BCE Inc (BCE) 2013 Q4 法說會逐字稿

Good afternoon. My name is Jeremy, and I will be your conference operator today. At this time I would like to welcome everyone to the MTS Allstream fourth quarter 2013 results conference call. (Operator Instructions). Thank you. I would now like to turn the call over to Mr. Paul Peters, Vice President, Tax and Investor Relations. Please go ahead, sir.

Hello, and thank you for joining us today on our 2013 Q4 and annual results call. The news release, MD&A, and financial statements can be found on our website at www.mtsallstream.com. Also today our Board of Directors approved the 2014 first quarter dividend which has been set at $0.425 per share.

Presenting today will be Pierre Blouin, Chief Executive Officer, Wayne Demkey, Chief Financial Officer, and Mike Strople, President of Allstream. Also on the call today are Kelvin Shepherd, President of MTS, and Paul Beauregard, our Chief Corporate and Strategy Officer.

This call may contain certain Forward-looking information. Material factors or assumptions were applied in drawing conclusions or making a forecast or projection reflected in such Forward information. Actual results may differ materially from a conclusion, forecast or projection in such Forward-looking information. Therefore, Forward-looking statements should be considered carefully and undue reliance should not be placed on them. Additional information about such material factors and assumptions can be found in our filings with Canadian securities regulatory authorities, and we disclaim 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. Key assumptions in Forward-looking statements can be found in our 2013 fourth quarter and full-year results news release dated February 6, 2014.

I will now turn the discussion over to Pierre.

Thank you, Paul. Good afternoon, everyone. Thank you for joining us today. Well, the least I can say is that it has been an eventful year for our Company. But I believe that we are starting 2014 with a clean slate, with all of the major disruptions behind us, and much more certainty and strength around our cash flow position. We are coming out of this challenging period in good shape and ready for a more stable future, built on sound foundations, improving financial performance, a clear path ahead for Allstream and significant improvements in our pension solvency funding obligations.

We ended 2013 on a positive note, meeting our updated guidance, and we enter 2014 in a position of strength, based on our operating performance and the additional balance sheet strength from the strongly oversubscribed equity offering that closed in December. That fundraising gave us balance sheet flexibility and enables our Company to better face challenges like the recent Supreme Court decision, without creating pressure on the cash flows generated by our operations. This decision from the Supreme Court was in respect to a court case of 17 years ago, dealing with one of the pension plans that was created at the time MTS was privatized in 1997.

We are obviously disappointed by this decision, following a unanimous decision in the Court of Appeal in favor of our Company, and after having all our expert outside advisers confirming that MTS had acted properly at that time. We go into considerable detail in our news release as to how we expect this to impact the Company from an accounting and cash flow perspective. And as Wayne will discuss, the positive news is that we have great returns in our pension plans last year which when combined with the rising interest rates, actually left us in a much better spot than last year, even after accounting for this unexpected decision.

Wayne will also report that our Q4 results include one-time charges related to the Allstream transaction and the recent Supreme Court judgment on pensions. This makes our results confusing, and starting with Q1 2014, I believe that our results will reflect our solid operating performance with greater simplicity and clarity.

So back to our results. The momentum is returning at Allstream. Gross margin is up at 62.5%. IP orders on hand at the end of the year were up 29% over the same time last year. A 1% in IP service revenues. This is the first time we have had growth in IP revenues since 2012. We went through the challenges of the Toronto ice storm in December and kept our network stable and maintained service for our customers. We now have a streamlined and more agile organization at Allstream having consolidated a number of Vice President positions, and eliminated the Chief Operating Officer position, with Mike Strople's appointment as President. The result is new leadership and a senior team of about half the size as before.

And since the rejection of the Allstream transaction, we have been very focused on getting the business back to its performance level that delivered multiple quarters of EBITDA growth prior to the strategic review process. We have done a huge amount of work in a short time to create more focus on the IP on net strategy and in particular to understand where our profitability comes from and how to improve it. And as we said before, we had lots of learning through the strategic review from our advisers and the multiple parties that showed interest and we are putting those in action.

