845) Loans to associates (422,105)
- 10,287 Loans installment repaid by associates
- Advances/loans from investment partners 2,088,485 57,804 180,665
- Repayment/ proceedings 6,980,600 (4,131,956) (2,164,545) 2,468,430 Amounts contributed by minority share holders 2,175,321 124,165
- Finance cost paid (129,038) (443,462) (413,564) (424,646) Dividends Paid (2,041,875) (2,835,938) (3,244,312) (5,600,362)
Net cash from financing activities 8,651,338 (5,924,313) (5898,372) (2,472,236)
Net change in cash 403,525 (1,062,716) 2,052,465 (331,142) Beginning cash 9,658,510 10,304,033 9,432,564 11,294,868 Exchange differences on translations Of overseas operations 241,998 191,247 (190,161)
Cash at end
TREND ANALYSIS Trend analysis provides signals as to whether the company's financial health is likely to improve or deteriorate. The trend analysis based upon the following financial ratios: Leverage Ratios: to measure the extent to which the company's assets are financed with debt Liquidity Ratios: to measure the company's ability to pay its bills Profitability Ratios: to measure the company's ability to generate earnings Efficiency Ratios: to measure the company's ability to utilize its assets Market Value Ratios: to measure the market perception about the company's future prospects. The downloaded four years' balance sheets and income statements are to be used to calculate the financial ratios. For example, four leverage ratios (Debt/Equity, LT Debt/ Cap, LT Debt/Tot Debt, and LT Debt/Tot Assets) are reported, but the interest coverage ratio (= earnings available for interest/interest expenses) is missing in the DJI. Students are required to obtain the earnings and interest expenses information from the income statements and calculate this ratio to measure the company's ability to service the debt. In the area of liquidity, current ratio (= current assets/current liabilities) and quick ratio (= quick assets/ current liabilities) are reported, but the interval measure (= quick assets/daily operating expenditures) is not. Students are required to obtain quick assets (= cash & equivalent + receivables) from the balance sheets and operating expenditures from the income statements, and calculate this ratio to measure how long the company can keep up with its bills using only existing quick assets.
Liquidity Ratio Current Ratio 1.0 .7 .7 .9 Acid test ratio NA NA NA NA Average collection period NA NA NA NA
Efficiency Ratios Inventory Turnover Ratio= NA NA NA NA Fixed Asset Turnover Ratio= 1.92 1.79 1.91 2.14 Total Asset Turnover Ratio= 0.35 0.41 0.44 0.5 Account Receivable Turnover= NA NA NA NA Operating income return on investment 12.1% 12.6% 12.8% 15%
Leverage Ratios The Total Debt Ratio= Times interest earned= 21.4 13.1 18.4 28.6
Return On Equity ROE
Growth Rate of Etisalat.
Conclusion: Despite intense competition and global market conditions, Etisalat has reported consolidated revenues of AED 26.21 bn in 2008 an increase of 22.4% over 2007revenues. Revenue from international operations increased by 14.7% and formed 9% of group's revenue. With the UAE mobile market approaching saturation, the belief is that the mobile operators will focus on high quality value added services. The migration to NGN (Next Generation Network) in UAE will enable Etisalat to further introduce more value added services. It is believed that UAE will still be the revenue driver for Etisalat. A strong financial position will enable Etisalat to continue pursuing its expansion strategy and eye strategic acquisition. The share of international operations of the groups is expected to grow as well as the revenues generated by them which is clear from the fact sheets above. With the launch of du, the second mobile operator in February 2007, quarterly net mobile subscriber additions for the total market almost doubled, reaching an approximate 570,000 per quarter during 2007, compared to an average of 247,000 subscribers per quarter in 2006. They do not expect to witness a price war between the two UAE operators in the short term, given the significantly smaller scale of operations that 'du' manages, compared to Etisalat. Given that the level of technology deployed by both operators is similar, they believe that the quality and diversity of bundled services and promotions will be the base for competition in the short term.