Here’s what Sol Trujillo might say in his departure address to shareholders – or not.
Dear Telstra Shareholder,
Now you know I’m not going to be around after 30 June, it’s time to tell you the truth. Not that I haven’t been telling you the truth, of course, just that the truth you hear isn’t really the truth I’d like to hear were I sitting in your chair.
The media has whipped up its usual frenzy about me leaving, but I hope you weren’t too surprised. I mean, really, why would I stay? I was planning on making hundreds of millions out of those options you gave me in 2005. From the day of my arrival I talked the share price down so the options would be issued at a low price. And I’ve done everything since to massage the cash flow and talk the share price up. The ducks were lining up for a 2010 bonanza. Then this ‘financial crisis’ rocks up and it looks like they’re going to be worthless.
I know you think $11m a year is a lot of money, but these Australian pesos will struggle to buy a meal deal by the time I get home. And you know how much I love a stoush. These socialists you’ve put in charge of the country are so soft I’m getting bored. The only reason I’m staying till June is because I like you so much.
But you don’t need to worry. They say you should buy businesses that any idiot can run because, some day, one will. You’re lucky enough to own one of those, although those academics and government employees you had running the show before me were really testing the theory.
The country doesn’t work without the infrastructure you own and, because you’re spread out all over the place, no one else can afford to replicate those assets. It doesn’t really matter whether it’s the internet, mobiles or the old landline, people are going to communicate and you’re going to collect revenue from it.
Consider some of the statistics. In the last six months alone we sent 4.4 billion text messages on behalf of our 9.7 million mobile customers – that’s 454 text messages each (you guys really do hate to talk). There are 7.83 million landlines connected directly through Telstra and another 1.34 million people that think they’re connected through someone else but are indirectly paying us. Broadband internet connections total 5.4 million and there are still 435,000 of you messing around with dial-up connections. Remember this is a country of only 21 million people.
Australia doesn’t work without Telstra – and that’s why you get to collect mountains of cash. I’ve been trying to bring forward as much capital expenditure as I can – the idea being we wouldn’t have to spend much in my swan-song year of 2010, the numbers would look great and my options would be worth a fortune. Even so, in the last six months alone, the business generated $1.9bn of cash with which to pay you dividends.
The main problem you have is that you’ll always need to spend a fortune keeping up with technology. This NextG network is the bees’ knees for now, but I have no doubt that in 10 years’ time, your $10bn investment will be old hat and you’ll be spending another fortune on whatever is next. The cash flow will look great in 2010, just as I planned it, but don’t be fooled – this business will always require substantial investment.
Oh, and there’s also the problem that your pension scheme is short of what it needs by about a billion dollars. We lost $314m on our investments since June and, now that interest rates are so low, they reckon you’ll need an additional $750m to meet your obligations. It’s not huge in the scheme of things, but something I thought you should know about.
All in all, though, I’m leaving you in pretty good shape. The one person I feel sorry for is my mate and your chairman, Don McGauchie. He’s a good man Don and he’s always stuck by me (probably didn’t have much choice given he employed me) but I’ve left him in the lurch.
He might say he’s got a succession plan all organised but I don’t see too many candidates. My amigos have already left or are coming with me and, between us, we sacked or scared off the rest of the senior management team. So Don’s got a problem. I’ve tried to convince him to join the rest of us in the Bahamas – hopefully he’ll see the light.
Finally, good luck. I can’t say I’ll miss the cockroaches or 100 degree days but I’ll always look back on my time here fondly. It mightn’t have been as profitable as I’d hoped, but I’m sure I’ll get by.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.