S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L. TeamTalk Limited. Investor Presentation

Transcription

1 S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L TeamTalk Limited Investor Presentation October 2018

2 Disclaimer Disclaimer This presentation has been prepared by TeamTalk Limited (NZ company number , NZX:TTK) (Company). This presentation has been prepared in relation to a proposed placement and rights offer of fully paid ordinary shares (New Shares) in the Company under clause 19 of Schedule 1 of the Financial Markets Conduct Act The Company does not guarantee the repayment of capital on the New Shares or the performance referred to in this presentation. To the maximum extent permitted by law, the Company, its affiliates (including Forsyth Barr Limited and Forsyth Barr Group Limited) and their respective affiliates, related bodies corporate, directors, officers, partners, employees and agents will not be liable (whether in tort (including negligence) or otherwise) to you or any other person in relation to this presentation. Information This presentation contains summary information about the Company and its activities which is current as at the date of this presentation. The information in this presentation is of a general nature and does not purport to be complete nor does it contain all the information which a prospective investor may require in evaluating a possible investment in the Company or that would be required in a product disclosure statement under the Financial Markets Conduct Act The historical information in this presentation is, or is based upon, information that has been released to NZX Limited (NZX). This presentation should be read in conjunction with the Company s Annual Report, market releases and other periodic and continuous disclosure announcements, which are available at or Quotation The New Shares will be quoted on the NZX Main Board upon completion of allotment procedures. The NZX Main Board is a licensed market under the FMCA. NZX does not accept any responsibility for any statement in this presentation. Not financial product advice This presentation is for information purposes only and is not financial or investment advice or a recommendation to acquire the Company s securities, and has been prepared without taking into account the objectives, financial situation or needs of prospective investors. Before making an investment decision, prospective investors should consider the appropriateness of the information having regard to their own objectives, financial situation and needs and consult an NZX Participant, or solicitor, accountant or other professional adviser if necessary. Past performance Any past performance information given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. No representations or warranties are made as to the accuracy or completeness of such information. Future performance This presentation includes certain forward-looking statements about the Company and the environment in which the Company operates, such as indications of, and guidance on, future earnings and financial position and performance. Forward-looking information is inherently uncertain and subject to contingencies outside of the Company s control, and no assurance can be given that actual outcomes or performance will not materially differ from the forward-looking statements. Currency All currency amounts in this presentation are in NZ dollars unless stated otherwise. 1

3 Table of contents Introduction 3 CityLink 7 Mobile Radio 13 Financial overview 20 Capital raise overview 23 Appendices 27 2

4 Transaction overview 1 Following a board and senior management refresh in 2016, TeamTalk Limited (the Company ) undertook a strategic review which to date has resulted in the divestment of underperforming assets, a reduction in debt and the formulation of a strategy to grow the business 2 By June 2020, the Company plans to invest $16-18m to roll out a nationwide digital radio network and significantly improve its Wellington CBD fibre network 3 This CAPEX will improve the resilience of the Company s existing operations and revenue streams and provide the platform to offer new and improved services across both the fibre (CityLink) and radio (TeamTalk) businesses to take advantage of compelling underlying industry fundamentals 4 To assist in the funding of this CAPEX, the Company is looking to raise approximately $8.7m by way of a fully underwritten share placement and rights issue of ~$2m and ~$6.7m respectively 5 On 10 October the Company provided guidance in respect of the year to 30 June 2019 of NPAT broadly in line with last years result of $4.4m despite an increase in operating costs associated with growing earnings in future years. Following the capital raise, the Board intends to resume the payment of a dividend for the FY19 year 3

5 Provider of fundamental nationwide infrastructure Owns and operates fibre infrastructure in Auckland and Wellington Difficult / expensive to replicate Positioned to take advantage of growing data consumption The largest commercial provider of nationwide radio in New Zealand and also provides linking radio services (microwave) Difficult / expensive to replicate Positioned to take advantage of the transition of its network to digital radio and the additional services this provides Sustainable and recurring revenues from core operations with growth upside from the provision of new services and investment in key areas 4

6 Company background (1/2) FY16 Senior management and board refresh commenced Suspension of dividend to focus on debt reduction FY17 Strategic review and 5 year plan completed Takeover offer made by Spark at a 78% premium 1 overwhelmingly rejected by Shareholders 70% sale of Farmside at a price in excess of the Independent Advisers Report valuation 2 Significant investment in team and culture FY18 New banking partnership with BNZ Build of new digital mobile radio network commenced Exercised put option to complete sale of Farmside FY19 Commence fibre undergrounding in Wellington CBD and re-architecture of complete network Investment in new systems and capability to improve overall operational efficiency Launch of new services and growth areas 1) Premium to the closing price of TeamTalk shares on the 3 rd of February ) Grant Samuel Independent Adviser s Report March

