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MTS Allstream reports third-quarter 2012 results


Learn more about MTS Allstream's Q3 2012 results by visiting the MTS Allstream "Investors" section.

WINNIPEG, Nov. 8, 2012 /CNW/ - Manitoba Telecom Services Inc. ("the Company" or "MTS Allstream"), including its two operating divisions, MTS and Allstream, today reported net earnings of $40.8 million for the three months ended September 30, 2012, compared with $37.0 million for the three months ended September 30, 2011. Earnings per share ("EPS") were $0.61 in the third quarter of 2012, up 8.9% over the prior year. Third-quarter results position the Company to meet its financial guidance ranges on all metrics.

Q3 2012 highlights


    --  EPS of $0.61, up 8.9%
    --  Consolidated EBITDA grew 3.3% to $151.7 million
    --  Allstream achieves eighth consecutive quarter of year-over-year
        EBITDA growth, to $27.8 million
    --  Allstream added 90 buildings to its IP fibre network; fibre-fed
        buildings now total 2,644
    --  Revenues from MTS wireless data were up 29.4%
    --  Annual cost reduction target reached
    --  Board of Directors declares $0.425 per share Q4 2012 cash
        dividend

"We are satisfied with the overall results for the third quarter 2012," said 
Pierre Blouin, MTS Allstream's Chief Executive Officer. "The continuing 
focus on our strategy to maintain our industry-leading position in Manitoba 
and drive growth in IP-based services in the national business market has 
delivered another quarter of solid growth in profitability."

"Our unmatched bundling capability in key growth services resulted in MTS's 
solid third-quarter EBITDA growth of 1.6%. At Allstream, an EBITDA increase of 
1.1% marks the eighth straight quarter of year-over-year growth, led by our 
continuing improvement in margins. On a consolidated level, we have again met 
our annual cost savings target for the eighth consecutive year, which speaks 
to our commitment to aggressively improving our cost structure while 
continuing to provide leading customer service."

MTS Allstream 
MTS Allstream's solid third-quarter financial performance reflects ongoing 
strategic focus on increasing profits and cash flows by investing in MTS's 
wireless and broadband networks in Manitoba, and Allstream's converged 
Internet protocol ("IP") nationally.

Consolidated financial results

(in millions $, except EPS) Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011

Revenues                      424.3   431.6   435.1   439.4   443.2

EBITDA(1)                     151.7   153.5   154.0   146.9   146.9

EPS(2)                        $0.61   $0.67   $0.80   $0.56   $0.56

Free cash flow(3)              17.3    27.1    36.1    18.3    29.3

Capital expenditures           94.5    93.0    76.9    84.6    81.1

(1 )MTS Allstream 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 66.7 million for 
the three months ended September 30, 2012; 66.4 million for the three 
months ended June 30, 2012; 66.2 million for the three months ended 
March 31, 2012; 65.9 million for the three months ended December 31, 2011 
and 65.7 million for the three months ended September 30, 2011. The 
increase in the number of weighted shares outstanding is mainly due to 
participation in the Company's dividend reinvestment program.

(3) MTS Allstream defines free cash flow as "cash flows from operating 
activities less capital expenditures, and excluding changes in working 
capital". See the "Notes" section of this news release for further information.
    --  Consolidated EBITDA grew 3.3% over Q3 2011, due to strong
        revenue growth from strategic services at MTS, Allstream's
        continued focus on converged IP revenues and improving margins,
        and cost management, partly offset by declining revenues from
        legacy business lines.
    --  The Company generated strong revenue growth of 29.4% in
        wireless data, 6.9% in high-speed Internet and 7.7% in IPTV
        services, offset by an increase in planned legacy revenue
        declines, resulting in a 4.3% year-over-year consolidated
        revenue decrease.
    --  For the eighth year in a row, the Company attained its annual
        cost savings target, having achieved $26.3 million in
        annualized cost savings at September 30, 2012, against a
        guidance range of $25 million to $35 million for 2012.
    --  Capital expenditures were higher than those in Q3 2011, mainly
        due to the timing of investments in capital projects, such as
        upgrades to the wireless billing system and Long Term Evolution
        ("LTE") deployment at MTS, and adding more on-net buildings at
        Allstream. The Company's 2012 financial guidance included an
        increase in capital spending; a large proportion of capital
        spending is complete in the first nine months of 2012. The
        Company is on track for its 2012 financial guidance for capital
        spending and free cash flow.
    --  Free cash flow was $17.3 million, down $12.0 million over Q3
        2011, mainly due to the timing of certain capital projects and
        to higher required pension funding, partly offset by EBITDA
        growth.
    --  The 8.9% increase in EPS over Q3 2011 is mostly attributable to
        EBITDA growth and lower finance costs, partly offset by lower
        other income.

