Wednesday 19 September, 2018

TSTT suffers sharp decline in profits

The Telecommunications Service of Trinidad and Tobago (TSTT) has recorded an after tax profit of $8.5 million, a near 80 percent drop in profits when compared to 2017.

The majority state owned telecommunications provider suffered a number of challenges in the past financial year, including larger than industry standard employee costs and regulatory restrictions on the Company’s ability to access much-needed spectrum and to expand its wireless solutions.

Major investments throughout the period resulted in a TT$48 million or 90 percent increase in financing costs and a 27 percent increase in depreciation and amortization costs of TT$106 million year on year.

The ‘positive’ bottom line, TSTT Chairman Robert Mayers noted in his Chairman’s report, included a one-off $41 million ‘bargain goodwill’ resulting from the acquisition of Massy Communications Limited (now Amplia Communications Limited).

As a result, the gross profit margin increased from 79 percent to 83 percent, but, at the same time, gross profit decreased by 5 percent.

The figures are based on audited financial statements for the year ended March 31, 2018.

The greatest challenge to the telecommunications company, the TSTT Chairman noted, remains employee costs which now exceed $700 million or 40 percent of total costs (compared to an industry average of 25% percent).

Mayers said the cost represents 27 percent of TSTT’s revenue, while industry average is 15 percent.

He noted that efforts to reduce these expenses have proved futile, and the increasing need for the situation to be addressed urgently.   

“Simply put, if TSTT does not address its operational efficiency by tailoring expenses to be at least in line with industry benchmarks, then, given the sheer size, reach, funding and access to foreign exchange that our competitors command, there is every likelihood that going concern issues will arise in the very near future.”  

Going concern, as defined by Investopedia, refers to a company that has the resources needed to continue to operate indefinitely until a company provides evidence to the contrary, and this term also refers to a company's ability to make enough money to stay afloat or avoid bankruptcy.

If a business is not a going concern, it means the company has gone bankrupt and its assets were liquidated.

Despite these challenges, Mayers said the company continues to invest in upgrading its network and in evolving technologies which led to the first national, mobile high-speed 4G LTE network.

As part of the initiatives geared toward accelerating the company’s digital transformation, TSTT has embarked on a ‘Zero Copper’ project to replace its aged copper network, technological improvements to its data centre, introduced a fully centralised business support system, increased ‘wet side’ capacity and improved its billing systems.

Noting that the company has passed more than 120,000 homes with fiber, including upwards of 70 percent of Tobago’s population, Mayers said TSTT must become an agile broadband communications company, with a mandate of providing high-quality customer service, world class technological solutions and increased shareholder value – if it is to remain viable.

TSTT is 51 percent owned by the Government through an investment holding company, National Enterprises Limited (NEL).

The sharp decline in TSTT’s profits may erode NEL’s financial results, as expected pick-up in natural gas production and revenues from the other holding companies – NGC and NGL, would be tempered owing to the erosion in TSTT’s bottom-line.

 

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