mts allstream 1x1 book. sept 13 2011.final allstream … · $1.665 b to $1.765 b $550 m to $590 m...
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September 2011
www.mtsallstream.com
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Safe harbour notice
This presentation contains certain forward-looking information. Material factors
or assumptions were applied in drawing conclusions or making a forecast or
projection reflected in such forward information. Actual results may differ
materially from a conclusion, forecast or projection in such forward-looking
information. Additional information about such material factors and assumptions
can be found in MTS’ filings with the Canadian securities regulatory authorities.
Except as required by law, MTS disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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MTS Allstream is a leading telecommunications providerin Canada.
MTS
Wireless
High-speed Internet
IPTV
Converged IP
Unified communications,
security and monitoring
Local access
Long distance and legacy data
Allstream
Converged IP
Unified communicationsand security
Local access
Long distance and legacy data
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2011 strategic priorities
Be the Manitoba leader in home servicethrough unique bundle offerings
Drive growth in high-margin, on-net IP-based servicesto improve profitability
Deliver superior customer service,while aggressively improving our cost structure
…to produce strong cash flowsin support of our dividend policy.
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6
Local access
29%
All other revenues
14%
Broadband and
converged IP
21%
MTS is positioned for market leadership for years to come.
6
MTS revenue grew 3% in H1 2011 over H1 2010
Wireless up 9.3%, driven by 45.5% data revenue growth
High-speed Internet up 5.5%
IPTV up 17.5%
MTS: The market leader in Manitoba
Wireless revenues represent 36%of MTS revenues in H1 2011.
MTS revenue mix - H1 2011
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INNOVATIVE SERVICE BUNDLES
Customers on a bundle generate higher average revenue per user (“ARPU”)and are less likely to switch to a competitors’ services.
MTS: The market leader in Manitoba
MTS is the only provider in Manitoba able to offer a wirelessbundle or a four-service bundle.
MTS is investing in fibre to the home; 25 new communities will have FTTH by 2013.Deep fibre penetration allows us to provide innovative services and enhancesour bundle offering.
+ + + +
8
• 4G network• Wireless high-speed data coverage is now
available to 97% of Manitobans,up from 72% with EVDO
• Capable of cost-effective upgrade to LTE
• Over 185 MTS Wi-Fi hotpots across Manitoba• Available to wireless and Internet subscribers• Improved customer experience with increased
upload/download speeds
MTS: The market leader in Manitoba
MTS has the best wireless coverage in Manitoba throughWi-Fi, 4G and CDMA-EVDO networks.
Network CoverageNetwork Coverage
Delivers wireless high-speed datato 97% of Manitoba’s population
Wireless data revenues grew 46.2% in 2010.1
Strong demand for high-speed wireless datacontinued in H1 2011, up 45.5% over H1 2010.
1 Full-year 2010 vs. full-year 2009
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Strong market share in Manitoba
Internet
WirelessWireline
1 Greater Winnipeg market
33%
57%
55%78%
IPTV1
MTS: The market leader in Manitoba
MTS is leveraging its competitive advantages to maintain strongmarket share across all segments and grow wireless, high-speedInternet and IPTV revenues.
MTS’s competitive advantages
Top brand recognition
Strong, exclusive distributers
Product leadership
Unmatched bundles
These competitive advantages createcustomer value and loyalty whichcontribute to strong results.
Internet
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11
0
200
400
600
800
2010 2011E 2012E 2013E 2014E 2015E
Local Access Converged IP Legacy & Other
We are managing Allstream’srevenue mix to shift our focus tohigh-margin IP revenues and exitlow-margin lines of business.
In H1 2011, IP revenue grew 9.2%and IP-based services generated28% of Allstream revenues.
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Allstream is focused on high-margin IP revenues to increaseprofitability and seize the opportunity in this growing market.
Allstream: Driving growth in IP
Allstream revenue trends
1 H1 2011 vs. H1 2010; normalized for restructuring costs.
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GrossMargin
COGS
56.6%H1 2011
At Allstream, we have made decisions to improverevenue mix and grow EBITDA.
12
Allstream: Driving growth in IP
GrossMargin
COGS
Allstream gross margin increased 2.1ptsfrom H1 2010 to H1 2011
54.5%
*Consult our Q2 2011 Supplementary Information Package for more information.
H1 2010
IP is Allstream’s highest-marginproduct with average gross marginof over 72%.
Allstream’s overall gross marginincreased from 54.5% at H1 2010to 56.6% at H1 2011, due topositive changes in revenue mix.
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61%
39%
0%
20%
40%
60%
80%
100%
Off-Net
On-Net
Allstream: Driving growth in IP
Allstream is focused on driving IP revenue growth, deliveringstronger margins by expanding the on-net footprint, and managinglegacy services for profitability.
