John Linton's Personal Musings

John Linton

....I closed my eyes, I held my nose, I took a drink...(apologies to The Searchers from the magical summer of 1964) and we bought a floor of a building in North Sydney to cater for Exetel's Australian needs for the next year or so. 33% more space than we currently have at an estimated monthly cost saving of 20% on our current rental costs plus the opportunity of, over time, reducing the cost of one of our Sydney co-locations saving us around another, net, $A6,000 a month.

So a sensible cost reduction decision, even allowing for the significant costs of moving from premises we will have been based in for the whole of Exetel's commercial life to date - and a major (for a tiny company like Exetel) investment in the future and our confidence, that despite these troubled financial times, in Exetel having a long term future. No borrowings for Exetel (the shareholders invested their personal money) so no debt - just lower rental and more space - and a sensibly sized 'data centre' in the not so distant future. 

So, definitely a counter-intuitive decision moving against the guide lines for dealing with recession (which would urge maintaining as much cash reserve as possible and to reduce all investment spending to zero) but one that takes the view that the current significant falls in the prices of commercial real estate values represent an opportunity to buy at significantly lower prices than were previously being asked. While it's quite likely that commercial real estate prices will fall further we have a need to make a decision on either entering another long term lease in the premises we currently occupy or move to our own premises.

If we stayed in rental premises we couldn't justify making the not inconsiderable investments required to build a data centre as whatever we spent would be money that would have to be written off as we would almost certainly have to move within the next 3 years. So it was a combination of circumstances that lead to the decision yesterday and it was not easy to make. I'm not 100% sure it is the right decision but I added my 'yes vote' on the basis it was probably better than continuing to rent and not be able to reduce our operating costs. Risking so much money in uncertain times is not something I have ever done before so this was a very difficult decision for me to participate in.

I was influenced by the continuing strong growth in most of Exetel's service and product offerings in January and February and the very strong results in the first half of March. While I remain very, very cautious of financial conditions over the next nine months:

http://online.wsj.com/public/resources/documents/LAYOFFS0903.html

I am slowly beginning to think that Exetel's "lowest pricing in Australia" services will provide more protection from any serious slowing in overall demand than I first thought - it is far too early to be sure but all indications are that may very well be the case. (I understand that I may well regret making that statement in the not too distant future). We have yet to put in place the 'promotions' of the HSPA service due to the usual delays in sourcing all of the required components plus a carrier provisioning issue that took months to remedy. We have also yet to fully implement the other four 'programs' we believe will make significant contributions to Exetel's growth in calendar 2009 so our growth so far this year has been from offerings that are already in place and it is heartening to see those services continue to grow as strongly as they have. However that growth, welcome as it is, will not be enough for us to meet our 2009 targets and the new programs will need to be implemented, and will need to be successful, without further 'slippage' for that to have any chance of being achieved.

So far so good. It is always an enormous 'plus' to achieve your commercial targets in the March quarter (in many ways the most difficult quarter of the year - though, of course, they all have their particular challenges). Perhaps my current 'moment of bravery/foolishness' will come back to haunt me as the next few months unfold but no business can be run without having to make continual decisions and some decisions, as Sir Humphrey constantly reminded Jim, are very brave. One thing is for sure it will more intensely focus the mind on making Exetel more financially robust in terms of the other risks associated with the current business.

We now have to plan the move to the new location which, from previous experience, will be a logistical and practical nightmare and I'm very definitely not looking forward to the personal and business interruptions (I was going to use the word 'chaos') that are always an inevitability in these events. However it will be over sooner rather than later and maybe I'll just go fishing for the duration on a communicationless island in the middle of the Indian Ocean.