The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas has acknowledged that costs associated with recent debt capital raisings “have dragged on profitability and cash flow”, helping push it into a $14.371 million net loss for 2015.

The BISX-listed communications provider, in the offering memorandum attached to its latest $50 million preference share offering, said the pursuit of growth opportunities had impacted its financial performance in the short-term.

Apart from extra bank financing, Cable Bahamas has issued some $189 million worth of preference share debt over the past two years to help fund both its $100 million Florida expansion and successful pursuit of the Bahamas’ second mobile licence.

“The expansion into the US market used a combination of senior debt and preferred shares, both in Bahamian and US dollars,” the offering memorandum says.

“Subsequent capital raises of preferred shares in 2015 to fund the expected move into mobile, and most recently a rights offering to boost its [Cable Bahamas] equity base, have been used in its Bahamian and US operations, and to ensure all required funding is in place through to roll out of mobile in late 2016.

“These capital raises have dragged on profitability and cash flow as the company continues to ramp up operations in the US (backlog of contracted new business through to mid-2017) and funded its investment in mobile.”

In other words, Cable Bahamas has been investing for projected future gains and shareholder returns tomorrow, which have yet to materialise.

The onus is now on the company, which has Board and management control, and a 48.25 per cent equity stake in NewCo2015 Ltd, the Bahamas’ second mobile operator, to execute and deliver the anticipated increase in shareholder returns and value from these ventures.

While the 63.3 per cent year-over-year increase in preference share dividends, from $6.696 million in 2014 to $10.936 million last year, was a factor in Cable Bahamas’ 2015 loss, it was not the major one.

A one-off $20.5 million accounting ‘write down’ or ‘goodwill impairment’ associated with its US operations acted as the major impairment, and the company last night told potential investors in its latest preference share issue that it remained confident of performing.

It said both the mobile licence and Florida expansion are “expected to be accreting good revenue growth and cash flow over the next three to five years”.

Turning to the NewCo2015 opportunity specifically, Cable Bahamas said it would benefit from “the inherent dissatisfaction” among consumers with the prices, service and quality provided by the incumbent, the Bahamas Telecommunications Company (BTC).

“Cable Bahamas expects that the new mobile company can gain a significant market share over the long term,” its offering memorandum said.

“This is a reasonable expectation given the inherent dissatisfaction with the current mobile provider and the plans by Cable Bahamas to deliver a high-quality service at competitive costs.”

It added that based on Caribbean regional experience over the past decade, the second mobile market entrant typically captured market share of 42 per cent within three years.

Cable Bahamas also suggested that NewCo2015’s entry will boost mobile penetration beyond the 314,000 wireless subscriber base that BTC reported at year-end 2014.

“This represents a mobile penetration rate of approximately 82 per cent,” the offering memorandum said, adding that the Bahamas was “significantly below” all Caribbean countries that have a GDP per capita of greater than $20,000.

“The Ericsson Mobility Report for Latin America and Caribbean suggests that the average mobile penetration in the region is approximately 115 per cent,” Cable Bahamas added.

“This leaves very large room for growth within the Bahamian market, which is presently a monopoly. Evidence from markets liberalised after 2004 in the Latin American and Caribbean region shows that license awards to second mobile operators and subsequent market entry coincide with an average penetration increase of 29 percentage points.”

And, using Trinidad & Tobago as an example, the BISX-listed provider said the second mobile entrant there grew total gross market revenues by 82 per cent in the first year. That was followed “by another 20 per cent in value” the following year.

Emphasising that NewCo2015 will be created as a separate entity from Cable Bahamas, the BISX-listed operator would allow the mobile start-up to use its infrastructure and support services “at all stages of its development”.

“This will allow the business to take advantage of the extensive experience and investments already made by Cable Bahamas in the Bahamas,” the offering memorandum added.

“Additionally, Cable Bahamas will also have the opportunity to leverage its relationships with its existing customer base, which encompasses approximately 70 per cent of Bahamian households.”

Cable Bahamas’ offering memorandum confirmed that it wants to use NewCo2015 to “create a quad play opportunity” with its existing products, in a bid to further drive down pricing.

Besides delivering a better customer experience and reducing costs, the company is also targeting an increase in bandwidth sales and “greater access to broadband for Bahamians”.