10 May 2012

Angry GO shareholders told ‘the worst is over’

by Noel Grima - Angry GO shareholders, many of them retired employees, thronged the Annual General Meeting of GO plc at the Hilton yesterday and demanded answers following the company’s huge losses as a result of the investment in a telecommunication company in Greece.

They were told “the worst” was over, and after a loss of €45.2m in 2011, all that remains in Forthnet, the company’s Greek subsidiary, is just €3.6m. Besides, Forthnet is doing well, the GO speakers said, and has exciting prospects ahead.

GO together with Tecom as joint partners, formed a company registered in Cyprus in 2008, Forgendo, which in turn formed a subsidiary company. Forthnet went into the telecommunication business and even bought a TV company, Nova.
But when, last year, as a result of the turmoil in Greece and when the spreads in Greece grew and grew, and Forthnet could not come up with the right finance to satisfy the banks, the company was made to face a charge of €128.5m in the value of goodwill arising when it acquired Nova.

This in turn resulted in the substantial charge of €62.3m and led the Group to report a loss before tax of €45.2m in spite of a positive operating performance during the year, especially in the Maltese core business.
In vain, at the AGM, GO chairman Deepak Padmanabhan, CEO David Kay and CFO Edmond Brincat tried to shift attention onto GO’s business in Malta. The shareholders wanted to know more about the Greek investment and why it went bad.
A number of shareholders even proposed five items for discussion at the AGM and these were all duly discussed. Also, all those who wanted to make a point were allowed to do so and the AGM, as a result lasted far longer than it normally does.
When shareholder Norman Mifsud asked if the company has a contingency plan in case Greece exits from the euro, he was told the company does not have one, not even in case Greece were to shift to the drachma. And anyway, all that the company can lose now is only €3.6m.

Other shareholders wanted to know the reasoning behind the initial investment decision. A stockbroker said the company had said it invested in Greece because the Maltese market was saturated. Then how come the company has announced a €100m investment programme in Malta, once there are no growth prospects here?
Mr Kay replied that if the company does not invest and rejuvenate its infrastructure, it will soon be out of business.
The chairman reiterated that Malta has become a saturated market and there is fierce competition with the company’s competitors offering bigger and better deals and their profitability suffering as a result.

When the decision was taken to invest in Greece, this country was part of the eurozone and the problems had not started yet in 2008. The company did not invest in Africa, which was seen as a riskier investment.
An angry shareholder demanded to know who was it who had taken the decision. The chairman told him the decision had been taken by the Board unanimously and after receiving reports from two reputable independent companies, Merill Lynch and Credit Suisse.

Later on, when the AGM discussed the first of the proposals submitted as a resolution by some minority shareholders, the chairman made a presentation about Forthnet.
When the investment was made, Greece was considered to be a promising market with a 6% GDP growth.
Forthnet serves 800,000 households, offering broadband, pay TV or both. One in five households in Greece uses Forthnet’s service.

Sales are up and the company has good prospects. The company also has more available funds for future expansion and will honour its obligations.
Forthnet has also laid some 5,000km of fibre optic cable around Greece.
Still, the questions came from right and left. Is Forthnet planning to expand or go for some recapitalisation?
The chairman admitted there had been this idea but the Forgendo Board had decided against any recapitalisation.
Here various shareholders started to insist that before the Board takes a decision to invest, the shareholders, especially the minority shareholders must be consulted.

But the chairman said the Board is mandated to carry out the business of the company and any convoking of an AGM would delay deals, apart from breaking the confidentiality which is essential in such deals.
The company will take decisions after having taken expert sounding.
A shareholder asked if the investment in Forthnet could be split from GO and he was told this was not possible.
The shareholders were also on the warpath because this year there is not going to be any dividend.
Joseph Bonnett, who seems to haunt most AGMs in Malta, came up with a number of suggestions which, in his opinion, could have saved some money for the company to distribute as dividend.

He focused on the early retirement scheme on which the company had spent some €27m and saved €10m. Had this been avoided, the company would have had some €17m to distribute.
But he was informed that the €10m savings were for every year.
Then Mr Bonnett said the directors’ remuneration should be cut, in solidarity. This suggestion was received with a huge applause.

The chairman told him the remuneration was for time, effort and responsibility carried by the directors, but he would forward this suggestion to the Board. As for him, he does not take any remuneration.
Mr Bonnett also opened the issue regarding the company’s land in Qawra.
This involved the company representatives in yet another lengthy explanation, which perhaps should have been given, as a stockbroker suggested, earlier and fuller.

The company explained that it uses 11 properties some of which were on government land, some part-owned by it, and some to which it had no legal title. These include the telephone exchanges at Birkirkara, Mosta, Sliema, St Paul’s Bay, etc.
In a deal which was signed later in the day between Minister Tonio Fenech and GO (see picture), the land in Qawra, “the size of two football grounds”, passes to government in exchange for title to the 11 properties. The deal is worth €50m and the deal was agreed to unanimously last Monday by a parliamentary select committee.

GO is moving its offices to one location and, in fact the Marsa offices are already closed up except for technical stuff. GO will also compress its technological sites since this is now technically feasible.
Later on, GO will study each site and get the right Mepa permits and then see how to maximise its worth.
SPV seems to have suddenly become the flavour of the week, and in fact, GO is setting up its own to deal with this property development.

As to GO’s operations in Malta, its core business, the company representatives said GO now has 109,000 subscribers in the mobile phone network. This has decreased slightly and was impacted by regulators’ decisions.
The company will be offering more smart phones and tablets soon. The five-year investment programme is moving smoothly, without any hiccups during the migration.

The download speed of 121 Mb is not exceeded by anyone else in the market.
As to broadband, GO had 65,000 subscribers at the end of last year. 80% of households in Malta have internet connection and most of Malta is less than 1 km away from the fibre optic connection.
The TV service is a success story, offering 100 channels, many of them in HD. This service has 65,000 customers, many attracted by football rights such as Chamoions League from 2012 to 2015.
The fixed line section has 170,000 customers but there is a slight decline in this segment as people switch over to mobile phones.

GO’s success story is BMIT, the data handling company, which is now wholly-owned by GO.
The company will be coming up with more products such as Internet TV, data bundling and cloud services.
A shareholder asked when is GO going to issue a phone directory and was told this is a complex situation and a logistical nightmare.

Finally, reference was also made to an item in the accounts which said that a Chief Officer had been given an ‘ex gratia’ payment of €250,000. He was told this was the market rate for such a person who had spent a long time in the company.


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