Manitoba Telecom Services Inc. reports second-quarter 2013 results

Stock symbol: MBT

Learn more about Manitoba Telecom Services Inc.'s Q2 2013 results by visiting www.mtsallstream.com/investors.

WINNIPEG, Aug. 1, 2013 /CNW/ - Manitoba Telecom Services Inc. ("the Company" or "MTS"), including its primary operating subsidiary, MTS Inc., today reported results for the period ended June 30, 2013.

Q2 2013 highlights
(Q2 2013 highlights as compared to Q2 2012, excluding discontinued operations)

• Following the signing of an agreement to sell Allstream to Accelero Capital in a transaction valued at $520 million, Allstream is now reported as discontinued operations
• Board of Directors declares $0.425 per share Q3 2013 cash dividend
• Revenues up 0.2%, to $247.4 million and EBITDA up 0.5%, to $121.4 million
• Free cash flow increased 28.0%, or $9.0 million, to $41.2 million
• Achieved annualized cost reductions of $19.0 million
• Earnings per share ("EPS") from continuing operations of $0.42, down $0.07
• Wireless revenues up 4.5%, or 9.4% excluding wireless wholesale
• Wireless subscriber data revenues up 21.9%
• Internet revenues up 3.6%
• IPTV revenues up 4.1%

"After announcing the sale of Allstream on May 24, 2013, following a successful review process, MTS moves forward as a stronger, more focused and more stable company. Our second-quarter performance reflects our leading position in Manitoba as a pure-play telecom provider," said Pierre Blouin, Chief Executive Officer. "In the second quarter, we expanded our 4G LTE wireless network to four new communities and launched high-speed Internet services in eight communities in time for summer. We also extended our wireless network sharing arrangement with Rogers Communications to now include LTE and added benefits in roaming and improved access to wireless devices. With strong FCF growth, low customer churn, solid ARPU in each of MTS's strategic business lines and our investments in LTE and fibre-to-the-home, MTS is well equipped to defend and expand its market leadership in Manitoba."

MTS delivered growth in revenues from strategic services, while maintaining an industry-leading EBITDA margin of 49.1% in Q2 2013. Wireless, broadband and converged IP services, MTS's strategic lines of business, generated 5.1% revenue growth in Q2 2013, which offset declines in local, long distance and legacy data revenues. Q2 2013 MTS results show that 62% of post-paid subscribers now have data plans, 82% of MTS's growing IPTV customer base subscribes to its premium Ultimate TV service and over 200,000 Manitobans subscribe to MTS's high-speed Internet plans. In Q2 2013, MTS increased the number of customers with bundled services by 5.1%, to 99,418.

Financial results (in millions $, except EPS)	Q2-13	Q1-13	Q4-12	Q3-12	Q2-12
Revenues	247.4	243.4	243.5	246.5	246.8
EBITDA^1	121.4	120.6	116.4	119.5	120.8
EPS^2 from continuing operations	$0.42	$0.42	$0.39	$0.46	$0.49
Free cash flow^3	41.2	45.1	38.4	23.6	32.2
Capital expenditures	47.1	42.6	43.4	63.1	61.0

¹ The Company defines EBITDA as "earnings before interest, taxes, depreciation and amortization, and other income (expense)". See the "Notes" section of this news release for further information.
² EPS is based on weighted average shares outstanding of 67.5million for the three months ended June 30, 2013; 67.2 million for the three months ended March 31, 2013; 67.0 million for the three months ended December 31, 2012; 66.7 million for the three months ended September 30, 2012; and 66.4 million for the three months ended June 30, 2012. The increase in the number of weighted average shares outstanding is mainly due to participation in the Company's dividend reinvestment program.
³ The Company defines free cash flow as "cash flows from operating activities less capital expenditures, and excluding changes in working capital and pre-funded pension solvency payments". See the "Notes" section of this news release for further information.

