Manitoba Telecom Services Inc. reports progress on strategic initiatives and second-quarter 2015 results; free cash flow grew 41% in Q2

Press Releases

WINNIPEG, MB, July 30, 2015 – (TSX:MBT) Manitoba Telecom Services Inc. (“the Company”), including its two primary operating subsidiaries, MTS Inc. (“MTS”) and Allstream Inc. (“Allstream”), today provided a strategic review implementation update and reported results for the period ended June 30, 2015, including a 41% increase in free cash flow from Q2 2014.

“The new strategies for MTS and Allstream have been readily embraced by the two organizations, and we have begun to see some encouraging initiatives and early progress as a result,” said Jay Forbes,

MTS Allstream, Chief Executive Officer. “In this last quarter, Allstream has been able to deliver double-digit IP revenue growth, a 6.5% increase in EBITDA before restructuring costs and $8.7 million in free cash flow, all the while maintaining the level of customer service that has historically set it apart from its competitors. Within MTS, we have identified opportunities to be more efficient and to become more customer-focused, and will launch corresponding initiatives to capture these opportunities in the third quarter.”

STRATEGIC REVIEW UPDATE

Allstream turnaround

As a result of the Q1 2015 strategic review the Company has taken immediate action to improve free cash flow generation, allowing Allstream to become economically self-sufficient, including:

• a 25% or approximately 500 person staff reduction that should generate $50 million in annual cost savings and
• a 20% to 30% reduction in capital expenditures.

As of June 30, 2015, 242 employees have left the business while a further 263 employees have received working notice and have scheduled departure dates over the next 14 months. By year end, it is expected that 379 employees will have departed the business. Year to date salaries and benefits cost savings were $3.7 million, representing an annualized cost reduction of approximately $24 million. With the additional 137 in scheduled departures, the expectation is that annualized run-rate savings will grow to approximately $36 million by year end.

Further details on Allstream’s planned headcount reductions and the impact on 2015 operations can be found in the Q2 2015 Supplemental at www.mtsallstream.com/investors/financial.

Allstream’s new, more rigorous capital investment discipline has lowered capital intensity from 17.9% in Q2 2014 to 10.7% for this past quarter. In addition this reduction has been accomplished without negative consequences in sales gains, customer satisfaction or installations (converged IP wins increased by 5.6% in the first half of 2015 when compared to the same time frame in 2014).

Allstream’s restructuring efforts, which are mostly complete for 2015, have resulted in $16.5 million

in restructuring costs (as of June 30, 2015). By streamlining operations and improving capital investment decision-making, Allstream generated $8.7 million in free cash flow in the second quarter compared to $5.8 million in Q2 2014. For the full year, Allstream is expected to be cash flow positive net of restructuring costs.

“We enter the second half of the year with a solid, stable operating platform that is beginning to deliver the financial results we all believed Allstream was capable of generating,” said Jay Forbes, MTS Allstream, Chief Executive Officer.

Allstream sale process

With restructuring largely complete and Allstream positioned to be free cash flow positive for 2015 and beyond, Management has shifted focus to manage a fully-planned exit of this business, one that will maximize value while promoting deal certainty. The Company has retained advisors, has a clear understanding of the approval process and requirements, and is constructing its information repositories for prospective purchasers, who Management plans to engage with in the second half of this year.

Pension plans pre-funding

On May 6, 2015 the Company completed the pre-funding of $120 million into its pension plans using its existing credit facilities. This one-time pre-funding eliminates the need for solvency payments for 2015 and 2016 under any reasonable economic scenario (and for 2017 and beyond based on consensus bank forecasts for long-term interest rates) with the expectation of enhancing the stability and predictability of free cash flows. Further details on the pension plans and projected funding requirements under various economic circumstances can be found in the Q2 2015 Supplemental at www.mtsallstream.com/investors/financial.

MTS UPDATE

Acquisition of TTC

On June 1, 2015, the Company acquired the remaining 50% of the issued and outstanding shares of The Technology Consortium (“TTC”) for a total cash consideration of $7.0 million, becoming TTC’s sole shareholder. Through the purchase of EPIC Information Solutions in 2013 MTS was already a 50%

stakeholder in TTC, which has long term contracts with the Manitoba Government and other public-sector clients to provide highly-trained professionals dedicated to offering a comprehensive range of both technical and business solutions. Such solutions include managed procurement services, on-site technical support, software distribution and versioning, mobile device management, print and imaging management and core information and technology (“IT”) infrastructure support. Now as an integral part of the MTS family, TTC will help strengthen the Company’s IT capabilities and create potential for revenue growth and profitability.

Further details on the TTC acquisition can be found in the Q2 2015 Financial Statements and Notes at www.mtsallstream.com/investors/financial.

MTS Total Internet

On June 18, 2015, MTS introduced a revolutionary new product that changes the way consumers can purchase their wireless and wireline Internet connectivity. MTS Total Internet provides customers with seamless Internet access anywhere in Canada, anytime, over any device and network all in one plan. With MTS Total Internet all household members can share their data across home, Wi-Fi and wireless connections and across multiple devices, making their Internet experience completely seamless and flexible. With no other communications service provider in Manitoba offering a similar service, the Company believes

Total Internet can offer a sustainable competitive advantage in the market place.

MTS Data Centre

With the majority of MTS Data Centre construction completed, an official opening is scheduled for September 2015.

Read More: http://www.mtsallstream.com/wp-content/uploads/2015/07/Q2_2015_NR_FINAL.pdf

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