M2 FY11 Results Presentation

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1 M2 FY11 Results Presentation Vaughan Bowen, Managing Director / CEO 29 August 2011 FY11 Results Presentation, 29 August 2011, Slide 1

2 Disclaimer The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this presentation is released, published or distributed should inform themselves about and observe such restrictions. This presentation does not constitute, or form part of, an offer to sell or the solicitation of an offer to subscribe for or buy any securities, nor the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issue or transfer of the securities referred to in this presentation in any jurisdiction in contravention of applicable law. Persons needing advice should consult their stockbroker, bank manager, solicitor, accountant or other independent financial advisor. Certain statements made in this presentation are forward-looking statements. These forward-looking statements are not historical facts but rather are based on M2 s current expectations, estimates and projections about the industry in which M2 operates, and its beliefs and assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks, "estimates, guidance and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors, some of which are beyond the control of M2, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. M2 cautions shareholders and prospective shareholders not to place undue reliance on these forward-looking statements, which reflect the view of M2 only as of the date of this presentation. The forward-looking statements made in this presentation relate only to events as of the date on which the statements are made. M2 will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this presentation except as required by law or by any appropriate regulatory authority. FY11 Results Presentation, 29 August 2011, Slide 2

3 Presentation content Overview of the M2 business The Numbers Business Evolution Looking forward - FY2012 FY11 Results Presentation, 29 August 2011, Slide 3

4 Overview of the M2 business The Numbers Business Evolution Looking forward - FY2012 FY11 Results Presentation, 29 August 2011, Slide 4

5 Fast Facts About M2 Through organic growth and selective acquisitions, M2 has delivered 10 consecutive years of growth in earnings and Earnings Per Share More than 450 team members across 7 cities nationally. Retains Founded founding Board 1999, listed & management on ASX 2004, team entered S&P/ASX500 in 2010 $400m+ in annualised revenue. Approximately 1% telecoms industry market share Ten consecutive years of growth Minimal network in earnings, EPS infrastructure. and DPS Technology flexibility. Low capital expenditure In the 11 years since its incorporation, M2 has become the largest network independent telco in Australia FY11 Results Presentation, 29 August 2011, Slide 5

6 Our Goal To be the pre-eminent provider of telecoms services to Australian small and medium businesses (SMBs) and to reseller telecoms service providers (SP s) FY11 Results Presentation, 29 August 2011, Slide 6

7 M2 Group Structure (Australia) Full suite of services Target markets SMB s (predominantly) + consumers Reseller telecoms service providers FY11 Results Presentation, 29 August 2011, Slide 7

8 Strategic Platforms Focused Markets Customer Experience Team Technology & Suppliers Channels to market Core retail market: Small and medium sized businesses (SMB s) Core wholesale market: small and medium sized telecoms service providers (SP s) Secondary markets: selected consumer segments and mid-sized corporates Customer satisfaction surveys returning excellent and improving results M2 Telecom s net promoter score is +38 Southern Cross Telco s net promoter score is +48 Billing / operating systems investment to further improve customer experience M2 s team culture at the core of the Company s success Comprehensive Team Member Benefits Program Long standing wholesale supply arrangements with major infrastructure owners Infrastructure lite = low capital expenditure, low exposure to technology change risk or stranded network assets Exclusive Commander channel in dedicated territories Australia wide Rapidly growing People Telecom channel with Australia-wide presence 450+ people representing M2-owned brands and offerings across all channels FY11 Results Presentation, 29 August 2011, Slide 8

9 The M2 Brand Family FY11 Results Presentation, 29 August 2011, Slide 9

10 Overview of the M2 business The Numbers Business Evolution Looking forward - FY2012 FY11 Results Presentation, 29 August 2011, Slide 10

11 FY11 - The Numbers $m FY11 FY10 % Change Revenue Up 5% EBITDA Up 54% EBIT Up 61% EBIT (underlying) Up 60% NPAT Up 72% NPAT (underlying) Up 68% EPS (cents) Up 56% EPS (cents, underlying) Up 52% Final Dividend (cents, ff) 9 5 Up 80% FY11 Dividend (interim + final) Up 60% * Underlying EBIT, NPAT and EPS results each include an add-back of a non-cash cost of $3.744 million in FY11 ($2.466m in FY10), comprised of amortisation costs associated with customer contracts acquired in the relevant period (in accordance with Australian Accounting Standards) FY11 Results Presentation, 29 August 2011, Slide 11

12 FY11 financial highlights Record results across the board: EBITDA, NPAT, EPS, DPS EBITDA margin (EBITDA as % of revenue) increased by 47% to 11.3% versus FY10 (7.7%) EBITDA negatively impacted by $1.5m due to debtor provision made in June 2011 related to Edirect acquisition Profit growth driven principally organically via: Gross margin improvement through improved wholesale purchasing Realisation of operating cost efficiency benefits FY11 Results Presentation, 29 August 2011, Slide 12

13 Consistent, steep earnings growth Revenue, EBITDA & NPAT growth ($m) FY05 FY06 FY07 FY08 FY09 FY10 FY11 EBITDA NPAT Revenue FY11 Results Presentation, 29 August 2011, Slide 13