• Revenues: $247.4 million, up $0.6 million over Q2 2012, mostly due to revenue gains from all strategic lines of business, partly offset by declines in wireless wholesale and legacy lines of business. Revenues from strategic lines of business increased by 5.1% over Q2 2012, on the strength of subscriber growth across wireless, IPTV and Internet, partially offset by a $3.5-million reduction in MTS wireless wholesale revenues as other carriers move their customers from MTS's CDMA network to their own HSPA networks.
• EBITDA: $121.4 million, up $0.6 million from Q2 2012, due to increased revenues from all strategic lines of business and continued focus on expenses, partly offset by decreased revenues from wireless wholesale and legacy lines of business. MTS continued to achieve an industry-leading EBITDA margin percentage of 49.1% in Q2 2013.
• EPS: $0.42, down from Q2 2012, affected by increased amortization from previous investments such as MTS's wireless billing system and 4G LTE network and from higher amortization of wireless cost of acquisition, reflecting increased wireless customer acquisition and device activation.
• Free cash flow: $41.2 million, up 28.0% over Q2 2012, mainly due to reduced capital expenditures, partly offset by higher wireless cost of acquisition relating to increased smartphone adoption. In April 2013, MTS's successful wireless promotion caused wireless cost of acquisition to be significantly higher than usual in Q2 2013. Free cash flow is expected to increase significantly in 2013 as capital expenditure levels decrease.
• Capital expenditures: $47.1 million, down 22.8% from Q2 2012, mostly due to reduced capital spending resulting from the completion of major capital projects in 2012, such as investments in upgrades to the wireless billing system and 4G LTE wireless network builds in Winnipeg and Brandon. Capital expenditures are declining to more historical levels.
• Annualized cost savings: $19.0 million at June 30, 2013, resulting from operational efficiency initiatives from prior quarters, and lower salaries and benefits.

Operating revenues (in millions $)	Q2 2013	Q2 2012	% change	YTD 2013	YTD 2012	% change
Wireless	95.0	90.9	4.5	186.5	180.7	3.2
Broadband and converged IP	56.8	53.6	6.0	111.0	106.1	4.6
Unified communications, security and monitoring	7.3	9.5	(23.2)	15.4	18.1	(14.9)
Local access	64.2	67.3	(4.6)	128.2	134.2	(4.5)
Long distance and legacy data	17.8	19.2	(7.3)	35.9	38.3	(6.3)
Other	6.3	6.3	-	13.8	13.0	6.2
Total operating revenues	247.4	246.8	0.2	490.8	490.4	0.1

Wireless revenues (in millions $)	Q2 2013	Q2 2012	% change	YTD 2013	YTD 2012	% change
Subscriber revenues	88.8	81.2	9.4	174.4	160.3	8.8
Wholesale revenues	6.2	9.7	(36.1)	12.1	20.4	(40.7)
Total wireless revenues	95.0	90.9	4.5	186.5	180.7	3.2

• Subscriber revenues: $88.8 million, up $7.6 million over Q2 2012, driven by a 21.9% increase in wireless subscriber data revenues. 62% of MTS's growing post-paid subscriber base now has data plans, driven by demand for smartphones and data usage.
• Wholesale revenues: Down as expected, as other carriers move their customers from MTS's CDMA network to their own HSPA networks. CDMA revenues were $28.6 million in 2012 and are expected to be $18.4 million in 2013. More moderate declines are expected over the next three to five years.

Broadband and converged IP revenues (in millions $)	Q2 2013	Q2 2012	% change	YTD 2013	YTD 2012	% change
Internet revenues	29.0	28.0	3.6	56.8	54.5	4.2
IPTV revenues	20.5	19.7	4.1	40.4	39.1	3.3
Converged IP revenues	7.3	5.9	23.7	13.8	12.5	10.4
Total broadband and converged IP revenues	56.8	53.6	6.0	111.0	106.1	4.6

• Internet revenues: $29.0 million, up $1.0 million over Q2 2012, resulting from a 5.8% increase in the high-speed Internet subscriber base.
• IPTV revenues: $20.5 million, up $0.8 million over Q2 2012, driven by subscriber growth of 5.5%.