So I am convinced that we are now well positioned at Allstream to reap the benefits of our past investments having created a network of more than 3,000 fiber-connected buildings in major urban centers across Canada. You will have an opportunity to hear from Allstream's new President Mike Strople in a few minutes.

MTS had another solid year, achieving overall revenue growth supported by gains in revenue and subscribers for wireless, Internet and TV, in addition to ARPU growth in wireless and Internet. Year-over-year CapEx was down substantially. And MTS made progress in the expansion of its LTE wireless network, adding six new Manitoba communities to its footprint, creating more growth opportunities for wireless data services.

In fact, we plan to cover more than 90% of Manitoba's population with LTE over the next five years. That will mark a significant increase from current levels, which stood at 62% at the end of 2013. Bundled customers increased 3.1% in 2013, and in Q4 while MTS continues to see landline customers moving to wireless-only, MTS gained more customers than it lost to its cable competitors.

We are also investing for growth and to strengthen MTS for the future, and we are excited about our recent announcement to build Manitoba's only Tier 3 data center in Winnipeg. Scheduled to open in 2015, our CAD50 million data center facility positions us to meet customer needs in two high-growth areas, cloud and hosting services.

And many of our Manitoba customers have already indicated their interest in being served by MTS in this field, and we are planning to start the build as soon as possible in 2014. And in December, we launched a new community program called Future First which refocuses our community investment program on Manitoba's youth. We expect that our program will provide the means for many community organizations to help youth build a better and brighter future. I think you will agree with me that this is one of the most important segments of the population, and we have made the decision to get involved in a deeper way and try to make a difference. Future First also builds on the relentless volunteer work that our employees do every year. So this new program will clearly demonstrate to our Manitoba community that we are indeed, the home team.

Before Mike talks about his plans at Allstream, I would like to recognize the contributions both departing executives, Dean Prevost and Chris Peirce, made to our Company over the past many years. They will be missed, and I wish them good luck in their new endeavors.

So I would like to introduce Mike Strople. Mike may be new to some of you, but he has been a senior leader in our Company since 2005. He joined our executive team as Chief Technology Officer for the Company. His technical expertise will be a significant asset in his new role, as he can directly relate to Allstream customers' technology. And about a year ago, Mike became Allstream's Chief Operating Officer. In this role, he has been a key contributor to the development and implementation of Allstream's successful IP on net strategy, and also on Allstream expansion into the mid-market. Mike has been in the role of President for just a few weeks. But he is already quite deep into it. In fact, he is just back from a cross-Canada sales kickoff tour of Allstream offices, that he did together with Dean.

So I will now turn the discussion over to Mike Strople. Mike?

Thanks, Pierre. I am certainly pleased to have the opportunity to lead Allstream after over eight years with the Company, most recently as the Chief Operating Officer at Allstream. I have worked an all facets of Allstream strategy and know that we are on the right track towards being a very successful competitive IP provider. The management transition in January has been a very smooth one as Dean and I had worked very closely together on Allstream throughout 2013.

2013 was a very challenging but a very important year in Allstream's evolution. The strategic review and the rejected sales process had temporarily changed our focus, but also allowed us to see the strengths in Allstream.

Due to the outstanding effort and enthusiasm of our dedicated employees, we are headed in the right direction. Let me review why I am confident that we are back on track. Number one, our strategy is sound. The strategic review made it clear that the strategies that we have been using, focusing on IP, on profitable revenue, based on on-net connections and delivering a superior customer experience, are the right ones for Allstream's success. With the strategic review behind us, we will return to growing our EBITDA and return to growing our IP revenues.

We have been increasing our gross margin percentage by delivering more and more of our IP services on our own network. We reduced our reliance on incumbent networks by our own network expansion and by the use of other competitive providers. Increasing IP revenues, having our on-network focus in culmination with continued discipline in managing our costs will lead us to the return of EBITDA growth.