7 EBIT ($m) Net debt ($m) Company background (2/2) Divestment of loss making business has stabilised earnings 45% reduction in net debt since FY FY13 FY14 FY15 FY16 FY17 FY18 Farmside TeamTalk+Citylink 0 FY13 FY14 FY15 FY16 FY17 FY18 Note: Graph reflects EBIT including impairments Note: Net debt calculated as total borrowings less cash 6

8 CITYLINK Overview UPDATE PICTURE With A DATACENTRE

9 What CityLink does Broadband Services Peering Wi-Fi Fibre networks that support high speed broadband services including internet access and telecommunications access services Owns and operates New Zealand s Internet Exchanges that provide a market place for Internet Service Providers, Corporates and Content Providers (e.g. Microsoft) to cost effectively exchange terabytes of data each month Operates Wellington City s free Wi-Fi service throughout the CBD supported by Wellington City Council. Targets students and tourists requiring free, high speed Wi-Fi access. Also provides and operates Wi-Fi for a range of other commercial customers Data Centres Government Interconnect Operates three CBD datacentres (two in Wellington and one in Auckland) that provide hosting facilities for customers equipment, cloud based services and an opportunity to sell further access services Operates Telecommunications as a Service (TaaS) interconnection points in the Government s Infrastructure as a Service (IaaS) datacentres. This interconnects the major TaaS providers to each other and content within the IaaS Datacentres. Also manages the Interconnect Forum to set interconnect standards on behalf of Government 8

10 $m Stable customer base An early provider of fibre services since 1995 with long established relationships with building owners providing a competitive advantage CityLink offers customised services that do not require third party suppliers, therefore reducing service connection and restoration time Many customers acknowledge this point of difference and have accredited CityLink as their provider of choice for access and network services CityLink is recognised by its customers for its high quality service CityLink only serves the commercial market 16,000 12, CityLink Revenue by Type 1 51% of all customer connections have been with CityLink for 3 plus years 8, , FY14 FY15 FY16 FY17 FY18 Wholesale Direct 1) FY14 to FY15 have been adjusted from statutory accounts to transfer microwave financial from CityLink segment (wired networks) to Mobile Radio segment (wireless). No change to group level statutory accounts. 9

11 Revenue ($m) EBITDA ($m) EBITDA margin (%) Book Value of Assets ($m) CityLink financials Revenue Earnings Book value of assets % 53% 49% 52% 54% 55% 60% % % 30% 20% % 0.0 FY13 FY14 FY15 FY16 FY17 FY18 0 FY13 FY14 FY15 FY16 FY17 FY18 0% 0.0 FY13 FY14 FY15 FY16 FY17 FY18 Stable revenue base 51% of customer connections have been with CityLink for 3 plus years Low cost to serve and high margins Predictable and stable cost base Flat book value of assets Management estimate replacement cost of $60m which would be difficult to replicate due to civil works including trenching 1) Book value of assets being the carrying amount on the balance sheet 2) FY13 to FY15 have been adjusted from statutory accounts to transfer microwave financial from CityLink segment (wired networks) to Mobile Radio segment (wireless). No change to group level statutory accounts. 10

12 CityLink CAPEX programme CAPEX programme over 18 months to enhance, provide resiliency to the existing network and optimise the network to enable a range of new services to be delivered Catalyst for investment has been the closing of the trolley bus infrastructure in Wellington Transitioning a portion of the current network within the CBD from aerial to underground Undergrounding of Wellington CBD network Opportunity to modernise and upgrade the electronics to provide a more robust solution year agreement with Powerco for the exclusive use of their ducts for fibre in Wellington Enables a quicker and more cost-effective solution of going underground removing a major barrier (avoids major civil works and trenching along with street closure) Re-organising of network architecture High quality upgrades Provide 5G fibre ready rings including an additional node to improve speeds Increasing capacity of the Wellington CBD network from central nodes to customer buildings by at least 200% Improved resiliency of the network and greater speeds / capacity for existing customers Benefits Reduces time to provision new customers and make changes Provides the foundation to be able to meet future market requirements Significantly extend the life of the assets with a lower ongoing maintenance cost 11

13 CityLink growth opportunities Following the CAPEX programme CityLink will have an upgraded Wellington CBD fibre network that will continue to generate significant free cashflow and provides the foundation to take advantage of growth opportunities Dark fibre networks direct to customers: CityLink will meet customer preference for fibre underground as opposed to aerial fibre Improved network fibre enabling increased sale of dark fibre networks to customers 5G ready fibre backbone ring: Allowing CityLink to support rapid deployment of 5G networks by cellular operators in Wellington CBD 12

