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  • 1. 1
  • 2. TABEL OF CONTENTS Introduction & Objective …………………………………… 31- Presentation of Menatel …………………………………… 4 1-1 About Menatel ………………………………………… 52- Menatel Situation. 6 2-1 Environment ………………………………………… 7 2-2 Results ………………………………………… 7 2-3 Market Situation ………………………………………… 103- Economy Situation & Problem Identification. ……………. 12 3-1 Economy Situation ………………………………… 13 3-2 Problem Identification ………………………………… 144- Methodology Approach & Analysis …………………... 155- Conclusion & Recommendation..……………… 212
  • 3. INTRODUCTION & OBJECTIVE The current economic situation in Egypt is facing obstacles that might affect the status offirms and institution’s position in the Egyptian market, consequently the whole economy. Through this report we shall put forward and analyze one of the obstacles that is the localcurrency floating-policy and the fluctuation & devaluation of the exchange rate of the local currencyagainst the foreign currency. And how this important factor affects Menatel, the company in which we work, as anexample of how this factor affects the Egyptian market. And we shall also show how firms can overcome this obstacle or minimize its affect toachieve efficiency, productivity and profitability in its line of business. Consequently guarantyingstability and prosperity to the Egyptian economy.3
  • 4. 4
  • 5. 1. FIRM PRESENTATION Egypt’s emerging market has been a major motivation for France Telecom (FCR) toestablish a shareholding company with powerful partners to offer the Egyptian citizen their publicpay-phone service at top international quality. Managing Director statement. (Dec.1999) 1-1. About Menatel Menatel is a joint stock company under Investment low # 8/1997 registered in 1998 under #314030, Menatel is granted a ten years renewable license, to install, operate and manage atelecommunication network of at least 20,000 public pay-phone. Menatel is determined to achieve this target in less than three years. Egyptian shares are 51% and foreign shares are 49 % the company’s shareholders are: 1-France Telecom (FCR) 44 % 2-National Bank Of Egypt 18 % 3-Egytel 18 % 4-Orascom Telecom 10 % 5-Ascom Monetel 5% 6-Adcom 3% 7-Telecom Egypt 2% companys shareholders T/E ADCOM ASCOM ORASCOM FCR EGYTEL NBE5
  • 6. 6
  • 7. 2. MENATEL SITUATION 2-1. Menatel Environment  Egypt has 67,273,906 inhabitant (July 1999 official estimates) distributed over 27 Governorates.  GDP per capital = $ US 1200.  Inflation rate (consumer prices): 4.3 % (2002).  Two multinational public pay-phone companies licensed in 1998.  Telecom Egypt maintains its actual network of 5000 pay-phone cabins, out of which 3300 one-coin pay phones and 1700 magnetic card pay phones.  Two multinational mobile companies, which provide prepaid, mobile cards.  Prepaid scratched cards for International (MCI, Global one and AGIT Telecom) and for long-distance (Telecom Egypt). 2-2. Results  Commercial Results: Results Indicator Dec.99 Dec.00 Dec.01 Dec.02 Number Of locations (Thousand). 15.3 22.1 37.8 43.3 Sales points (Thousand). 12 20 35 45 Lines Return (Million). 7.1 17.3 25.6 30.6 Cards Sales (Million). 80.3 191.4 361.66 425.75 Total Revenue (Million). 76.9 184.5 338.74 402.57 Average Revenue/Pay-phone (LE). 31 38 40 38 50 50 No. Of Location Sales Points 40 40 30 30 20 20 10 10 0 0 Dec.99 Dec.00 Dec.01 Dec.02 Dec.99 Dec.00 Dec.01 Dec.02 40 500 Lines Returen Cards Sales 30 400 300 20 200 10 100 0 0 Dec.99 Dec.00 Dec.01 Dec.02 Dec.99 Dec.00 Dec.01 Dec.02 50 500 Average Revenue / pp Total Revenue 40 400 30 300 20 200 10 100 0 0 Dec.99 Dec.00 Dec.01 Dec.02 Dec.99 Dec.00 Dec.01 Dec.027
  • 8.  Operative Results: Results Indicator Dec.99 Dec.00 Dec.01 Dec.02 Civil Work 9295 18203 28706 31865 Booth Installed 8292 16238 24911 29334 Pay-Phone IO 6793 13302 23202 29025 # Of Calls (million) 54.7 107.11 186.83 233.72 # Of Minutes (million) 123.7 242.2 422.2 528.54 Quality Services 95 % 96 % 95 % 97 % Civil W ork Quality Service 35000 97% 30000 97% 25000 96% 20000 96% 15000 95% 10000 5000 95% 0 94% Dec.99 Dec.00 Dec.01 Dec.02 Dec.99 Dec.00 Dec.01 Dec.02 Booth Installed Number Of Calls (Million ) 30000 250 25000 200 20000 150 15000 100 10000 5000 50 0 0 Dec.99 Dec.00 Dec.01 Dec.02 Dec.99 Dec.00 Dec.01 Dec.02 Pay-Phones IO Number Of Minutes (Million ) 30000 600 25000 500 20000 400 15000 300 10000 200 5000 100 0 0 Dec.99 Dec.00 Dec.01 Dec.02 Dec.99 Dec.00 Dec.01 Dec.028
