Safe harbour notice. May 2010

Transcription

1 1 May 2010 Safe harbour notice 2 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 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. 1

2 3 Corporate overview Corporate profile 4 MTS Allstream (TSX: MBT) Serving customers for more than 100 years More than 1.94 million customer connections Revenues of $1.8 billion in ,000 kilometre national network 6,000 employees one of Canada s top employers MTS unit ( MTS ) #1 in all telecom markets in Manitoba Highest in-region margins in Canadian telecom industry Allstream unit ( Allstream ) Coast-to-coast national IP network footprint A leading competitor to Bell and Telus in national business markets 2

3 MTS Allstream product lines 5 A necessity for every day life MTS Wireless Broadband (high-speed Internet and digital tv) and converged IP Unified communications, security and monitoring services Local access Long distance and legacy data Essential for business Allstream Converged IP Unified communications and security Local access Long distance and legacy data financial highlights (continuing operations) Revenues EBITDA Earnings per share Free cash flow Capital expenditures Annual dividend $1,823.4 M $625.1 M $2.64 $233.5 M 14% of revenues $2.60 More than 1.94 million customer connections at Dec. 31/09 3

4 Q1/2010 summary 7 Results trending towards low end of 2010 financial outlook Plans in place to drive growth through balance of year Early results from 2010 strategic investments ahead of plan On track to reach target of $30 million to $40 million in annualized cost savings by end of 2010 MTS continues to have the highest levels of operating efficiency in the industry and strongest competitive position in Manitoba Allstream s EBITDA performance consistent for last three quarters; converged IP revenues growing strongly Balance sheet provides excellent financial flexibility 2010 strategic imperatives 8 Invest in growth products Lead in Manitoba Grow share in Allstream Aggressively improve cost structure Provide the best customer experience 4

5 2010 strategic investments 9 MTS Fibre Allstream Fibre Allstream Wireless Fibre-to-the-Home evolution starting with new housing developments Allows for higher service quality with lower costs Future Internet speeds above 100 Mbps Success-based fibre expansion to improve market reach and profitability Target on-net customers where we earn higher EBITDA margins and are able to control customer satisfaction 2010 investment up to $15 million Expect to launch an innovative and unique wireless/wireline service that builds on our wireline strengths Complements existing wireline services, enhancing profitability Cumulative investment expected to be a maximum of $25 million over about three years Enhancing our customers experience and our profitability Major regulatory changes in Canada 10 As the only national facilities based competitor left in Canada, we stand to gain from a prudent policy framework and procompetitive regulations that increase direct foreign investment in Canadian telecom companies Currently, non-canadians cannot control any telecommunications common carrier that owns or operates transmission facilities In the Throne Speech on March 3, 2010, the Federal Government announced intention to open up foreign direct investment in the telecom industry MTS Allstream actively participating in consultation process 5

6 Major regulatory changes in Canada 11 Government expected to follow 2008 Competition Policy Review Panel recommendation that the federal government adopt a phased approach to foreign investment liberalization in the telecom sector In phase one, restrictions would not apply to new telecommunications startups nor to existing carriers with a market share of 10% or less In the second phase, foreign investment restrictions would be liberalized further MTS Allstream likely to be included in any first phase definition Qualified as new entrant in wireless auction according to same test; national market share less than 10% Government likely to want Allstream to qualify as only national competitor for business market Major regulatory changes in Canada 12 Parliamentary Committee currently holding hearings on restrictions Government expected to launch focused and efficient consultation by early June Introduction of proposed legislative amendments could be re-introduced by fall 2010 MTS Allstream welcomes liberalization of direct foreign investment restrictions 6

7 Proud recipient of numerous awards 13 premierpartner 2008 Competitive Strategy Leadership 2008 Partner of the Year 2008 Community Contribution Award 2008 Business Innovation 14 MTS 7

8 MTS strategic position 15 Market-leader in Manitoba Full-service provider with strong customer relationships Pervasive infrastructure and brand recognition Evolving network in Manitoba with select fibre-to-thehome builds Best distribution channels and richest bundling capabilities Industry-leading margins, strong cash engine Generates over 80% of MTS Allstream s EBITDA Market leadership in Manitoba 16 Market share 81% 59% 58% 34% Local Phone Wireless Internet MTS TV* *Winnipeg market 16 8

9 Digital television 17 34% market share Launched next generation of HDTV end of Q1/09 now branded MTS Ultimate TV Provides most-advanced television experience in Canada, with whole home PVR functionality, capable of recording up to three programs at the same time Bundled product provides access to fastest MTS Internet speeds, up to 32 Mbps downstream Service currently available to 74% of Winnipeg households At March 31, 2010, more than 21,000 customers signed on to new MTS Ultimate TV service Digital television performance 18 Revenue (in millions) Subscribers $42.4 $49.7 $ ,000 90, $ ,000 80,000 75, Q ,000 TV revenues grew to $13.9 million in Q1/10 up 6.9% from $13.0 million in Q1/09 ARPU rose 2.9% Industry leading capabilities with Ultimate TV Platform enables industry leading high speed Internet service, fully competitive with cable Continuing to experience strong customer demand 9

