Thursday 14 December 2017

'The door isn't closed in any shape or form. Whether it's a year, two years, or whether we just continue as is...'

Digicel chief executive officer Colm Delves tells John Mulligan that the telecommunications firm can still pursue its growth strategy

Colm Delves: 'Whilst we would have maybe had a bit more firepower if the IPO had gone ahead, in terms of being able to complete and continue the investment programme that we had earmarked, we are still in the position to do that'
Colm Delves: 'Whilst we would have maybe had a bit more firepower if the IPO had gone ahead, in terms of being able to complete and continue the investment programme that we had earmarked, we are still in the position to do that'
John Mulligan

John Mulligan

Digicel chief executive Colm Delves has insisted the telecoms company can still pursue its growth strategy despite cancelling its stockmarket flotation plans last week.

He has also revealed that Digicel initiated a flotation process nearly a decade ago in New York and didn't proceed then either, instead securing finance via the high yield bond market.

"It was a situation where we didn't have to do the transaction," he told the Sunday Independent of last week's decision. "We were able to be very disciplined, in that when it didn't meet our targeted range of $13-$16 a share, we were in a position to pull it. If it didn't make sense, it didn't make sense. We were quite clinical about it. Time is on our side. I'm very happy that it was the right decision. As far as I'm concerned, it's still very much business as usual."

It had been anticipated that Digicel shares would begin trading on Friday, but the company announced the cancellation of its initial public offering (IPO) on Tuesday.

The telecoms boss confirmed that the company might consider a flotation again next year, if markets have settled down.

"The door isn't closed in any shape or form," said Mr Delves. "Whether it's a year, whether it's two years, or whether we just continue as is and keep driving the business as we did for the last 15 years - that's also another option for us. A lot of the groundwork has been done over the past six months and that will stand to us if we decide to go again."

The chief executive said Digicel filed a prospectus with the US Securities and Exchange Commission in 2006 or 2007 with a view to floating then - but had decided not to proceed. Stock market rules at the time meant that documentation didn't have to be publicly disclosed, he said.

Mr Delves, who was back in Dublin on Friday, said the Digicel board - headed by chairman and owner Denis O'Brien - met in Chicago on Tuesday evening following investor meetings there that day. The board realised they weren't going to secure the price range they wanted and informed its bankers that the stockmarket flotation was going to be cancelled.

The Digicel management team had held meetings with 180 investors over a two-and-a-half week period, according to Mr Delves. But global concerns over emerging markets, fears over China and a number of other wider issues all served to sour sentiment towards flotations, especially those companies with exposure to emerging markets. Digicel operates in 32 counties across the Caribbean, Latin America and the Pacific.

Between $1.2bn and $1.3bn of the flotation proceeds had been earmarked to cut Digicel's $6.5bn gross debt. But Mr Delves said that not being able to do that immediately does not significantly crimp Digicel's ability to pursue acquisitions.

"We've invested $1.5bn over the past three years building growth levers in the business," said Mr Delves, who also revealed that Digicel will spend $550m on investment in the current year. "That's already funded and there's no issue with that."

"We will still be in a position to do selective merger and acquisitions," he added. "Whilst we would have maybe had a bit more firepower if the IPO had gone ahead, in terms of being able to complete and continue the investment programme that we had earmarked, we are still in the position to do that."

He said Digicel has "a few more" potential acquisitions in its sights and will be actively pursuing them over the next few months. He said those acquisitions are in the geographic areas where Digicel already operates.

"They will be aligned with our overall growth objectives, which is in the business solutions area, in the TV space and also mobile."

Mr Delves insisted that notwithstanding the plan to use IPO proceeds to cut debt, the company will delever.

"We refinanced our debt over the past couple of years," he said. "There were opportunities and we're glad we availed of those opportunities. Our first maturity of significant debt is now in 2021.

"The business naturally delevers over time," he said. "We are seeing good growth in EBITDA (earnings before interest, tax, depreciation and amortisation), which is the key measure for us.

"We're growing our data, which has gone from 23pc of revenue to 34pc of revenue; our business solutions is growing at a rate of 45pc; we've quadrupled our cable customers; and our diaspora business is up 37.5pc."

Digicel generated $2.8bn (€2.5bn) in revenue last year, but it still generates significant cash flow of $814m on EBITDA of $1.2bn. While its revenue was flat on a reported basis, it was up on a constant currency basis.

"We have a lot of growth in the business that naturally delevers the business as well," Mr Delves said. "We're comfortable with the debt. Yes, it would have been an opportunistic time to delever, but there's no compelling reason to do so because we're not constrained in any way."

Mr O'Brien wasn't in line to receive any of the proceeds from the sale, and would still have retained control of the business following the flotation.

It's likely to Digicel would have sold 124m shares, which would have represented about 39pc of the company's equity. But Mr O'Brien would have retained 94pc of the voting power.

Some analysts have questioned whether or not investors would have been happy with that, and it may have become an issue for some of them.

But Mr Delves insisted that while the topic was broached by some investors, it wasn't a complicating issue.

"It's not that unusual in the States, particularly when founding shareholders are staying on in a business and are going out to raise new capital," he said.

"The investors were all extremely relaxed about it once they heard that in the event that Denis had sold part of his shareholding, then those voting rights fell away," said the chief executive.

"Their concern was more if that hadn't been the case, and if say, Denis had sold 20pc and that gave a buyer a multiple of that in terms of voting rights. But that wasn't the case. Once Denis sold, the rights wouldn't transfer with the shares."

Mr Delves also said that currency fluctuation in markets such as Jamaica is an issue the company has dealt with for years. "I lived in Jamaica for 10 years. You're used to it. We still maintained our revenue from a US dollar perspective, so you had to grow to compensate for the earnings depreciation on a reported basis."

Analysts point out that Digicel has a lot going for it, especially given the nature of the competitors it's up against in its markets. And Mr Delves is content to continue ploughing Digicel's furrow

"I'm pretty confident that we will be delivering demonstrable growth over the next 12 to 18 months, which would be an important reference point if we ever decide to go back to the market again."

Sunday Indo Business

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business