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Bumpy road ahead for Smart Telecom
08-09-2006
by Maxim Kelly
The wheels seem to be coming off the wagon that is Smart Telecom as the company announced that Chief Executive Oisin Fanning is stepping down.
Fanning's departure, confirmed in a statement released to coincide with the firm's AGM at the Conrad Hotel in Dublin on Friday, comes as the voice and broadband service provider revealed it has appointed NCB Stockbrokers to undertake a strategic review of the company.
Sources close to the inner workings of Smart senior management said there was no doubt that the review is a precursor to preparing Smart for sale, and that the review was a cover story for evaluating the firm ahead of a sale.
A company spokesman denied this analysis of the announcement, however. "The issue of a sale did come up in the AGM but the strategic review will be wide-ranging. I'm not going to prejudge the review and when that's completed options will emerge. The right decision will be made for the company at the right time," the spokesman said.
If a trade sale does go ahead, industry insiders expect the company to go to a consortium of private investors, or to a wireless broadband provider looking to get into the fixed-line broadband sector.
In the absence of Fanning -- who cited health reasons for his departure -- Chief Operations Officer Ciaran Casey has been appointed by the board of directors to lead the strategic review.
Fanning was one of the founders of Smart in 2000, and retains a 4.5 percent stake. Brendan Murtagh of Kingspan is believed to be the major shareholder with 19.9 percent.
An announcement on the London Stock Exchange on Friday said Smart had "fully utilised its cash resources and, in advance of longer-term funding, is reliant upon funding from its major shareholder. The purpose of this short-term financing is to provide the Company with the financial resources to fund its working capital requirement for the short period during which the strategic review is being undertaken."
Despite raising around EUR66 million in funding since floating on the London AIM market in 2004, Smart has hit major snags recently in the form of a bitter legal wrangle with ComReg over the awarding of the fourth mobile 3G licence, and in failing to secure its target of obtaining 35,000 broadband subscribers -- a failure Fanning had previously been quick to blame on infrastructure owner Eircom and the LLU process.
In its AGM statement, Smart acknowledged it had 16,500 connected residential broadband customers and that a further 2,500 were in the process of connection. It has 160 corporate customers including a number of "blue chip" companies.
"Smart Telecom is facing into a challenging period but we are confident that a re-focussed and re-invigorated Smart will succeed in the Irish telecommunications market," said newly appointed head Ciaran Casey, who added that the strategic review is about "getting back to basics" and focusing on "profitable and high-growth market segments."
The company recently shed over 100 staff from its residential sales unit, and several senior managers have left the firm over the past four months.
Based on its most recent accounts, Smart posted a turnover of nearly EUR46 million in 2005 compared to EUR25 million the previous year. Profits were also up a sprightly 63 percent at EUR11 million, well ahead of the EUR7 million reported the previous year, but earnings before interest, taxes, depreciation and amortisation (EBITDA) showed losses of EUR19.4 million. At the time Fanning told ENN he had expected worse.
The company's administrative costs had soared a staggering 107 percent to nearly EUR31 million for the financial year; a lot more than the EUR15 million for the company's start-up year, and the majority of these costs were explained as paying for the sales staff which Smart hired and then later let go.
The Sunday Times estimated that Smart would face costs of EUR7.7 million if ComReg's decision to withdraw its offer of a 3G licence is upheld, mainly based on legal fees and consultant charges.
Despite the slew of bad news about Smart, one spokesman was upbeat about the future. "There's still a lot of enthusiasm and energy at Smart," he said.
The stock market did not agree, however, and shares in the telco were down 39 percent on Friday afternoon, valuing the company at close to EUR31 million.
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