10 Wireless performance 19 Subscribers 458, , , , ,300 Q Q2 Q3 Q4 Q Stable ARPU; north of $54 No new wireless entrants expected in near term On track to launch HSPA later in 2010 MTS premium brand in Manitoba Strategic wireless arrangements with Rogers 20 Shared Manitoba HSPA network deployment represents best opportunity for long-term value creation MTS/Rogers splitting capital and operating costs Efficient upgrade path to LTE HSPA creates potential to further grow wireless data ARPU MTS Allstream gains: HSPA network footprint at a lower capital cost Access to extensive HSPA handset line-up National/international roaming at competitive rates Share of roaming revenue derived from Manitoba network Lowest cost way to build world-class HSPA network in Manitoba 10

11 Alliance with Sprint Nextel 21 Enables MTS to offer larger selection of CDMA handsets to Manitoba customers on a more cost-effective basis Access to Sprint s data applications Relationship includes same or improved benefits as past arrangement with Bell Strengthens MTS s wireless market leadership in Manitoba while HSPA is deployed Lowest NAS loss vs. peers* 22 Meeting the challenge of local competition Bundles contributing to improving trend in NAS erosion MTS NAS erosion compares favourably to peers -5.6% MTS -7.7% -8.0% Telus BCE * Residential Q v. Q1 2009; source: company financials. Q1/10 bundled customer growth up 8.4% 11

12 23 Allstream Allstream strategic position 24 National IP fibre network spanning more than 30,000 km Strong relationships with corporate Canada; more than 70,000 business customers Strong portfolio of innovative IP services Successfully managing transition to growth services Continuing strong growth in converged IP despite weak economy Strategically investing in national fibre network to improve profitability Opportunity to deliver growth through launch of Allstreambranded wireless service 12

13 Diversified enterprise customer base 25 Allstream growth services strategy 26 Continued momentum in converged IP services growth Allstream s largest revenue stream and highest margin product line Allstream s financial results impacted by recession and slow pace of economic recovery Majority of impact concentrated in long distance and legacy data, unified communications Unified communications expected to recover as economy improves Converged IP up 6.1% in Q1/10 Allstream s future growth prospects positive evidenced by strong growth in IP product lines 13

14 Converged IP performance 27 We continue to experience strong demand for our converged IP services Capabilities of the suite of data products offered by Allstream demonstrated by solid growth in IP-VPN customer base At March 31, 2010, Allstream had 344 IP-VPN customers, a 17.0% increase over last year converged IP revenue growth 39% Converged IP represents 25% of Allstream s revenues and growing on average by 10% per year Lowest business access lines loss vs. peers* 28 Allstream TELUS Bell AT&T Verizon -0.8% -1.9% -3.6% -7.5% -8.1% Allstream business access lines compares favourably to peers Allstream business access lines essentially flat Q vs. Q Meeting the challenge of competition * Source: company financials 14

15 29 Strategic investment -Allstream fibre Strategically investing in Allstream s fibre network to drive growth in revenues and EBITDA margins 2010 investment success-based, up to $15 million Part of a three-year plan to extend fibre to 675 select multi-tenant buildings that are within 200 meters of existing national network in Toronto, Montreal, Calgary and Vancouver Also enhancing ethernet capabilities in colocation areas Cost effective expansion will increase on-net footprint by 30% Extends on-net reach and provides margins that are three times better than off-net sales Experiencing positive reception from customers After only three months of marketing to targeted buildings, won 24 new contracts Strategic wireless arrangement with Rogers Allstream wireless opportunity 30 Positioned to offer customers unique wireline/wireless bundles not previously seen in Canadian business market, leveraging convergence Allstream already has wireless business applications, strong sales force, significant customer relationships, distribution channels Strategic wireless agreement lowers our cost to enter business wireless market as we do not have to build our own national wireless network Cumulative investment expected to be maximum of $25 million over next three years Expect to launch Allstream wireless in targeted markets late in

16 31 Financial overview and performance 2010 financial outlook (continuing operations) 32 Revenues EBITDA Earnings per share Free cash flow Capital expenditures $1,780 M to $1,880 M $585 M to $635 M $2.00 to $2.50 $175 M to $225 M 14% to 16% Annual dividend* $2.60 *If and as declared at the discretion of the Board of Directors, and subject to legal requirements Outlook calls for stable sequential results from H2/09 16

