FX Networks mulls options to rein in short-term debt, IPO on the horizon
FX Networks, the privately-held telecommunications network operator, is mulling its options to rein in the amount of short-term debt on its books which has been hampering its bottom-line in recent years and is still working towards an initial public offering.
The Wellington-based company is looking at ways to either restructure its debt or bring in new equity as it struggles with a debt burden from finance leases on cable sections in the South Island and CISCO equipment in the network, which was sitting at $19.3 million at March 31.
The bill on the leases soaked up almost $6.1 million in cash from FX Networks in the year ended March 31, and continued to pose a liquidity risk to the company, attracting a note from auditor Moore Stephens Markhams, according to its 2013 financial statements lodged with the Companies Office. The company's board said it takes the risk seriously and is continuing to actively manage it, according to the statements.
Chief executive David Heald told BusinessDesk the network operator sounded out private equity investors in the past 18 to 24 months for new funding, but the offers were at "incredibly discounted rates" due to the uncertainty in the telecommunications sector and didn't reflect the board's view of the company.
"As we continued to trade through, the board got a lot more confident in the ability of the business to support itself," Heald said. "We are in strong need of restructuring that debt. We've got too much short-term debt."
That could come in the form of either refinancing its debt to get through the next couple of years when the finance leases will be at their most onerous, or finding "an equity investor who's willing to pay fair value."
Heald said FX Networks is still working towards an IPO and listing on the stock exchange, with early 2015 looking like a promising timeline.
"We're not going to be rushed into an IPO for the sake of an IPO, it'll be done in a considered manner," he said.
By that stage, Heald is confident the heaviest burden of the finance leases will be over, and FX Networks will be in a position to start spitting out dividends.
The network company boosted 2013 sales 26 percent to $50.4 million and earnings before interest, tax, depreciation and amortisation 70 percent to $10.7 million, in the year, though the finance bill continued to undermine bottom-line profits. It narrowed its annual loss to $2.2 million from $5.1 million a year earlier.
Heald expects that underlying growth to continue in the current financial year, forecasting annual revenue of $64 million and EBITDA of $16 million.
"We certainly are growing in a market that shows total spend in our sector has gone down," he said.
The change in the market has been beneficial to FX Networks, both from the government-sponsored investment in ultrafast broadband around the country fuelling demand for its services, and from the structural separation of Telecom creating a new customer for the company, Heald said.