It was one of the best questions I’ve heard at any annual meeting. A small shareholder in Ten Network got to her feet and proceeded to silence the room at a fairly standard AGM for the now Canadian owners of the country’s third commercial TV Network.

She asked why the company’s share price had fallen from over $4 in 2004 to $2.87 last night, and why dividends per share had fallen to 14c from 21c.

She contrasted that with the almost doubling in the Seven share price and the rise in dividend from 22c a share to 39c, and then asked why had Ten’s shares had a negative return of 7.6% in the three years and Seven, 31.8%? It was a question executive chairman, Nick Falloon found difficult to answer.

He did point out there had been speculation from time to time about the company as a takeover target and also pointed out that it had paid out 100% of earnings each year.

The reality is that Ten’s earnings have fallen from 2004, which means dividends are down if you are paying out 100% of earnings to shareholders. But to actually say that was too difficult for Mr Falloon to articulate to the meeting. Not with the board looking on, a board whose age belies the Network’s TV broadcast model of a “youth network”, appealing to 16 to 39s and 18 to 49s. Perhaps one would have been in those groups and he was the Canadian deputy chairman, Len Asper.

And, with the Canadian owned Canwest now owning 56.7% of Ten, another part of the answer was the fact that the private equity deal Canwest had been looking for had fallen over earlier this year. Another part of the answer was that for years Ten has had a difficult corporate structure because of the Federal laws against foreign ownership.

Canwest bailed Ten out of its bankruptcy blues just over a decade ago and couldn’t own the shares past 14.9%, so it had to hold debentures, which required payment of interest.

That and the need to keep paying dividends, drained Ten of its reserves and meant its dividend was exposed to any drop in earnings, which happened in 2006 when it was badly hurt financially by the impact of the Commonwealth Games, and sluggish ratings the year before. But Ten had a better year in 2007 with earnings, especially in TV with higher revenues and earnings for the last three quarters. That improvement has continued with overall earnings in the first quarter of the 2008 financial year up 14.2% on the same period last year.

Group earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $122.5 million and its overall EBITDA margin was 38% for the three months ended 30 September.

Mr Falloon told the meeting that while the board had nothing to say on capital management ideas at the moment, it would look at them in 2008.

The tenor of the question from the small shareholder, and the applause it gathered from other holders in the room at Star Casino, should send a message to Mr Falloon and Ten that 2008 might be a time to do something by way of capital management.

The question was well thought out and accurate. It needs an answer more substantive than the one it received this morning.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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