Unified communications, security and monitoring

• Unified communications, security and monitoring revenues: $7.3 million, down $2.2 million from Q2 2012, reflecting reduced hardware sales.

Local access

• Local access revenues: $64.2 million, down $3.1 million from Q2 2012, mainly due to lower revenues from line losses due to wireless substitution and local competition.

Long distance and legacy data

• Long distance and legacy data revenues: $17.8 million, down $1.4 million from Q2 2012.
• Long distance revenues: $10.2 million, down $1.0 million from Q2 2012, mainly due to decreased long distance rates and customers replacing long distance calling with email, text messaging and social networking.
• Legacy data revenues: $7.6 million, down $0.4 million from Q2 2012, as a result of customers continuing to migrate towards converged IP services.

Corporate update
Following a comprehensive auction process and a review of other strategic alternatives, the Company announced, on May 24, 2013, that it has signed a binding agreement to sell its Allstream business ("the Transaction") to Accelero Capital Holdings S.à r.l. Group ("Accelero"), an investment and management group focused on telecommunication, digital media and technology in a transaction that values Allstream at $520 million, subject to certain customary adjustments, including assumed debt obligations and normalized working capital, as well as certain pension related obligations as described below. The Transaction has been approved by the MTS Board of Directors and is expected to close in the second half of 2013, subject to receipt of Investment Canada approval and customary closing conditions.

As a result of this transaction, revenue and expenses relating to the Allstream Group are now reported as discontinued operations and are no longer reflected in the Company's financial results. For more details regarding the accounting treatment, readers are encouraged to review the discontinued operations note disclosure in the Company's condensed consolidated financial statements for the second quarter of 2013, which can be found on the Company's website at www.mtsallstream.com/investors.

There can be no assurance that the Transaction will be completed, that it will be completed on the terms and conditions currently contemplated, or that any anticipated benefits from the Transaction will be realized. Risks pertaining to this transaction can be found in the "risks and uncertainties" section of the Company's second-quarter Management's Discussion and Analysis ("MD&A"), which can be found on the Company's website at www.mtsallstream.com/investors.

Additional information with respect to the Company's sale of the Allstream Group is provided in the May 31, 2013 Material Change Report and Share Purchase Agreement, both of which can be found on SEDAR at www.sedar.com.

Dividend
The Company's Board of Directors declared a quarterly cash dividend of $0.425 per share for the third quarter of 2013, payable on October 15, 2013 to shareholders of record at the close of business on September 16, 2013.

The third-quarter dividend is designated an "eligible" dividend under the Income Tax Act (Canada) and any corresponding provincial legislation. Under this legislation, individuals resident in Canada may be entitled to enhanced dividend tax credits that reduce income tax otherwise payable.

Investment community conference call
MTS will hold its second-quarter 2013 results conference call with the investment community on Thursday, August 1, 2013 at 5 pm. (Eastern Time). Participants include Pierre Blouin, Chief Executive Officer and Wayne Demkey, Chief Financial Officer.

To participate, please dial toll-free 1-888-231-8191 or 647-427-7450. A replay will be available until Thursday, August 15, 2013 by dialing 1-855-859-2056 and entering passcode 97865432.

Investors, media and the public are invited to participate on a listen-only basis by logging into the live audio webcast of the conference call on the Company's website (www.mtsallstream.com/investors or by entering http://event.on24.com/r.htm?e=646654&s=1&k=877EBEA4CD3CD68920921F1973BD3B46. A replay of the conference call will be available on the Company's website for one year.

Notes

(1)

The Company defines EBITDA as "earnings before interest, taxes, depreciation and amortization, and other income (expense)". The term "EBITDA", as it relates to 2013 and 2012 results prepared using International Financial Reporting Standards ("IFRS"), does not have any standardized meaning according to IFRS. It is therefore unlikely to be comparable to similar measures presented by other companies.

