GO plc chairman Nizar Bouguila is interviewed by Vanessa Macdonald about the company’s future plans, its financial state of affairs and the need for a more balanced regulatory environment.
GO’s majority shareholder, EIT, announced its intention in July 2015 to dispose of its 60 per cent shareholding but then sold it to a company in which it had a 35 per cent shareholding. How does that make sense?
The sale process was started following an extraordinary general meeting specifically called for this purpose. GO was responsible for managing this sale process on behalf of all the shareholders. As this is a complex process various advisers were appointed to help GO. GO is prohibited from influencing which investors participate in the process as such decisions are the exclusive right of sellers and buyers and therefore GO cannot comment on the decisions that all those participating in the process made before and during the entire sale process.
The Abraaj Group was reportedly in talks to acquire EIT’s 35 per cent stake in Tunisie Telecom. What happened?
GO is not in a position to comment on any negotiations which may, or may not, be under way between third parties.
Last summer, there was talk of an IPO on the Tunis Stock Exchange and Euronext. Website African Manager reported: “What is certain and beyond the cash flow needs that such IPO would provide to the State, this listing is a necessary part of the recovery strategy and development of TT initiated by new CEO, Nizar Bouguila.” What was TT trying to recover from? Were its finances in trouble? What is happening with the IPO?
GO is not involved in this process; as the company’s chairman, I am therefore unable to comment about it.
GO’s revenue went up from €124 million in 2015, to €157 million in 2016 – but your profits before tax went down from €34 million to €28 million. The cost of sales is going up. Is this trend going to continue?
In January 2016, GO exercised its options to acquire a majority shareholding in Cablenet. As a result of this acquisition GO Group results now also include those of Cablenet, hence the significant increase in both revenue and cost of sales when compared to 2015.
The profit before tax went down for a number of reasons, including increased amortisation as a result of intangible assets created upon the acquisition of Cablenet and Kinetix as well as various one-off transactions. In our industry an important measure of performance is Earnings Before Interest Tax Depreciation and Amortisation (EBITDA), which increased by €10.0 million from €51.6 million to €61.6 million. As we constantly strive to grow and achieve more, we are confident that the GO Group is able to continue to do well.
There has to be, in the immediate term, a more balanced regulatory environment that applies equally to all operators
The company has substantial borrowings, of €54 million, and in fact your finance costs were €3.4 million just for last year. Why is all this cash needed?
GO is a significant investor. Every year the group invests heavily to maintain the quality of its networks and to deploy new technologies. For example, last year we finalised the deployment of our 4G network, the only one in Malta that is fibre connected, while also maintaining a major investment initiative in Fibre-To-The-Home (FTTH), which will continue to run for a number of years.
We also invest in companies that we believe will create value for our shareholders, such as last year’s investments in Cablenet and Kinetix. These investments are funded through a combination of shareholders’ funds and borrowings.
Your cash position at the end of 2015 was a negative €3.6 million. It has now turned around to a positive €3.5 million. How did you manage that?
In 2016, GO delivered strong results, showing growth over the prior year, which itself was a successful year. GO’s management had pursued a sound and successful strategy that plans and invests for the future while at the same time focusing on profitability and ensuring that cash resources are well managed. For these reasons GO enjoys a very healthy balance sheet, characterised by low levels of leverage and adequate banking facilities in place to ensure that the group can continue to execute this strategy.
The majority of shareholders kept their shares at the time of the acquisition but they must be very disappointed: earnings per share fell from 26c1 to 18c2.
Earnings per share went down because the company’s results were impacted by increased amortisation as a result of intangible assets created upon the acquisition of Cablenet and Kinetix, as well as various one-off transactions. The fundamental operating performance of the group actually improved as EBITDA grew by €10 million, 19 per cent over the previous year.
Last year GO finalised the deployment of its 4G network, the only one in Malta which is fibre connected.Having said that, dividends went up, with a recommended payout of €11 million, in spite of the reduction in profits.
The group registered growth in its operations and cash generation was strong. The balance sheet is also very strong, characterised by low levels of leverage. The group has adequate facilities in place to continue to fund its strategy. For these reasons the board is recommending a slight improvement in dividend while still retaining a good portion of profitability within the company to continue to fund our growth.
In 2016, GO invested €45.6 million, an increase of €19.7 million over 2015, of which €9 million were for the Cablenet acquisition. What are the plans for 2017?
GO is pursuing a focused strategy that will deliver both organic as well as inorganic growth. GO exercised its options to acquire control of Cablenet because the company felt that the time was right to do so. 2016 also saw the completion of the deployment of 4G and the ramping up of the rollout of FTTH as we aim to reach 50,000 homes in the coming months. We will maintain our strategy, sharpen it as we go along and seize any investment opportunity that may come along.
One thing is certain, GO is and will remain committed to our customers in Malta and we will continue to invest heavily in FTTH and mobile not only to give our clients the best possible holistic experience for all their telecommunications needs but to ensure the nation’s communications infrastructure is well placed to meet the demands of an ever more connected and data driven global economy.
How has the acquisition of Cablenet helped GO?
GO has been monitoring Cablenet for some years and we continue to be impressed by its growth opportunities. This company has been growing year on year. Cyprus is not a huge country and represents an investment that GO can manage. Yet Cyprus is a market which is twice the size of Malta and therefore, through this acquisition, the GO group has trebled its addressable market. Furthermore, the economic situation in Cyprus also continues to improve. Cablenet represents a key growth opportunity for GO’s shareholders.
There were rumours that Melita was interested in Vodafone. How would you view that transaction?
Every investor has its own plans to grow shareholder value. Our competitors are no exception and we understand their desire to consolidate their position in the local market. There are very clear competition rules and precedent that guide regulators in such acquisitions and we are confident that the local authorities will be guided by such principles throughout this process.
Irrespective of this transaction, we continue to complain about the significant imbalance in the heavy regulatory burden that is imposed on GO, but not on its competitors.
As the largest single investor in the local telecoms industry and a major employer, we reiterate the importance that – irrespective of any possible transaction between Melita and Vodafone – there has to be, in the immediate term, a more balanced regulatory environment that applies equally to all operators.
We believe that regulation should move towards horizontally-applied rules that encourage continued or even increased investment by all telecom operators in the Maltese economy.