MTS Allstream Initiates $320 Million Share Buyback, Confirms Board Support for Annual Dividend of $2.60 Per Share
15 December 2006
Manitoba Telecom Services Inc.(*) ("MTS Allstream" or the "Company") today announced a comprehensive plan for delivering long-term value to its investors and customers.
Under this plan, MTS Allstream will increase cash distributions to shareholders and sharpen its strategic focus on growth opportunities in key segments of the national business market and within Manitoba, where it remains the clear market leader.
Today's announcement marks the end of the Company's formal Business Review and is being made in conjunction with the Company's "2007 Outlook" conference call. The call will feature a briefing on the Company's improved business performance, revitalized strategy for competitive success, and financial outlook for 2007 and beyond. (A live webcast of the call can be accessed at www.mtsallstream.com beginning at 8:30 am ET.)
Specifically, the plan calls for MTS Allstream to:
<<
- Distribute 70% to 80% of the Company's annual distributable cash flow
(before pension solvency payments and restructuring charges) to
shareholders via share repurchase programs and/or dividends;
- Repurchase approximately $320 million worth of shares prior to
December 31, 2007, using all proceeds from the sale of non-core
assets to fund the purchases;
- Maintain its current annual dividend of $2.60 per common share;
- Continue delivering double-digit increases in growth services, which
are rapidly overtaking legacy services as a proportion of total
revenue and EBITDA;
- Adopt a focused market approach that leverages the Company's national
network footprint and core competencies, and launch innovative new
services for:
- mid-size enterprises and small businesses in specific geographic
markets, and
- the Manitoba household/consumer
- Reduce costs by $40 million to $50 million in 2007, in addition to
the $120 million of cost savings expected to be achieved in 2006;
- Direct the majority of the Company's 2007 capital expenditures, which
will total 14% to 15% of revenue, towards investments in
MTS Allstream's growth services.
>>
"Over the past year we have investigated, evaluated and considered the full range of opportunities for creating shareholder value," said Pierre Blouin, Chief Executive Officer. "In the final analysis, and having revitalized and refocused our business, we concluded that MTS Allstream continues to possess an enviable market position and significant opportunities for ongoing growth and value creation. We believe the plan we are announcing today will enable us to compete, win and grow over the long-term. Today's announcement concludes the formal Business Review, but not our ongoing efforts to find opportunities to create and deliver value to our shareholders."
Tom Stefanson, Chairman of the Board of Directors, said, "The plan being unveiled today reflects the conclusions we have reached following an exhaustive review of the available alternatives. It has the full support of the board and contains what we believe are all of the necessary ingredients for the Company's long-term success. On behalf of the Board, I want to commend the entire management team and all our employees for delivering strong results and staying focused on our customers during a period of significant change. MTS Allstream is a very different and stronger Company today as a result of their efforts."
Completed on schedule after being launched on January 31, 2006, the Business Review was undertaken to evaluate the Company's competitive position and strategic opportunities for creating and delivering shareholder value. The review involved extensive consultations between the Board and management, as well as with external financial advisors and industry consultants.
During the review period, MTS Allstream:
<<
- Delivered three consecutive quarters of solid business performance,
including double-digit growth in key product lines and improved
margins;
- Managed a successful leadership transition to a new CEO;
- Sold the non-core Manitoba directory business for $281 million, and
initiated the sale of selected commercial real estate holdings in
downtown Winnipeg, which are expected to generate an additional
$40 million - $50 million in cash proceeds;
- Achieved annual cost savings expected to reach $120 million by year-
end;
- Implemented marketing strategies to accelerate the profitable
transition of legacy related revenues to growth revenues in the years
ahead;
- Refocused and revitalized its Enterprise Solutions division; and
- Continued its track record of being first to market with major new
technology innovations and solutions for Canadian businesses.
>>
"MTS Allstream goes forward with a strong business foundation and a unique value proposition for income-oriented investors. As a common stock Company with one of the highest dividend yields in the country and a $320 million share repurchase program in place, MTS Allstream offers investors significant long-term value and liquidity," said Mr. Blouin. "Combined, the annual dividend and share buyback program will deliver the equivalent of $7.20 per share in 2007."
MTS Allstream has $4 billion in accumulated tax deductions that will shelter the Company from paying cash taxes until 2014. Based on its current plans and outlook, the Company expects to be able to maintain its new payout policy and remain cash flow positive even after MTS Allstream begins paying cash taxes several years from now.
