Australian Broadband Services Pty Ltd. The Telco / ISP market will be redefined by the rollout of...
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Australian Broadband Services Pty Ltd
The Telco / ISP market will be redefined by the rollout of the NBN
Opportunities for smaller players to take substantial share in a shifting market
Technology has evolved allowing a high level of outsourcing by well managed RSPs
Partnered with the world’s largest direct sales company, Cobra Group to implement a proven subscriber growth strategy
Management bring over a 100 years in Telco, ISP and online media success to ensure the best in execution
Targeting 300K+ subscribers, AUD250M in revenues and top 10 ISP position within 5 years
Raising AUD2M in the lead up to an ASX listing in 2012
Overview
R2 – Sophisticated Investors
New Funds $2MEquity Share 30%
Share Price $0.25Cobra $500K
Post Cash Value $6.7M
R3 – ASX Listing (6 -12 mths)
New Funds $6MEquity Share / Dilution 31%
Share Price $0.50Value Post Listing $19M
IRR over 5 years 30%ROI year 5 180%
Deal Structure
Optical fibre to the home will shape the future of content
delivery and consumer behaviour
Opportunity to target millions of subscribers shifting to optical fibre or engaging for the first
time
Change of Government may lead to changes in implementation but
too expensive to scrap the NBN
For the first time smaller Telco’s and Aggregators will have access to non discriminatory wholesale pricing
The NBN
The ability to access wholesale supply through Aggregators and out sourced ISP solution
providers creates a low variable cost model suited to ABS
ABS will target areas due for connection to the NBN within 5 years and ensure a low cost NBN
transition without costs associated with incumbent legacy systems
Telstra and Optus wholesale DSL will continue to service the majority of fixed line broadband customers for some years
Other Networks
Preferred solution provider Utilibill is
proven in Telco sector.
ABS platform to manage product access, payment processing, billing and CRM.
Platform
*Market size forecast chart for internet subscribers in Australia (excluding internet connections through mobile handsets) based on Australian Bureau of statistics growth trends and premises connection forecasts provided by NBNCo.
Telco market has seen 20 years of strong growth no signs of slowing down
CY2012 CY2013 CY2014 CY2015 CY20160k
2,000k
4,000k
6,000k
8,000k
10,000k
12,000k
14,000k
16,000k
Market Size (Internet Subs)
NBN
Other Broadband
Market Size and Trends
Key wholesale rates negotiated and ready for integration
Platform Wholesale Data Phone VAS
Utilibill Nextgen Engin (VoIP) Aus Power and Gas
HarbourMSP Vocus Telcoinabox (Mobile) Get Covered / AVIVA
MCR NBN, Telstra, Optus Optus FetchTV
Key Suppliers
Partnered with Cobra - the World’s largest direct sales company
Extensive telecommunications sales experience
2M+ Telco accounts signed in Australia
7M+ Telco accounts signed in Europe
Success only fee structure ensuring cost base tied to sales