MTS
MTS produced EBITDA growth of 1.6%, while maintaining a leading EBITDA margin 
of 50.2% in the third quarter of 2012. Wireless data, high-speed Internet and 
IPTV services generated strong revenue growth, which offset declines in local, 
long distance and legacy data revenues. MTS increased the number of customers 
with bundled services by 10.5%, to almost 96,000, in the third quarter of 2012.

MTS operating revenues

Q3 Q3 % YTD YTD % (in millions $) 2012 2011 change 2012 2011 change

Wireless 91.5 91.5 - 272.2 263.5 3.3

Broadband and converged IP 53.5 50.1 6.8 159.6 144.6 10.4

Unified communications, security 8.9 8.3 7.2 27.0 25.5 5.9 and monitoring

Local access 66.9 69.1 (3.2) 201.1 208.7 (3.6)

Long distance and legacy data 18.9 20.8 (9.1) 57.2 63.6 (10.1)

Other 6.9 7.0 (1.4) 20.0 21.2 (5.7)

Total MTS operating revenues 246.6 246.8 (0.1) 737.1 727.1 1.4


                                                                 

MTS maintained its leadership position in Manitoba's wireless market, with 
market share at 53% in Q3 2012.
    --  On September 14, 2012, MTS announced that it would offer the
        iPhone 5 in Canada beginning Friday, September 28. The iPhone 5
        launch was positively received by customers.
    --  Year-to-date wireless revenue growth was 3.3%, driving a 2.4%
        increase in year-to-date blended wireless average revenue per
        user ("ARPU"), to $60.58. Wireless revenues increased 1.8% in
        Q3 2012, when one-time retroactive revenues from wholesale
        customers received in Q3 2011 are excluded.
    --  Wireless data revenues grew 29.4% in Q3 2012, driving a 31.2%
        increase in year-to-date wireless data ARPU, to $19.18. At
        September 30, 2012, 53.5% of all postpaid wireless subscribers
        had data plans - up from 39.9% at Q3 2011.
    --  MTS's extensive wireless network, with LTE technology currently
        available in Winnipeg and Brandon and 4G HSPA coverage to over
        97% of Manitoba's population, is expected to drive continued
        strong demand for wireless data services.
    --  Q3 2012 postpaid subscribers totaled 400,442, up 3.5% over
        Q3 2011. Postpaid wireless subscriber growth was partly offset
        by a decrease in lower-ARPU prepaid and wholesale customers. As
        a result, wireless subscribers were stable over Q3 2011 and
        totaled 494,564 at September 30, 2012.
    --  Postpaid wireless churn was a leading 0.89% in Q3 2012, in line
        with postpaid churn of 0.87% in Q3 2011, reflecting the loyalty
        of MTS's bundled customers. Total customers subscribing to
        MTS's unique bundles were up 10.5% over Q3 2011.

Internet and IPTV delivered strong performance, with both revenues and ARPU up 
in Q3 2012.
    --  Internet revenues grew 6.9% to $27.7 million in Q3 2012, due to
        a growing subscriber base and price increases. Year-to-date
        high-speed residential ARPU was up 8.6% over Q3 2011, to
        $41.59.
    --  IPTV revenues grew 7.7% to $19.5 million in Q3 2012, driven by
        increased ARPU and subscriber growth. Year-to-date IPTV ARPU
        was up 9.0% over Q3 2011, to $66.79.
    --  At September 30, 2012, MTS had a total of 102,039 television
        customers, of which 95,374 are IPTV subscribers, representing a
        year-over-year increase of 2.3% in IPTV customers. A growing
        customer base shows there is continued demand for flexibility
        in theme groups, high-quality digital picture and sound, and
        the innovative features that make MTS's television service
        unique.

MTS remains disciplined in finding the right balance between financial 
performance and maintaining market share in local access, legacy data and long 
distance services.
    --  Local access revenues declined in Q3 2012, mainly due to
        wireless substitution and local competition.
    --  Long distance revenues declined in Q3 2012, mainly due to
        customers replacing long distance calling with email, text
        messaging and social networking.
    --  Legacy data revenues declined in Q3 2012, mainly due to a
        decrease in wholesale data services.

Allstream
Allstream's performance in the third quarter of 2012 demonstrated continued 
progress on its strategic objective: to drive growth in on-net IP-based 
services and improve profitability. EBITDA increased by $0.3 million in the 
third quarter of 2012, compared to the same period of 2011, marking the eighth 
straight quarter of year-over-year EBITDA growth. Allstream revenue for the 
period reflected a year-over-year increase in high-margin on-net IP revenues, 
which were offset by legacy revenue declines. The continuing focus on on-net 
services improved gross margins to 58.6% in the third quarter of 2012 and, 
along with diligent cost management, contributed to overall EBITDA growth.