We recently connected our 3,000th IP fiber fed building. Allstream has expanded its building network by more than 50% in the past three years, exceeding our own targets. Adding buildings and growing on net is no longer a program at Allstream, it is the way we do business. Having customers on our network also allows to us better control their experience and be able to react in a timely basis. When we talk to potential mid-sized customers, the vast majority of them have never had a serious conversation with their service provider about their service needs or the quality of their service. Customer experience appears to be more important than simple price.

Secondly, while it sounds obvious, we needed to restructure the Company to the business we have and align it to our strategy. Let me explain, as this is where I spent a large portion of my time last year. The opportunity to streamline our processes and structure allowed us to make significant improvements to our cost profile with total annualized savings totaling more than CAD46 million. More than just saving costs, however, these changes make us a smaller and more agile company, including a smaller and more focused leadership team.

We targeted processes and systems that were not aligned with our future IP growth strategy. At the same time, in the fourth quarter of 2013, we decided to actually increase direct sales positions by 20%, and we will realize this in the first quarter. While some of these changes were difficult, they were necessary and will deliver real, tangible results. We will be benefiting from these efficiencies in 2014, and in the years to come as we add more IP revenue.

Turning to 2014, I look forward to the following. A return to growth in our IP revenues, where we expect to see high single digit growth that will result in IP representing 40% of total revenues for 2014. We will continue to put more of our revenue on our own network. In 2013, over 50% of new IP revenue was on our own network.

We will continue to expand our reach by adding more connected buildings, but as we did in 2013, we will increase the number of customers that we serve in our existing buildings, improving our cost performance by improving the density of our network. I also look forward to the full installation of the shared services Canada contract that we won in 2012. While deployment in 2013 was slower than expected, we now have 50% of the orders, most of which came in the fourth quarter of 2013. The orders will continue to come in with installs and related revenue not too far behind. We expect this network to be fully installed by the end of the year.

I see Allstream set up for success in 2014 and beyond. Although our overall strategy at Allstream remains the same, we are making important shifts in the way we work, which will make us more successful. Allstream is positioned for growth, and I look forward to reporting on our progress during the upcoming year. And I will turn the discussion over to Wayne.

Thanks, Mike. Good afternoon, everyone. In 2013 we met our updated financial guidance on all key metrics. 2013 was also a year that included a lot of unusual items, so please bear with me as I try to walk you through the results.

For the year, consolidated revenues were CAD1.63 billion, down 4.1% from 2012, as the solid growth in MTS revenues at 1.5% was offset by an 11.2% decline at Allstream. At MTS revenue growth is being driven by strategic lines of business: wireless, Broadband, and converged IP, which were up 4.9% over 2012, and now represent 61% of total MTS revenues.

Wireless revenues increased 3.6% in 2013. If you exclude wireless wholesale revenues, that growth would have been 7.4%. Wireless wholesale revenues from our CDMA network have declined to the extent that they should have a less pronounced impact on 2014, and should be partly offset by increasing wholesale HSPA revenues. Wireless subscribers are up 0.8% and total wireless ARPU is up 3.2% to CAD62.26, all of which is being driven by a 21.4% increase in wireless data revenues. 67% of our post-paid subscribers had data plans at the end of 2013, up from 57% in 2012. With continued Smartphone adoption, we expect strong growth in wireless data revenues to continue. MTS also achieved 6.9% growth in Internet revenues in 2013, driven by 7.5% growth in our residential, high-speed Internet subscribers and a 3% increase in ARPU.

IPTV revenues were up 4.5% in 2013, as a result of a 7.8% increase in subscribers. Nearly 105,000 Manitobans are now enjoying our IPTV service. By the end of 2013, 85% of our IPTV customer base subscribed to our premium IPTV service, up from 77% at the end of 2012. Partly offsetting this strong growth in strategic services were expected declines in local access service revenues of 5.5% in 2013, and 6.7% in long-distance and legacy data. At Allstream revenues declined 11.2% in 2013, with the majority of the decrease coming from planned exit of low-margin legacy revenues. IP revenues were down 0.7% for the full year, due to the loss of the Ontario health business and the disruption resulting from the prolonged regulatory process associated with the announced transaction at Allstream. Importantly, we have returned to growth in the fourth quarter, where IP revenues were up 1% compared to Q4 last year.

