Evaluation of the Business and Financial Performance of Tnm Limited for the Years 1 January 2008 to 31 December 2010
EVALUATION OF THE BUSINESS AND FINANCIAL PERFORMANCE OF TNM LIMITED FOR THE YEARS 1 JANUARY 2008 TO 31 DECEMBER 2010 Contents INTRODUCTION3 TNM MALAWI LIMITED3 History and reforms in Malawi telecommunication sector3 Company profile4 Mission Statement6 TNM’s Business operations and markets6 Competition in telecommunication industry6 TNM’s strategy for growth7 OBJECTIVES7 OVERALL RESEARCH APPROACH8 CHARTS Chart 1: Shareholding ratio of TNM Limited5 TABLES Table 1: subscriber and market share (source: TNM 2010 Annual Report)7 INTRODUCTION
The research title is “an evaluation of the business and financial performance of TNM Limited for the years 1 January 2008 to 31 December 2010”. The research was conducted to feedback to the Government of Malawi on the outcome of a privatised market and also to provide results to prospective investors that can assist them to make an informed decision as to whether this new industry can provide them high and stable returns to their investment. TNM Limited (TNM) was selected as choice of company as it is the first company to be incorporated after the regularisation of the telecommunication ndustry. The comparative company, Airtel is a private company, a subsidiary company of Bharti Airtel, India. TNM financial statements are presented in Malawi Kwacha, which is the company’s functional currency and the official currency of the Republic of Malawi. All numbers in the tables of this research paper are listed in billions. The Malawi Kwacha exchange rate to the United States Dollars is MK151. 63/US$1. 00. (Malawi Economic Review, 2010, 4th Qtre) TNM MALAWI LIMITED History and reforms in Malawi telecommunication sector
The telecommunications and postal services within Malawi were operated by the Government through a state-owned corporation, Malawi Posts and Telecommunications Corporation. However, in 1994, the Government embarked on a radical economic reform and adopted a policy of economy liberalisation. As a result, Government divested its interest from the telecommunications sector and confined itself to producing a national policy for the regulation of communications services. This provided for the separation of the provision of telecommunications from postal services.
In 1995, Telekoms Networks (now known as TNM), was incorporated to provide Global System for Mobile (GSM) services. GSM is a second generation, cellular, digital mobile phone system. (www. mobile-phone-directory. org). The postal and fixed telecommunications services component operated under a private limited company, Malawi Telecommunications Limited. (TNM Prospectus, 2008). Under the new policy, The Government also set up a telecommunications regulator, Malawi Communications Regulatory Authority (MACRA).
Competition only began in 1999 when MACRA awarded a second mobile service license to Celtel Limited (now operating as Airtel). A third licence was offered in 2008 to Global Network but until 2010 it has not commenced operations. Company profile TNM was incorporated under the Malawi Companies Act, 1984. The history of TNM is characterized by joint ventures and transfers of net assets in accordance with the Communications Act of 1998. ? TNM shareholding is indicated in Chart 1, below: Chart 1: Shareholding ratio of TNM Limited Source: TNM 2008 Prospectus
TNM is authorised to provide mobile radiotelephony services in Malawi, for a period of 15 years, from 1999. This service includes voice telephony, facsimile, data communication (including internet), international and national long-distance telecommunication services and value-added services. One of TNM’s key accomplishments was in 2008 when it listed on the Malawi Stock Exchange. This was the biggest initial public offering (IPO) in the history of Malawi, with over 1 billion shares offered to the public. It was also Malawi’s first telecommunication company to list.
The motivations of the IPO were threefold: 1. to raise new capital to invest in the continued improvement of TNM’s telecommunications services; 2. to expand services in areas where telecommunication services were not offered; and 3. To provide investors with the opportunity to participate in the returns anticipated from this investment. [TNM Prospectus, 29 September 2008). Mission Statement TNM’s mission is “to be Malawi’s premier mobile company of choice, offering best in class in mobile telecommunication services to people everywhere.
As Malawi’s premier mobile company, we will enable people and business to realise their full potential. In doing so, our mobile services will contribute to the growth and development of the Malawi economy” (TNM Annual Report, 2008, p. 4) While the vision is largely focusing on the customer who is the end user of its products and services, TNM is a public listed company and as such it has to consider other legitimate stakeholders in order to remain resilient in the market. TNM’s Business operations and markets TNM’s market is divided into two categories; prepaid and post-paid clients. . Pre-paid clients are those that are price-conscience. This subscription method is where phone services are paid in advance. b. Post-paid clients. This is a subscription method whereby phone services are paid in arrears. TNM is ensuring that its products and services are highly visible and easily accessible through a network of direct and indirect distributors. Competition in telecommunication industry TNM faces competition from Airtel, MTL and Access. MTL and Access provide fixed line and fixed mobile wireless products, respectively. ?
As of 30 December, 2010, the market share is as detailed in Table 1: Table 1: subscriber and market share Source: TNM 2010 Annual Report TNM’s strategy for growth TNMs’ growth strategy is centred on four core initiatives so as to increase its competitiveness for the share of the market: 1. To constantly improve and expand infrastructure and capacity; 2. To Grow the depth and availability of telecommunications services; 3. To promote telecommunications accessibility to Malawians; and 4. To protect and promote customer loyalty. (TNM Prospectus, 2008)
OBJECTIVES This objective is to present to two stakeholders; the Government and prospective investors a detailed analysis of TNM’s financial and business performance during the three year period. Out of this, the researcher will seek to answer the following questions: 1. What is the outcome of TNM’s year-on-year business and financial performance? 2. To what extent is TNM prepared to meet future challenges? 3. Following on from the answers to 1 – 2 above, what recommendations can be given to a prospective investor wishing to invest his capital in TNM? 4.
Finally, will this information provide relevant feedback to Government policy makers on privatisation? OVERALL RESEARCH APPROACH The research is aiming at evaluating TNM from the business and financial perspective by using the following techniques: 1)Financial ratio analysis to determine trends of TNM’s financial performance for the period under review. Ratio to be used are: Profitability, liquidity, long-term solvency, and shareholders ratios 2)SWOT analysis and Key Performance Indicators (KPIs) measures to determine its sustainability in future. V