Letter to Stockholders of Zain Group - Research Paper Example

?Zain LETTER TO STOCKHOLDERS There are two letters that have been written by the Chairman and the Chief Executive Officer (CEO) of Zain Group addressing the shareholders belonging to the company. The Chairman of the company is Asaad Ahmed Al-Banwan and M. Scott Gegenheimer holds the title of CEO of the Group (Zain, “Believing in the Power of Dreams, Annual Report 2012”). 2. The two letters have been written by the Chairman and the CEO of the Group basically addressing the shareholders. The basic message in the letters comprises assisting the shareholders to know about the broad operations of the company throughout the year with the deliverance of certain useful information. These encompass short description of the financial results, business practices, marketing strategies, current position in the operating business markets, future goals and most importantly its rise in profitability from the preceding few years, making a greater appeal to its current and potential shareholders (Zain, “Believing in the Power of Dreams, Annual Report 2012”). 3. Letter from the Chairman. In this letter, the first paragraph depicts a short description about the challenges faced by the company throughout the financial year 2012. Additionally, this section explains the changes in the external as well as the internal environment and how the company addressed those challenges with the adoption of few developmental based projects and effective business policies. The next part of this letter explains the operational results of the Group including net income, earning per share and consolidated revenue with relevant data. Correspondingly, the next section of the letter depicted a detailed understanding about the launch of various networks by the company and its restructuring business process in different parts of the globe. The last section of this letter portray the Corporate Social Responsibility (CSR) based activities that the company performed towards the society and the environment with a conclusion seeking for continuous support from the esteemed members of the Group (Zain, “Believing In The Power Of Dreams, Annual Report 2012”). Letter from the C.E.O. In this letter, the first section provides a brief explanation about the journey of the company and the experience of the person as the CEO. The next section of the letter includes the description of the services or the products that the company offers to its customers and how it is adopting effective strategies to raise the level of customer satisfaction. Correspondingly, the next part of the letter reflects the review of the business conducted in the financial year of 2012. The last section of the letter presented looking forward statement with an aim to show the potentials of the company to compete in future (Zain, “Believing in the Power of Dreams, Annual Report 2012”). OTHER MATERIAL 4. The 2012 annual report of Zain includes various sections including Chairman and CEO statement, company overview, key milestones, share price evolution, business operations, group technology, financial statements and practice of CSR activities among others. All the information has been provided and explained in a proper sequence. Additionally, it can be viewed that the annual report has been prepared with the focus of keeping it quite simple and easy to understand by the customers along with the shareholders (Zain, “Zain Group’s 2012 Annual Report Earns Accolades at ARC Awards in New York”). The materials contained in the annual report and the messages that these communicates can be viewed as quite impressive owing to the reason that one can obtain a clear idea about the financial performance of the company and also the effective strategies that the company adopted. FINANCIAL HIGHLIGHTS 5. Zain provides adequate financial information to the shareholders through presenting those in its annual reports. The shareholders of the company are provided with appropriate financial information concerning the operational performances as well as other related financial information. 6. From the aforementioned aspect, it is quite clear that Zain presents financial highlights in its annual reports to shareholders. In 2012 annual report, the company highlighted the items in relation to shares and returns that had been offered to them. In addition, there are certain other items such as share capital, share premium, legal reserve, foreign currency translation reserve, treasury share reserve, share based compensation reserve, investment fair valuation reserve, hedge reserve and retained earnings that the company would be highlighting in its 2013 annual report. 7. It can be apparently observed that the highlighted items show Zain in a positive light. This can be justified with reference to the fact that the company has been performing its business operations in a sustainable as well as in a positive manner. During the year 2012, there has been a rise in the number of customers and profit margin and also the net profit of the company rose substantially. 