17 Q1/10 financial results (continuing operations) 33 Revenues EBITDA Earnings per share Free cash flow Capital expenditures $442.0 M $145.3 M $0.46 $54.9 M 13% Quarterly dividend $0.65 Q1 results trending towards low end of guidance Driving growth in growth services 34 Q1/10 MTS revenues: $227.7 M 1.3 million+ customer connections Q1/10 Allstream revenues: $214.3 M 600,000+ customer connections Wireless Broadband (TV & HSI) & converged IP Converged IP UC & security Local access LD & Legacy data UC, security & monitoring Local access LD & legacy data Stable & high margin local access revenues now makes up majority of consolidated legacy revenues Key growth services (wireless, broadband and converged IP) up 4% in Q1/10 vs Q1/09 (excluding large one-time equipment sale in Q1/09) Growth services revenues represent 47% of consolidated revenues 17

18 Focus on cost efficiency 35 Annualized cost reductions $58.4 (in millions) $41.6 $30 - $40 $ % EBITDA margins 34% 34% 33% E $303 million in annualized savings achieved since program achieved high-end of target range; annualized savings $58.4 million 2010 program target range is $30 million to $40 million $17.3 million achieved Q1/ Q EBITDA margin from continuing operations stable 2010 expectation is for continued stability Long history of disciplined cost management Stable revenues and EBITDA from continuing operations through economic downturn* 36 $ millions Revenues EBITDA Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q * Results adjusted for discontinued operations 18

19 Continued strong free cash flow continues history of strong free cash flow from continuing operations Free cash flow reduced by cost of strategic investments such as Allstream Wireless and fibre network enhancements Quarterly dividends FCF (Cont Ops) E to 225E $ millions We prefunded our 2010 pension funding, HSPA build, certain 2009 restructuring accruals, and deferral account rebates through our December 2009 debt offering No pension solvency payments expected in 2010, assuming new rules implemented by June * * Dividends for 2010 subject to approval by Board of Directors and assume estimated FCF is achieved Attractive annual dividend - $2.60 per share Prudent, timely capital spending 38 HSPA capex Capex from continuing operations CAPEX from continuing operations includes strategic investments for growth 2010 capital intensity (capital as percentage of revenues) in line with prior years MTS capital intensity in line with others in the industry 15% HSPA 0% E Various elements of capital plan are success based; Retain flexibility to reduce spending 19

20 Unique tax assets 39 Cash taxes not required before 2017 UCC & ECE New Tax Loss Carryforwards* Estimated NPV of tax assets at March 31, 2010: $340M Book Value Fixed Assets Incur cash taxes no earlier than * New tax loss carryforwards are due to large CCA claims made in 2009 and 2010 Tax asset worth $5.20 per share Strong history of returning cash to shareholders 40 $ millions Dividends Share Buybacks 300 $412.6 $ Q $2.7B returned to shareholders since

21 Leading peers in total return* % MTS 150% Rogers TELUS BCE 100% 50% 0% Q % -100% *Total return including reinvestment of dividends from Dec. 31, 1999 to Mar. 31, Source: Bloomberg Strong track record of delivering shareholder value Credit metrics 42 Peer Group Net Debt/EBITDA * MTS Net Debt/EBITDA * 2.0x 2.0x 1.5x 1.5x 1.2x 1.3x MTS BCE TELUS * As at December 31, 2009 Strong credit metrics 21

22 MTS Allstream summary 43 Stable company delivering solid cash flows Very strong financial metrics and balance sheet Proven innovator with extensive IP portfolio of services MTS provides solid foundation for company Recently enhanced strategic position through solid partnership with Rogers and HSPA deployment plans Disciplined approach to cost and capital management Well positioned to benefit when economy recovers Attractive dividend Appendix definitions 44 Continuing operations: We provide information that refers to our performance from continuing operations to assist investors in understanding the performance of our company. Continuing operations in 2010 excludes our non-telecommunications information technology ( IT ) consulting business, which has been classified as discontinued operations; restructuring costs; costs related to our high-speed packet access ( HSPA ) deployment and related billing implementation; and certain costs associated with our transition from Canadian GAAP to International Financial Reporting Standards ( IFRS ). Continuing operations in 2009 excludes our non-telecommunications IT consulting business, which has been classified as discontinued operations; restructuring costs; the costs to transition certain wireless service requirements away from Bell Mobility to new suppliers and to our wireless platform; costs related to our HSPA deployment and related billing implementation; costs related to certain regulatory proceedings; certain costs associated with our transition from Canadian GAAP to IFRS; a rebate related to use of deferral account funds pursuant to Telecom Decision CRTC ( Decision ); the impact of changes in statutory income tax rates and other rate adjustments on our tax asset; and solvency funding to our pension plans. EBITDA: We define EBITDA as earnings before interest, taxes, amortization and other income. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity. Free cash flow: We define free cash flow as cash flow from operating activities, less capital expenditures, and excluding changes in working capital. Free cash flow is the amount of discretionary cash flow that we have for purchasing additional assets beyond our annual capital expenditure program, paying dividends, buying back shares and/or retiring debt. 22