The Tribune

By NEIL HARTNELL Tribune Business Editor THE Bahamas Telecommunications Company (BTC) will beat its $60-$80 million operating income projections for 2012 after generating cost savings faster than anticipated, although its majority shareholder warned it was "too early to start popping the champagne corks". Tim Pennington, chief financial officer of Cable & Wireless Communications (CWC), which holds a 51 per cent stake in the newly-privatised carrier, told a conference call to discuss the company's third quarter results that BTC would "exceed" projected cash flow to its parent for both the 2012 and 2013 financial years. Explaining that the post-privatisation restructuring at BTC, including the Voluntary Separation Package (VSEP) scheme that has seen some 400 persons leave BTC, had progressed more rapidly than expected, Mr Pennington said this had enabled CWC "to access cost savings at a much faster rate than previously contemplated". Hence BTC's beating initial projections for CWC's financial year that ends on March 31, 2012, the latter reporting: "For the full year, we expect the Bahamas to achieve EBITDA (operating income, or earnings before interest, taxation, depreciation and amortisation) that will exceed our previously stated outlook range of $60-$80 million." While not giving any revised BTC operating income projections for CWC's 2012 financial year, Mr Pennington also revealed that under the terms of the agreement with the Government, dividends taken from the incumbent Bahamian operator were "capped" at 60 per cent of its net income for the first two years post-privatisation. Disclosing that the faster-than-expected rate at which CWC was extracting cost savings from BTC was expected to carry through into the latter's 2013 financial year, Mr Pennington said the majority owner was "bullish" on the future prospects for its Bahamian business. Describing BTC's revenue and growth potential as "uncharted territory", the CWC chief financial officer suggested the London-based telecommunications entity would only fully understand the former's true earning ability after the end of the 2013 financial year. Yet he warned "not to underestimate" the restructuring job facing CWC at BTC, and said the company could "not take a lap of honour yet". Acknowledging that there had been "a good financial performance in the Bahamas" during the three months to end-December 2011, Mr Pennington said BTC had provided a bright spot in what had been a mixed third quarter overall for CWC. He added: "We now expect to exceed our outlook range in Macau and the Bahamas. On the positive side, we're very positive about the prospects for the Bahamas. That is going well. We think there is more we can do there. "We have made very good progress in the Bahamas. The speed of the implementation of the restructuring programme has continued ahead of our expectations, as has the investment in the new technology,, specifically the 4G HSPA+ network. "As a result, we expect to access cost savings at a much faster rate than previously contemplated when we set the guidance range [for BTC's performance], and we now expect the second half performance to position us very well for financial year 2012-2013." That news is likely to boost Bahamian investor sentiment towards BTC ahead of its anticipated initial public offering (IPO) in this current government Budget year, the Ingraham administration having pledged to sell a 9 per cent stake - worth roughly $37 million - to the public. As previously revealed by Tribune Business, leading Bahamian investment banks and brokerage houses have already bid and made their pitches to the Ministry of Finance for the placement agent/advisory contract for the IPO, and a decision is expected shortly. It is unclear whether the offering will take place before a general election, although some believe it will be held beforehand, not least because it would provide another line of defence against the Progressive Liberal Party altering the privatisation terms if it wins the Government. Meanwhile, Mr Pennington said CWC received cash flow upstreamed from BTC in two forms - management fees and dividends. "The management fee is a fixed amount linked to the performance of the business," he explained, "and with the dividend we've got a cap on dividends for two years at 60 per cent of the net income." Mr Pennington said CWC was "reasonably comfortable" with this state of affairs, adding that "it actually gives us enormous flexibility". He added: "Our interest in the Bahamas is to make sure that that business is invested fully before we see competition coming through in 2014, so in a sense our focus and attention on the cash flow in the Bahamas is to make sure we have the best network in the Bahamas, that our systems are up to date, that our customer service is sort of at international standard, that we've got the best retail footprint, etc, etc... "So I don't think we feel remotely constrained by any sort of cash flow limitations there. The cash flow that the Bahamas will send to us this year will exceed what we have put in our budget, and we expect that will be the case next year as well, actually." Elaborating on BTC's enhanced operating income prospects for the 2012 financial year, Mr Pennington said: "On BTC, when we set our guidance range at the start of the year, $60-$80 million, we knew we'd got a big job to do there on the restructuring. "We set that range four-five days after taking the keys to the place, so obviously we did want to be cautious in terms of what we might find and the speed with which we could undertake the restructuring. "Since then, and we've reported a couple of quarters on it now, we've been pleased with the speed of the restructuring and the ability to access the cost savings that we see there." That is not the only area delighting CWC. "We've actually also been pleased with the market side of things, the way we've been able to access what appears to be a fairly significant pent-up demand in the Bahamas," Mr Pennington said. "So, in a sense, what we're saying today is that we've been able to access these cost savings at a slightly faster rate than we might have anticipated we could at the start of the year, and as such we'd expect that to be travelling through into next year as well." Yet it was too soon to start celebrating just yet. "I think the revenue opportunities and the growth opportunities are uncharted territory for us," Mr Pennington said of BTC. "So we still remain bullish on the prospects for the Bahamas, but we shouldn't underestimate the task facing us. "This is a business that has been under state ownership for a long time. There's still an awful lot to do to get things up to international standard. I think we've made a very good start, but it's too early for us to be popping the champagne corks and taking a lap of honour on this one. "If we're having this conversation at the end of next year, I think we'll be feeling a lot more relaxed that we understand the potential and what the run rate of the business is." Noting that the VSEP programme at BTC had "exceeded expectations", Tony Rice, CWC's chief executive, said in a statement: "We are making better than expected progress with the restructuring of the Bahamas, which is shaping up to be a good acquisition for our group."