  • 9.  Financial and Administration Results. Human Resources Staff Overlook. Human Resources Dec.99 Dec.00 Dec.01 Dec.02 Managers 21 27 28 28 Employees 102 203 307 363 Total 123 230 335 391 400 350 300 250 200 150 100 50 0 Dec.99 Dec.00 Dec.01 Dec.02 Managers Employees Total Key Financial Ratios:  Dec. 99 EBITDA Earning before interest, tax, depreciation & amortization 2,925,510 L.E. P/L Net profit or loss - 3,074,112 L.E. Liquidity Ratios Current Ratio Current Assets/Current Liabilities 137 % Quick Ratio (Current Assets-Inventory)/Current Liabilities 114 % Activity Ratios Gross Profit Margin Sales-Cost of goods Sold)/Net sales) 26.7 % Return on Equity Net profit/Stock holder’s equity - 6.2 % Return on Investments Net profit after taxes/Total Assets - 3.8 % Leverage Ratios Debt to Assets Total debt/Assets 65.6 % Leverage Assets/Stock holder’s equity 161.7 % Debt to Equity Total debt/Stock holder’s equity 73.7 % Profitability Ratios EBITDA / net income 7.4 % Net Profit / net income - 7.7 %  Dec. 2002 EBITDA % 21 % Return on Equity ROE % 57 % Return on Investments ROI % 15 % Net Profit % 12 %9
  • 10. 2-3. Market Situation  Menatel & Prepaid Telephones Cards 1. Menatel Volume Menatel NTC Ringo E. Telecard T/E Card Click S. Mobinil ALO 51.7 % 13.6 % 1.5 % 27.1 % 3.4 % 1.3 % 1.4 % 2. Menatel Value Menatel NTC Ringo E. Telecard T/E Card Click S. Mobinil ALO 45.1 % 5.1 % 1.3 % 28 % 5.3 % 7.1 % 8.1 %10
  • 11.  Menatel & Prepaid Public Payphones Cards 1. Menatel Volume Menatel NTC Ringo 77.5 % 20.3 % 2.2 % 2. Menatel Value Menatel NTC Ringo 86.8 % 10.8 % 2.4 %  Menatel Coverage (PP Network) Menatel NTC Ringo 67.4 % 25.5 % 7.1 %11
  • 12. 12
  • 13. 3. ECONOMY SITUATION & PROBLEM IDENTIFICATION 3-1. Economy Situation One of the obstacles facing the business community in Egypt these days, shading its climatewith uncertainty, and its decisions with caution is the devaluation of the Egyptian pound, althoughlong awaited, that came at a time when people were already feeling the squeeze of a depressedeconomy. The major issue in the procedure of the local currency free exchange rate is how to obtainand maintain the supply and demand low to be the sole indicator to the exchange rate. How toincrease the supply and rationalize the demand? To reach a stable and balanced average exchangerate. The devaluation of the local currency and the increasing demand of the foreign currency aretwo aspects of the consumer uncertainty or what we might call mistrust in the credibility of theeconomic situation represented in the local currency and the government institution represented inthe banks. The Egyptian government took some steps on the way to increase the supply in the shortterm also to regain its reliability such as convincing exporter to sell the revenue of their exportedgoods to banks in exchange of their needs of foreign currency. Tourism companies also are asked todo the same too, but these procedures take the shape of moral obligation not a legislated one thoughit should be, as the individual welfare shouldn’t contradict with the general one. As for the long runreformation procedures are all about increasing the efficiency and productivity of our economy andenhance its computational capability to increase the growth rates of export and private investment13
  • 14. 3-2. Problem Identification  Open Economy Mechanism & Equation GDP = C + I + G + X - M From the simple shape presenting the mechanism of an open economy structure and itsgeneral equation we can identify the problem that caused by the devaluation of the local currencynot only causing the inflation rate to increase and the GDP to decrease. But also it has a great affecton the consumer purchasing attitudes changing his priorities, forwarding low–price over quality.Thus changing his choices to match his economic state and priorities14
