the cfo business case competition (by dolphin team, indonesia)

MCOM COMPANY REPORTIssues & Recommendations

Internal and External Analysis

Value Added Services

Business Solutions

Voice and Data Services

Messaging250 million

subscribers

Service ProvidedMarket Growth

MCOM Situational Analysis

12%Subscriber

11%

Mobile

Penetration



Business Solutions


Messaging250 million

subscribers

Service ProvidedMarket Growth

12%Subscriber


11%

Mobile

Penetration



Service ProvidedMarket

250 million

subscribers

Growth


Business Solutions


Messaging

12%Subscriber

11%

Mobile

Penetration

MCOM’s Issues Prioritization

T i m e F i n a n c i a l R e p u t a t i o n a l L o n g Te r m

MCOM’s Issues Prioritization

Security Crisis

and Legal

Wrangling in

Nakolia

Political Risk

and Strategic

Uncertainty in

Ilania

Shared

Services

Center in

Sadimba

Nakolia and

MCOM Capital

Structure

Mobile

Operator

License in

Chininsia

Settle court

process in

Nakolia,ASAP

Sustainable Growth

#1 #2 #3 #4 #5

T i m e , F i n a n c i a l , R e p u t a t i o n a l , L o n g T e r m

Security Crisis and Legal

Wrangling in Nakolia

Political Risk and Strategic Uncertainty in

Ilania

Shared Services Center in Sadimba

Nakolia and MCOM Capital

Structure

Mobile Operator License in Chininsia

Sell off and walk out from

Ilania

#1 #2 #3 #4 #5

Sustainable Growth

MCOM’s Issues PrioritizationT i m e , F i n a n c i a l , R e p u t a t i o n a l , L o n g T e r m




Ilania



Structure


Continue to process SSC in

Sadimba.

#1 #2 #3 #4 #5

Sustainable Growth





Ilania



Structure


Sell and leaseback the

towers in Nakolia.

#1 #2 #3 #4 #5

Sustainable Growth





Ilania



Structure


Acquire

CloudNet

#1 #2 #3 #4 #5

Sustainable Growth



Acquire

CloudNet

#5


Structure

Sell and leaseback the

towers in Nakolia.

#4


Continue to process SSC in

Sadimba.

#3


Ilania

Sell off and walk out from

Ilania

#2



Settle court process in

Nakolia, ASAP

#1

Sustainable Growth


Presentation Outline

P R I O R I T I Z A T I O N A N A L Y S I S R E C O M M E N D A T I O N

& A C T I O N P L A N

E T H I C A L I S S U E S

LEGAL WRANGLING IN NAKOLIA

UNCERTAINTY IN ILANIA SSC IN SADIMBAMCOM CAPITAL

STRUCTUREMOBILE OPERATOR

LICENSE IN CHININSIA

US$ 3.9 bilPost-negotiation bad publicity

Issue #1: Security Crisis & Legal Wrangling in Nakolia

Noncompliance leading to fine and tarnished image

16%

48%

9%

27%

Nakolia as biggest market

48% of 2015 EBITDA Contribution

Sadimba Nakolia JV-Cellular All others

The ImpactsFinancial, Strategic, and Reputation Impacts caused by the issue

25%Fall of market capitalization

36%Of 2015’s turnover

Risk of failure to pay





The ImpactsFinancial, Strategic, and Reputation Impacts caused by the issue

STRATEGIC & REPUTATION IMPACTS

SHAREHOLDERS: Questioning performance’s stability

CUSTOMERS’S TRUST: “Supporting terrorist action” image

Endangered market leader strategic position





AlternativesSECURITY CRISIS & LEGAL WRANGLING IN NAKOLIA

#1. COURT SETTLEMENT & ACCEPT US$ 3.9 BIL FINE

Regain stakeholders’ trust

#2.





CONTINUE TO PURSUE COURT ACTION

Low chance for fine reduction

Stall to get money to pay fine

Worsen MCOM’s reputation

Action PlanSECURITY CRISIS & LEGAL WRANGLING IN NAKOLIA

Court settlement &

accept the fine

Pay initial payment

to government

All active user to

register number &

anti terrorism

campaign

Pursue better term

of payment





Issue #2: Political Risks & Strategic Uncertainty in Ilania

49%

51%

JV-Cellular Share

MCOM Powerful 'Individuals'

S$ 4.2 Bil

S$ 5.8 BilLoan Receivable

Dividend

Political UnstabilityCannot be Retrieved


SSC IN SADIMBAMCOM CAPITAL


LICENSE IN CHININSIAUNCERTAINTY IN ILANIA

AlternativesPOLITICAL RISKS & STRATEGIC UNCERTAINTY IN ILANIA

Consolidate & Expand

AlternativesDecision tree option value

Other consideration

S$ (56) Bil Nationalization

Stay the Course S$ 136 Bil Market Instability

Sell-off & Walk away S$ 73 Bil

Bartini’s Offer: Can’t be retrieved

Mobile Turkish: share-to-share exchange worth S$ 85,000m





Action PlanPOLITICAL RISKS & STRATEGIC UNCERTAINTY IN ILANIA

Sell Turkish mobile share

Pay the Fineor

Expand

#1 #2





Declining revenue and operating performance

SSCIn 2014, Sadimba

S$6,600saving

Issue #3 : Shared Service Center in Sadimba

Trade-off: Cost saving vs. People’s job

Further expand SSC for other supporting functions


MCOM CAPITAL STRUCTURE

MOBILE OPERATOR LICENSE IN CHININSIA

UNCERTAINTY IN ILANIA SSC IN SADIMBA

The ImpactsThe protests

Market’s Protests

& Employee’s fear

To continue or not to continue?