EBITDA (in millions $)	Q2 2013	Q2 2012	% change	YTD 2013	YTD 2012	% change
Operating revenues	247.4	246.8	0.2	490.8	490.4	0.1
Operating expenses	(190.0)	(184.5)	3.0	(376.0)	(365.8)	2.8
Depreciation and amortization	64.0	58.5	9.4	127.2	116.7	9.0
EBITDA	121.4	120.8	0.5	242.0	241.3	0.3

(2)

The Company defines free cash flow as "cash flows from operating activities, less capital expenditures and excluding changes in working capital and pre-funded pension solvency payments". Free cash flow is the amount of discretionary cash flow that the Company has for purchasing additional assets beyond its annual capital expenditure program, paying dividends, buying back shares and/or retiring debt. The term "free cash flow", as it relates to 2013 and 2012 results prepared using IFRS, does not have any standardized meaning according to IFRS. It is therefore unlikely to be comparable to similar measures presented by other companies.

Free cash flow (in millions $)	Q2 2013	Q2 2012	% change	YTD 2013	YTD 2012	% change
Cash flows from operating activities	80.6	79.2	1.8	90.7	158.1	(42.6)
Pre-funded pension solvency	-	-	-	70.0	-	n.a.^*
Changes in non-cash working capital	7.7	14.0	(45.0)	15.3	21.2	(27.8)
Capital expenditures	(47.1)	(61.0)	(22.8)	(89.7)	(112.5)	(20.3)
Free cash flow for the period	41.2	32.2	28.0	86.3	66.8	29.2

^*	Not applicable

(3)

More information can be found in the Company's second-quarter 2013 interim MD&A, condensed interim unaudited consolidated financial statements for the period ended June 30 2013, 2012 annual MD&A, 2012 audited consolidated financial statements and 2012 Annual Information Form, which are available on the Company's website at www.mtsallstream.com/investors and will be available on SEDAR at www.sedar.com.

Forward-looking statements disclaimer
This news release includes forward-looking statements and information (collectively, "statements") including, but not limited to statements pertaining to the agreement to sell Allstream, the Company's corporate direction, business opportunities, operations, financial objectives, future financial results and performance, 4G LTE wireless network expansion and fibre-to-the-home deployment, and other statements that are not historical facts. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "should", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "see", "set", "pending" and other similar terms. All forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities legislation.

Forward-looking statements are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any forward-looking conclusion, forecast or projection, whether expressed or implied. Therefore, forward-looking statements should be considered carefully and undue reliance should not be placed on them.

Please note that forward-looking statements in this news release reflect Management's expectations as at August 1, 2013, and thus, are subject to change thereafter. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. This news release and the financial information contained herein have been reviewed by the Company's Audit Committee and approved by the Company's Board of Directors.

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters identified in the "Corporate update" section in this news release, as well as in the "Risks and uncertainties" section and elsewhere in the Company's second-quarter 2013 interim MD&A and the Company's 2012 annual MD&A, which are available on the Company's website at www.mtsallstream.com/investors and on SEDAR at www.sedar.com.

About Manitoba Telecom Services Inc.
MTS is one of Canada's leading communication solutions companies, providing innovative communications for the way Canadians live and work today. In Manitoba, MTS is the leading full-service telecommunications provider for residential and business customers. MTS's suite of services include the latest in wireless technology, broadband services, IPTV, voice services, home security, and an extensive range of business solutions. MTS has spent 12 consecutive years on the Jantzi Social Index for leadership in social responsibility and is the recipient of the 2011 Governance Gavel Award from the Canadian Coalition for Good Governance, recognizing clear and effective public disclosure and leading governance practices. MTS's common shares are listed on the TSX (trading symbol: MBT). Customers, stakeholders and investors who want to learn more about MTS are encouraged to visit www.mtsallstream.com.

 

SOURCE: MTS Allstream

Investors:  Paul Peters, Investor Relations
204-941-6178
[email protected]

Media:  Selena Hinds, Corporate Communications
204-941-8576
[email protected]