14 EPS and DPS rising rapidly More than 550% growth in DPS and EPS over 6 years 25 DPS & EPS growth cents FY05 FY06 FY07 FY08 FY09 FY10 FY11 DPS EPS FY11 Results Presentation, 29 August 2011, Slide 14

15 Lowly geared balance sheet $m 30 June June 10 Cash at bank Total assets Total liabilities Net assets Net tangible assets (22.8) 6.5 Net debt EBITDA to Interest coverage = 27 times EBITDA to interest banking covenant = 5 times FY11 Results Presentation, 29 August 2011, Slide 15

16 Overview of the M2 business The Numbers Business Evolution Looking forward - FY2012 FY11 Results Presentation, 29 August 2011, Slide 16

17 A the top After 12 years, Vaughan Bowen, founding CEO & Managing Director, to assume new role as Executive Director, following conclusion of AGM on 28 October 2011 Geoff Horth, M2 s Chief Operating Officer (COO), to be appointed as CEO following conclusion of AGM on 28 October 2011 Horth brings 20 years telco experience, including 2½ years as member of M2 executive team Horth to continue focus on core growth strategies and contribute strong systems and processes capabilities Bowen to focus on acquisition targets, key carrier/supplier relationships, Group strategy and to remain member of Board of Directors FY11 Results Presentation, 29 August 2011, Slide 17

18 M2 and the NBN M2 amongst first to connect customers in mainland trial sites (June 11) NBN levels playing field, via a single source of wholesale fibre M2's business model validated - all telcos become resellers for fixed services (a la M2) M2 has no stranded assets due to NBN M2 has operated as reseller for 10+ years, thus no restructuring costs or distraction Sales and customer service capability will define telco's in NBN world. This is core M2 "DNA" FY11 Results Presentation, 29 August 2011, Slide 18

19 Introducing Ninja New Business Support System ( BSS ) selected in FY11 BSS named Ninja via M2 team-wide naming competition M2-specific customisation to BSS completed in July 2011 Ninja to deliver business-wide billing, provisioning, customer support, web-based customer care, dealer support tools etc Material savings in operating costs, efficiency improvements, product design flexibility and speed to market Phased deployment of Ninja over 18 months, commencing September 2011 FY11 Results Presentation, 29 August 2011, Slide 19

20 Overview of the M2 business The Numbers Business Evolution Looking forward FY12 FY11 Results Presentation, 29 August 2011, Slide 20

21 The Year Ahead (FY12) Margin expansion, investment in future growth and efficiency EBITDA margin forecast to further expand by 32%, to 15% of revenue Material incremental investments in sales channels, lead generation and targeted marketing One-off costs in FY12 relate to: Implementing national brand consolidation Establishment of expanded SMB dealer / agent channel Realising business efficiencies from Ninja implementation Unprofitable, non-margin revenues eliminated in FY12 (approx $55m) FY11 Results Presentation, 29 August 2011, Slide 21

22 Guidance FY12 $m FY11(a) FY12 Guidance % Change (from midpoint) Total Revenue 426.8* Down 6% Customer Revenues Up 7% EBITDA Up 24% EBITDA Margin (EBITDA / Total Revenue) 11.3 % 15% Up 33% NPAT Up 15% NPAT (underlying**) Up 15% EPS (cents per share) Up 15% EPS (cents per share, underlying**) Up 15% *Total Revenue in FY11 included approximately $55m in very low margin revenues, relating to the Edirect business prior to its acquisition by M2 in March Following M2 s acquisition of Edirect, these revenues ceased and therefore do not figure in FY12 guidance. The resulting effect of this revenue elimination is a marked increase in FY12 profit margins versus FY11 ** Underlying NPAT and EPS guidance each include an add-back of a non-cash cost of $3.7 million, comprised of amortisation costs associated with customer contracts acquired in the relevant period (in accordance with Australian Accounting Standards) FY11 Results Presentation, 29 August 2011, Slide 22

23 FY12 Priorities Mobilise sales channel expansion and improvement programs Implement Phases 1 & 2 of Ninja (BSS) deployment Realise Ninja-generated operating efficiencies and process improvements Advance development of NBN engagement plan (beyond existing trial locations) Implement initial next generation hosted / cloud products Evaluate complementary acquisition targets (both Australia and NZ) Continued focus on improving customer satisfaction ratings FY11 Results Presentation, 29 August 2011, Slide 23

24 Key Investment Metrics 26 Aug 11) No. of Shares 123,731,285 Share Price $2.92 Market Capitalisation $361 million Dividend Policy 70% NPAT FY11 Dividend 16.0c Div Yield (based on FY12 Guidance) 6.19% PE Ratio (based on FY12 Guidance) x PE Ratio (underlying) x Substantial Shareholders (>5%) Hunter Hall Cornish Group Vaughan Bowen Pengana Capital FY11 Results Presentation, 29 August 2011, Slide 24

25 M2 Name Position Phone / Vaughan Bowen Managing Director / CEO / vaughanbowen@m2.com.au Geoff Horth Chief Operating Officer / ghorth@m2.com.au Darryl Inns Chief Financial Officer / darrylinns@m2.com.au Debra Mansfield Corporate Communications Manager / debram@m2.com.au FY11 Results Presentation, 29 August 2011, Slide 25

26 Thank you FY11 Results Presentation, 29 August 2011, Slide 26

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