Address to Shareholders
24 November 2009
Chairman's Address
Fellow Shareholders
As mentioned in
Eftel's 2009
Annual Report, the last year has seen your company
make a significant transition on the strategic, financial and operational fronts.
Your company has moved from the pack of several hundred providers who only
resell the broadband infrastructure of others, to one of a small number who control
their own. Through a combination of investment and alliances, your company has
established Australi
a's 6
th
largest broadband footprint, a position that is being well
and truly strengthened as we bring further telephone exchanges online. The majority
is ADSL2+ enabled, with a large proportion of it on Eftel's wholly owned footprint,
which can support a range of new technologies including VDSL2.
In our new CEO John Lane and our revamped management team, key changes have
been made to your company including the Customer Focus Initiative and the launch
of Eftel Wholesale.
The Customer Focus Initiative has been measured by a number of internal surveys
over the last few months, which are showing upward trends in customer satisfaction
levels, notably with customers serviced by our operation in Cyberjaya, Malaysia.
This initiative will help ensure that the infrastructure investment Eftel has made is
complemented by a service experience at all levels of your company, giving it
significant advantages in the market.
On the financial front, your Board has undertaken a substantial recapitalisation
programme. Over the last year Eftel has finalised key vendor finance arrangements,
brought in other new finance, both banking and private, and successfully carried out
a 1 for 2 non-renounceable rights issue. These initiatives are ensuring that your
company successfully sees through the early stages of its investment while it fills
capacity on its network.
At December last year, the company's current account deficit stood at over $8.9M
just 10 months later it sits at under $3.8M. Net of unearned revenue it is $1.8M. In
addition to this, some $2M of liabilities that became current during the period were
also renegotiated.
Our current ratio of 0.6, while still some way from our aspired position, exceeds that
of each of the three companies we regard as financially the most successful in the
small telco sector. Based on their recent annual reports
PIPE Networks' current
ratio was 0.57, SP Telemedia's was 0.51 and iiNet's was 0.57.
Nonetheless, what
these companies have done, to be successful,
matches Eftel's num
ber one financial
priority
that is to tackle the Cost of Goods beast that stalks our industry. Indeed our
BroadbandNext network is the key building block of that strategy.
As also mentioned in the Annual Report, a slimming down of operations has occurred
throughout the organisation from the Board downwards. We reported that over the
past 3 years, management and labour costs had dropped from 28.1% of revenue to
16.8%. In this financial year it is sitting at just 16.0%.
Looking forward, we believe lower cost of goods and labour will ultimately deliver an
excellent result for shareholders.
With rare exception, the telecommunications sector from Telstra down has seen a
substantial loss of shareholder value in a few short years. This combined with the
global financial crisis has certainly not contributed historically to upside for Eftel
shareholders. We once again reiterate the message that we believe our philosophy
of building a solid business will ultimately bring greater value to shareholders,
especially as the market recovers.
In calendar 2009 we have moved forward on many fronts. Apart from the obvious
improvements to the current account, recent announcements such as the launch of
Australia's first Pre
-paid Fixed Line Broadband service, and the continued expansion
of BroadbandNext, show that your company remains determined to be a customer-
responsive and innovative organisation that will be a growing force within the
industry. I will now hand over to our new CEO, John Lane, who will give his first
address to an Eftel AGM.
Thank you.
Simon Ehrenfeld
Executive Chairman
CEO's Address
Fellow Shareholders
It is my privilege to address you for the first time as the Chief Executive Officer of
your company. The first thing I wish to do is to thank you for your confidence, and to
assure you that the responsibility weighs heavily upon my shoulders.
Eftel has developed to its present position as one of the country's largest ISPs during
a decade which has also seen the dot com boom and bust, the advent of popular
broadband, the arrival of online video as a mainstream service through Youtube and
other similar sites, and the announcement of major government intervention in the
telecommunications market, amongst other dynamics.
This is a constantly changing industry, always challenging. We do not expect that
constant change to cease any time soon, however your company is now in an
excellent position to generate profits from the continued successful execution of its
chosen strategy. This strategy rests chiefly on the major investment the company
has made in broadband infrastructure, giving us the best xDSL network in the
country. BroadbandNext enjoys the advantages of MSAN architecture, providing
massive capacity per chassis and wonderful flexibility, along with 100% fibre
backhaul which ensures that the huge increases in video traffic that are being
experienced across the Internet can be carried without stress to and from our
customers.
Very few competitors are in this enviable position, with most needing to re-architect
their DSLAMs and exchange backhaul to cope with the step-change which the new
traffic levels represent.
In this respect I can reveal that Eftel has been intimately involved in testing IP
television technologies over the past year, and our BroadbandNext network enjoys
every advantage in delivering video content to Australian broadband users.
As our Chairman has mentioned, the past year has been one of transformation of the
Eftel business, as we have moved from almost total reliance on other suppliers to the
new BroadbandNext network. Substantial one-off expenses were incurred as
customers were migrated on to the new infrastructure, and monthly overheads
increased. However the marginal cost of providing services has fallen dramatically,
meaning that sales growth translates to strong profitability.
The new business processing centre in Kuala Lumpur is now operating at full
strength and generating excellent service levels in both back-office and customer
service operations. Significant costs have been incurred to achieve this, however it
has permanently lowered the company's operating expenses.
The goals of management are to drive revenues from high cost infrastructure to lower
cost infrastructure, growing the gross profit line to a minimum of 33% of revenue; to
keep labour costs at 16% of revenue or lower; and to keep overheads under 8%.
At present there are significant questions about how the Federal Government's
intervention in our sector, particularly proposed changes to Telstra and the planned
National Broadband Network will affect the industry. Despite estimates of between 8
and 16 years for these plans to be completed, we understand that there is great
interest in how we can plan for the advent of the NBN. It is clear that whatever
services can be delivered via the NBN, such as IPTV and Video on demand, and
other rich media content, very high speed Internet access, interactive health services,
security and monitoring, and a plethora of other services, most of these if not all of
them could be offered today on Eftel's BroadbandNext network. And indeed many of
them actually are being delivered today across our network. The NBN therefore
represents the possibility for a seamless transition for Eftel customers, for whom the
underlying infrastructure is merely an enabling platform, and for whom most if not all
the benefits of the NBN will be delivered years ahead of the NBN itself.
Your company is in an excellent position to grow and prosper, and your management
team is committed to ensuring that future of growth and prosperity.
Thank you.
John Lane
Chief Executive Officer
About Eftel
Eftel Ltd is a broadband network operator. Through ownership and partnership it
provides access to Australia's sixth largest Br
oadband footprint. It has offices in Perth
and Melbourne and operates a state-of-the-art Business Processing Centre located
at Cyberjaya in the heart of Kuala Lumpur's Multimedia Super Corridor.
Eftel has several business divisions which utilise the comp
any's network. These
operations are wholesale, retail and corporate.
Eftel Corporate
is among Australia's most reliable ISPs, offering tailored solutions to
business and government clients throughout Australia. It is a preferred supplier to
the Victorian Government.
Eftel Retail is a Top 10 Internet Service Provider offering a full suite of consumer
Internet products. Its dedicated broadband service aaNet
is one of Australia's most
popular providers among industry opinion leaders, receiving high customer
satisfaction ratings in both the PC Authority and Australian Broadband surveys.
Eftel Wholesale
services a quarter of Australia's ISPs with a range of services
including IP, co-location, dialup ports and DSL Broadband.
In 2009 Eftel Prepaid was lau
nched as Australia's first prepaid fixed line broadband
service. The product is available for new customers only, at the Website
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