KARACHI, Oct 5: Callmate Telips Telecom Limited (CTTL) -— a stock market listed company and the long distance and international (LDI) private operator in Pakistan -- which is currently reaching out to the US, the UK and Canada, is set to begin its operations in Europe in the first week after Eid.

A senior company official said the company would start from Greece. Regarding the company’s plans to introduce local loop service, he said arrangements had been made for the acquisition of a running company in Lahore which already had 3,000 to 4,000 customers. In Karachi, a joint venture has been proposed with KESC.

Analyst Jawad Haleem at Atlas Capital Markets in his report last month stated that the company had depicted a growth in all key indicators over the past five years. Whereas the revenue increased at a five-year Combined Annual Growth Rate (CAGR) of 62 per cent to Rs3,040 million in FY05 from Rs273 million in FY00, gross profits surged at a CAGR of 84 per cent.

The company also turned to a profit of Rs432 million for FY05, from a loss of Rs30 million in FY00. Analyst expected earnings to rise by 68 per cent in FY06 to Rs728 million, which was attributed to the company attaining the first LDI licence in Pakistan’s deregulated telecom scenario and therefore enhancing its volumes internationally.

Profitability of the company during the first nine months of the fiscal year ending June 30, 2006 rose by 230 per cent to Rs716 million, translating in diluted earning per share (eps) of Rs10.95. The revenue in the fourth quarter would have suffered a setback. The reason is being recognition of revenue when the cards are actually utilised

by the customers (usage-based policy), rather than at the time of sale to dealers (despatch-based policy). “The only consequence of this change would be an

almost quarter lag in the sales revenue being recorded. And due to this shift taking place in 4Q/FY06 (as reported in the company’s report for the quarter ending March 2006), profitability is expected to depict a one-time dip normalising thereafter,” analyst says.

But while the profitability and the operations of the company appears to be intact, the shareholders in Callmate Telips have suffered an estimated loss of Rs4 billion, as the stock price of the company dipped by an incredible 56 per cent in seven months from Rs108 on March 3 to Rs47 currently. At the heart of the problem is the dispute with the company’s auditors.

Whether it is the ‘revenue recognition policy’ pre-paid calling card services or ‘certain other pending matters’ that soured the relationship between the two, the matter came in full view as both parties began washing dirty linen in public. It would be impossible to make full justice to reproducing the contentions of the two parties in this space, but suffice it to say that the auditors insisted on issuing a ‘qualified’ audit report and the company management accepting nothing but a ‘clean’ one. As angry letters were thrown at each other with the stock exchange as the middleman, the action was said to have followed after “all efforts to resolve the differences” had failed.

On Sept 20, the company issued a notice to the shareholders calling an extraordinary general meeting on October 12. The principal item on agenda is the change of auditors, from the present to one of the three that the company proposes. The right of appointment of auditors being statutorily that of the share-

holders -— and the majority equity naturally held by the management -— resolutions moved in almost all corporate cases are almost certain to be passed. It is however, unclear whether the regulators would, could or should step in to overturn the shareholders’ decision.

But the corporate and accounting communities are surprised that a high-profile company and the top notch audit firm of the country should have opted to pull punches in public. That is what makes Callmate a case of great corporate interest. It is difficult to draw a parallel of such mud slinging between a client and his auditor. Qualified audit reports are routinely issued by auditors, to which managements may or may not agree. But all of that passes off in peace and quiet manner. The full blown case of Callmate, to many professional people, appears less as standing up for the right and more a matter of personal pride.