It was, in its way, an educational experience. To a meeting of stockbrokers and the media, representatives of the Forthnet Group, the Greek telecom company part-owned by GO, said the massive €128 million goodwill impairment which has had such an impact on the GO annual results, was a “non-cash adjustment, driven by an increase (in Greece) in the discount rates from 12.1% to 14.8% due to the macroeconomic environment”.
As for the company itself, its CEO, Panagotis Papadopoulo, said, 2011 was a “successful year” in a very tough macroeconomic environment.
In a year when unemployment in Greece shot up and GDP decreased for the fourth year running, Forthnet prioritised liquidity and profitability, focusing on retaining its customer base and even increasing it.
The details would seem, at first glance, to prove Forthnet right. Forthnet and Forgendo, its subsidiary company, now account for a household in five in Greece and bundling PayTV and broadband increased by 35% in one year.
At the end of 2011, Forthnet reported that:
• 134,000 households have chosen bundles of telecom and PayTV services;
• 785,000 unique householders in Greece are subscribed to Forthnet;
• 528,000 are broadband subscribers;
• 391,000 have active PayTV subscriptions in Greece with digital subscriptions increasing year-on-year by 22,900.
Forthnet is the leading unbundler in Greece with an estimated market share of 30%.
In such a bad macro-economic situation, households cut their expenses and costs in all areas. But Forthnet focused on at least retaining its customer base and preparing the groundwork to improve it when the situation gets better.
To do so, it has focused on providing exclusive content. Key sports programmes, to show the Greek Superleague, the Champions League and the Europa League have all been fixed till 2015, as have key Hollywood studios and networks.
It is also the leader in HD with an increased customer base of 86.8% and the HD quality is the best in Greece.
Its network has continued to expand and now covers most of eastern Greece with 5,000km of fibre optic.
The analogue service was terminated in January 2012 and a DTT PayTV service was launched both in Athens and in Thessaloniki. In November 2011, the group offered the first pilot 3D broadcasting in Greece and over time more 3D content will become available to the PayTV subscriber base.
In December 2011, Forthnet came to a commercial agreement with CYTA for content wholesale in Cyprus. As a result, the CYTA IPTV subscribers in Cyprus have access to 10 of the group’s sports and movie channels.
In 2011, George Dermitzakis explained, the group reported total revenues of €415 million, an increase of 1.4% compared to 2010. Operational integration, streamlining and cost-cutting initiatives throughout 2011 boosted adjusted EBITDA by €15.2 million, up 23.4% on a year-on-year basis. But, as stated, notwithstanding such operating gains, reported EBITDA was impacted by a €128.5 million write-off in the consolidated goodwill. This non-cash, ‘non-operational’ charge was driven by a year-on-year increase in the discount rates from 12.1% to 14.8% – a direct and also indirect result of the deterioration in the credit rating of the Greek sovereign debt.
As of December 2011, Forthnet’s consolidated cash position was €35.9 million, compared to €38.4 million in December 2010. Total net bank debt for the group at the end of last year stood at €296.5 million as against €294.7 million the previous December.
The group’s long-term debt has been reclassified as current. Management is in discussions with its lending banks to obtain the necessary waivers and remains optimistic that this reclassification will impact neither its liquidity nor its trading prospects.
Last January, the Forthnet shareholders’ EGM did not approve a rights issue proposal to raise approximately €30 million in cash.
As for prospects in 2012, the Forthnet representatives said this is difficult to predict coming so soon after the recent haircut.
As for relations with the banks, they said it is not in the banks’ interest to close Forthnet down and there is anyway a long queue before the banks come to them. The company intends to continue with cost cutting and new product launches including multi-stream, web TV, satellite on demand and digital terrestrial as well as new satellite offers for holiday homes and those with difficulties in getting a local service.
Asked what would the company do if Greece exits the euro, the Forthnet representatives refused to answer what they called ‘a hypothetical question’. Besides, they said, this is now more unlikely than in previous months.
Asked by this paper whether GO intends to scale down, maintain or increase its shareholding in Forthnet, David Kay, GO’s CEO, said there are no plans at present to change the Maltese company’s shareholding in Forthnet.
GO: Stable turnover maintained in 2011
Earlier in the conference, GO explained its figures.
