M2 FY11 Results Presentation FY11 Results Presentation, 29 August 2011, Slide 1 Vaughan Bowen, Managing Director / CEO 29 August 2011
M2 FY11 Results Presentation
FY11 Results Presentation, 29 August 2011, Slide 1
Vaughan Bowen, Managing Director / CEO29 August 2011
The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law andtherefore persons in such jurisdictions into which this presentation is released, published or distributed should informthemselves 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 orbuy any securities, nor the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issue ortransfer 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 independentfinancial advisor. Certain statements made in this presentation are forward-looking statements. These forward-lookingstatements are not historical facts but rather are based on M2’s current expectations, estimates and projections about
Disclaimer
FY11 Results Presentation, 29 August 2011, Slide 2
statements are not historical facts but rather are based on M2’s current expectations, estimates and projections aboutthe 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-lookingstatements. 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 causeactual results to differ materially from those expressed or forecasted in the forward-looking statements. M2 cautionsshareholders and prospective shareholders not to place undue reliance on these forward-looking statements, whichreflect the view of M2 only as of the date of this presentation. The forward-looking statements made in this presentationrelate only to events as of the date on which the statements are made. M2 will not undertake any obligation to releasepublicly any revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipatedevents occurring after the date of this presentation except as required by law or by any appropriate regulatory authority.
Presentation content
Overview of the M2 businessOverview of the M2 business
The NumbersThe Numbers
FY11 Results Presentation, 29 August 2011, Slide 3
Business EvolutionBusiness Evolution
Looking forward Looking forward -- FY2012FY2012
Overview of the M2 businessOverview of the M2 business
The NumbersThe Numbers
FY11 Results Presentation, 29 August 2011, Slide 4
Business EvolutionBusiness Evolution
Looking forward Looking forward -- FY2012FY2012
Fast Facts About M2
$400m+ in $400m+ in
Minimal network Minimal network infrastructure. infrastructure. Technology Technology flexibility. Low flexibility. Low
Ten consecutive Ten consecutive years of growth years of growth in earnings, EPS in earnings, EPS and DPSand DPS
Through organic growth and Through organic growth and selective acquisitions, M2 has selective acquisitions, M2 has delivered 10 consecutive years delivered 10 consecutive years of growth in earnings and of growth in earnings and Earnings Per Share Earnings Per Share
FY11 Results Presentation, 29 August 2011, Slide 5
Founded Founded 1999, listed 1999, listed on ASX 2004, on ASX 2004, entered entered S&P/ASX500 S&P/ASX500 in 2010in 2010
More than 450 More than 450 team members team members across 7 cities across 7 cities nationally. nationally. Retains Retains founding Board founding Board & management & management teamteam
$400m+ in $400m+ in annualised annualised revenue. revenue. Approximately 1% Approximately 1% telecoms industry telecoms industry market sharemarket share
flexibility. Low flexibility. Low capital capital expenditureexpenditure
In the 11 years since its In the 11 years since its incorporation, M2 has incorporation, M2 has become the largest network become the largest network independent telco in independent telco in AustraliaAustralia
Our Goal
To be the pre-eminent provider of telecoms services to Australian small and medium
businesses (SMBs) and to reseller telecoms
FY11 Results Presentation, 29 August 2011, Slide 6
businesses (SMBs) and to reseller telecoms service providers (SP’s)
M2 Group Structure (Australia)
SMB’s (predominantly) + consumers
Full suite of servicesFull suite of services Target marketsTarget markets
FY11 Results Presentation, 29 August 2011, Slide 7
Reseller telecoms service providers
Strategic Platforms
Focused Markets
Customer Experience
� 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
� 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
� 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
FY11 Results Presentation, 29 August 2011, Slide 8
Team
Technology & Suppliers
Channels to market
� M2’s team culture at the core of the Company’s success� Comprehensive Team Member Benefits Program� 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
� 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
