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TSTT’s plans to spend $4.3 bn for recovery
In the face of a total comprehensive loss for its 2014 financial year that it estimated at over $500 million, TSTT has come up with a five-year strategic plan that envisages the majority state-owned telecommunications provider returning to profitability by the end of its current financial year in March 2015. In an interview at his office on Wednesday, new TSTT chief executive, George Hill, said the company plans to invest $4.3 billion during the five-year period from 2013 to 2018.
Of that amount, TSTT is looking to raise $1.8 billion in debt financing, about $500 million in vendor financing and some $2 billion from internally generated cash. ANSA Merchant Bank won the mandate to raise the $1.8 billion in debt financing, which will be in a ten-year bond and is expected to close soon. Hill said the original five-year plan, which was agreed by the board, called for equity injections by TSTT’s two shareholders, National Enterprises Ltd (NEL) and Cable & Wireless Communications.
Hill said: “Subsequent to the original plan, management went back and looked at our balance sheet and the ability for us to be able to partly finance the plan ourselves out of internally generated funds.” TSTT’s management concluded that the balance sheet would generate enough cash to be able to fund about 46 per cent of the capital expenditure requirement to 2018.
The TSTT chief executive said the shareholders were not against putting more equity into the company, “we just gave them another option,” which was agreed to in October 2013.
The need for a five-year strategic plan resulted from the rejection by the TSTT board of the annual operating plan put forward by management in March, 2013. TSTT held a retreat in London in June, 2013 at which the company’s executive team was given a list of priorities by the board to develop a five-year strategic plan. The company’s executive team produced the plan within two months and it was approved at a board meeting in August 2013.
The main problem identified in the plan was TSTT’s cost structure: the company’s revenues had remained flat for several years, while its expenditure continued to increase. “To move this company forward and to move it back to a profitable position, we needed to deal with some of the big issues with regard to cost. Top-line revenues have been flat for the last three to four years and our costs were continuing to rise.”
Given the equation of flat revenues and rising expenditure, both the executive team and the board agreed that “business as usual was not an option,” as continuing as it had operated would have led to deficits going forward. The focus of the company’s planning is on targeted growth and operational efficiency. TSTT expects to deliver operational efficiency by upgrading its network infrastructure, automating the delivery of service and organisational transformation, on which most of the $4.3 billion will be spent.
One of the significant aspects of the plan was reducing employee expenditure—a key component in organisational transformation. In a statement published on May 29, TSTT’s majority shareholder the publicly listed company NEL, announced that the company had made a provision of $650 million in its March 2014 accounts to fund voluntary separation and early retirement programmes for 608 employees.
Applications for those programmes closed on April 30, 2014 but the process of separating staffers will continue until the first quarter of 2015.
In a statement on Friday, TSTT said its voluntary separation programme; retroactive payments from an Industrial Court ruling on employee costs for 2006 and 2007 and a write-down of the carrying value of a portion of the company’s service delivery platform had a cumulative impact of over $727 million.
This is expected to lead to TSTT declaring a total comprehensive loss for the 2014 financial year of $505 million, although the company recorded a 2.7 per cent increase in gross revenues with gross margin efficiency increasing by 3.7 per cent. Writing down the value of TSTT’s service delivery platform allows the company to introduce a significant automation upgrade which will improve service responsiveness and cost of serving, Hill said.
He said TSTT’s efficiency ratio more than doubled during the year and despite the decrease in shareholders’ equity due to the fall in comprehensive income, the debt to equity increased marginally from 28 per cent to 25 per cent, which was well within international telecommunication benchmarks. The plan envisaged that all of the restructuring and exceptional costs would be taken in the first year of the plan. which was the end of March 2014.
“It was clearly part of the plan that we would take our hit in year one of the strategic plan and grow profits from that point forward,” Hill said. The company is also looking for targeted revenue growth through wireless and broadband with Hill stating: “If we have a dollar to spend, 70 or 75 cents of that should be spent on wireless and broadband.”
He said focus on broadband was already being felt in several communities with the launch of long term evolution technology projects to support the rapid deployment of the fastest available wireless broadband to cover 95 per cent of the population.
“At the same time TSTT’s fibre deployment programme will encompass 30,000 more households over the next three years. The current phase of that programme involves a $15 million investment to serve communities in Tobago, central and north Trinidad with TSTT Quad-Play of broadband, TV, voice and security services.” Hill said the mobile expansion programme has yielded significant improvements in coverage and quality of service and the company had seen an increase in the take up of its mobile data services.
“This focus on mobile, broadband and enterprise will expand the company’s potential for making further contributions to Trinidad and Tobago’s development and its ability to provide a solid return on investment for its shareholders,” he said. The telecom executive said the projections in the plan have factored in the possibility of a third mobile operator and the prospect of mobile number portability within the next year.
Responding to Cable & Wireless chief executive, Phil Bentley’s statement in a Sunday BG interview of May 4 that TSTT’s procurement costs would be reduced if CWC were the majority shareholder, Hill said that while scale is a big driver of the cost of capital investment, “but when we look at the tenders and some of the negotiations that we have been involved in over the last two to three years, we have received pricing as good as or better than Cable & Wireless.”
He said that TSTT would welcome partnering with Cable & Wireless in any future procurement, if there is an opportunity and that it was a “stretch” for the minority shareholder to make an absolute statement that TSTT would save money by being part of something bigger. Hill is confident that the five-year plan will make TSTT more competitive by the end of the period, even though he concedes that the company’s competitors—Digicel in mobile and Flow in broadband and television—will not be standing still.
“We will have the breadth and the reach in both Trinidad and Tobago to be able to provide wireless services and broadband services—which are our two growth engines. We would have completed much of our automation to the point where service is hastle free for our customers. We will have products and services that will be adapted more to individual customers’s lifestyles, instead of one-size-fits-all.
He said the company was very excited by the prospect of implementing the plan as it believes that it will move the company back to the position of being the number one full service provider.