IP gross margins are higherwhen traffic is on our network
In 2010, 61% of new IP circuits were on-net,a significant increase over historical trends
Circuits added in 2010
IP gross margins are expected to gradually increase over timeas the proportion of on-net circuits to off-net circuits grows.
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Allstream’s fibre network spans30,000 km across Canada
Allstream has fibre penetrationin the four major urbanbusiness centres in Canada
Since Q2 2010, Allstream has connected 239 buildings to itsnetwork as part of targeted, success-based investment programs.
Allstream: Driving growth in IP
Connected fibre-fed buildings
Q2-10 Q3-10 Q4-10 Q1- 11 Q2-11
2,164
2,211
2,089
2,022
1,972
IP margins are higherwhen traffic is on our network
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Allstream is managing legacy services for profitability andreinvesting these cash flows in IP services.
IP revenues are expected to represent nearly 40%of Allstream’s revenue mix by 2013.
2010 2013
26%
24%10% 23%
11%
26%
Converged IP Local Access UC & Security LD & Legacy Data & Other
36% 28%
11% 25%
H1 2011
40%
Allstream: Driving growth in IP
40%
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Consolidated financial results
17
MTS Allstream increased 2011 financial guidancefor revenue, EBITDA and EPS.
Consolidated, in accordance with IFRS
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Revenues
EBITDA
Free cash flow
Capital expenditures
$1.665 B to $1.765 B
$550 M to $590 M
$110 M to $150 M
16% to 18% of revenues
MTS Allstream: Strong foundation, strong future
$1.700 B to $1.780 B
$580 M to $610 M
Earnings per share $2.00 to $2.45$2.40 to $2.80
No change
No change
OriginalUpdated2011 financial outlook
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17.4%Capital intensity*
53.9Free cash flow*
0.97EPS ($)*
269.4EBITDA
884.9Revenue
H1 2010(in millions $, except EPS)
Consolidated, in accordance with IFRS
H1 2011
883.0
300.6
1.43
82.2
13.9% 3.5 pts
52.5
47.4
11.6
Positive trends in all key financial metrics showthat our strategy is working.
(0.2)
%
MTS Allstream: Strong foundation, strong future
*EPS, free cash flow and capital intensity were positively impacted by a one-time $20 million SR&ED investment tax creditin Q2 2011. Excluding the impact of the SR&ED ITC adjustment, free cash flow was up $3.8 million in Q2 and $7.6 millionin H1, while EPS was up $0.10 in Q2 and $0.34 in H1, over the same periods of 2010.
17.6%
33.3
0.54
138.8
442.9
Q2 2010Q2 2011
443.7
150.8
0.76
57.8
12.3% 5.3 pts
73.6
47.4
8.6
0.2
%
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ReducedCapital
Spending
IncreasedEBITDA
ReducedPensionSolvencyPayments
ReducedRestructuring
Costs
2010Free Cash Flow
2011Free Cash Flow
$34.1 M
$110-$150M
Q1 pension solvency funding of $24.4M, no further cash funding requirements in 2011
SR&ED investment tax credit will be utilized when MTS Allstream becomes taxable
H1 results on target to support our dividend and achieve2011 free cash flow guidance. Consolidated free cash flowis expected to improve significantly in 2011.
MTS Allstream: Strong foundation, strong future
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Investment-grade debt ratings
“BBB/Stable” for both DBRS and S&P
Stable consolidated EBITDA margins reflect prudent cost management and areexpected to continue in 2011
$315 million tax asset means no cash tax payments until 2019
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MTS Allstream delivers solid financial performance.
MTS Allstream: Strong foundation, strong future
*Estimated, in accordance with IFRS
33%29%
2008* 2009*
32%
2010
34%
H1 2011
Stable EBITDA margins
2121
Strong H1 performance
MTS delivers 3% year-over-year revenue growth
Allstream delivers 9.2% year-over-year converged IP revenue growthMTS Allstream EBITDA increases $31.2 million, or 11.6%,with free cash flow up by $28.3 million, over prior year
Making investments in support of a long-term strategy4G wireless network launchedFibre to the home deployment in ManitobaExpanding our national fibre network with more on-net buildings
Due to strong performance in H1, MTS Allstream raised 2011 guidance forrevenue, EBITDA and EPS.
The Company has demonstrated stability over time based onstrong fundamentals, regional market strengths and strongfinancial metrics in support of the dividend.
MTS Allstream: Strong foundation, strong future
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Appendix – Definitions
• EBITDA – We define EBITDA as earnings before interest, taxes, depreciationand amortization, and other income. EBITDA should not be construed as analternative to operating income or to cash flows from operating activities(as determined in accordance with International Financial Reporting Standards)as a measure of liquidity.
• Free cash flow – We define free cash flow as cash flow from operatingactivities, less capital expenditures, and excluding changes in working capital.Free cash flow is the amount of discretionary cash flow that we have forpurchasing additional assets beyond our annual capital expenditure program,paying dividends, buying back shares, and/or retiring debt.
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