Allstream operating revenues

Q3 Q3 % YTD YTD % (in millions $) 2012 2011 change 2012 2011 change

Converged IP 60.7 60.4 0.5 182.6 178.7 2.2

Unified communications and 18.4 22.2 (17.1) 59.4 66.0 (10.0) security

Local access 43.6 48.6 (10.3) 138.1 147.9 (6.6)

Long distance and legacy data 45.1 51.5 (12.4) 141.7 162.1 (12.6)

Other 18.4 23.1 (20.3) 58.1 72.2 (19.5)

Total Allstream operating 186.2 205.8 (9.5) 579.9 626.9 (7.5) revenues

Revenues from converged IP and wins in IP sales were both up in Q3 2012, reflecting Allstream's continued focus on improving profitability.


    --  Allstream's converged IP revenue growth continues to be
        partially offset by an increase in disconnects related to a
        decision by a Government of Ontario department to change its
        procurement policy on telecommunications services for
        individual doctors' offices and clinics. Adjusting for the
        impact of this contract, converged IP revenues would have grown
        5.5% over Q3 2011 and 7.1% in the first nine months of the
        year. The Company now expects that IP revenues from this
        customer will be down about $12 million in 2012, which
        represents about half of the revenues reported for this
        customer in 2011. IP revenues will continue to be affected by
        this contract in 2013.
    --  Allstream added a total of 90 buildings to its national IP
        fibre network in Q3 2012, raising its total number of fibre-fed
        buildings to 2,644 at September 30, 2012, for an increase of
        14.3% when compared to September 30, 2011.
    --  New customers to be connected to Allstream's 30,000-kilometre
        IP fibre network include Syneron Canada Corporation; Metalogix;
        Apex Public Relations Inc.; Grey Advertising; Prospero Learning
        Solutions; Skyworks Solutions, Inc.; a.p.i. alarm Inc.; BSTREET
        Communications Inc.; Fidus Systems Inc. and First Affiliated
        Holdings Inc.
    --  Demand for IP services continues to drive sales at the same
        pace as in 2011, when Allstream achieved its best-ever year for
        IP sales wins. This success has contributed to converged IP
        revenue growth of $0.3 million, to $60.7 million in Q3 2012.
    --  Growth in converged IP gross margins also continued, reaching
        73.5% in Q3 2012, up from 71.0% in Q3 2011.

"The expansion of our IP fibre network in major urban centres across Canada is 
a key driver of our success in the IP market," said Dean Prevost, President of 
Allstream. "We continue to cost-effectively grow the numbers of both fibre-fed 
buildings and on-net customers, to drive growth in on-net revenues and 
margins."

Allstream continues to focus on IP revenue growth, by exiting low-margin 
legacy services and transitioning existing customers to IP-based services.
    --  Revenues from local access services and other services declined
        in Q3 2012, as per Allstream's decision to exit low-margin
        business lines.
    --  Long distance revenues declined by 15.6% to $22.1 million in
        Q3 2012, mainly due to decreased volumes and lower rates.
    --  Legacy data revenues declined by 9.1% to $23.0 million in
        Q3 2012, reflecting customers' continued transition to
        broadband and other IP-based services.

Strategic review 
MTS Allstream and its Board of Directors announced that the Company would 
undertake a wide-ranging strategic review of its Allstream business, on 
September 13, 2012. The Company does not intend to disclose any developments 
with respect to this strategic review process until such time as the Board 
approves a particular course of action or otherwise determines that further 
disclosure is appropriate or required. There is no assurance or expectation 
that any changes will be made as a result of this process.

The Company is obtaining the assistance of Stikeman Elliott LLP as external 
legal advisors during this exploratory process, as well as of CIBC World 
Markets and Morgan Stanley as financial advisors. The Board of Directors has 
formed a Strategic Committee to oversee this review. Kishore Kapoor has been 
named Chair of the Strategic Committee and will serve on the committee along 
with David Leith and H. Sanford Riley.

Dividend  
The Company's Board of Directors declared a quarterly cash dividend of $0.425 
per share for the fourth quarter of 2012, payable on January 15, 2013 to 
shareholders of record at the close of business on December 14, 2012.

The fourth-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 Allstream will hold its third-quarter 2012 results conference call with 
the investment community on Thursday, November 8, 2012 at 8:30 a.m. 
(Eastern time). Participants will 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 November 22, 2012, by dialing 1-855-859-2056 and 
entering passcode 34377963.

