mts show 36 - personal | bell mts...first yoy growth at enterprise solutions since 2001 (ex....
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B u i l d i n g M o m e n t u m
F e b r u a r y 2 0 0 7
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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’s filings with the Canadian securities commissions. 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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Building Momentum
2 0 0 62 0 0 62 0 0 72 0 0 7
Solid Growth Foundation
Building Momentum
• 4 consecutive quarters of solid performance
• Strengthened balance sheet
• Increased free cash flow by 18%
• Achieved two year cost reduction target of $100 m in one year
• Monetized non-core assets for $320M
• Double digit increases in growth services
• Revitalized Enterprise Solutions Division
• NAS declines down 65%*
from Q3 to Q4
• Winbacks on the rise
• Continued double digit increases in growth services
• $40 - $50M in cost savings beyond $120M from 2006 initiatives
• Bundling strategy gaining traction in Manitoba
• First YOY growth at Enterprise Solutions since 2001 (ex. Rogers/AT&T)
• New mid-market enterprise initiative
• Continued leadership in technological innovation
• Continued engagement inregulatory process
*After adjusting for temporary seasonal disconnects
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Delivering Results in 2006
Revenues
(in millions of dollars except per share amounts)
$1,935
Guidance vs. Actual Results*
$1,885
Met or Exceeded Guidance in 4 Key Metrics
EBITDA$655$630
Basic EPS
$2.40$2.10
Free Cash Flow$285$260
G U I D A N C E
G U I D A N C E
G U I D A N C E
G U I D A N C E
$1,917
$650
$2.50
$286
*From continuing operations
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• One of highest dividend yields on TSX - $2.60 per common share• Committed to 70%-80% payout ratio of annual distributable cash flow• Returning proceeds of sale of non-core assets to shareholders via
$320M share repurchase plan
Combined with Annual Dividend, Return to Shareholders Equivalent to $7.20/share
2006 Returns (1)
21.6%18.5%
14.5%17.3%
Telus S&P/TSX BCE MTS
Top 5 Yields on TSX (2)
5.5%
7.0%
5.7% 5.7%
BiovailCorp.
Rothmans Inc.
RusselMetalsMTSBCE Inc.
4.6%
(1) Includes price appreciation & dividends
Creating Long Term Shareholder Value
(2) Source: www.theglobeandmail.com as of Feb. 16, 2007
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SeattleSeattle
VancouverVancouver
VictoriaVictoriaRichmondRichmond
SpokaneSpokane
DetroitDetroit
WinnipegWinnipeg
ChicagoChicago
BuffaloBuffalo
New YorkNew York
ChamplainChamplain
EdmontonEdmonton
CalgaryCalgary
KamloopsKamloops
BurnabyBurnaby
Thunder BayThunder Bay
SaskatoonSaskatoon
ReginaRegina
LondonLondon
SudburySudbury
HamiltonHamilton TorontoToronto
QuebecQuebec
HullHullOttawaOttawa
HalifaxHalifax
St. John’sSt. John’s
MontrealMontreal
Fort McMurrayFort McMurray
National IP Network Footprint
Deep Customer Relationships
National IP Network Footprint
Deep Customer Relationships
#1In all telecom markets
in Manitoba
#1Competitor to Bell and Telus in national business markets
$1.9 billionRevenues in 2006
$286 millionFree cash flow in 2006
Building Momentum from a Leadership Position
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Cost Reductions
Improving Operational Efficiency
• On track to achieve $120M in cost reductions from 2006 initiatives by end of Q1 ‘07
• PLUS an additional$40M - $50M in 2007
100109
$120M + ($40M to $50M)
YE 2007Target
YE 2006Actual
2007Target
Exceeded Our Two Year Cost Reduction Target of $100M in One Year
$M
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First Canadian service provider to market with national IP Trunking service
Leveraging innovative productsand first class service
First Canadian telcoto offer HDTV
Differentiating digital TV with photos and email on demand
First to market Network Resident IP Telephony (NRIPT) services on a national basis
First in Canada with dynamic class of service for MPLS IP networks
Leadership in Technology Innovation
Expanding Customer Base for Growth Services
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Stronger, Focused, More Competitive
Leveraging Our Core Strengths
NationalIP NetworkFootprint
NationalIP NetworkFootprint
InnovationInnovation
Deep Customer
Relationships
Deep Customer
Relationships
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29% 36% 40%+
2 0 0 5 2 0 0 6 2 0 0 7 E
Growth Services > 40% of Revenue and EBITDA by YE 2007
Legacy Growth
Legacy to Growth Services
Driving the Transition
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Wireless Customers
Converged IP Revenue
Unified Communications Revenue
> Gaining Traction in the Marketplace in 2007
CONSUMER DIVISION
ENTERPRISE DIVISION
9% - 12%
High Speed Internet
Digital TV Revenue 35% - 40%
25% - 30%
45% - 50%
12% - 15%
Double Digit Increases in Growth Revenues
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C o n s u m e r M a r k e t s
Leveraging our position as a full service provider to bring unmatched value to customers, reduce churn, enhance growth and reduce costs
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Meeting the Challenge of Local CompetitionEngaging Customers in Multiple Service Relationships
Network Coverage & Capabilities
Network Coverage & Capabilities
New product developmentNew product development
Improving customer experience and interactions
Improving customer experience and interactions
Market based offers/Rational re-pricing
Market based offers/Rational re-pricing
Acquire
Upsell
Retain
Winback
58%*Bundled CustomerGrowth: 2%*Bundled Customer
ARPU:
* Year end 2006 Results