8. There are certain items such as loans and receivables that are not included in the financial highlights of Zain and must be included in the list of highlighted items of the company. Additionally, the financial highlights of the company do not include the aforementioned non-derivative financial assets while preparing financial statements (Zain, “Believing in the Power of Dreams, Annual Report 2012”). FISCAL YEAR 9. The fiscal year for Zain extends from January to December or the twelve months of every financial year. It can be apparently observed that the company analyses and evaluates its business performance based upon the above mentioned financial period. This particular information can be located in the annual report of the company as depicted in the Chairman’s message page (Zain, “Believing in the Power of Dreams, Annual Report 2012”). 10. The company has chosen this particular time period owing to the reason of preparing the financial statements in a coherent manner. BALANCE SHEET 11. Zain usually prepares consolidated financial statement based upon the guidelines of International Financial Reporting Standards (IFRS). It has been identified that the total asset, total liability and shareholders’ equity of the company during the year 2012 amounted to 2,930,991, 1,220,237 and 1,710,754 (in thousands KD) respectively. Based on the above figures, the balance sheet equation of the company for the most recent year i.e. 2012 has been calculated with the formula provided hereunder. Assets = Liabilities + Net Capital 2,930,991 = 1,220,237 + 1,710,754 Thus, the balance sheet equation of the company during the year 2012 is 2,930,991. 12. The three assets that are largest in amount on the most recent balance sheet of the company i.e. in the financial of the year 2012 are intangible assets, property and equipment and trade and other receivables. 13. The make-up of the assets of Zain seem to be consistent with what is expected for a telecommunication company owing to the reason that the balance sheet of the company has been effective in presenting current assets and non-current assets including all the necessary items that are to be included in the balance sheet. 14. The three liabilities that are of largest amount on the most recent balance sheet of Zain are trade and other payables, due to banks (current liabilities) and due to banks (non-current liabilities). 15. According to the balance sheet of the company for the financial year 2012, it can be recognized that retained earnings is larger in amount. 16. Conversion of the Balance Sheet 17. The percentage of current assets to current liabilities for each year of Zain has been calculated based upon the formula provided in the following. Current Ratio = Current Assets/Current liabilities = 764668/820364 = 0.93 Current ratio for the year 2012 is: Current Assets/Current Liabilities =636317/805770 = 0.79 The current ratio provides financial information in relation to the ability of the company to pay short-term obligations. In this regard, the current ratios of the company signifies that during the year 2011 as compared to the year 2012, the company has greater liquidity in paying short-term liabilities as the current ratio is higher in the year 2011. The net working capital during the year 2012 has been calculated by the formula: Working capital = Current Assets – Current Liabilities = 636317 – 805770 = (169453) It can be comprehended from the determined working capital that the company is ineffective in paying back its short-term liabilities. 18. Quick ratio = (Current assets – inventories)/current liabilities = (636317 – 11906)/805770 = 0.77 In this regard, it can be comprehended from the quick ratio that the company has 0.77 (thousands KD) of liquid assets to pay for current liabilities. 19. The percentage change in total assets is 2930991 – 3287234 = (356243) (356243)/3287234*100 = (10.84) % This signifies that there is a negative change in total assets. 20. The debt equity ratio = (Total Liabilities/Shareholders Equity)*100 = (805770+414467)/1590637*100 = 76.71 % In order to explain the significance of this ration, it can be affirmed that the debt ratio for the year 2012 implies the amount of debt as well as equity available with the company in order to finance its debts. 21. Debt ratio for the year 2011 = (Total Liabilities/Shareholders Equity)*100 = (820364+261332)/2080490*100 = 51.99 % It can be comprehended that the debt equity ratio has increased during the year 2012 i.e. 76.71% as compared to the year of 2011. 22. Percentage of stockholders equity to total assets during the year 2011 is (2080490/3287234)*100 = 63.29 % Percentage of stockholders equity to total assets during the year 2012 is (1590637/2930991)*100 = 54.27 % The shareholder equity ratio of the company signifies that the value of shareholders has decreased during the year 2012. 23. The stockholder’s equity ratio of the company seems to be consistent with the business risks as the company uses different derivative instruments in order to minimize risks. 24. The company has a par value of common stock amounting to KD 0.100 per share. The market value per share at the end of the financial year 2012 is KD 1.28. INCOME STATEMENT 25. The income statement equation for the year 2012 has been calculated hereunder. Income statement equation = Total Revenues – Total Expenses = 1281903 - 2,642,000 = (1360097) (thousands KD) 26. Change in revenue or sales of the company is 1281903 - 1321921 = (40018) (thousands KD) Thus, percentage change in sales = (40018)/1321921 * 100 = (3.03) % It can be comprehended that there is a downward trend in the sales figure of the company. 