14 TEAMTALK Mobile Radio Overview

15 TeamTalk mobile radio overview TeamTalk provides the only commercial nationwide mobile radio infrastructure across New Zealand generating revenue from 4 areas. The mobile radio geographic coverage is significantly better than cellular Revenue sources Trunking 40% Private networks 30% Over 850 different customers spread across a range of industries and corporate clients High recurring revenue with average contract term of 3 years Provision of dedicated networks to large enterprises and critical infrastructure Nationwide operations with contracted revenue streams Microwave radio 15% Other 15% Offering IP backhaul to areas outside of Broadband coverage across all of New Zealand (including Chatham Islands) Sales of hardware, data hosting, installation fees and consulting 14

16 Revenue ($m) EBITDA ($m) EBITDA margin (%) Book Value of Assets ($m) TeamTalk mobile radio financials Revenue Earnings Book value of assets % 21% 21% 20% % % % 20% 15% 10% 5% FY13 FY14 FY15 FY16 FY17 FY18 0 FY13 FY14 FY15 FY16 FY17 FY18 0% 0.0 FY13 FY14 FY15 FY16 FY17 FY18 Recurring revenue base across a diverse range of customers Untapped potential of addressable market Predictable cost base Stable margins with fixed operating costs providing operating leverage Steady assets base Management estimate replacement cost of $45m including Tier III and IP backhaul upgrade 1) Book value of assets being the carrying amount on the balance sheet 2) FY13 to FY15 have been adjusted from statutory accounts to transfer microwave financial from CityLink segment (wired networks) to Mobile Radio segment (wireless). No change to group level statutory accounts. 15

17 Tier III digital radio opportunities Current market Estimated ~$65m market size 1 ~84% 1 in the conventional segment Geographically concentrated networks TeamTalk has a ~9% 1 market share Future market Health & Safety requirements driving growth (particularly in areas beyond cellular coverage) Ability to offer network within a network will reduce the conventional segment and increase the trunked segment ~16% 1 of users in the trunked segment Nationwide users TeamTalk has a ~90% 1 market share TeamTalk market share to increase as its national digital network can replace ageing networks in the conventional market Advantage of being able to have a private network across a public network Global professional mobile radio market is expected to grow at a ~10% CAGR over Global trends The number of digital licensed mobile radio users exceeded the number of analogue users for the first time in Key drivers of the DMR innovation are longer battery life, applications over traditional voice only e.g. location tracking, higher connectivity from better coverage, streamlined devices and standardisation 4 1) TeamTalk Target Company Statement Excluding hardware sales 2) Professional Mobile Radio Market to be Worth US$ 36,285.7 Mn by 2026: Transparency Market Research 3) IHS Markit 4) Five Trends Driving Digital Mobile Radio (DMR) Innovation. Smartcom 16

18 Transition to Tier III digital radio trunking network TeamTalk is building a digital radio network that will reduce its network's asset intensity, improve coverage and substantially increase the number of services it can sell Current analogue network 2 independent legacy ageing analogue networks Average age of equipment of 25 years with a useful life of 2-3 years remaining Services provided Analogue voice radio communications New Digital Tier III network One single Digital network Average age of equipment of <1 year with a useful life of years remaining and reduced BAU capex Services provided Digital radio communications Interoperability with cellular Encryption GPS, lone worker, man down Priority calling Job dispatch Voice recording Coverage reporting Location services Telemetry The demand for new digital mobile radio (DMR) services is underpinned by new health and safety regulations and experiences in recent natural disasters along with a fundamental requirement to have geographical coverage over the majority of New Zealand 17

19 TeamTalk mobile radio CAPEX programme CAPEX programme over the following year to complete the digital radio network and ability to offer new services Nationwide digital mobile radio network 25% completed as at September % to be completed by December % by June 2019 Migration Preparation for migration of customers started, including planning with major corporate customers Expansion of the network capacity in line with migration and growth Expansion of coverage to meet customer requirements Equipment and capability to offer new services Benefits Ability to offer a private network across the commercial trunking network Opportunity to grow the market beyond the current addressable market 18

20 TeamTalk mobile radio growth opportunities Following the transition to the digital radio network, TeamTalk will be the largest commercial provider of nationwide digital radio services generating strong contracted revenue and free cashflow with growth opportunities in the near term Largest commercial provider of nationwide digital radio networks with the opportunity to migrate new customers currently on an ageing conventional network onto the digital trunking network and offer a network within a network Contracted revenue from a diverse and stable customer base with the potential to upsell a range of services across a new digital network Lower cost to serve, high margins and low maintenance CAPEX generating strong free cashflow Health & Safety requirements increasing demand for new and existing services 19