A Strong Foundation for the Future
"We are confident in our ability to compete, grow and sustain a 70% to 80% payout in the years ahead," said Mr. Blouin. "Our outlook assumes that we continue to hold our own in a competitive environment in 2007, and that we will show moderate growth in 2008 and 2009. Our confidence comes from the strength of MTS Allstream's core businesses, and our success in meeting or exceeding our goals for 2006 in a challenging business environment."
"MTS Allstream is Manitoba's clear leader in terms of market share, product choice and customer value, and the top competitor to Telus or Bell in most of Canada's business markets. Now, with a highly competitive cost structure, a more nimble organization and a more focused strategy, we are well-positioned to capitalize on our strengths," said Mr. Blouin.
Mr. Blouin expressed particular confidence in the long-term competitiveness of the Company's Enterprise Solutions division, which continues to win significant new contracts, generate positive cash flow and develop innovative new customer solutions.
"Based on our achievements in 2006 and our outlook for 2007 and beyond, we believe the Enterprise Solutions division has turned the corner following several years of difficult performance," said Mr. Blouin. "For the first time since 2001 we expect revenue in the Enterprise Solutions division to remain stable on a year over year basis. And excluding revenue from Rogers Communications and AT&T, which are transitioning to their own networks, we expect Enterprise Solutions revenues in 2007 will grow on a year over year basis for the first time since 2001."
The Company said it expects its growth services (e.g. wireless, high-speed Internet, digital television, converged IP and unified communications) will contribute over 40% of total revenues in 2007, up from 29% in 2005 and 35% in 2006. It also expects to deliver double-digit increases across its growth services in 2007. Specifically, the Company forecasts,
<<
- converged IP revenue growth of 25% to 30%
- unified communications revenue growth of 45% to 50%
- wireless customer growth of 9% to 12%
- consumer high-speed Internet customer growth of 12% to 15%
- digital television revenue growth of 35% to 40%
- residential network access services decline of 5% to 7%
>>
An important component of MTS Allstream's operating and financial performance in 2007 will be its ability to reduce costs and drive further efficiencies throughout the organization. The Company has identified, and expects to achieve, $40 million to $50 million of annualized operating savings in 2007. These savings are in addition to the $120 million of savings MTS Allstream expects to achieve from its TP2 program in 2006.
The Company expects the associated restructuring costs in 2007 to be $30 to $40 million, representing a combination of capital and expense. These costs are not included in the Company's 2007 outlook from continuing operations.
Blouin said, "We have demonstrated that we can bring our cost structure in line with the realities of the market without diminishing our ability to execute on our strategies and deliver on our promises. In doing so, we are laying the foundation for a lean, focused and responsive Company that is geared for long-term success."
A Sharpened Strategic Focus
MTS Allstream has a unique position in the Canadian communication services industry. It is the leading full service communications provider in Manitoba and a leading presence in national enterprise markets.
In addition to serving its current markets, MTS Allstream announced that it will increase its focus on serving the national mid-market and small business segments. The mid-market strategy is centered on the availability of the Company's market leading IP network in major urban centres. Together these new initiatives are forecast to achieve $200 million of incremental revenues by 2010.
"Our strategy is really about playing to the strengths of our national IP network footprint, our growing suite of innovative products for consumers and businesses, and the deep relationships we enjoy with our customers," Blouin said.
<<
- In the Consumer Markets division where local competition has
intensified, the emphasis will be on growth products/bundles in areas
such as high-speed Internet, wireless and digital TV. MTS Allstream's
goal is to be the one-stop provider of clear choice to the Manitoba
household and consumer, delivering double digit growth in its
internet, television, and wireless services in 2007 in a more
competitive and deregulated market. In this respect, the Company
anticipates being forborne in Winnipeg by the end of 2007, which will
enhance MTS Allstream's ability to compete against new market
entrants.
In addition to its Manitoba strategy, the Consumer Markets division
will launch a new national offering in 2007 designed to meet the
needs of small businesses, which are similar to consumer service
requirements. The national small business product line, which will be
launched in specific geographies across Canada, will feature a
package of simple, repeatable service bundles. The initiative will
build on MTS Allstream's established base of 100,000 small business
customers across the country, and will leverage the Company's
existing network facilities.