27. Earnings per share (EPS) = Profit from continuing operations/number of shares = 280192/4315274866 = 0.065 The EPS implies the portion of profit that is allocated to per outstanding share of common stock. 28. Return on Assets = Net Income/Total Asset * 100 = 280192/2930991 * 100 = 9.56 % The ratio represents that the assets help the company in generating revenues. 29. Return on equity = Net Income/Shareholder’s Equity = 280192/1710754 * 100 = 16.38 % Return on equity signifies the amount of profit that can be generated from the investment made by shareholders. 30. The change in net income in the year 2012 is 280192 - 301208 = (21016) The percentage change in net income = (21016)/301208 * 100 = (6.98) % It can be comprehended that the net income of the company is changing faster based on the above computations. 31. Three expenses of largest amount in the income statement of the company are distribution, marketing as well as operating expenses, depreciation and amortization and general and administrative expenses. 32. Comparative Income Statement in Common Size 33. From the above figure in relation to common size income statement, it can be identified that there has been a downward trend in every continuing operations. 34. The gross margin of the company is calculated by the formula Gross Margin = (Revenue - Cost of Sales)/Revenue 35. Operating profit margin = (Operating income/Net sales) * 100 Operating profit margin of the company for the year 2012 and 2011 is 29.46 and 32.50 respectively. It has been observed that the operating profit of the company has declined in the year 2012 as compared to the previous year 2011. 36. Net profit margin = (Net profit/Revenue) * 100 The net profit margin of the company during the year 2012 and 2011 is 21.86% and 22.79% respectively. The ratios signify that the net profit margin during the year 2012 has decreased from the previous year 2011. 37. The three turnover ratios are inventory turnover ratio, debtor turnover ratio and fixed asset turnover ratio. Inventory turnover ratio = Sales/Inventory = 1281903/11906 = 107.67 The ratio implies the number of days required for selling inventory. Debtor turnover ratio = Total Sales/Debtor = 1281903/349183 = 3.68 The ratio provides information on the basis of which the company is able to collect debt. Fixed asset turnover ratio = Net Sales/Fixed Asset = 1281903/699030 = 1.83 The ratio signifies that the company has made adequate investments with the aim of generating revenues. STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY 38. The change in the retained earnings is determined to be 490189 – 516453 = (26264) The percentage of change in retained earning = (26264)/516453 * 100 = 5.09 NOTES TO THE FINANCIAL STATEMENTS 39. There are 22 notes in the financial statement of the company. 40. The notes are incorporation along with activities and basis of preparation as well as significant accounting policies. Incorporation and activities imply that financial report of the company is authorized as well as approved by the Board of Directors of the company. On the other hand, basis of preparation and significant accounting policies signifies that financial reports of the company are prepared in accordance with International Financial Reporting Standards (IFRS). 41. The company has adopted certain significant accounting policies such as IFRS, which is prepared by the International Accounting Standards Board (IASB). Two accounting policies include disclosure of financial instruments and amendment. Disclosure of financial instruments implies that additional disclosure is required in relation to financial assets that are transferred. On the other hand, amendment reveals that deferred tax should be determined with clarity made on investment property. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (AUDITORS) 42. The accounting firm, which audited the company’s consolidated financial statements, is “Deloitte & Touche A-Fahad, Al-Wazzan & Co.” 43. A firm’s auditor has a major responsibility in auditing the financial statements of the company. The benefit of an audit is that it provides an assurance concerning that the management has considered authentic and fair data while preparing financial statements. A firm’s auditor helps the management in obtaining true and fair view of the stakeholders towards the management and ultimately towards the organization (Zain, “Believing in the power of dreams, annual report 2012.”). 44. An independent auditor performs the audit in accordance with certain laws and rules that require following while preparing financial statements. The independent auditors generally issue the kind of opinion regarding the transparency of the financial statements. This clearly means that the financial statements must be prepared in a fairly manner for the purpose of making the accounting process more effective (Zain, “Believing in the power of dreams, annual report 2012.”). 