With strong sales continuing, and the installation of the federal government contract that we won in December 2012 now ramping up, we expect to see strong growth in IP revenues in 2014. With IP revenues continuing to account for a larger proportion of Allstream's total operating revenues, from 32% in 2012 to 36% this year, and expected to rise to more than 40% in 2014, we see increasing momentum in the Allstream revenue portfolio.

Our EBITDA results were negatively affected by transaction and restructuring costs associated with the proposed Allstream sale which amounted to CAD35.2 million in 2013. Excluding transaction-related costs, MTS's 2013 EBITDA was up 0.3% to CAD478.9 million, a reflection of growth in strategic services, along with diligent cost management. In the fourth quarter, MTS received a retroactive CRTC decision, which reduced local contribution revenues by CAD3.4 million on a one-time basis. Excluding this, MTS's EBITDA growth would have been about 1% for the year.

At Allstream 2013 EBITDA was CAD81.5 million, down 25%, primarily due to transaction and restructuring costs. Excluding these costs, EBITDA was down 1.7% to CAD107.3 million, reflecting the decline in revenues, partly offset by improving on-net volumes, which enhance our gross margin, and the ongoing improvement in our operating cost structure. On a consolidated level, 2013 EBITDA, before transaction and restructuring costs, was up 0.2% to CAD586.5 million, resulting from cost efficiencies, partly offset by a decrease in revenues. Including transaction costs, consolidated EBITDA was down 5.8% to CAD551.3 million.

Earnings per share has been impacted by a number of unusual items, the largest of which are the Supreme Court ruling and an IFRS impairment charge related to the Allstream transaction announcement. As part of the transaction announcement, we were required by IFRS to remeasure Allstream at the lower of its carrying amount and its recoverable amount. As such, the Company incurred an impairment charge for Allstream, amounting to CAD130.4 million or CAD1.41 per share in 2013. As a result of the recent Supreme Court ruling on our pension lawsuit which I will discuss in a moment, we have recorded CAD142.1 million charge to income in Q4 or CAD1.52 per share to reflect the total estimated value of pension benefits and other estimated costs.

If you exclude these two items, 2013 earnings per share was CAD1.69, down CAD0.48 from 2012, due to CAD35.2 million or CAD0.38 per share in transaction-related costs in 2013, as well as an CAD0.18 adjustment in 2012 related to a change in deferred tax rates, partly offset by lower amortization expense in 2013.

Capital expenditures were down CAD42 million or 12.4% from 2012, mostly because we had completed some major capital projects in 2012 such as upgrades to our wireless billing system, and our core LTE wireless network build in Winnipeg and Brandon.

Free cash flow was CAD121.1 million in 2013, up 2.9% over 2012. Free cash flow increased primarily due to lower planned capital expenditures which were partly offset by CAD35 million in transaction-related costs.

We surpassed our cost reduction target of CAD30 million to CAD40 million with annualized cost savings of CAD69.5 million in 2013, about 40% of which was due to the restructuring efforts we undertook as part of the Allstream transaction process. Although these initiatives negatively impacted 2013 EBITDA, the costs will be more than offset by the annualized savings from these initiatives. The reminder of -- the remainder of our 2013 cost savings can be attributed to our ongoing yearly efficiency program.

As Pierre mentioned, in December we issued approximately CAD238 million of equity net of costs. The issue was very well received, and we are pleased with the confidence that our shareholders have shown in us. This additional equity has had an immediate positive impact on our balance sheet. After repaying the CAD70 million in short-term debt that was used to prefund our pension plans earlier in 2013, we prefunded a further CAD55 million to the pension plans in December 2013 while at the same time improving our total debt to capital ratio from 55% in 2012 to 41% at the end of 2013. The additional balance sheet strength positions us well to move forward with the flexibility to fund any potential impact from the pension lawsuit in addition to pursuing our opportunities for growth.

