Manitoba Telecom Services Inc. (the “Company” or “MTS Allstream”), including its two operating divisions “MTS” and “Allstream”, today announced its financial outlook for 2011. The Company expects to deliver stable year-over-year performance in 2011 as it continues to execute its strategy of driving growth in wireless, television, broadband and IP-based services; increasing high-margin on-net sales at Allstream through success-based capital spending; and ongoing cost reductions.
“Our 2011 financial outlook reflects our belief that improved performance at Allstream, the continued stability and strength of MTS, and tight cost management will combine to make MTS Allstream a more competitive and a more valuable company,” said Pierre Blouin, Chief Executive Officer. “Our strategy at Allstream is working, as evidenced by the increased sales momentum and a disciplined move towards higher-margin on-net business. At MTS, our product leadership, unique bundles and investments in fibre-to-the-home and our new HSPA wireless network give us confidence that we will remain the clear market leader and a source of significant financial strength for the company in 2011 and beyond. Our financial outlook is in line with analysts’ consensus estimates and demonstrates that our strategy is producing the expected results.”
MTS ALLSTREAM’S CONSOLIDATED 2011 FINANCIAL OUTLOOK
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Beginning January 1, 2011, the Company is required to comply with International Financial Reporting Standards (“IFRS”). MTS Allstream’s 2011 financial outlook, as well as its converted 2010 outlook, are presented in the table below in accordance with IFRS. The impact of the changeover from Canadian GAAP to IFRS on MTS Allstream’s financial statements is similar to its Canadian telecom peers. For further information on the Company’s transition to IFRS, please see details provided at the end of this news release.
MTS Allstream is also no longer reporting its financial results on a continuing operations basis. Beginning with this 2011 outlook, the Company will be presenting its financial results on a consolidated basis.
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2011 Outlook 2010 Outlook (converted)
Reported in accordance with IFRS and on a consolidated basis
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Revenues $1.665 billion to $1.740 billion to
$1.765 billion $1.790 billion
EBITDA $550 million to $550 million to
$590 million $580 million
EPS(2) $2.00 to $2.45 $2.00 to $2.35
Free cash flow $110 million to $35 million to
$150 million $65 million
Capital
expenditures 16% to 18% of revenues 20% to 22% of revenues
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The Company’s 2011 financial outlook under IFRS methodology calls for results to be in line with or better than 2010, assuming economic and competitive conditions are similar to 2010. In 2011, EBITDA is expected to be higher when compared to 2010, primarily due to operating cost reductions and lower restructuring costs, partially offset by higher pension expense. Earnings per share (“EPS”) are also expected to grow. Free cash flow in 2011 is expected to be significantly higher than 2010 due to lower capital spending and restructuring costs. MTS Allstream’s balance sheet is expected to remain strong with a net debt to EBITDA ratio of 1.7x. The Company continues to expect that it will not pay cash taxes any earlier than 2019.
MTS Allstream is targeting an additional $25 million to $35 million in annualized cost reductions in 2011 through operational efficiency programs mainly associated with legacy product lines and restructuring initiatives. Restructuring costs are expected to be up to $10 million.
Total capital spending, including expenditures for MTS’s fibre-to-the-home (“FTTH”) deployment in Manitoba, are expected to be 16% to 18% of revenues. Approximately $20 million of the Company’s 2011 capital envelope is allocated to the continued expansion of the FTTH network into an additional four Manitoba communities. The Company now expects that by the end of 2013, 65% of Manitoba households will have access to either VDSL or FTTH technology, giving MTS the largest footprint and providing customers with the most advanced digital television and high-speed Internet services. The Company’s 2011 capital program includes funding for more strategic investments in Allstream’s national IP network to connect fibre to an additional 180 buildings and to pursue its successful high margin IP strategy.
