Introduction The objective of this report is to examine past and current financial data of the telecommunications operator TELECORP

(financial statements published for the last two reporting periods) so that its performance and financial position can be evaluated and future risks and potential can be estimated.

The analysis performed should help investors assess the financial strength of the company and help them make a logical investment decision. Investors have a long term interest in the prosperity of a company and therefore the financial statement analysis has a middle to long term focus of around 3 5 years time. In order to decide whether an investment will be profitable or not, the investor should find answers to the following fundamental questions:

Is the business growing or in other words are sales increasing and at what rate? What is the capital structure of the company or what part of the invested capital is own and what part is borrowed? Does the business generate enough cash flow to sustain itself, grow and return capital to its owners?

The tools and techniques utilized include a brief industry analysis, year-to-date comparative analysis of key performance indicators and ratio analysis in comparison to industry average ratios.

Industry Overview

Although the world is still recovering from the financial crisis and a fully phased upswing may take longer to establish than previously expected, the Telecommunications Industry is identified as a major driver of economic recovery, primarily due to its key attribute of being a major infrastructure product for both emerging, as well as developed nations. The telecommunications industry encompasses a lot of technology-related businesses and is expected to play a vital role in the emerging digital economy. Telecommunications is one of the very few industries that witnessed massive technological improvements, even under the recession. Fabulous demand for technically innovative products has been the silver lining for the telecommunication industry in an otherwise tough environment. Capital spending constraints among carriers over the last couple of years due to severe recessionary conditions were the main hindrance to the growth of this industry. However, with the economic recovery more or less in place, large telecom service providers are gradually expanding their investing pace by investing in new products and services as well as diversifying their portfolios by investing in new markets such as digital advertising, machine-to-machine technology, mobile money applications etc. Year-to-Date Comparison 1 A strict operational cost control and a decline in the income taxes mitigate the weak revenue growth of 0.55 %, increasing EBIT by 3.65 % to BAM 120.44 million. Investing with own capital opposed to borrowing money has had a positive impact on the interest expenses, which further for an increase in the net income by 5.24 % to BAM 108.11 million. In the full year 2011 the capital expenditures of Telecorp amounted to BAM 99.89 million, whereof an amount of BAM 57.94 million is related to the acquisition of shares in other companies. The capital expenditures for tangible fixed assets offset the financial investment and declined by 58.66 % to BAM 46,77 million. Cash flow from operations amounted to BAM 202.89 million as a result of an increase in the working capital and a decrease in the staff costs. Long-Term receivables` and loans` decline by 64.81 % while recorded revenue growth suggest a notable increase in debt collection and/or a decline in the sales on credit. The decrease in the sales on credit is also indicated by the registered decline in the deferred income by 58.18 % compared to 2009. The total of long term debt has decreased by 16.24 %.

Cash and equivalents had a net decrease of BAM 62.89 million, retaining high enough liquidity ratios to meet short term obligations. Retained earnings have dropped by 50.76 %, while dividends payable in the year to come have increased by 63.59 %. They both indicate that during the following 2011, the company is going to invest less in assets. Financial Ratio Analysis Financial ratios focus on different aspects of the financial analysis and are grouped in the following categories: liquidity ratios (short term solvency ratios), investment activity ratios, long term debt and solvency (leverage), profitability ratios and Du Pont. Since we are approaching this analysis as investors, operating activity ratios will not be a subject to the current paper.

SHORT-TERM SOLVENCY RATIOS (LIQUIDITY)

Telecorp Current Ratio Acid-test Ratio Cash to current assets Accounts Receivable Turnover 1.23 0.99 0.23 11.06*

AT&T 0.70 0.50 0.10 9.30 39

Industry, Telecommunications 1.60 0.90 NA 8.00 46

Days` Sales in Receivables (Average Collection Period) 33* *Sales on credit are not disclosed, thus the total sales amount is used.

Liquidity ratios measure the company's ability to meet its short-term obligations. The computations performed show that the liquidity of Telecorp is above industry standard and the company could quickly convert current assets into cash to cover its current liabilities. The accounts receivable turnover is also relatively high which indicates that management is efficient in employing those funds invested in receivables. High accounts receivable turnover generally suggests short average collection period, which is relatively low for Telecorp. This means that Telecorp takes optimal amount of time to turn its receivables into cash and is not exposed to high levels of bad debt. This measurement is supported by the recorded decline in the long term receivables and deferred income.

