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3539 posts

Uber Geek
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Topic # 10096 4-Nov-2006 23:29
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Off Topic is probably the best place to start this thread I'm figuring, as Mauricio's guidelines for the Telecom forum state that it should be used to discuss "Products and Services of Telecom".  Fair enough too, so I hope that creating this thread in Off Topic will meet with your approval oh great moderators...

tonyhughes: Why shouldnt a company who is still going to experience good growth, despite a regulatory environment, take the opportunity to reward the patience and commitment of its shareholders, who have watched the share price plummet?

Are you saying they should not be allowed to do that?

No, certainly not if they ARE experiencing good growth.  But are Telecom experiencing good growth?

Consider this statement made as part of yesterday's first quarter results announcement:

Chief executive Theresa Gattung said Telecom would not upgrade its full-year net profit forecast of between $820 to $860 million - compared with $820 million the year before

Doesn't sound like "Good Growth" to me.  At best it is 4.9% which is only just above the rate of inflation Frown

If Telecom can work out how to grow their business under this new regulatory environment, make the necessary investments to KEEP IT GROWING and after all the bills are paid, and debt is reduced to a sensible level, they still have money in the pot, then by all means pay a dividend out to those poor long-suffering cash hungry shareholders...

But anyone who thinks Telecom has reached that state of Nirvana is living in a fool's paradise.

As part of yesterday's results announcement, it was stated that Telecom Directories would be put up for sale, as Theresa put it on last night's TV news: "For a price North of $1.5 billion".

This is probably a sensible move given that hard-copy directories are rapidly losing their relevance, and the Telecom Yellow Pages web site is not exactly cutting edge any more.  In our business, I have taken the decision this year to cancel Yellow Pages advertising (after being in there for over 15 years) because their web site was no longer delivering referrals to our own site anymore, rather they were coming directly through Google.  How many people in 2006 would bother to look for a computer company in the hard copy Yellow Pages?

So, I think that Telecom's decision to put their Directories business up for sale is a wise one.  Hopefully, someone like Google will be prepared to pay a premium price for it (as they have for just about everything else) and Telecom can refocus away from a non-core business towards what really matters: Maintaining their technological leadership in the NZ Telecommunications industry.

It's all good, you might think...

But NO.  What do Telecom's board propose to do with the sale proceeds from Telecom Directories?

Silly me for asking, they have announced plans to pay most of it out as a "Special Dividend" to shareholders of course!

Even though they have $3 BILLION in debt on their balance sheet!!!

I'm sure most of you have heard the common wisdom that paying off your mortgage is the best investment you'll ever make.  Once that's paid off, you can sensibly look at other options.

But to sell off part of the family silver (Telecom Directories) which has been built up over decades while Telecom was owned by the taxpayers of NZ, and then squander the proceeds with a Special Dividend to Shareholders, just beggars belief!!!

Clearly it should be used to either pay off debt, or to invest in much-needed infrastructure.  Common sense you might say...

[Moderator edit (MF): moved to Telecom]

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Uber Geek
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  Reply # 51091 5-Nov-2006 10:38
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The directories thing is curious - $1.5 billion plus when the quarterly revenue is $69 million. That's up 11.3 per cent as well compared to the same quarter last year. Guess Yahoo has the money so...

Either way, it looks like the asset sales, lower investment and staff culling are done to shore up the high dividends that shareholders have become accustomed to. Be interesting to see where it ends.

Didn't realise Telecom carries $3 billion worth of debt actually.

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Uber Geek
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  Reply # 51093 5-Nov-2006 11:09
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I'm sure most of you have heard the common wisdom that paying off your mortgage is the best investment you'll ever make. Once that's paid off, you can sensibly look at other options.

Common wisdom doesn't necessarily apply if you can deduct interest from tax.


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Uber Geek
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  Reply # 51148 5-Nov-2006 22:29
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Bung: Common wisdom doesn't necessarily apply if you can deduct interest from tax.

Bung, I hear what you are saying, but the IRD don't allow anybody to "deduct interest from tax".

Rather they allow you to claim the interest paid as a deduction from your "Taxable Income".  It makes quite a big difference actually...

Assuming a Company Tax rate of 33% (which it is at present), this means that 33% of the interest paid is deducted from your tax.  The other 67% comes out of your pocket Frown

The sale of Telecom Directories is a one-off windfall and the proceeds should be carefully applied to ensure Telecom's balance sheet is in the best possible shape to face the future.  I fail to see the logic behind continuing to pay hefty interest bills on debt when it could be reduced dramatically instead of paying a special dividend to shareholders.

It would be a real shame to squander this one-off opportunity.

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Ultimate Geek
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  Reply # 51158 6-Nov-2006 00:21
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I think maybe Bung was referring to the interest on the debt, in which case it can be claimed in its entirety as tax deductible.

One of the main reasons getting into debt, as a business, is often a wise move in this country :)

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Ultimate Geek
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  Reply # 51535 7-Nov-2006 22:57
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Master Geek

Reply # 51541 7-Nov-2006 23:17
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clueless in auckland

Take a $2 calculator and divide income before extraordinaries by either total assets or shareholders funds and "paying off the mortgage" looks like someone got an "E" for finance 101

As for deciding where to place the potential sale proceeds, in case we haven't noticed this is not a communist country (ok, christchurch/wellington come close)

As to investing in NZ's infrastructure, why not hit up:

Telstra (plenty of money, six times larger)

Vodafone PLC (even more money, twenty times larger)

guvmint (tee, heh, let's have cardy-wearing bearded bureaucrats renationalise the network, mmm let's call it "think big")

ha ha ha ha

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