I’ve had a tough time of late with my home broadband provider, Optus.

The details are too painful (and boring) to recount, but let’s just say that after 10 days without internet, I’ve learned the true meaning of “on hold.”

Rather than scream into the void, I decided to channel my rage productively: digging into Optus’s financials. If it sucks this much to be a customer, maybe it’s because shareholders are making out like bandits?

Spoiler: They’re not.

Back in 2001, Singapore-based Singtel (SGX:Z74) bought Optus for a cool A$14 billion — or about A$27 billion in today’s money. Given the lackluster growth and repeated impairment charges, it’s safe to say things haven’t gone to plan.

Even the most recent annual report reveals a litany of red flags: “strategic resets,” “broader macro challenges,” and the pièce de résistance, a whopping A$1.4 billion in “non-cash impairment charges.”

You’ve probably seen write-downs before. They’re not uncommon, and companies love to emphasise that they’re “non-cash” charges — just some harmless accounting adjustments and not a real loss.

That’s always stuck in my craw. So, if you’ll humor me, I’m going to vent a little. And yes, I’ll pick on Optus because, well, screw those guys. But my frustration is really directed at any company that tries to downplay the very real evisceration of shareholder wealth.

Let’s rewind for a second.

When a company acquires a business, like SingTel did with Optus, the assets are added to the acquirer’s balance sheet. If they paid more than the tangible asset value (as often happens), the difference gets logged as “goodwill.”

This isn’t inherently bad. After all, a company’s worth is usually more than the sum of its tangible parts.

For example, if you build a shiny new fiber optic network for $1 billion, that cost becomes the starting value of the asset on your balance sheet. Over time, depreciation takes a bite out of that value, reflecting wear and tear — the second law of thermodynamics in action.

But every so often, auditors come knocking. “Hang on,” they’ll say, “these assets aren’t worth anywhere near what you’re claiming.” When that happens, companies are forced to ‘write-down’ the value of those assets.

These impairments are labeled as “one-off” because companies hope they won’t have to do it again anytime soon. And yes, they’re technically “non-cash” because there’s no associated cash flow in the current year. But make no mistake: the loss is very real. It’s a direct acknowledgment that previous investments haven’t panned out.

For example, SingTel’s FY24 results show a 64% drop in profit, thanks largely to those writedowns. Yet management helpfully offers an “underlying” profit figure that excludes these pesky adjustments. Voila! A 10% profit increase.

But make no mistake, the losses represent wasted shareholder funds. It’s only “non-cash” in the sense that no cash left the bank that year. Try selling those assets, though, and the loss will hit home hard (and could even be worse than the impairment charge suggests).

It’s like pretending you haven’t lost money on stocks you bought at 10x their current price because “it’s not a loss until you sell”.

Keep telling yourself that champ, but it doesn’t change the brutal reality of the situation.

Here’s the real issue: SingTel has copped loads of write-downs over the years. And that’s a loud, flashing warning sign. It screams that they’re either terrible at acquisitions, terrible at managing acquired assets, or both.

Why? Because good capital allocators don’t routinely throw money at bad investments. And smart capital allocation is the only thing that matters when it comes to driving long-term value creation.

SingTel, however, seems to rely heavily on cost-cutting to drive growth rather than delivering real value to customers — something that is depressingly effective in the short term, but crippling in the long run.

The bottom line? Be wary of any company that frequently reports write-downs — no matter how much they try and point to ‘underlying’ numbers.

That said, no company is perfect. Even the best businesses occasionally strike out or overpay for an acquisition. But when that happens, a little honesty from management goes a long way.

Anyway, I’m jumping ship to Aussie Broadband (ASX:ABB), a company with a clear focus on customer service. Given my recent experience with Optus, it’s no surprise they’ve been winning market share and delivering strong earnings growth for shareholders.

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