- In the Enterprise Solutions division, the Company will build on its
established leadership in advanced IP (Internet Protocol / MPLS)
solutions and unified communications, targeting more than 10,000 mid-
market customers which have an annual aggregate spend of
approximately $2 billion. The strategy involves targeted selling to a
national base of customers that are near MTS Allstream's network
facilities, which cover more than 60% of mid and large businesses in
Canada. The Enterprise Solutions division has just completed hiring
39 dedicated salespeople to spearhead this effort.
As part of this new strategy, MTS Allstream will strive to reduce
direct costs through the migration of customers to the MTS Allstream
network and on continuing to improve its productivity and cost
structure. From a growth perspective, revenues from MTS Allstream's
IP connectivity and Unified Communications product lines are
forecasted to grow at significant double-digit rates.
>>
"Canada's small and mid-size businesses represent an underserved market whose needs are ideally suited to the kind of innovative and scaleable solutions MTS Allstream can deliver," said Mr. Blouin. "We have received encouraging feedback from existing customers and believe we have an approach that will deliver real value to customers and an attractive return for shareholders."
Additional details on these offerings will be provided in the first half of 2007.
Liquidity and Capital Resources
With a solid balance sheet and strong positive cash flow, MTS Allstream will continue to invest in its core operations and growth businesses to ensure its continued competitiveness and long-term success.
In 2007, the Company's capital program is expected to be approximately 14% to 15% of anticipated 2007 revenues. The Company expects to maintain similar levels in future years. The majority of the Company's 2007 capex program will be invested in the Company's growth services.
From a 2007 cash flow perspective, the Company anticipates funding all of its requirements -including quarterly dividend payments, capital expenditures, restructuring costs and pension contributions - from operations, with no incremental borrowing.
MTS Allstream's 2007 cash requirements include two items not from continuing operations. These are restructuring costs and solvency funding payments for its pension plans.
<<
- Restructuring costs in 2007 are estimated to be $50 million to
$60 million. This includes the majority of cash costs associated with
a voluntary reduction program announced in October 2006, and
approximately $30 million to $40 million of the 2007 efficiency
program.
- The Company expects that its restructuring requirements will be
substantially reduced in future years.
- With new federal pension solvency funding regulations that came into
effect in November 2006, MTS Allstream anticipates reduced solvency
funding going forward. The Company currently estimates its solvency
funding to be in the $40 to $45 million range in 2008. Since the new
regulations did not come into effect prior to the last solvency
funding payment made in 2006, the Company over-funded its solvency
payment in 2006. As such, it has included in its 2007 cash flow
outlook a reduced pension solvency funding requirement, which is
estimated to be $15 to $20 million.
>>
The Company also continues to benefit from significant past investments into its network infrastructure. Over the years, approximately $6 billion has been invested to build and enhance MTS Allstream's network infrastructure and to fund the development of market-leading products both in Manitoba and nationally. In 2005, MTS Allstream completed a five-year, $300 million broadband expansion program in Manitoba. These investments place MTS Allstream in a favourable competitive position in terms of capital requirements going forward.
Outlook
MTS Allstream assumes the intense competition it faced in 2006 will persist in 2007. The Company also believes it will be able to compete effectively in this environment and deliver solid results to investors.
The Company's 2007 financial outlook in continuing operations:
<<
---------------------------------------------------------------------
2007 Financial Outlook - Continuing Operations (1)
---------------------------------------------------------------------
Revenues $1.875 B to $1.925 B
EBITDA(2) $625 M to $655 M
EPS(3) $2.30 to $2.50
Free Cash Flow(4) $240 M to $270 M
Capital Expenditures 14% to 15% of Revenue
---------------------------------------------------------------------
>>
Looking beyond 2007, MTS Allstream expects consolidated revenue and EBITDA growth in the range of 1% to 3% for 2008 and into the near future.
Live Audio Webcast
The public and media are invited to join today's Conference Call via live audio Webcast on MTS Allstream's Web site (www.mtsallstream.com) beginning at 8:30 a.m. (ET) on December 13, 2006. The Webcast can be accessed by visiting the Investors Section of MTS Allstream's Web site. Following the event, the Webcast and presentations will be archived on the Web site. Please note that media participants are invited to participate in the call on a "listen only" basis.
About MTS Allstream
MTS Allstream Inc. is one of Canada's leading national communication solutions providers, delivering innovative products and services through its Consumer Markets and Enterprise Solutions divisions. Our Consumer Markets division serves small business customers nationally and residential customers in Manitoba with a full suite of wireline voice, high-speed Internet and data, next generation wireless, digital television, security and alarm monitoring services. Our Enterprise Solutions division provides national business customers with a world-class portfolio of IP-based connectivity, managed network services, and professional services.