45. “Internal control systems” generally incorporate certain rules, procedures and policies that an organization follow while preparing reliable as well as authenticated financial reports. In general, there are the five components of internal control systems that include (a) control environment, (b) risk assessment, (c) control activities, (d) information and communication and (e) monitoring (Zain, “Believing in the power of dreams, annual report 2012.”). 46. The auditors conducted the consolidated financial statement in accordance with the International Standards on Auditing (ISAs). These standards ensure the ethical requirements and assure that the financial statement is free from any material misstatement. According to the auditors, the consolidated financial statements need to be published in a transparent, rational and unbiased manner. Additionally, proper books of accountant have to be kept by the company for preparing the consolidated financial statement without any error (Zain, “Believing in the power of dreams, annual report 2012.”). MANAGEMENT’S DISCUSSION AND ANALYSIS 47. Management’s Discussion and Analysis (MD & A) of Zain generally provides a brief idea about the financial performance of the company in the respective industry. The MD & A aspect of Zain analyses the performance of the company in terms of raising its customer base from the year 2007 to the year 2012. Additionally, the MD & A aspect provides a brief idea about the effective strategies that adopted and various rewards earned by the company under the heading key milestone. Nonetheless, this particular aspect analyses the products or the services that are served to the customers along with the CSR activities that perform by the company in order to attain its predetermined business targets (Zain, “Believing in the Power of Dreams, Annual Report 2012”). CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSBILITY 48. Corporate governance is regarded as the set of principles, guidelines along with processes through which certain operational functions of an organization are effectively controlled and directed. These principles or the procedures support the companies in such a way so that they can attain their predetermined business targets. The major elements of corporate governance can be apparently observed as certain significant aspects that encompass transparency, responsibility, fairness and independence (Thomson, “What is Corporate Governance”). In order to analyses the corporate governance, which is practiced within Zain, it can be viewed that company prioritizes in building effective structure of corporate governance in order to improve its overall performance, offering huge benefits to the stakeholders and most vitally serving the interests of the public. Zain always desire to make a positive commitment towards making the structure of corporate governance quite effective. This strong and positive commitment of Zain towards the corporate governance eventually promotes the culture of integrity and also helps to establish possible as well as positive ethical standards at large (Zain, “Corporate Governance”). 49. Corporate Social Responsibility (CSR) is often regarded as a management function, which includes social as well as environmental concern in the business practices and operations. To be more precise CSR is considered as the way by which the companies can make a balance of their financial, social and environmental requirements (Wood, “Corporate Social Performance Revisited”). Zain can be viewed to have a CSR section in its annual report, wherein the company depicted about conducting various CSR related activities impacting the shareholders by a considerable extent. It can be affirmed from a broader understanding that the company includes a CSR section in its annual report with the intention of attracting the customers and also its potential investors towards extensively investing in the company (Zain, “Believing in the Power of Dreams, Annual Report 2012”). The effective communication of the message concerning the CSR section, which include by Zain in its CSR report can be recognized as quite impressive as it explained about the social and the economic welfare activities performed by the company. This can be duly considered as one of the reasons behind attracting the customers regarding the same. Additionally, the CSR report of the company explains the conduct of various social activities including advancement in peace-making process, deliverance of complete primary education to children and the socio-economic development that reveals the company’s concern towards maintaining societal as well as environmental standards while performing various operational functions (Zain, “Believing In The Power Of Dreams, Annual Report 2012”). Works Cited Thomson, Lisa Mary. “What is Corporate Governance.” 2009. Web. 30 Dec. 2013. . Wood, D. J. “Corporate Social Performance Revisited.” The Academy of Management Review, 16(4): 691-798. Print. “Zain Group’s 2012 Annual Report Earns Accolades at ARC Awards in New York.” Zain, 2013. Web. 30 Dec. 2013. . “Believing In The Power Of Dreams, Annual Report 2012.” Zain, 2013. Web. 30 Dec. 2013. . “Corporate Governance”. Zain, 2013. Web. 30 Dec. 2013. < http://www.zain.com/about-zain/governance/>. Read More