� 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
The M2 Brand Family
FY11 Results Presentation, 29 August 2011, Slide 9
Overview of the M2 businessOverview of the M2 business
The NumbersThe Numbers
FY11 Results Presentation, 29 August 2011, Slide 10
Business EvolutionBusiness Evolution
Looking forward Looking forward -- FY2012FY2012
FY11 - The Numbers
$m FY11 FY10 % Change
Revenue 426.8 406.1 Up 5%
EBITDA 48.3 31.4 Up 54%
EBIT 42.3 26.3 Up 61%
EBIT (underlying) 46 28.8 Up 60%
NPAT 27.6 16.1 Up 72%
FY11 Results Presentation, 29 August 2011, Slide 11
NPAT 27.6 16.1 Up 72%
NPAT (underlying) 31.3 18.5 Up 68%
EPS (cents) 22.6 14.5 Up 56%
EPS (cents, underlying) 25.3 16.7 Up 52%
Final Dividend (cents, ff) 9 5 Up 80%
FY11 Dividend (interim + final) 16 10 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 – 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
FY11 Results Presentation, 29 August 2011, Slide 12
• EBITDA negatively impacted by $1.5m due to debtor provision made in June 2011 related to Edirect acquisition
• Profit growth driven principally organically via:
⁻ Gross margin improvement through improved wholesale purchasing
⁻ Realisation of operating cost efficiency benefits
Consistent, steep earnings growth
40
50
60
250
300
350
400
450
Revenue, EBITDA & NPAT growth ($m)
FY11 Results Presentation, 29 August 2011, Slide 13
0
10
20
30
0
50
100
150
200
250
FY05 FY06 FY07 FY08 FY09 FY10 FY11
EBITDA NPAT Revenue
EPS and DPS rising rapidly
20
25
DPS & EPS growth
More than 550% growth in DPS and EPS over 6 years
FY11 Results Presentation, 29 August 2011, Slide 14
0
5
10
15
FY05 FY06 FY07 FY08 FY09 FY10 FY11
cen
ts
DPS EPS
Lowly geared balance sheet
$m$m$m$m 30 June ‘11 30 June ‘10
Cash at bank 12.5 15.1
Total assets 201.4 159.5
Total liabilities 107.6 82.5
Net assets 93.8 77.0
FY11 Results Presentation, 29 August 2011, Slide 15
Net assets 93.8 77.0
Net tangible assets (22.8) 6.5
Net debt 17.2 1.5
EBITDA to Interest coverage = 27 times
EBITDA to interest banking covenant = 5 times
Overview of the M2 businessOverview of the M2 business
The NumbersThe Numbers
FY11 Results Presentation, 29 August 2011, Slide 16
Business EvolutionBusiness Evolution
Looking forward Looking forward -- FY2012FY2012
A change @ 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
FY11 Results Presentation, 29 August 2011, Slide 17
• 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
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)
FY11 Results Presentation, 29 August 2011, Slide 18
• 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"
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
FY11 Results Presentation, 29 August 2011, Slide 19
• 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
Overview of the M2 businessOverview of the M2 business
The NumbersThe Numbers
FY11 Results Presentation, 29 August 2011, Slide 20
Looking forward Looking forward –– FY12FY12
Business EvolutionBusiness Evolution
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
FY11 Results Presentation, 29 August 2011, Slide 21
• 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)
Guidance FY12
$m FY11(a) FY12 Guidance % Change (from midpoint)
Total Revenue 426.8* 380 – 420 Down 6%
Customer Revenues 375 380 - 420 Up 7%
EBITDA 48.3 58 – 62 Up 24%
EBITDA Margin (EBITDA / Total Revenue) 11.3 % 15% Up 33%
FY11 Results Presentation, 29 August 2011, Slide 22
*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 2011. 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)
NPAT 27.6 30 – 34 Up 15%
NPAT (underlying**) 31.3 34 – 38 Up 15%
EPS (cents per share) 22.6 24 – 28 Up 15%
EPS (cents per share, underlying**) 25.3 27 – 31 Up 15%
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
FY11 Results Presentation, 29 August 2011, Slide 23
• 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
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%
FY11 Results Presentation, 29 August 2011, Slide 24
Div Yield (based on FY12 Guidance) 6.19%
PE Ratio (based on FY12 Guidance) 11.29 x
PE Ratio (underlying) 10.03 x
Substantial Shareholders (>5%) Hunter Hall
Cornish Group
Vaughan Bowen
Pengana Capital
Contacts @ M2
Name Position Phone / Email_________________________________________________________________________
Vaughan Bowen Managing Director / CEO 03 9674 6569 / [email protected]
Geoff Horth Chief Operating Officer 03 9674 6468 / [email protected]
FY11 Results Presentation, 29 August 2011, Slide 25
Geoff Horth Chief Operating Officer 03 9674 6468 / [email protected]
Darryl Inns Chief Financial Officer 03 9674 6520 / [email protected]
Debra Mansfield Corporate Communications Manager 03 9674 6569 / [email protected]
www.m2.com.au
Thank you
FY11 Results Presentation, 29 August 2011, Slide 26