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Winback Numbers
Q2 06 Q3 06 Q4 06 Q2 06 Q3 06 Q4 06 Q2 06 Q3 06 Q4 06
Number of Customers with Multiple Product Bundles
Slowing Declines in Residential Network Access Services
Meeting the Challenge of Local Competition
Continued Growth in Wireless, Internet & Digital TV
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Focusing on Profitable Growth
SmallBusiness
CustomersOver 300K Small Businesses
Within Cost EffectiveMetro Network Footprint
Improving profitability for existing customer base
Leveraging our network and existing suite of products to target customers with cost effective small business bundles
Builds on expertise serving consumer and small businesses in Manitoba
Pilot launches set to begin in Q2/07
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E n t e r p r i s e S o l u t i o n s
Contributing close to $200 million of positive annual cash flowwith significant and achievable long-term growth potential
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Revenue Growth IP VPN Customer Count Growth Services in 2007
• Year-over-year revenue growth expected in 2007*
• Improving margins through increased use of co-location & IP access services
*Excluding Rogers and AT&T
2006-2009 5% CAGR*
2007E 2008E 2009E Q1 06 Q2 06 Converged IP Growth
UnifiedCommunications
135 144158
172
Q3 06 Q4 06
25%-30%
45%-50%
$M
Revitalized & Focused Enterprise Solutions Division
Strengthening Business Fundamentals
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• Growing demand for IP-based solutions in the business market“Mindshift” Roadshow w/Mitel confirmed customers are ready for IP
• In fourth quarter 2006 we generated $61 million of new contracts• MTS Allstream is the first to market Cable Voice (NRIPT) services on
a national basisSignificant opportunity for growthAccess Communications and Persona Communications in Q4 2006
New Customer Wins/Renewals
Gaining Traction in the Market
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10,000Customers
$2 Billion Market
60 – 70%of target market can be served by our state of the art network
3,800Pre-Qualified On/Near
Net Customers
Focusing on Markets where We Can Compete and Be Profitable
39New Dedicated Sales People
TARGETNATIONAL
MID-MARKET STRATEGY
On-Net Business
National Mid-Market Strategy
Targeted Expansion
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B u i l d i n g M o m e n t u m
2 0 0 7 O u t l o o k
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Revenues $1.875 B to $1.925 B
EBITDA $625 M to $655 M
Capital Expenditures 14% to 15% of Revenues
EPS $2.30 to $2.50
Free Cash Flow $240 M to $270 M
Continuing Operations
2007 Financial Outlook
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Strong and Sustainable Dividend
• Free cash flow exceeds cash requirements leading to a growing surplus
• Capital expenditures14% to 15% of revenues
• New federal pension solvency regulations = reduced future funding
2006 → overfunded (reduces 2007 requirement)2007 → $15 million to $20 million solvency payments*
Free Cash Flow Surplus is Growing
2007E 2008E 2009E
Dividend Pension Deficit Funding
Transition & Workforce Reduction
Capex
Free Cash Flow before Capex
*$40-45 M if new rule in place for full year
Dividend is Fully Supported by Free Cash Flow
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Achieving Revenue Growth
2006 2007E
Revenues Excluding AT&T and Rogers
2 - 4%
Achieving Overall Growth in Consolidated Revenues
$M
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Maximizing the Value of Our Tax Assets
Cash Taxes Not Required Before 2014
Book Value Fixed Assets
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$M UCC & ECE Allstream Losses New Tax Loss Carryforwards*
* New tax loss carryforwards are largely due to large CCA claims made in 2009 & 2010
• No payment of cash taxes expectedSubstantial loss carryforwards reduce taxable income to zero
Allstream Losses utilized at May 2009
Taxable no earlier than 2014
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• Broad competition requires open competitor access to public networks owned/controlled by incumbents
• Quality of Service and Essential Facilities Regimes are key regulatory drivers towards competitive market forces yielding improved customer experience, choice and innovation
Momentum Towards Competitive Market Forces
• Federal Government Policy Direction• CRTC Essential Facilities Proceeding
• Clarified Forbearance Framework
Positive Momentum on Competitor Access & Local Forbearance
Competitor Network Access Will Drive Robust Competition, Faster Innovation and Reduced Telco Costs
Actively Engaged in the Regulatory Process
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1,000
0%
10%
20%
30%
40%
50%
Dividends Share Buy Backs Debt to Capital %
Returning Value to Shareholders
1999 2007E2000 2001 2002 2003 2004 2005 20061998
$M
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Share Performance if You Invested $100
MTS S&P/TSX Comp.
$115$100 $115 $149 $160 $140 $122 $155 $178 $221 $259$129$100 $166 $186 $340 $313 $329 $418 $484 $422 $513
Dec31/97
Jan 6/97
Dec31/98
Dec31/99
Dec31/00
Dec31/01
Dec31/02
Dec31/03
Dec31/04
Dec31/05
Dec31/06
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Building MomentumStronger, Focused & More Competitive
Delivering Long-term Shareholder Value
• Sharpened Strategic Focus
• Improved Cost Structure
• Accelerating Growth from Growth Services
• Continuing Leadership in Technological Innovation
• Deep Customer Relationships, Solid Foundation for Growth
• New Growth Initiatives
• Strong & Sustainable Dividend
• Active Regulatory Engagement
B u i l d i n g M o m e n t u m
F e b r u a r y 2 0 0 7