Proven partnership with Australian Power and Gas (ASX: APG)
Seed round investor
The Cobra Group
KPIs Year 1 Year 2 Year 3 Year 4 Year 5
New Subs per mth 3.5k 5.5k 7.5k 10.0k 12.5k
Churn per year 0k (3k) (20k) (44k) (70k)
NBN Subs 4k 21k 47k 87k 139k
DSL Subs 21k 68k 111k 147k 174k
Total Closing Subscribers 26k 89k 158k 234k 313k
NBN Market Share 1.22% 1.85% 2.09% 2.63% 3.18%
Total Market Share 0.22% 0.72% 1.22% 1.72% 2.20%
CY2012 CY2013 CY2014 CY2015 CY2016 0K
50K
100K
150K
200K
250K
300K
350K
Closing Broadband Subscribers '000's
PAYG DSL
PAYG Optical
DSL
Optical
SIO Forecast
Variable cost model directly linked to sales;
Success only fees for new accounts to Cobra
Transaction based fees for billing, provisioning and customer service platform
Wholesale supply deals linked directly to consumption
Competitive pricing with an unprecedented level of flexibility;
‘pay as you go’ data plans increasing customer control over the billing
simple tiered data plans with unlimited switching
bundled VoIP, mobile, wireless broadband and energy
Partnerships with entertainment and media providers to cross promote and bundle media products as the optical fibre subscriber base expands
Business Strategy
At launch the ABS product offering;
Optical Fibre Cap and Pay As You Go Plans
ADSL2+ Cap and Pay As you Go Plans
VoIP phone plans (over the Internet or by dedicated fibre for NBN connected households)
Mobile Broadband Cap Plans
Mobile Phone Cap Plans
In home technology and data insurance
Year 2 product offering for expanded NBN market;
IPTV and VOD
Online Backup
Virtual Desktop
Power and Gas
Product Offering
100+ years of combined experience in senior roles with Telco and online media companies
Chairman - Ian McGregorB. BS, CA, FICS. (Chairman: APG , CFO: OzEmail, Unwired)
CEO - Rob Appel B. A., LLB. (CEO: Chaos Group, Microview, Production Manager: OzEmail)
CTO Services - Andrew Kent B. Sc, Elec Engineering (CTO: OzEmail, Webcentral, MD: Uunet A Pac Operations)
CFO - Andrew Cowling CA., B. Econ, Accounting (CFO: OzEmail Interline, iSOFT, Group Manager: Bigpond)
Dir Marketing & Sales - Geoff IsaacB. A. (Dir of Marketing: OzEmail, Unwired, Engin)
Management
KPIs Year 1 Year 2 Year 3 Year 4 Year 5New Subs per mth 3.5k 5.5k 7.5k 10.0k 12.5kChurn per year 0k (3k) (20k) (44k) (70k)
NBN Subs 4k 21k 47k 87k 139kDSL Subs 21k 68k 111k 147k 174kTotal Closing Subscribers 26k 89k 158k 234k 313k
NBN Market Share 1.22% 1.85% 2.09% 2.63% 3.18%Total Market Share 0.22% 0.72% 1.22% 1.72% 2.20%
NBN Market Size (premises connected/covered) 358k 1,129k 2,229k 3,306k 4,369k
Total Market Size 11,731k 12,318k 12,934k 13,580k 14,259k
ARPU (Service Revenue) $ 76.52 $ 81.00 $ 83.28 $ 86.44 $ 89.77 ARPU Incr 6% 3% 4% 4%
EPS -$ 0.12 -$ 0.03 $ 0.19 $ 0.30 $ 0.44 Shares on Issue $38,667k $40,987k $44,467k $49,107k $52,973k
Share Capital $7,541k $7,541k $7,541k $7,541k $7,541kNet Cash (excl Share Capital) ($5,876k) ($287k) $12,544k $15,112k $4,089k
IRR 30%ROI -68% -71% 39% 153% 180%
Headcount 13 18 23 28 33
KPI’s
CY2012
CY2013
CY2014
CY2015
CY2016
$500
0000
0.0
$0.0
$50.