MTS Allstream's extensive national broadband fibre optic network spans more than 24,300 kilometres, and provides international connections through strategic partnerships and interconnection agreements with other international service providers. The Company markets its consumer products and services in Manitoba under the MTS Brand, and its enterprise products and services nationally under the Allstream brand.
MTS Allstream is a subsidiary of Manitoba Telecom Services Inc. whose common shares are listed on The Toronto Stock Exchange (trading symbol: MBT). For more information, please visit: www.mtsallstream.com.
Forward Looking Statements Disclaimer
This news release includes forward-looking statements about our corporate direction, financial objectives, and future financial results and performance that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking information. Forward-looking statements reflect our expectations as at December 13, 2006. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "pending", and other similar terms. Factors that could cause actual results to differ materially from those expected, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in such forward-looking information, include, but are not limited to, the items identified under "Material Assumptions", below. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information relating to our Company, including our Annual Information Form, is available on SEDAR at www.sedar.com. This news release and the financial information contained herein have been reviewed by our Audit Committee.
Factors that could cause actual results to differ materially include but are not limited to: the intensity of competitive activity from both traditional and new competitors (competitive conditions); the ability to retain major customers (customer relationships); decisions by the federal regulator that effect our ability to compete effectively (developments in federal regulation); general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services (market conditions and economic fluctuations); ability to manage effectively labour relations (collective agreements); ability to anticipate, and respond to, changes in technology (technology); and other risk factors discussed in this news release and listed from time to time in our comprehensive public disclosure documents including our 2005 Annual Report and in other filings with Canadian securities commissions.
For further information, refer to the risks and uncertainties sections in our annual 2005 and interim quarterly reports in 2006 under Management's discussion and analysis.
Material Assumptions
A number of assumptions were made by the Company in preparing its Outlook and making certain other forward looking statements in this news release, including but not limited to the following:
Economic Assumptions
The general economic activity in the national and regional markets in which the Company operates influences our performance. Consistent with the Manitoba Department of Finance Survey of forecasts, which includes the Conference Board of Canada, MTS Allstream has assumed a growth rate of approximately 2.6% for gross domestic product for Manitoba and national growth.
Market Assumptions
As competition in the overall marketplace escalates, the broad market segment trends that have taken shape in recent years will also persist in 2007. Growth in service areas such as wireless, Internet, digital television, unified communications and IP-based next generation services is expected to continue at similar levels in 2007. The competitive pressure experienced in traditional legacy services, which include data connectivity, local and long distance services will continue in similar trends as it did in 2006. Likewise, we anticipate that customer demand will continue to migrate to next generation services. To face the continued strong competition in the enterprise markets, MTS Allstream is refining its market focus, creating innovative IP solutions, reducing its cost structure and investing selectively in high-margin opportunities. Competition from the incumbent cable operator is expected to continue in the Manitoba residential market; the Company is confident that it has prudently prepared its operations and strategies to counter these threats. Through MTS Allstream's broadband network initiative and its residential service offerings, which include local and long distance, wireless, Internet, digital television and alarm services, the Company believes it is well-positioned to compete successfully.
In addition, investors should read the forward looking statements disclaimer above, for the various factors, including economic, competitive, regulatory and Company specific, that could cause actual future financial and operating results to differ materially from the forward looking information in this news release.
<<
-------------------------------------------------------------------------
(*) Collectively herein with (all) its operating subsidiaries, herein
"MTS Allstream of "Company"
(1) Continuing operations in 2007 include synergies and exclude
restructuring costs; and solvency funding to our pension plans.
(2) EBITDA is 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 generally accepted accounting principles) as
a measure of liquidity.
(3) EPS is earnings per share.
(4) Free cash flow is cash flow from operating activities, less capital
expenditures, and excluding changes in working capital.
>>
%SEDAR: 00003357E
For further information: Investors: Hugh Harley, Manager, Investor Relations, (204) 958-3587, investor.relations@mtsallstream.com; Media: Greg Burch, Public Affairs Coordinator, MTS Allstream Inc., (204) 941-8576, media.relations@mtsallstream.com
Source: newswire
All trademarks and copyrighted information contained herein are the property of their respective owners.
Related Articles
|