Investors, media and the public are invited to participate, on a listen-only 
basis, by logging in to the live audio webcast of the conference call on the 
MTS Allstream "Investors" page or by entering: 
http://event.on24.com/r.htm?e=521453&s=1&k=AF07ECB0B7741885B4C8472551C75911

A replay of the conference call will be available on MTS Allstream's website 
for one year.
    Notes

(1)      MTS Allstream defines EBITDA as "earnings before interest,
         taxes, depreciation and amortization, and other income
         (expense)". The term "EBITDA", as it relates to 2012 and 2011
         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.

Q3 Q3 % YTD YTD % (in millions $) 2012 2011 change 2012 2011 change

Operating revenues 424.3 443.2 (4.3) 1,291.0 1,326.2 (2.7)

Operating expenses (353.1) (376.7) 6.3 (1,070.1) (1,098.2) 2.6

Depreciation and 80.5 80.4 0.1 238.3 219.5 8.6 amortization

EBITDA 151.7 146.9 3.3 459.2 447.5 2.6

(2) MTS Allstream defines free cash flow as "cash flows from operating


     activities, less capital expenditures and excluding changes in
     working capital". 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 2012 and 2011 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.

Q3 Q3 $ YTD YTD $ (in millions $) 2012 2011 change 2012 2011 change

Cash flows from operating 145.8 157.8 (12.0) 337.1 260.0 77.1 activities

Changes in non-cash (34.0) (47.4) 13.4 7.8 54.9 (47.1) working capital

Capital expenditures (94.5) (81.1) (13.4) (264.4) (203.4) (61.0)

Free cash flow for the 17.3 29.3 (12.0) 80.5 111.5 (31.0) period

(3) More information can be found in MTS Allstream's third-quarter 2012


    interim Management's Discussion and Analysis ("MD&A"),
    third-quarter 2012 Financial Statements, 2011 annual MD&A and 2011
    Annual Information Form, which are available in the "Investors"
    section of the MTS Allstream website at
    www.mtsallstream.com and
    will be available on SEDAR at
    www.sedar.com.

Supplementary information for the three and nine months ended September 
30, 2012 is also available in the "Investors" section of the MTS Allstream 
website at www.mtsallstream.com.

Forward-looking statements disclaimer

This news release includes forward-looking statements and information 
(collectively, "the statements") about the Company's corporate direction, 
business opportunities, operations, 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 
statements. Therefore, forward-looking statements should be considered 
carefully and undue reliance should not be placed on them. 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.

Factors that could cause anticipated opportunities and actual results to 
differ materially include, but are not limited to, matters identified in the 
"Risks and uncertainties" section and elsewhere in the Company's 2011 Annual 
MD&A, which is available in the "Investors" section of the MTS Allstream 
website at www.mtsallstream.com and on SEDAR at www.sedar.com.

Please note that forward-looking statements reflect Management's expectations 
as at November 7, 2012. 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.

Manitoba Telecom Services Inc. (MTS Allstream)

MTS Allstream is one of Canada's leading national communication solutions 
companies, providing innovative communications for the way Canadians live and 
work today. The Company has more than 100 years of experience, with 5,500 
employees across Canada. MTS Allstream's business is dynamic and consists of 
two operating divisions. In Manitoba, MTS is the leading full-service 
telecommunications provider for residential and business customers. MTS's 
suite of services includes the latest in wireless technology, broadband 
services, IPTV, voice services, home security and an extensive range of 
business solutions. Across Canada, Allstream is a leader in IP communications 
and the only national provider that focuses exclusively on the business 
telecommunications market. MTS Allstream has nearly two million customer 
connections, spanning business customers across Canada and residential 
consumers throughout the province of Manitoba. The Company's extensive 
national fibre optic network spans more than 30,000 kilometres. MTS Allstream 
has spent 11 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 of Good Governance, recognizing clear and 
effective public disclosure and leading governance practices. MTS Allstream's 
common shares are listed on the TSX (trading symbol: MBT). Customers, 
stakeholders and investors who want to learn more about MTS Allstream are 
encouraged to visit www.mtsallstream.com. For more information about MTS's 
products and services, please visit www.mts.ca. For more information about 
Allstream's products and services, please visit www.allstream.com.

 

Investors:    Paul Peters Investor Relations (204) 941-6178 
investor.relations@mtsallstream.com  Media:     Selena Hinds Corporate 
Communications (416) 345-3576 or (204) 941-8576 
media.relations@mtsallstream.com

SOURCE: MTS Allstream

To view this news release in HTML formatting, please use the following URL: 
http://www.newswire.ca/en/releases/archive/November2012/08/c5262.html

CO: Manitoba Telecom Services Inc.
ST: Manitoba
NI: TLS ERN DIV CONF 

-0- Nov/08/2012 11:30 GMT

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