Friday, 19 Jul 2019

Notorious AVG deal weakens Mobifone's financial health

Updated at Tuesday, 03 Jul 2018, 15:02
The Hanoitimes - Mobifone`s financial conditions deteriorated significantly after its controversial acquisition of TV pay service provider Audio Visual Global (AVG).
Instead of positive business performances, the acquisition worth VND8.9 trillion (US$392 million) had led Mobifone on the downhill path until the deal was eventually cancelled, while the telco's leaders are facing disciplinary measures for their wrongdoings. 
Illustration photo.
Illustration photo.
In 2014, Mobifone posted net revenue of VND28.4 trillion (US$1.23 billion) and pre-tax profit of VND7.25 trillion (US$315.7 million). Additionally, sales and administrative expenses accounted for 13.4% of Mobifone's revenue. 

By the end of 2014, Mobifone's charter capital reached VND13.7 trillion (US$596.6 million) and total assets VND22.5 trillion (US$980 million), of which 34% was in cash, according to the company's financial statement. 

On December 25, 2015, Mobifone and AVG signed an agreement to purchase 344.6 million shares of AVG, equivalent to 95% of charter capital for VND8.9 trillion (US$392 million). 

The deal caused great controversy as its value was 2.58 times higher than AVG's charter capital of VND3.6 trillion (US$158 million) at the time of completing the transaction on January 2, 2016.

The investment in AVG was equivalent to 55% of Mobifone's charter capital (VND16.2 trillion or US$711 million) and 40% of its total assets (VND23.2 trillion or US$1.02 billion) as of June 30, 2016. 

Struggling after the deal

After completing the deal, Mobifone's sales and administrative expenses started increasing, reaching its peak in 2016 at a combined of 20% of the total revenue. 

In 2015, the telco's sales expenses increased 38.2% or VND1.25 trillion (US$54.4 million), while other expenses were up 98%, or VND578 billion (US$25.1 million). 

Mobifone's pre-tax profit in 2016 fell 26.1% year-on-year to VND5.2 trillion (US$226.4 million), although its revenue was up 11.8% year-on-year to VND35 trillion (US$1.52 trillion). 

Consequently, the company's gross profit margin nosedived, from 39.6% in 2015 to 26.7% in the first quarter of 2018. 

In 2016, its cash shrink sharply as the company disburse for the investment in AVG. As of March 2018, Mobifone's available cash accounted for just 18% of its total assets, or VND5.46 trillion (US$237.7 million) versus VND31.4 trillion (US$1.37 billion). 

In 2018, Mobifone aims to reach revenue of VND42.3 trillion (US$1.84 billion) and pre-tax profit of VND6 trillion (US$261.6 million), up 8% year-on-year. The figure, however, is far below what has achieved during 2014 - 2015 period before it acquired AVG. 
Ngoc Thuy
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