The considerationsOperational and financial points of consideration for decision making

OPERATIONAL

Working structure: effective

Task delegation: simpler

Economies of Sca le





The considerationsOperational and financial points of consideration for decision making

Cost Eff ic iency Calculat ion

Nakolia, Sadimba, all other countries save S$ 7,805m

Without Nakolia save S$ 4,970m





RecommendationsWHAT MCOM SHOULD DO TO SOLVE THE ISSUE

G R A D U A L E X P A N S I O N O F S H A R E D S E R V I C E C E N T E R

Strategy of implementation:

Step by Step

S A D I M B A O T H E RN A K O L I A





Financials adjustments

Issue #4: Nakolia fine and MCOM capital structure

Funding options for fine payments

Auditconsiderations

Fundingstructure for

fine

Financial StrategyE x t e r n a l A u d i t





Adjusted FinancialsMatters to consider

Recognition of fine ( IAS 37)

Matters Amount

AdjustmentS$ 58 billion

Reclassification of tower (IFRS 5)Reclassification

S$ 20 billion

Recording quote from tower saleReclassification

S$ 5 million





Adjusted FinancialsMatters to consider

Operating Lease

Matters Amount

No current impact in financial statement

Goodwill impairment (IAS 36)Adjustment

$ 4862

Loss S$85 .520 B i l l ion

*(exchange rate S$14.87/US$ (S$3.9 billion = S$58 billion)





Audit ConsiderationsGuide to risk assessments

Going Concern (AU 314)Substantial doubt of Illania Business’ ability to continue

Materiality in Planning and Performing in multi-locations

Group materiality should be less than 1.4%





Capital StructuringBest funding options for Nakolia Fine

Share IssuanceBorrowing

(Bank or Loan)Turkish Mobile

ShareSale and Lease

Time and Terms

Acquiring Cost

Amount available

Other considerations

Slow, agreement

Expensive,underwriter

Little, unfavorable

price

Strengthen BS, Min volatility

Quick

Expensive,low rating

Adequate

Weaken BS, Tax reduction

Unknown

Medium, sale admin

cost

S$ 85000mAdequate

Quick,Sale accepted

Cheap, admin cost

S$ 297000mAdequate

Operating lease vs. depre expTax reduction





Capital StructuringBest funding options for Nakolia Fine

Share IssuanceBorrowing

(Bank or Loan)Turkish Mobile

ShareSale and Lease

Time and Terms (30%)

Acquiring Cost (50%)

Amount available (20%)

Strategic Consideration

1

2

1

4

3

5

2

4

5

5

5

5

Minimizing Earning Volatility

5

Sale and Lease

1 4 2 5

2 3 4 5

1 5 5 5

1.5 3.7 3.6 5









Issue #5: Mobile Operator License in Chininsia

Expansion to World’s 4th largest mobile market country





The OpportunityRenewal of Four Big Mobile Operator Licenses

82%Market Share

Cloudnet+

InterCom+

AxtonTel+

Bartini

License will expire by end of 2017






FEASIBIL ITYACCEPTABIL ITYSUITABIL ITY

305 mio Subscriber

“Internet Accesss for All” Program

Mobile Number Portability

Change of Political

Power

Probability of

Winning

Intense Price Competition

MCOM Chininsia Limited

Acquire CloudNet





The Acceptability#1: Change of Political Power

FAVORABLEto loca l company or not ?

POPULIST PARTY:





Tender Price S$ 4,335m for new license with 40%

chance

Tender Price S$ 2,550m for foreign company with

4% chance

Old New

#2: Probability of Winning

The Acceptability





MNPMobile Number Portability

IntensePrice

CompetitionBecause of

#3: Intense price competition

The Acceptability







305 mio Subscriber



Change of Political

Power

Probability of

Winning



Acquire CloudNet





Recommendation

Expandto Chininsia

How?