21 Financial overview

22 NPBT ($m) EBIT ($m) Revenue ($m) Company earnings from continuous operations 1 40 Revenue Mobile Radio revenue growth of 3.5% driven by customer growth 0 FY16 FY17 FY18 TTK CityLink 10 8 Flat depreciation rates EBIT FY16 FY17 FY18 TTK CityLink EBIT increase supported by improving margins: CityLink FY18 EBIT margin 42% (FY17: 41%) Mobile Radio FY18 EBIT margin 8% (FY17: 7%) NPBT FY16 FY17 FY18 FY19 NPAT to be broadly in line with last years result of $4.4 million Subject to successful capital raise, a return to dividend in relation to financial year ) From continuing operations excluding Farmside from the results that has been divested. Refer to the TeamTalk Annual Reports that can be found at for further information regarding Farmside 21

23 Company cashflow and balance sheet For the year ended NZ$m Statutory FY16 1 Pro-forma FY16 2 FY17 FY18 Stable cash from operations Operating cash flow CAPEX (6.0) (3.5) (3.3) (6.8) Free cashflow PP&E Intangibles Other Total assets Step-up in CAPEX in FY18 to fund start of the digital radio network rollout PP&E increase driven by customer funded projects Continued debt amortisation Equity increase by consistent positive cash generation and operating profit Borrowings Other liabilities Total liabilities Equity ) Statutory accounts includes Farmside 2) Continuing operations excluding Farmside from the results that has been divested. Refer to the TeamTalk Annual Reports that can be found at for further information regarding Farmside 22

24 Capital Raise Overview

25 Equity raising overview The Company is raising approximately $8.7m through a share placement and pro rata renounceable rights issue ( Offers ) Proceeds of the Offers are intended to be used to assist in the funding of: The new national digital mobile radio network The transformation of the Wellington fibre optic network Acceleration of new products and services leveraging our digital radio network and our fibre networks The offer is also expected to deliver other benefits including: Broadening TeamTalk s share register Increasing the liquidity of the Company Providing capacity to pursue future opportunities as they arise Both the placement and rights offer are fully underwritten by Forsyth Barr Group Limited 24

26 Equity raising terms Placement Offer price $0.75 per new share, representing a ~9% discount to the last close price on the NZX of $0.82 Offer size Ranking Approximately $2.0 million Approximately 2.7 million shares New shares issued under the offer will rank equally with TeamTalk s existing ordinary shares and are cum-rights Rights Offer Ratio 1 new share for every 3 existing shares held at 5.00pm on 31 October 2018 Offer price $0.65 per new share which represents a 16% discount to the theoretical ex-rights price of $ Offer size Approximately $6.7 million Approximately 10.3 million new shares (subject to rounding) Ranking New shares issued under the offer will rank equally with TeamTalk s existing ordinary shares Eligibility Options for eligible shareholders Available to persons recorded on TeamTalk s share register on the Record Date, with a registered address in New Zealand (Eligible Shareholders) Each Eligible Shareholder may choose to take up all or some of their Rights, sell all or some of their Rights on market, take up some of their Rights and sell all or some of their balance on market or do nothing with all or some of their Rights. 1) Based on Friday 19 October 2018 close price of $

27 Capital raising timetable Important dates Capital raising announced Annual general meeting 23 October 25 October Placement Placement undertaken Settlement and allotment of placement shares 23 October 25 October Rights offer Record date Offer document expected to be despatched Rights offer opens Rights offer closes Allotment and trading of new shares 31 October 1 November 30 October 20 November 27 November All dates and times are NZ time and are subject to change without notice 26

28 Appendix

29 Appendix: historical earnings For the year ended 30 June NZ$m Pro-forma FY16 1 FY17 FY18 FY17 FY18 Revenue % Operating costs (15.6) (15.3) (15.5) 1.8% Gross profit (0.5%) Other income % Administrative expenses (11.3) (12.2) (11.9) (1.9%) Results from operating activities % Net finance costs (2.2) (1.6) (1.5) (4.0%) Income tax (1.5) (0.4) (1.7) 327.7% Profit from continuing operations (16.3%) Discontinued operations Profit/(loss) from discontinued operations (4.4) (3.2) (0.5) Gain on sale of discontinued operations Profit/(loss) (1.3) ) From continuing operations excluding Farmside from the results that has been divested (70% divested on 31 May 2017, remaining 30% divested 31 May 2018). Refer to the TeamTalk Annual Reports that can be found at for further information regarding Farmside 28

30 Appendix: Current financial metrics Current financial metrics Shares on issue 28.4m Share price 1 $0.82 Market capitalisation 1 $23m FY18 net debt 2 $18m Enterprise value 3 $41m FY18 EBITDA 12.1 FY18 EV/EBITDA 3.4x FY18 EBIT 7.8 FY18 EV/EBIT 5.3x FY18 NPAT $4.4m FY18 P/E 5.3x 1) Close price as at Friday 19 October ) FY18 reported net debt 3) Calculated as the market capitalisation plus net debt 29