M2 Group Ltd 2014 Interim Results 24 February 2014 Geoff Horth, CEO
Presentation Content Record Financial Performance Strong Organic Growth FY14 Priorities and Guidance Slide 2, 24 February 2014
Record Financial Performance
Increases in all key measures Revenue UP 66% to $506 million 80 600 EBITDA UP 38% to $75.8 million 70 60 50 500 400 NPAT UP 26% to $30.9 million 40 30 300 200 20 NPAT (underlying 1 ) UP 38% to $43.8 million 10 0 1H10 1H11 1H12 1H13 1H14 100 0 Revenue NPAT EBITDA 1) Underlying NPAT includes an add-back of a non-cash cost of $12.9 million for amortisation ($7.0 million in previous corresponding period) associated with customer contracts acquired in the relevant period (in accordance with Australian Accounting Standards) Slide 4, 24 February 2014
Continuing to grow Shareholder Returns EPS Underlying EPS Dividend EPS up 10% to 17.3 cents per share EPS underlying up 21% to 24.5 cents per share Dividend declared at 11.5 cents per share, fully franked Total dividend payable (including DRP) $20.6 million, up by $4.8 million or 30% on pcp 1) Underlying EPS includes an add-back of a non-cash cost of $12.9 million for amortisation ($7.0 million in previous corresponding period) associated with customer contracts acquired in the relevant period (in accordance with Australian Accounting Standards) 2) Calculated using the volume weighted average number of shares Slide 5, 24 February 2014
Balance Sheet Balance Sheet ($M) 31 December 2013 30 June 2013 Cash at Bank 22.1 48.0 Other Current Assets 120.2 128.9 Goodwill / Intangibles 612.1 634.5 Other non-current Assets 75.4 81.6 TOTAL ASSETS 829.8 893.0 Borrowings (Current) 30.6 30.6 Current Liabilities 176.3 222.0 Borrowings (non Current) 281.1 294.7 Non-Current Liabilities 28.0 48.5 TOTAL LIABILITIES 516.0 595.8 Net Assets 313.8 297.2 Finance Debt 300.0 315.0 NET DEBT 289.6 277.3 Slide 6, 24 February 2014
Cash Flow Cash Flow ($M) 31 Dec 2013 31 Dec 2012 EBITDA 75.8 55.1 Less: Interest & Tax (22.2) (16.1) Subtotal 53.6 39.0 Working Capital Movement (31.0) (3.0) Cash from operating activities 22.6 36.0 Capital Expenditure (9.7) (10.9) Free Cash Flow 12.9 25.1 Repayment of borrowings (15.0) (10.0) Dividends (net of DRP) (13.5) (10.9) Other (10.3) 0.5 Net Cash Movement (25.9) 4.7 Includes: ($M) Pendo receivables & inventory (timing) 8.3 Reduction in deferred commission liability 20.1 Dodo transaction costs 5.0 TOTAL 33.4 Includes: ($M) Inabox Investment 2.0 Loan to Aggregato Global 5.5 TOTAL 7.5 Slide 7, 24 February 2014
Operational Highlights Organic growth delivered: 50,000 net new services added, including 39,000 net new broadband services Consumer operations restructure completed Q2 FY14, simplifying integrated business and reducing Cost to Acquire and Cost to Serve Changes to Business segment operations and account management delivering positive trends in churn, product penetration and margin 13 new Dodo Connect Kiosks opened, increasing retail presence to 20 stores M2 NBN footprint expanded to 33 Points of Interconnect (POIs) nationally Launch of Dodo lowest-cost and unlimited NBN product offerings, to a very positive response Successful completion of negotiation of Telstra Wholesale agreement; executed 23 Feb 2014 Slide 8, 24 February 2014
Strong Organic Growth
Post Paid Services at 31 Dec 13 Consumer Business Wholesale TOTAL SIO 000 s ARPU $ SIO 000 s ARPU $ SIO 000 s ARPU $ SIO 000 s ARPU $ Voice 350 41 263 72 140 42 753 52 Mobile 180 26 42 41 7 24 229 29 Broadband 385 40 41 67 25 54 451 43 Energy 69 120 - - - - 69 120 Total SIO/Av. ARPU 984 43 346 68 172 43 1,502 49 Excludes pre-paid services. SIO: Services in operation ARPU: Average revenue per unit, per month Slide 10, 24 February 2014
Strong Organic Growth Total services in operation up 50,000 from 30 June 2013 More than 1.5M post paid services in operation at 31 Dec 2013 Fixed voice 23,000 services Mobile 25,000 services Broadband 39,000 services Energy 13,000 services Total services 30 June 2013 (000 s) Total services 31 Dec 2013 (000 s) Slide 11, 24 February 2014
