When a company relentlessly focuses on its EBITDA, that is, its earnings before interest, taxes, depreciation and amortisation, I always find myself even more interested in the actual bottom line.
EBITDA is a useful tool for CEOs, because it kind of says “Look, we here is what we did; we can’t control what the government decides to charge us in taxes, nor all those other things like interest rates.”
A positive EBITDA, then, as I see it, is like the CEO’s merit badge for performance. It’s like Mr Sinckler’s – sorry, a finance minister’s – primary balance.
Except that, most especially in Cable & Wireless Communications case, the difference between the EBITDA for the first half of its fiscal 2015-16 year and the same period last year could not be more directly due to executive decision. You know, that little thing about buying out Columbus-Flow and adding its U$1.2 billion debt to their similar-sized mountain.
So here are the numbers, as revealed by CWC’s CEO Phil Bentley late last week: the group had revenue for the first six months (April-Sept, 2015) of US$1.2 billion, up 4 per cent over last year. Its EBITDA was US$427 million for the same period, also up four per cent.
From there the report launches into the company’s “momentum building” in the second quarter, its “strong progress with integration plans,” and a statement that I guess we just have to accept, as follows: “Operating cost synergies upgraded by 47 per cent to US$125 million; no change to US$110 million costs to achieve.”
In other words, at the time of acquisition of Columbus, the company said it would be spending US$110 million on one-off costs like building out its networks and merging the CWC and Flow systems, but over three years would have gotten back something like US$85 million in savings to overhead. Now those savings have been projected to increase to US$125 million.
Where will those extra millions come from? Sending home people? Who knows, but I bet the regulatory agencies which approved the acquisition even faster than CWC will charge you for roaming must be wondering how all these savings suddenly showed up.
Anyway, I must not be distracted in my quest to take you to the bottom line, no mention of which I read emanating from the Press conference held by Mr. Bentley. It must be reported, I say.
CWC, the newly-merged entity that includes Columbus International, has reported a loss of US$20 million for the first half of its first financial year, compared to a profit of US$457 million for the same period last year.
To me, that requires a lot of EBITDA to digest.
Here are a few of the reported line items contributing to that negative bottom line: first, increased depreciation and amortisation of about US$78 million, you know, from taking on all that debt; second, an “exceptional expense “ of US$24 million; third, increased “finance expense of about US$92 million; fourth, an “exceptional finance expense of US$23 million; fifth, something you would have to explain to me called a “put option interest unwind” of US$45 million.
Since the merger, the combined group’s mobile customer numbers are up from 3.8 million to 4.1 million (about 281 000); broadband customers are up from 635 000 to 681 000 (about 46 000); and video customers from 451 000 to 465 000 (about 14 000). Landline, no change at 1.13 million customer numbers.
Now we await the news of CWC’s acquisition by Mr. Malone’s Liberty Global company, the largest cable operator in the world. Let us hope it drives more quality choices in satellite television offerings than Flow seems able to muster, and better mobile phone packages, especially for corporate usage. Right now, the promise of the merger in these two key areas has been weighed (by me) and found wanting more EBITDA.
Patrick Hoyos is a journalist and publisher specialising in business.
