WINNIPEG – A nearly year-long business review by MTS Allstream officially ended today without a big announcement.
Speculation has been rife all year long that the company could sell off a piece of itself (national unit Allstream), seek a buyer, or become an income trust, among other potential scenarios. Today, CEO Pierre Blouin said the company can grow and prosper if it stays on its current track of cost-cutting while pursuing growth services such as television. MTS expects continued double-digit growth in wireless, high-speed Internet, digital television, IP connectivity and unified communications. But also continued losses in its traditional voice business.
In a conference call with analysts Wednesday morning, MTS said it will: 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; 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, as well as to the Manitoba household/consumer.
Blouin also pledged to reduce costs by $40 to $50 million in 2007, in addition to the $120 million of cost savings expected to be achieved in 2006 where hundreds of workers were let go. The majority of the company’s 2007 capital expenditures, which will total 14% to 15% of revenue, will go towards 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 Blouin. "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."
The business review saw MTS Allstream sell its Manitoba directory business for $281 million as well as some real estate holdings in downtown Winnipeg, which are expected to generate an additional $40 to $50 million in cash proceeds.
The company also has $4 billion in accumulated tax deductions that will shelter it from paying cash taxes until 2014.
Blouin also said growth services (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.
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%
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, says the press release.
Given the new regulatory climate as of Monday, the company anticipates being forborne from regulation in Winnipeg by the end of 2007.
The Consumer Markets division will launch a new national offering in 2007 designed to meet the needs of small businesses. 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.
"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 Blouin.
As for ’07 numbers, the company predicts revenues will come in at $1.875 billion to $1.925 billion, EBITDA will be $625 million to $655 million, earnings per share of $2.30 to $2.50, free cash flow of $240 million to $270 million and capital expenditures at 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.