305 mio Subscriber



Change of Political

Power

Probability of

Winning



Acquire CloudNet





AHPAnalytical Hierarchy Process

The Feasibility







305 mio Subscriber



Change of Political

Power

Probability of

Winning



Acquire CloudNet


ILANIA CONSUMER’S

PRIVACY

Shared ServiceCenter IN SADIMBA

Ethical Issues

LEGAL WRANGLING IN NAKOLIA ILANIA CONSUMER’S PRIVACYSSC IN SADIMBA

Ethical Issue #1: Legal Wrangling in Nakolia

The Issue

MCOM unable to fullfill

NTRARequirementBlokanda Issue

Leads to

Threatened

MCOMReputation


Ethical Issue #1: Legal Wrangling in Nakolia

Advice

1. Implement principle of good ethics and corporate governance

2. Press conference to apologize3. Inform currently unregistered users to register


Ethical Issue #2: Shared Service Center in Sadimba

The Issue

SSCShared Service Center

Employee Lay Off

Advice


1. Press Conference to communicate the causes.

2. “Lift” & “Shift” method

Ethical Issue #2: Shared Service Center in Sadimba


Ethical Issue #3: ILANIA CONSUMER’S PRIVACY

The Issue

I l a n i a R e g i m e , s t r i k e b y A r a b S p r i n g

Asking Personal Information, as evience for striking action

Civil liberty watchdog is asking MCOM to withdraw from Ilania to show commitment to human rights.

Advice

MCOM should withdraw from Ilania because of:1. Political instability2. Practice in Ilania being no longer in

accordance with MCOM’s Value

Ethical Issue #3: ILANIA CONSUMER’S PRIVACY


C o n c l u s i o n

To settle court process in Nakolia, ASAP#1

Sell off and walk out from Ilania.#2

Continue to process the shared service center in Sadimba.

#3

Sell and leaseback the towers in Nakolia.#4

Acquire CloudNet = best strategy to enter Chininsia#5

B U S I N E S S I S S U E S

Have two ways communication.#1

Privacy Protection.#2

C o n c l u s i o nE T H I C A L I S S U E S

MCOM COMPANY REPORTIssues & Recommendations





Appendix: Security Crisis & Legal Wrangling in Nakolia

Noncompliance leading to fine and tarnished image

APPENDIX





Appendix: Political Risks & Strategic Uncertainty in Ilania





APPENDIXDecision tree





Appendix: Shared Service Center in Sadimba

Trade-off: Cost saving vs. People’s job





MCOM SADIMBA MCOM NAKOLIA MCOM ALL OTHERS TOTAL

Transactions go to managers 0,32 0,57 1,08

Operative minutes 72 114 162

Manager minutes 28,8 68,4 194,4

Operative (hour) 1,2 1,9 2,7

Manager (hour) 0,48 1,14 3,24

Operative cost 288 456 648 1.392

Manager cost 230,40 547,20 1.555,20 2.332,80

Total cost operative+manager 3.725 in millions

Total salary non operative staff no longer required 80 40 120

Saving (cost recovery per transaction bu ssc for

processing on behalf of MCOM business) 2320 2755 2610 7685

Saving per transaction 7805 in millions

APPENDIX





Appendix: Nakolia fine and MCOM capital structure

Funding options for fine payments





Recognition of fine ( IAS 37)Nakolia fine expense (dr)

Allowance for court settlement (cr)Paid fine:Nakolia Contingent Liability (dr)

Cash/Bank (cr)

Loss of $13,214 in 2015 (before impairment and goodwill)

Matters Amount

S$ 58 billion

Reclassification of tower sale (IFRS 5)Asset-available for sale (dr)

Asset (cr)

S$ 20 billion

Recording quote from tower saleCash (dr)

Asset-available for sale (cr)

S$ 5 million





APPENDIXMatters to consider

Operating LeasePaid March 2016, no journal entry

Disclosed in notes to financial statement

Sale and lease-back:•Non-core asset efficiency•Reduction on payment of annual income tax due to increase of lease expense

Matters Amount

No current impact in financial statement

Goodwill impairment (IAS 36)Impairment loss goodwill (dr)

Goodwill and Intangible Asset (cr)

Worsen group income: loss S$85.520 billion (exchange rate S$14.87/US$ (S$3.9 billion = S$58 billion)

$ 4862





APPENDIXMatters to consider





Appendix: Mobile Operator License in Chininsia

Expansion to World’s 4th largest mobile market country





APPENDIX

CRITERIA





APPENDIX

Cost CloudNet : S$ 5,225mCost MCOM Chininsia : S$ 4,320m x 38% + S$ 2,565m x 72% = S$ 3,402m

S$ 5,225m VS S$ 3,402mCloudnet 1,54x higher cost





APPENDIX

Probability of CloudNet : 40% Acceptance x 38% + 60% Acceptance x 72% = 58.4%

Probability of MCOM Chininsia :40% Acceptance x 38% + 4% Acceptance x 72% = 18.4%

58.4 % VS 18.4 %Cloudnet 3,23x better





APPENDIX

Profit Certainty of CloudNet : S$1,710m x 38% + S$6,262m x 72% = S$ 5,158.4

Profit Certainty of MCOM Chininsia :?

S$ 5,158.4 % VS ?????Cloudnet 3,23x better





APPENDIX

GO! CLOUDNET