GO reported a good operating performance with stable turnover and a healthy operating profit for the financial year ended 31 December. However, events taking place in Greece have negatively impacted the value of GO’s investment in Forgendo resulting in an overall loss before tax of €45.2 million.
In spite of a challenging economic environment and increased competition, the group managed to keep its turnover stable, with only a marginal decrease from €132.3 million in 2010 to €131.6 million in the year under review.
In 2011, the group registered an operating profit of €18.4 million as against €22.8 million in 2010. There were a number of one-off transactions relating to voluntary retirement schemes and a provision for pensions which amounted to €5.2 million (2010: €322,000). Normalised operating profit for 2011 amounted to €23.7 million as against €23.1 million in 2010. Normalised EBITDA amounted to €51.4 million, an increase of 4.6% over the previous year.
The telecommunications market continues to be characterised, GO said, by a tough competitive environment and extensive regulation, which have substantially impacted the group’s mobile business. The reduction in revenue from mobile business, which was impacted by regulation, and slow and steady decline in traditional fixed-line voice services have been offset by growth in TV and data services in general. The group also experienced growth in data hosting and related activities.
The group retains a strong presence in the market with over 500,000 customer connections.
The group’s total cost base amounted to €108.8 million. Whilst this represents a marginal reduction of €1.2 million over the previous year, discretionary expenditure continued to be addressed and in general only expenditure directly related to sales activity experienced growth. Of note is the growth in costs relating to the TV business as a result of the substantial growth in client base and the acquired role as the main provider of premium content in general and sports in particular. The group continues to streamline processes and to invest in technology and innovation, which allow it to continue to right-size its operations.
2011 has been characterised by financial uncertainties substantially impacting the eurozone in general and a number of countries within the eurozone in particular. Greece is one of the worst impacted countries. This economic climate has seriously impacted Forthnet. Despite an acceptable operating performance, Forthnet’s results include a charge of €128.5 million representing an impairment charge attributable to goodwill arising from Forthnet’s investment in Nova, its TV arm.
The events taking place in Greece and issues impacting Forthnet have negatively impacted the company’s ability to establish the value of its investment through a value in use assessment. As a result, the board of directors decided that in the circumstances the value assigned to the investment in Forthnet through Forgendo should reflect the share price of Forthnet as quoted on the Athens Stock Exchange. This led GO to recognise a charge of €62.3 million representing a write down in the value of its shareholding in and amounts receivable from Forgendo as at December 2011 to €3.6 million.
Net cash generated from operations amounted to €35.1 million (2010: €43.2 million). Both years include one-time items relating to pensions and voluntary retirement costs whilst the comparative period also includes a refund of VAT relating to prior periods. Normalised cash flow from operations for 2011 amounted to €40.4 million, marginally below the €40.9 million generated in 2010. In 2011, the group maintained its investment programme at the same level of 2010 and invested €25.6 million.
The group is reporting a loss before taxation of €45.2 million (2010: €9.1 million). The loss per share amounted to €0.503 (2010: €0.189). As a result, the board of directors is not recommending the payment of a dividend.
Commenting about these results, GO chairman Deepak Padmanabhan said: “In spite of the considerable economic and regulatory challenges, the group has been able to maintain a stable turnover and normalised operating profit and continues to win customers in our broadband, mobile and TV markets.”
He added: “It is no surprise that the uncertainty in the Greek economy negatively impacted GO’s investment in Forthnet but the group is carefully monitoring the situation and taking a prudent stand. Overall, GO remains a sound company with a sustainable future, thanks to its relentless efforts to improve its customers’ experience and deliver value propositions.”
GO’s Chief Executive Officer David Kay said: “The group has made considerable progress in its €100 million investment programme, and has renewed its entire mobile network – including the best mobile internet speeds – ensuring the company remains a leader in this segment. Investments in the roll-out of fibre are ongoing. Apart from launching GO interactive TV, the group has also invested in TV content and won the Champions League rights, making it the leader in TV premium sports content.”
Mr Kay added: “We have an exciting investment programme continuing during 2012 and beyond that will ensure that GO offers the best internet everywhere experience, as well as a number of IT projects which will among other things empower our customers by giving them increased ability to manage their accounts with the group.”
Asked what target the company has regarding its capital base to return to give a dividend, the GO speakers said the company hopes to return to dividend as soon as possible but declined to set a term or a date.