Correspondence

June 20 2009

 

New Zealand Shareholders Association Inc

c/- PO Box 6310

Auckland Central 1141

 

 

Attention: Bruce Sheppard

 

 

Dear Bruce,

 

Thank you for your letter of 21 May.

 

 

The Team Talk Board takes the issue of debt and compliance with bank covenants very seriously. We have a proactive policy which ensures that debt levels and covenant compliance issues are not only regularly reported to the Board but are also the subject of regular Board review.

 

Your concerns on public company debt levels clearly arose from issues associated with Nuplex, and a review of their covenants, yet one has to be careful extrapolating this too far as banks generally tailor their covenants to the companies they are lending to - they do not take a ‘one size fits all” approach.

 

In my experience banking is a lot about relationships and when facilities are entered into covenants are established by mutual negotiation and are designed to fit in with a company’s current and projected financial position.

Even then with three to five year facilities an annual review of the facilities (including term, level and covenants) is done to ensure they continue to be a good fit for both parties.

 

TeamTalk has a longstanding and excellent relationship with its banker who fully understands our business and in particular the contracted nature of a large portion of our revenues. This understanding has enabled us to jointly craft a facility including a set of covenants that suit the nature of the business and its prospects and which we are entirely comfortable with.

 

Our contacted revenues also provide a degree of predictability to earnings and enabled my comments in the Interim Report that “[notwithstanding a difficult time for the economy] underlying operating earnings (i.e. excluding interest rate swap revaluations and the impact of a subsidiary company’s asset sale in the prior year) are expected to be in line with last year”.

 

We take our continuous disclosure requirements to the market seriously and remain comfortable with these comments from February. This is relevant in that your letter refers to TeamTalk “signalling difficult trading conditions” which then leads you to an assumption that 2009 full year EBITDA could be “say $11 million”. However, this would represent a drop of almost 10% from last year and is well at odds with the company’s guidance to the market.

 

Similarly your calculations on interest expense which you estimate at $2.6 million, which is actually an increase on 2008, do not reflect the reality that interest rates in New Zealand are materially lower than they were last year and TeamTalk, along with many other companies, is a beneficiary of these lower rates.

 

For the record, TeamTalk has a strong financial position and is fully compliant with all its banking covenants.

 

 

 

Regards

 

 

 

 

Joe Pope

Chairman