Now let us talk about pensions as I'm sure that many of you are interested in this. First, the good news. During 2013 our pension plans experienced an average return on assets exceeding 18%. These asset returns, combined with a rising interest rate environment, have reduced our solvency deficit from more than CAD600 million at January 1st, 2013 to less than CAD300 million estimated at January 1st, 2014. And that is including the full CAD142 million of the Supreme Court ruling as well as the impact of the new mortality tables to be implemented in 2014. As a result, even when you include the full impact of the Supreme Court ruling, our pension solvency deficit is less than half of what it was one year ago.

We announced last week that the Supreme Court reinstated a lower court ruling on a lawsuit regarding the administration of one of MTS's pension plans following the Company's privatization in 1997. While the total dollar value of the judgment is understood at approximately CAD142 million, the cash flow impact is subject to the determination of the implementation details and requires further negotiation with and between the plaintiffs. Accordingly, the timing of any funding which may be required for the judgment is not known at this time and may be impacted by the nature of the specific benefits that will ultimately be negotiated. It is expected that a significant portion of the negotiated benefits will be in the nature of pension benefits which are normally funded over time in accordance with the Pension Benefits Standards Act.

We will disclose the specific implementation plans once they are known, along with any impact on cash flows. IFRS accounting rules require that we treat this ruling as a past service cost which must be immediately expensed regardless of the timing of any potential cash flow impact. As a result, we have recorded a CAD142.1 million non-cash charge against income in the fourth quarter of 2013 to reflect the total estimated value of the pension benefits and other estimated costs.

In December 2013 we prefunded CAD55 million of solvency payments into our pension plans. Excluding any impact that may result from the Supreme Court decision, this prefunding would have exceeded the amount required for our 2014 solvency payments.

Further funding into the pension plans, if any is required in 2014, will only be determined once the implementation plan for the Supreme Court decision becomes more clear. We have sufficient liquidity to satisfy our pension funding obligations, including any impact which may result from the Supreme Court judgment using the funds raised in the equity financing that closed in December last year and without impacting cash flow from operations. We expect to maintain our current credit rating under any pension funding scenario. Additionally, we expect to continue to generate strong free cash flows in excess of our ongoing annual cash needs.

Before we open the lines to your questions, I want to revisit a few comments that we provided in Q3 with respect to our 2014 guidance. Our 2014 plan calls for improvement on all our key guidance metrics. On a consolidated level, our 2014 revenue guidance is between CAD1.6 billion and CAD1.7 billion, in line with 2013 revenues, with MTS delivering moderate growth and Allstream generating strong IP revenue growth. In support of this, Allstream returned to year-over-year IP growth in Q4, and we expect this to increase in 2014 with continuing strong sales and the ramp-up of the federal government circuit installations.

On a consolidated basis, EBITDA will be in the CAD580 million to CAD620 million range, higher than 2013, due to lower transaction and restructuring costs and improved cost structure and EBITDA growth at both MTS and Allstream. Free cash flow on a consolidated basis is forecasted to be in the range of CAD130 million to CAD170 million excluding pension solvency prepayments and spectrum costs, up substantially from 2013's result of CAD121.1 million. The increase is a result of EBITDA increases at both MTS and Allstream, and the elimination of transaction-related costs, partly offset by an expected increase in capital expenditures. Capital expenditures will be between 18% and 20% of revenues, an increase over 2013 in support of certain revenue growth or cost reduction initiatives, primarily at MTS, including the impact of our investment in the MTS data center, which will break ground in 2014.

Thank you. We would now be pleased to answer your questions.

(Operator Instructions). And your first question come from the line of Glen Campbell from Bank of America. Your line is open.