  • 15. 15
  • 16. 4. METHODOLOGY APPROACH & ANALYSIS  Profit General equation Profit /Minute = Revenue /(Minute) - Cost / (Minute) Cost Revenue Marketing Number Cost Of Minutes Sold Financial & Price Administration Of Minutes Sold Cost Other Income (Interest income) Production Cost As shown in both the above diagram and the general profitability equation. Menatel facedthe problem of the local currency devaluation against the foreign currency in certain approachesbased on the fact that Menatel revenue is on local currency but most of its variable expenses comein foreign currency that led to a factious increase in the expenses mounted to 65%. Which put us ina situation where the increase of the revenue and the decrease of the expenses are inevitable toachieve the expected profitability and to fill the gap caused by the devaluation of the local currency.16
  • 17.  Tariff Price Approach Menatel `s revenue relies on the tariff of the calls made by Menatel public payphones. Asshown in the diagram the great portion of this income comes from the local and long –distance callsthis is mainly why Menatel shoes to increase the tariff for these calls to approximately 20% Menatel Calls Category Analysis 1. Volume Call Category Local National I National II International Percentage 55.5 % 19.6 % 24.2 % 0.7 % 60 1% 24% 50 40 30 20 10 0 55% 20% L N (I) N (II) I L N (I) N (II) I 2. Value Call Category Local National I National II International Percentage 25.3 % 29.3 % 37.9 % 7.5 % 8% 40 25% 35 30 25 20 15 10 5 38% 29% 0 L N (I) N (II) I L N (I) N (II) I17
  • 18. Tariff Price Analysis Category Old Tariff New Tariff Increasing Percentage Local 10 12 20 % National I 35 39 11 % National II 60 65 8% International I 413 413 0% International II 480 480 0% International III 620 620 0% 700 600 500 400 300 200 100 0 Local Nat. I Nat. II Intl. I Intl. II Intl. III Old Tariff New Tariff18
  • 19.  Cost Unit Approach Menatel Card Face Value Analysis 1- Volume Face value 5 10 20 30 Percentage 4.55 % 88.12 % 6.83 % 0.5 % 1% 5% 90 7% 80 70 60 50 40 30 20 10 0 87% 5 10 20 30 5 10 20 30 2- Value Face value 5 10 20 30 Percentage 2.2 % 84.1 % 13 % 0.7 % 1% 2% 90 13% 80 70 60 50 40 30 20 10 0 84% 5 10 20 30 5 10 20 3019
  • 20. In this approach and as a result of the former studies and researches, we find that Menatel10L.E. Card is our Black horse in the market. By a simple calculation of its cost against its profitability to Menatel, assuming that this cardconsists of 10 units 5units forms the cost the other 5 are Menatel `s actual revenue. This might havebeen the situation in the beginning, but now and after this devaluation of the exchange rate the costunits raised to 8.25 and the profit units decreased to 1.75 - after the deduction of all due taxes - theprofit units will be (0.25) only quarter unit or 2.5 %. From an investor point of view putting thecapital in the bank will gain him an interest that mounts to 9 %. This is mainly why we thought of producing a new face value to the market to increase theprofitability margin, and to fill the gap of the increase of the expenses due to the devaluation of theexchange rate. Still we do not want our position in the market to get affected; also we do not want to looseour Black Horse for nothing. This is why Menatel thoroughly planned the whole operation ofproducing and following up this card before the 10L.E.card call off from the market to guaranty thesuccess of the whole operation.  Expenses Approach Without going into any further details concerning the nature of these expenses. Menatelgeneral policy concerning all financial, administrative, production and supplies expenses is asfollows:  Revise all Menatel contracts with suppliers, contractors or dealers to reduce discounts and to get the best price possible. But with Menial’s quality -being the secret of its distinctiveness- intact  Searching for a local efficient supplier’s meeting the quality standard required by Menatel as an alternate to some of the foreigner suppliers of some tools and equipment used in operation  Freezing any investment in new fixed assets and optimize the use of current fixed assets.  Reviewing all Menatel resources to achieve optimum utility and productivity.  Applying the rational- consumption policy on all the financial and administrative expenses.20
