Forum Archive Index - December 2000

["hugh webber" <hugh.webber@clear.net.nz>]

Chris, I agree with a fair bit of what you say. I'm not asking that ITC
suddenly 
turn itself into an income stock, my postings are intended to indicate that
there
are lots of different ways to reward shareholders and they obviously
haven't 
even given it a moments thought.
Some of what you say indicates that ITC has a problem in not being on a big
enough
scale. If it was bigger with a lot more projects then they would constantly
be
in the position of being able to hock a completed project off to get a
positive
cash flow and reward shareholders. 
Remedies; raise more capital and get into more projects? do some
partnerships?
expand more outside NZ?
The problem is that I have grasped the concepts of VC and ITC in particular
and I
can see the flaws. The flaws are not irreparable but they require some
imagination
whereas the management has a very limited vision. Probably its doing a good
job
in finding and developing IT projects but unfortunately that's not enough
to succeed.

Did somebody say China? aaaaarrrrrrrrrggggggggghhhhhhhhh!!!!!!!!!!!!!!
The list of NZ companies who thought 'the solution' lay in China is so long
I can't 
remember them all ..... how about Milburn, Lion, Richina, Aquaria to start
with....
and still they don't learn....now we have Tower, ITC....who's next? If we
could just
sell one buzzy bee to each Chinese family, or maybe a pavlova, an insurance

policy, a bottle of beer, a sack of cement, an aquarium visit
then....Nirvana....
Is it some sort of disease like vCJD, mad cow disease?
There's probably some rogue protein in incipient form in Telecom's brain
right
now going through the no symptom incubation until after a few years its
ready to 
leap out and go China! China! china chinarrgghh....
----------
> From: Chris Tse <christse@internet.co.nz>
> To: sharechat@sharechat.co.nz
> Subject: Re: [sharechat] Transcript of ITC Q&A - but where's
theshareholder benefits?
> Date: Monday, 18 December 2000 11:10
> 
> Hugh
> 
> With all due respect, I don't think you have grasped the concept of VC 
> companies or ITC in particular.
> 
> ITC is not an income stock and I doubt that any investors have invested
in 
> it on the basis of expected dividend income.
> 
> Moreover, I would be utterly dismayed if ITC declared a dividend to 
> shareholders - it would be tantamount to management conceding defeat!
Ditto 
> with a share buyback, in specie asset distribution or other form of
capital 
> repayment.
> 
> As regards to "positive cash flow oriented planning", how do you rate the

> sale of exo-net for $9.5 million in cash (plus $3.4 million in Sol 6
stock) 
> in terms of a positive cash flow event? Not bad I would suggest,
especially 
> when you consider the initial cash outlay for the holding was $1.5
million.
> 
> Of course, the pressure is on ITC to put these runs on the board 
> consistently and herein lies the challenge for management. This also
leads 
> to the possible dilemma of deciding whether to exit an investment early, 
> for the sake of appeasing shareholders hungry for a positive financial 
> annual result, or waiting until the optimum time to divest. True
believers 
> of the VC business model would prefer to look behind any annual result
and 
> see how the investee companies are performing, however the catch 22 is
that 
> the market tends to look at the bottom line and re-rate the share price 
> accordingly.
> 
> And of course, you always need some cash to pay the landlord, the staff
and 
> to keep the coffee machine stocked up with beans...
> 
> Same dilemma occurs in their investment decisions - ITC has been sitting
on 
> idle cash for awhile and has kept its spread of investments relatively 
> small. Considering the "one in ten will be a winner" mantra touted by VC 
> companies, this has to be a concern for ITC shareholders, but then again,

> should management splurge out on new investments which may not be quite
up 
> to their investment criteria just to keep the market happy?
> 
> The April tech wreck has resulted in a downgrading of valuations in 
> technology stocks worldwide, and whilst this has resulted in potentially 
> better buys for VC companies, it has also narrowed the opportunities in 
> terms of exit strategies. In this situation I like ITC's strategy of 
> becoming a fund manager for others' equity funds and earning management 
> fees in the process, however I would flag the risk of their spreading 
> management focus and resources too thinly, and 'taking their eye off the 
> ball" in the process.
> 
> And the fact that they are attempting to do this in China of all places, 
> where government regulations and standards of corporate governance are
not 
> black and white, but decidedly grey, certainly ups the risk/reward
premium.
> 
> Having lived and worked extensively in Asia, I am a little concerned
about 
> their China strategy. Firstly, how can they run it effectively from 
> Singapore? Singapore is not China and vice versa. In my experience there 
> can be substantial difficulties in managing a Chinese operation from one
of 
> the satellite Asian cities such as Singapore, Taipei or Hong Kong - in
some 
> cases you may as well be sitting in New York or London. OK, they have a 
> local Chinese partner in TVCPG, but where were they when ITC needed help 
> negotiate the Chinese regulations in setting up the structure for the 
> investment fund? (To quote Jeff Dittus : "The original structure of the 
> fund has changed somewhat to address Chinese regulation that we were not 
> aware of when we started.")
> 
> Despite my reservations on their China strategy I am long ITC and at this

> stage am happy for it to form a small part of the speculative end of my 
> portfolio.
> 
> It is impossible to predict the future prosperity of the likes of VS, DVI

> and Golden Orb, so at the end of the day, investors have to put their
faith 
> in the quality of the people running the show. In this regard I am 
> impressed, so far, with the likes of Jeff Dittus & co., who also deserve 
> credit for fronting up to investors either face to face or by live
internet 
> chat. Their run rate in the first few overs has been pretty good - now
they 
> have to build a good first innings total without losing too many wickets.
> 
> Thanks also to the sharechat team for continuing to organise these live 
> chats - great stuff!
> 
> Chris
> 
> 
> At 06:08 17/12/00, you wrote:
> >hmmmm,
> >I did miss another couple of ways of rewarding shareholders
> >i.e. (ix) return of capital to shareholders on pro rata basis - but this
> >requires some sort of cash suplus planning whereas firms like
> >ITC are in chronic cash deficit binds
> >       (x) concesional share issues and share bonuses to shareholders
> >- but ITC's share price isn't high enough to stand this and it would
> >make the final fall to penny dreadful status.
> >
> >I think firms like ITC are performing a useful economic function in
> >mobilising investment into new technology but its just a pity
> >they don't have some all round vision to realise that it won't work
> >in the long run unless (a) they do some positive cash flow oriented
> >planning (b) develop a strategy for rewarding shareholders.
> >
> >The much better alternatives to actually investing in ITC are to either
> >sell them ideas, become a director or less desirably an employee
> >but keep your suitcase packed.
> >I don't see them as a long term spec investment because they won't
> >be long term unless they cover (a) and (b)....
> >
> >
> >
>
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