(technical difficulty) for Mike. Mike, we have gone through a restructuring exercise following the strategic review. Do you anticipate the potential to do more in the future or do you have, say, a critical mass of employees and so on, below which you would not want to go? And then could you comment as well on the impact of your costs as customers migrate off legacy products and platforms, what the pace of that might look like and whether that could bring further cost savings? Thanks.

Sure. And thanks for your question. I will take it in the order that you gave it. From a restructuring perspective, the restructuring that we did in 2013 was significant. And I guess one thing to point out is we did not do across-the-board restructuring. It included streamlining processes and really gearing the Company around growing our IP services revenue. We will continue to be careful about that. And we will continue to transform the Company, but not expecting large restructuring of the order that we saw over the course of the past year.

As it relates to the legacy revenues and the change there, one thing I will point out is that we saw a slowing of the decline in legacy revenue from the first half of the year to the second half of the year. And we expect that to continue into 2014. And any cost savings from that will factor in and we will use accordingly.

And I guess -- Glen, this is Pierre -- one more thing on the Allstream side, something that we are always very focused on that brings important cost saving over time is the expansion of our network. And the more on net we can be, the more on net we sell, the less network leasing that we do, which is an important element. And now we are starting to have a more critical mass that is quite useful to Allstream.

Maybe just one follow-up if I might. So the CRTC is looking at the essential services framework. I guess it will be a while before we have a decision. But what are the possible outcomes there? And how might they affect your addressable market and your cost structure for Allstream?

So there is a series of possible outcomes on that. Our focus is going to remain focused on IP and focusing on delivering services on net, and we are certainly a participant in the essential facilities review, have submitted our comments as of last week. But we are continuing to gear our plans to be an on-net network service provider in line with our strategy.

And I think, Glen, I do not know if you have gone to the website, the CRTC website. Yes. You can see our position there. Clearly we are promoting competition to better serve the needs and business needs. And that would include access to high-bandwidth services and creating more choices for our business customers.

Okay. That is helpful. Thanks very much.

Your next question comes from the line of Jeff Fan from Scotia Bank. Your line is open.

A couple of questions. First on the pension with the Supreme Court decision. Can you give us a little bit more guidance, if possible, just on the funding impact? I mean, I know you are still negotiating perhaps the benefit down. But suppose that it is the CAD142 million and it is treated as a benefit. Can you walk us through the possibilities there, how that would be treated, the smoothing, et cetera, and how that would impact your funding for this year and I guess for the next couple of years?

And the second question is with respect to Allstream. When we look at your OpEx in Allstream, it looks like it is kind of lumpy as we look at third quarter and fourth quarter. I am just wondering whether there are any items that we should be aware of that is causing that cost to be relatively lumpy in the last couple of quarters? I am not sure if it is related to some of the efforts on on-net versus off-net. Wondering if you can just clarify that.

Yes, sure, Jeff. Thanks for the question. It is difficult at this point in time to talk specifically about the funding. As I mentioned in my earlier remarks, we know what the total value of the judgment is, but the exact benefits that may be negotiated are not known. So the timing of funding may be impacted by that. As I mentioned, normally pensions are funded according to the solvency rules and that is over a period of time. So if you added that to the deficit, for example, according to the normal solvency rules, you would be able to calculate the funding that would approximate under that scenario. I think what we've tried to indicate, though is that under any scenario, through the funds that we have raised in our equity offering, we have the capacity to pay for whatever the scenario is without impacting operating cash flows and as a result, we feel that we're in good shape to move forward.

Are you able to smooth out the impact of that on the deficit?

Well, I can tell you how the funding rules work. I mean, normally you are funding a three-average deficit over approximately a five-year period.

Okay.

Just to be clear, though, Jeff, the negotiations have not started. We just had the judgment late last week. We have contacted the other parties. And, we are attempting to do this as quickly as possible.

Okay. And on the Allstream costs?