0M
$100
.0M
$150
.0M
$200
.0M
$250
.0M
$300
.0M
$350
.0M
Total Revenue (EBITDA + NPAT Contribution) $m
RevenuesEBITDA
CY2012 CY2013 CY2014 CY2015 CY2016Revenues $13.1M $70.8M $121.9M $185.1M $256.6M
EBITDA -$4.8M -$1.1M $9.8M $21.5M $34.0M
NPAT -$4.8M -$1.2M $8.6M $15.0M $23.7M
EBITDA + NPAT
CY2012
CY2013
CY2014
CY2015
CY2016
$-0.20 $-0.10 $- $0.10 $0.20 $0.30 $0.40 $0.50
$-0.12
$-0.03
$0.19
$0.30
$0.44
Underlying EPS
CY2012 CY2013 CY2014 CY2015 CY2016
Underlying EPS $ -0.12 $ -0.03 $ 0.19 $ 0.30 $ 0.44
Underlying EPS
CY2012 CY2013 CY2014 CY2015 CY2016
-100%
-50%
0%
50%
100%
150%
200%
-68% -71%
39%
153%
180%
Return On Investment
CY2012 CY2013 CY2014 CY2015 CY2016
Return On Investment -68% -71% 39% 153% 180%
ROI
P&L Year 1 Year 2 Year 3 Year 4 Year 5
Total Services Revenue $7,566k $57,293k $125,677k $205,996k $297,933kHardware Revenue $3,357k $8,383k $9,280k $10,311k $11,207kSetup Fees $2,209k $5,161k $5,328k $5,292k $5,165kTotal Revenue $13,132k $70,837k $140,286k $221,599k $314,304kRevenue incr % $0k $0k $0k $0k $0k
Network & Carrier Costs ($11,228k) ($55,882k)($107,963k
)($170,328k
)($243,089k
)Gross Margin $1,904k $14,955k $32,323k $51,272k $71,215kOther Income $33k $13k $96k $379k $823kCustomer Acquisition & Service ($4,592k) ($11,473k) ($15,643k) ($20,498k) ($25,500k)Network, Billing & Hosting ($151k) ($106k) ($121k) ($136k) ($151k)Employee expenses ($1,285k) ($2,334k) ($3,349k) ($4,413k) ($5,642k)Marketing expenses ($184k) ($600k) ($738k) ($926k) ($987k)Office costs ($131k) ($195k) ($235k) ($315k) ($372k)Administrative expenses ($214k) ($325k) ($371k) ($423k) ($480k)Finance costs ($166k) ($1,052k) ($2,153k) ($3,439k) ($4,910k)Total Expenses ($6,690k) ($16,072k) ($22,514k) ($29,771k) ($37,219k)EBITDA ($4,786k) ($1,117k) $9,809k $21,501k $33,996kDepreciation and amortisation expense ($20k) ($40k) ($57k) ($73k) ($89k)Profit before income tax ($4,806k) ($1,157k) $9,752k $21,428k $33,906kIncome tax expense $0k $0k ($1,137k) ($6,428k) ($10,172k)Net Profit/Loss after Tax ($4,806k) ($1,157k) $8,615k $15,000k $23,734k
P&L
Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5
ASSETS Cash $1,665k $1,378k $13,922k $36,574k $48,204k Inventory $1,312k $1,522k $1,671k $1,790k $1,833kAccounts Receivable, net $2,785k $6,085k $8,137k $8,835k $29,496kTotal Current Assets $5,762k $8,986k $23,730k $47,200k $79,533kPlant & Equipment, net $133k $173k $197k $204k $195kTotal assets $5,894k $9,158k $23,927k $47,404k $79,729k
LIABLITIES AND SHAREHOLDERS EQUITY Accounts Payable $3,261k $7,682k $12,698k $18,642k $25,331k Income Taxes payable $0k $0k $1,137k $3,672k $5,572kTotal Current Liabilities $3,261k $7,682k $13,835k $22,313k $30,904kTotal Liabilities $3,261k $7,682k $13,835k $22,313k $30,904k
COMMITMENTS AND CONTINGENCIESShareholders Equity Additional paid up capital $7,541k $7,541k $7,541k $7,541k $7,541k Accumulated profit/(deficit) ($4,907k) ($6,065k) $2,551k $17,550k $41,285kTotal Shareholders equity $2,634k $1,476k $10,091k $25,091k $48,825k
Total Liabilities & Shareholders Equity $5,894k $9,158k $23,927k $47,404k $79,729k
Balance Sheet
