John Linton
It's the time of year when all 'good men' (and quite a high proportion of 'bad' men and presumably women of both kinds these days) who are involved or responsible for their company's business planning are reaching the key decision time each year when they have to start 'putting in concrete' (not mafia style) the assumptions and therefore the resultant month by month figures for the forthcoming financial year.
I am one of those people who do it the lazy way of not recognising artificial dates such as June 30th in terms of planning (except for 'tax planning') and therefore subscribe to the planning concept of a 24 month forward operating plan that is quite accurate for the immediate next six months and tends to be extrapolated forecast rather than plan after that. Nevertheless it is a serious document that is reviewed in greater or lesser detail prior to each monthly board meeting and, at least to date, has been a fairly accurate document in terms of revenue and reasonably accurate in terms of profit.
As Exetel gets slightly larger (though of course we are still very, very small) the dependencies and future ramifications of other company's actions in our marketplaces have more significant effects and therefore introduce higher levels of uncertainty.
One of the things I do, and I'm sure many other people involved in planning do, is to look at the published results of companies in similar marketplaces to us to see what, if anything, can be detected from the results that they, being public companies, have to make public. I commented a few weeks ago that there seemed to be very, very few public companies that actually made a profit providing communications services and I wondered why anyone would put themselves through the heavy workloads of running a company that seemed to have no point in existing.
This scenario was reinforced yesterday when I looked at the latest half yearly figures for Macquarie Telecom Group Limited (prompted by a press announcement that they now had deployed 250 DSLAMs round Australia). It made depressing reading in the context that they lose money on revenues approaching $A250 million a year. It seems to me that if you've been in business for well over ten years, have revenues of a quarter billion and haven't increased year on year and are losing money with accumulated losses of $A44 million you should have worked out by now that you made a really bad decision in selecting a business to start up.
So, adding Macquarie to the list that includes iiNet (at the higher end) and the penny dreadfuls at the low/tiny end, all you seem to see is that starting up a telecommunications company in Australia only results in costing your shareholders mega millions of dollars and you serve absolutely no purpose in existing if dividends for your shareholders at a rate above savings bank interest is part of your/your shareholder's objectives.
The exception to this was, at the time, TPG who had made their main shareholder (interests of David Teoh) somewhere between $A150 million and $A250 million - depending on how the shareholding worked out over time. A great result for David Teoh but a really bad result for the shareholders of SPT who lost their cash in paying for TPG - winners and losers - but no nett wealth increment. Since the 'take over' the SPT shares have lost one third of their value having fallen from mid 40s at the time of the offer to around 30 cents today and it will be interesting to see whether the handsome profit predictions made in the 'merger document' actually come to fruition - I'll take any bet they don't.
Their current cash situation after paying so much for TPG may be illustrated by this:
http://www.australianit.news.com.au/story/0,24897,23771453-15306,00.html
and:
http://www.australianit.news.com.au/story/0,24897,23776563-15306,00.html
...sounds like a company that either can't pay its bills or, perhaps worse, a company that doesn't know what bills to pay (one that doesn't know which staff to pay sounds like one very screwed up company).
Why would any sensible person/shareholder decide to invest their time and money in this business which has a long track record of consistently destroying shareholder value and almost always results in 'take over' (for the larger companies) and going out of business for the smaller companies?
Of course Telstra and Singapore Telecom's share holders get realistic dividends (though their share values aren't that flash at the moment). These companies can't really be taken in to consideration as Telstra was funded for 100 years by Australian taxpayers and Optus was purchased for $A18 billion by Singapore Telecom after racking up billions of dollars of write offs and contributed to the demise of some 'icons' of the Australian company community (anyone remember Cable and Wireless, Mayne Nickless and Ansett Airlines?) who collectively lost their 'shirts' in trying to make Australia's second carrier license make a financial return. There is little doubt that Optus itself would no longer exist if it hadn't made the huge additional investments in building out its mobile network to finally allow the company to reach profitability - some 8 years after the initial prospectus estimates and after writing off some ten times the estimated cost of delivering that result.
So, now I look at the almost final version of the Exetel business plan for FY2009 I can't help but wonder why I, and a little later in June the other shareholders of Exetel, should believe that we can continue to make a month on month profit where it has clearly been not possible for almost every other communications company to do so? Perhaps it's simply the 'tyranny' of spreadsheets like Excel whose neat arrays of densely packed figures in columns and rows hide errors of logic and assumption?
Only time will tell and hope does spring eternal. Let's hope 2009 is an easier year than 2008.