Yes. I am not -- so the majority of what has been lumpy has been related to the transaction-related costs that resulted in the restructuring of the workforce as had been agreed to with the purchasers. If you take that out of the equation, I think you would see that the costs have kind of come down from the first half of the year to the second half of the year as you would expect with the headcount reductions that we have taken. I am not aware of any other significant costs in any particular quarter.

Okay. All right. Thanks very much.

Your next question comes from the line of Dvai Ghose from Canaccord Genuity. Your line is open.

Thank you very much. A couple of questions for you, Wayne. I am a little confused about the funding of this pension liability through the equity process, because you raised CAD238 million of net proceeds. You have already used CAD55 million for solvency funding. You used CAD70 million to pay down short-term debt as per your MD&A which leaves CAD113 million for CAD142 million potential liability and spectrum.

Yes. So with respect to the CAD238 million and what we funded so far, as you indicated, that leaves us with quite a bit of cash. And in addition, if you look at where we are versus our credit metrics, we are at basically -- we are sitting now at 1.4 times debt to EBITDA, which we think gives us capacity to fund all of those things that you mentioned, as well as any other growth opportunities that we have, without impacting ongoing cash flow. So, if you get into the specifics of where is the CAD238 million now and exactly what comes out of it, then I see where your math is coming from. And I do not disagree with that, but when you look at the balance sheet as a whole, we have got a lot of capacity to deal with all of those issues.

Okay. So you are saying you can leave it for that. That is fair. Number two. Sorry. Just a quick clarification on that point. You are saying it's CAD142 million now. In the original press release it was CAD147 million. Is that an interest rate calculation or has there been a small change?

Yes, just a refinement of our calculations. When the news release came out, we had about an hour to look at it, [after] the judgment. And so as of now, we have gone back with our actuaries to recalculate what the impact would be on our pension liabilities, and so it is just a matter of that.

Okay. Great. Two other quick ones. On the Accelero break fee, to you have any incremental news as to whether you have any optimism about receiving a break fee?

Yes. There was not a break fee in that agreement. I am not sure that -- I do not recall us saying that there was before. So I do not expect to receive any, no.

Okay. My bad. Last but not least as Pierre pointed out, this is a very complex quarter. I am glad it is going to get simpler for the next. But if you could just spend one minute with me walking through the following. So at the MTS level you reported CAD114 million of EBITDA which included a CAD4 million retroactive one-time hit and a CAD2 million charge I believe associated with the pension, is that right? Would it be right to say CAD120 million is the normalized number?

That is about right. Yes.

Okay. And then similarly, the Allstream side, you reported, I think, a CAD15 million charge on CAD14 million of EBITDA. So is CAD29 million the normalized number?

That sounds about right.

Okay. Great. And then to get the normalized free cash flow, should I add back those things to the CAD4 million, so to make it like CAD29 million, I think, because it was about CAD25 million of charges?

Yes. Well, I would say that certainly we do not expect to see those things again. So, I mean, we counted them in our free cash flow.

Yes.

So our free cash flow was after those charges. So yes, adding them back would get you to a normalized amount. In fact, if you take -- you look at the guidance, we expect that that CAD35 million will not be required next year. And so that gives us room to spend a little more on CapEx and still see substantial growth in our free cash flow.

All right. And then last on that same vein, is it possible, I know it is very complicated, to give us an adjusted EPS number? I know you have been very conservative and throwing it all, the kettle sink, in the numbers, but what is the CAD0.23 if I take out all these charges?

Yes. I apologize for all of the confusion around --

Not your fault.

But, yes. If you take the CAD1.24, you know, loss per share and you add back the CAD1.52 pension lawsuit, and the CAD1.41 Allstream impairment loss, you get to CAD1.69 approximately.

Okay.

So from that if you look at kind of the midpoint of our guidance, you see that we are going up and that would be primarily driven by our expectation of higher EBITDA and offset by higher amortization expenses.

Yes, Dvai. Even if we normalize the number and extract all these special things and one-time things that I know you don't like, and you are right about it.