Cash Flow Year 1 Year 2 Year 3 Year 4 Year 5Cash flows from Operating Activities ($4,839k) ($1,170k) $9,656k $21,049k $33,083kAdjustments to reconcile net profit/(loss) to net cash used in operating activitiesDepreciation $20k $41k $57k $73k $89kHardware COS $3,498k $8,595k $9,471k $10,301k $10,847kAllowance for Bad & Doubtful Debts $153k $981k $2,013k $3,217k $4,596kLoss/(Gain) on disposal of Plant & Equipment $0k $0k $0k $0k $0kChanges in assets and liabilitiesInventory ($4,810k) ($8,805k) ($9,620k) ($10,421k) ($10,890k)Accounts Receivable ($2,938k) ($4,281k) ($4,065k) ($3,915k) ($25,256k)Accounts Payable $3,261k $4,422k $5,016k $5,943k $6,690kAccrued Expense $0k $0k $0k $0k $0kincr/(decr) in income taxes payable/receivable, net $0k $0k $0k ($3,894k) ($8,271k) increase in deferred income taxes $0k $0k $0k $0k $0kNet cash used in operating activities ($5,655k) ($219k) $12,528k $22,354k $10,888k
Cash flows from Investing Activities Miscellaneous Income $0k $0k $0k $0k $0k Sale of Plant & Equipment $0k $0k $0k $0k $0k Purchase of Plant & Equipment ($153k) ($81k) ($81k) ($81k) ($81k) Interest Income $33k $13k $96k $379k $823kNet cash used in investing activities ($120k) ($67k) $16k $299k $742k
Cash flows from financing Activities Payments under finance lease obligations $0k $0k $0k $0k $0k Payments of dividends $0k $0k $0k $0k $0k Interest Expense $0k $0k $0k $0k $0k Proceeds from Bank Overdraft $0k $0k $0k $0k $0kFund Raising Expense ($560k) $0k $0k $0k $0k Proceeds from Common Stock issued $8,000k $0k $0k $0k $0k
Net cash provided by/(used in) financing activities $7,440k $0k $0k $0k $0k
Incr/(decrease) in cash $1,665k ($287k) $12,544k $22,652k $11,630kopening cash $0k $1,665k $1,378k $13,922k $36,574kClosing Cash $1,665k $1,378k $13,922k $36,574k $48,204k
Cash Flow
IRR YR 0 YR 1 YR 2 YR 3 YR 4 YR 5
30% ($7,541k) ($5,876k) ($287k) $12,544k $15,112k $4,089k
NPV of cashflows $13,595k
Cost of capital 15% YR 1 YR 2 YR 3 YR 4 YR 5
Discounted Cashflow $7,541k ($5,110k) ($217k) $8,248k $8,640k $2,033k
ROI -68% -71% 39% 153% 180%
EPS YR 0 YR 1 YR 2 YR 3 YR 4 YR 5
Net Profit after tax ($4,806k) ($1,157k) $8,615k $15,000k $23,734k
Shares On Issue $39,827k $42,147k $45,627k $50,267k $54,133k
EPS $ -0.12 $ -0.03 $ 0.19 $ 0.30 $ 0.44
Valuation Guide Per SIO YR 0 YR 1 YR 2 YR 3 YR 4 YR 5
Ausbbs Market Cap $41,793k $144,482k $257,640k $380,718k $510,318k
Value Per Share $ 1.05 $ 3.43 $ 5.65 $ 7.57 $ 9.43
Market Guide Per SIO Subs at Dec 2010 Market Cap Value per Sub
Iinet $650k $425,000k $654
TPG $516k $1,344,000k $2,605
Average $1,629
* As at Sep 2011
Valuation Models
Application of Funds - Cash Flow to Listing 6 months to 30 June 12
R2 Funding $2,000k
Cash flows from Operating Activities ($1,084k)
Inventory ($918k)Accounts Receivable ($864k)Accounts Payable $1,290k
incr/(decr) in income taxes payable/receivable, net $0k
increase in deferred income taxes $0kNet cash used in operating activities ($1,575k)
Cash flows from Investing ActivitiesPurchase of Plant & Equipment ($136k)Interest Income $9kNet cash used in investing activities ($127k)
Cash flows from financing ActivitiesInterest Expense $0k
Net cash provided by/(used in) financing activities $0k
Incr/(decrease) in cash ($1,702k)
Closing Cash $298k
Application of Funds
R2 – Sophisticated Investors
New Funds $2MEquity Share 30%
Share Price $0.25Cobra $500K
Post Cash Value $6.7M
R3 – ASX Listing (6 -12 mths)
New Funds $6MEquity Share / Dilution 31%
Share Price $0.50Value Post Listing $19M
IRR over 5 years 30%ROI year 5 180%
Deal Structure
Question