Financial leverage ratios determine the mix of debt and equity and the financial risk added by the obligation to interest on the money borrowed. A financial leverage ratio, also known as a capitalization ratio, provides investors with information about the extent to which a company is using its equity to finance its operational costs, and to what extent it is incurring new debt to do so. Telecommunications industry is capital intensive industry and Telecorp`s debt ratios are comparatively very low. In the light of the economic crisis when the cost of borrowed capital is high, cautious use of debt is logical though. At the end of 2010, Telecorp is less dependent on leverage compared to industry average, and the financial leverage risk for a potential investor is minimized. Leverage Ratios

Telecorp Debt-to-Equity Capitalization Ratio Fixed Assets to Equity

AT&T 0.31 0.14 NA 1.13

Industry, Telecommunications 0.61 1.20 NA 2.60 1.50

Profitability ratios measure management`s efficiency to generate profits. The first indicator analyzed is the Return on Assets. This indicator measures the productivity of an enterprise`s resources and the management`s ability to create wealth. It is related to the capital intensity of the industry the more capital intensive the industry is, the lower the levels of ROA are. Return on assets of Telecorp is relatively low compared to industry average. A possible cause is the major acquisition of shares in 2010 amounting to BAM 57.94 million which increases the capital expenditures significantly, but still hasn`t started to generate any revenues. Profitability and Operational Ratios Industry, Telecommunications 0.30 0.40 20.00% 12.00%

Telecorp ROA ROE* Operating profit margin Net Profit Margin *DuPont Model 0.12 0.16 25% 22%

While the ROA is a measure of how well the company uses its assets to generate profits, the Return on Common Equity tells investors how efficiently their money is being employed. This is why this indicator is so important for investors, as they are always looking for companies with high and

growing returns on common equity. Telecorp`s return on equity is 0.16, which is below industry standard. It has increased compared to 2009, nevertheless, which is a good sign for future prospects.

Operating and net profit margins, on the other hand, are both above industry standards and due to strict financial discipline have increased to mitigate the slow increase in the amount of sales.

Telecorp`s outlook for the following 3-5 years The outlook on Telecorp`s future looks positive. Its management has demonstrated a strict financial discipline by bringing down the operational expenses with 2.50 %. At the same time their financial leverage risk is brought to very low levels compared to other companies in the capital intensive telecom industry. The acquisition of shares in other companies suggests an additional increase in the revenues in the years to come.

We could summarize that Telecorp has a moderate leverage risk, which makes it attractive for investors who are looking for more risk cautious and are not looking for a quick return on their investment. The demonstrated discipline over expenses and bad debt, retaining growth in sales, confirm this general conclusion
1

Comparative Analysis of selected KPIs Position Current Assets Current Liabilities Long Term Liabilities Shareholder`s Equity Short Term Investments Cash Accounts Receivable Fixed Assets Sales (Revenue) Operating Income Operating Expenses 2010 2009 Change -49.91% -10.28% -16.24% -46.23% 14.40% -216.52% -2.53% 1.10% 0.17% -0.55% -2.49%

128,040,799.00 191,944,246.00 104,217,127.00 114,931,134.00 112,454,377.00 130,712,738.00 491,383,755.00 718,568,358.00 31,028,555.00 29,045,191.00 43,144,847.00 26,561,016.00 91,932,484.00 44,236,441.00

780,867,291.00 772,267,984.00 476,979,912.00 476,178,206.00 483,685,940.00 486,335,312.00

363,242,248.00 372,293,102.00 Net Income EBIT Cash paid to employees Interest Paid Income taxes paid Purchases of Property, Plant and Equipment Cash from operating activities 108,113,445.00 102,451,516.00 120,443,692.00 80,746,881.00 5,056,681.00 9,489,835.00 46,774,068.00 116,042,210.00 87,296,423.00 6,914,559.00 18,991,969.00 74,210,692.00 5.24% 3.65% -8.11% -36.74% -100.13% -58.66% 11.73%

202,898,883.00 179,091,094.00