Fixed Voice services grew 3.2% in H1 Fixed Voice services up by 23,000 to 753,000 85% of Consumer segment voice sales were bundled with broadband, improving customer life 60% of fixed line Business segment services sold were fixed fee, improving fixed margins Product & Marketing investments delivering improving trend in Business segment fixed services Business segment Leads increased 113% from Q1 to Q2 Business segment net SIO decline stemmed in Q2 (less than 1/3 of Q1 rate) Fixed voice lines are the most common telephony product, still used by 94% of SMEs* *ACMA, Communications Report 2012-2013, Report 1 Australian SMEs in the digital economy, January 2014 Slide 12, 24 February 2014
The new Commander Phone The full-featured hosted small business communication solution* * Launching 3 rd March 2014 Slide 13, 24 February 2014
Mobile broadband impacting H1 Mobile services down 25,000 to 229,000 Majority of decline is in 3G Mobile Broadband Refreshed Dodo 4G Mobile Broadband Plans launched 24 th February 2014 Launched Dodo 4G Mobile 24 th February 2014 Slide 14, 24 February 2014
Broadband services grew by 9.5% in H1 Broadband services in operation up 39,000 to 451,000 Growth across all segments in this important product Improving product penetration across the Group 85% of all broadband services sold in the period have a fixed voice service attached Slide 15, 24 February 2014
Energy connections grew by 23% in H1 Energy services in operation up 13,000 to 69,000 Energy proving to be a core product for Dodo Connect kiosks Launching Dodo electricity in South Australia 24 th February 2014 with market-leading discount Flexible pricing launch in Victoria with Dodo Hour of Power generating strong sales Slide 16, 24 February 2014
Introducing Commander Electricity Commander Electricity, the Small Business Telco & Electricity bundle* Commander - winning the war on costs for small business * Launching 3 rd March 2014 Slide 17, 24 February 2014
FY14 Priorities
FY14 Priorities GROW GROW Sales & marketing Sales & marketing focus to take focus to take share of market share of market TEAM SIMPLIFY Technology drives sustained cost to serve advantage NURTURE Increase share of wallet, extend tenure, seamlessly transition to NBN Slide 19, 24 February 2014
FY14 Guidance $M FY13(a) FY14 Guidance % Change (from midpoint) Revenue 681.0 970-1030 Up 47% EBITDA 108.1 150-170 Up 48% NPAT 43.8 60-70 Up 48% NPAT (underlying 1 ) 58.4 85-95 Up 54% EPS (cents per share 2 ) 27.4 34-39 Up 33% EPS (cents per share, underlying 1,2 ) 36.3 48-53 Up 39% Capex (as % of revenue) 2.9% 2% Down 31% (1) Underlying NPAT and EPS figures each include an add-back of a non-cash cost of $14.6 million for FY13 and $26 million for FY14 for amortisation associated with customer contracts acquired in the relevant period (in accordance with Australian Accounting Standards) (2) Calculated using the volume weighted average number of shares Slide 20, 24 February 2014
Key Investment Metrics @ 21 February 2014 Number of Shares on issue 179,384,685 Share Price $6.62 Market Capitalisation Dividend Policy Interim FY14 Dividend $1.19 billion 70% NPAT 11.5c per share, ff Slide 21, 24 February 2014
Disclaimer Certain statements made in this presentation are forward-looking statements. These forward-looking statements are not historical facts but rather are based on M2 s current expectations, estimates and projections about the 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-looking statements. 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 cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. M2 cautions shareholders and prospective shareholders not to place undue reliance on these forward-looking statements, which reflect the view of M2 only as of the date of this presentation. The forward-looking statements made in this presentation relate only to events as of the date on which the statements are made. M2 will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this presentation except as required by law or by any appropriate regulatory authority. Slide 22, 24 February 2014