MTS
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In 2011, MTS is expected to continue to be a solid and stable foundation for the Company, generating reliable cash flows and continuing to deliver EBITDA margins that are higher than its Canadian telecom peers. In 2011, MTS plans to fight competitive pressures with a continuation of its focus on multi-product customers and bundles. The Company expects to maintain its market share and drive revenue growth in wireless, high-speed Internet and digital television services.
“Overall, we have done well in 2010 by leveraging our strengths and competitive advantages to defend our home market against aggressive pricing by our cable competitors. The number of customers using our bundles climbed by more than 10% in the first nine months of the year and we expect continued growth in the fourth quarter,” said Kelvin Shepherd, President of MTS. “Looking ahead to 2011, we expect our innovative bundling approach to help reduce the number of customers on short term promotional plans.”
MTS anticipates that its wireless and broadband services in 2011 will continue to increase at similar rates to 2010. MTS now has almost 90,000 digital television subscribers. At the end of December, MTS Ultimate TV service is expected to be available to more than 96% of Winnipeg households. MTS’s accelerated FTTH program will be deployed in four new communities in 2011 where MTS faces cable telephony competitors but where the Company does not currently offer a VDSL-based product. This is expected to improve its competitive position and provide an opportunity for revenue growth by offering services that were previously not available to those communities.
Early in 2011, MTS plans to launch its new high-speed packet access (“HSPA”) wireless services. HSPA technology enables MTS to deliver higher speed mobile data services, up to 21 Mbps, to more customers through an expanded footprint in Manitoba. In addition, MTS customers will have access to a solid HSPA handset line-up and superior national and international roaming capabilities through MTS’s arrangements with Rogers Wireless.
“With our investments in HSPA, our large VDSL footprint in Winnipeg and Brandon, and our planned expansion of FTTH in more communities in Manitoba; MTS will continue to be the Canadian telco best equipped to compete against cable competitors,” Mr. Shepherd added.
ALLSTREAM
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Allstream showed signs of improvement during the second half of 2010 in a national business market that is recovering slowly. Management expects Allstream’s results to continue to improve as the company executes its plans to drive growth in high-margin IP services.
“IP is the fastest growing segment of the Canadian telecom market, and it will define our success in the future. Based on our strong sales levels since June, we expect to see improved results in the fourth quarter of 2010 and in 2011, especially in our profitable IP portfolio, as we work towards achieving a cash neutral position,” said Dean Prevost, President of Allstream.
Allstream continues to shift towards an IP, on-net focus and exit low-margin product lines. This will reduce revenues in 2011, but the Company expects to improve EBITDA and cash flow due to growth in IP revenues, lower restructuring costs, and further legacy cost reductions. In support of the Company’s ongoing efforts to reduce legacy costs and shift resources to support IP growth, Allstream is reducing 150 positions with an expected fourth quarter charge of $6 million and annual cost savings of $13 million. The majority of the positions will exit the business before the end of the first quarter of 2011.
Since June 2010, Allstream’s IP sales have been strong – confirming its competitiveness in the Canadian IP market. At the end of the third quarter of 2010, Allstream’s IP revenues represented about 26% of the division’s revenues or about $220 million on an annual basis. Management expects to grow its IP revenues by 10% to 12% annually over the next three years, which is in line with the overall forecasted Canadian market growth.
Allstream will continue to make targeted investments as part of its plan to extend fibre to 675 multi-tenant buildings over the next few years. In connection with this program, Allstream won 36 new IP contracts in October and November, bringing the total IP contracts Allstream has won through this initiative to 120 as at November 30, 2010. This includes several follow on sales that have increased Allstream’s penetration into these newly connected buildings. Allstream has achieved an additional 90 IP contracts in the expanded Allstream IP co-location footprint. Management expects to connect 180 buildings in total during 2011.
As part of Allstream’s business plan for 2011, management is also undertaking a number of initiatives to improve the division’s results and profitability. These include focusing on winning high-margin on-net IP revenues, developing product life-cycle management plans to exit various legacy services, and reinvesting cash flows from legacy services into IP platforms.