  • 21. 21
  • 22. 5. CONCLUSION AND RECOMMENDATIONS The current situation needs more effective support from the government to secure a safe wayout of this dull state and reactivate investments once more, taking each and every path leading to thelight at the end of the tunnel such as: -  The media roll now is to enlighten the plain citizen that since the reformation policy is on and its credibility is reliable there is no need to freeze their savings in foreign currency away from the banks.  The adjournment of the outstanding payment of the foreign currency debits till the current situation is off, with a lower rate of interest.  Increase of the incentive taxation whether to tourism sector or exporter.  Fundamentally alters the whole economic climate in which the private business sector is considered an effective and essential partner in the growth and stability of the economy, while the people in this sector’s image is that they are opportunists and frauds.  The central bank being the head of the banking institution should revise the legislation and develop and the mentalities of the people executing these rules, to verify accuracy and efficiency along with flexibility.  Credibility and reliability of every executive is the only hope to end this state of uncertainty and mistrust. The situation in Menatel doesn’t differ much from the economic situation. We are working onhow to develop ourselves, revising the whole business plan to reach a new strategy by which we candirect Menatel to in this dull environment. As we are reaching to each employee of Menatel toparticipate in the embraced policy of cost control so that we can face the unexpected devaluation ofthe local currency and its exchange rate. On the hope that the government interference in the matterof the local currency fluctuating exchange rate will fast and effective to cut short the expected losesresulting from the devaluation of the local currency. In Menatel we have a lot of ideas, suggestions, recommendations as the stuff of Menatel isteamwork and all ideas are subject of welcome and analysis from a specialized department some ofthese ideas are: -  Expanding abroad can be the answer to opening new and growing market from which we can increase the foreign currency cash flow. The Middle East region is a full of potentials market; still this idea needs a lot of thorough study, as there are factors to be considered such as Political, Legal, Cultural and economic factors.  Making a deal with the travel and tourism agents to include Menatel in the package they offer to tourists is a way to secure more foreign currency.  Establishing a H/R consulting and training center serving the Middle East and Africa region by which we export our expertise and secure another source of foreign currency.  Establishing or finding a local business partner that can secures the Menatel needs of smart cards technology, which will decrease the cost of the cards.  Approaching the idea of a rechargeable smart card is an approach by which we can decrease the cost of the smart card, which the customer uses just once.  Redistributing the density of our public phones to achieve the maximum revenue through the project of Low Revenue.  Starting e new administration its mission is to establish and supervise an effective strategic intelligence unit to serve the company’s potential development plans in coordination with other respective functions.22
  • 23. References …  Annual Report, Menatel, 1999.  The Statistical Year Book 1994 - 2001, Central Agency for Public. Mobilization & Statistics – June 2002.  Retail Audit Report 2002, MEMRB.  Principles Of Economics, N. Gregory Mankiw, Second Edition, 2002.  http://william-king.www.drexel.edu/top/prin/txt/EcoToC.html23

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