Yes.

I would say that it is never going to be a normal number for 2013. I think as we have discussed before, the impact and the disruption around the transaction by Allstream and the fact that its competitors have used that again Allstream to add an impact in sales and an impact in performance, that is -- we cannot evaluate --

That is all right.

No doubt that we expect to perform better going forward. And I think we believe that we are quickly recovering momentum in Allstream and taking more action, in fact, to come out of all of this with a stronger Allstream at the end of the day.

No. That is fair, but nonetheless, even with those pressures, CAD1.69 as a recurring EPS number is a useful base to look at 2014. So I appreciate that. Thank you.

Your next question comes from the line of Maher Yaghi from Desjardins. Your line is open.

(technical difficulty) for taking my question. I just wanted to ask you about the CAD13 million of transaction related and restructuring costs in the fourth quarter. Can you maybe detail what was that paid for? And going forward are we done with these restructuring charges? Is there any left over for 2014?

Yes. Sure. So first off, no, we would not expect any such costs in 2014. So what was left in the fourth quarter this year was primarily to complete some of the headcount reductions that we had agreed with the purchaser to complete. So they were in place, and we were making the payments in Q4. And there was also, as you might expect, some costs that came through in the fourth quarter for advisers and so on, that were related to the transaction.

Okay. And I am just trying to figure out. You just mentioned that your amortization and depreciation is going to increase in 2014. But you did take an impairment charge related to the Allstream transaction which lowered your PP&E. I am trying to understand why the depreciation and amortization is going up in 2014.

Yes, well, you are right that in 2013 we would have seen part of -- while the asset was held for sale, we suspended the amortization expense and so there is an adjustment there. In the normal course, there would have been -- so that is primarily the difference. And then there would be an expectation that there would be also a small increase in amortization expense for things like our cost of acquisition on the wireless side primarily.

Okay. Great. Yes, I understand now. And in terms of use of cash in 2014, can you maybe talk a little bit about your use of cash from free cash flow? What is your view on that?

Well, our free cash flow guidance was the CAD130 million to CAD170 million. So we have -- from that we pay dividends. Our dividend costs, if you take the current rate and annualize it, it's around CAD125 million, CAD130 million. And then the rest would be --

No, I mean are you going to start potentially paying back the pension, the court proceedings that just took place? When do you expect to start making those payments?

Well, the payments will be determined as we go through the negotiation. Certainly that difference between our expected free cash flow and the dividend is available for general corporate purposes. So if we did find our pension payments increase, we could use it for that. But I think what we have tried to indicate is that we raised capital earlier in 2013 for a reason. And this was one of the reasons, and so we are going to pay for any impact that does come from that pension lawsuit decision. Whether that amount comes out in 2014 or in later years, that is where we would be taking that funding from.

So you had an indication earlier about this court case taking place and how it is going to happen?

No. It is not possible to have such a view. I mean, we do not have any inside information into the Supreme Court, if that is what you're implying. We would have no idea. But we would have raised capital with the indication that a number of things could happen and a number of opportunities for growth are available to us. And that we sized the amount with all of these things knowing that some things might happen and others might not. And so, we make our best estimate of what we need in terms of capital. And that is how we arrived at the CAD250 million amount.

Okay. And one last question. From your understanding of precedence in this case, over how many years would we -- you think would be possible or most probable that these payments will be paid over?

Yes. I do not think that there is any precedent that we can use to estimate that. Our view would be that this becomes part of our overall pension liabilities. And then we will fund it just as we do all of our other pension liabilities. And if, depending on the experience that we have in the markets, the amount could be more or less. And the payments could be over a longer period of time.

I think what we've tried to say in terms of our pension solvency position, is that when you look at where we are now, even including that new CAD140 million in liabilities, we have a much better position with less than half of the solvency deficit that we had one year ago.

Okay. Great. Thank you very much.

(Operator Instructions). Your next question comes from the line of Vince Valentini from TD Securities. Your line is open.

First, just on the revenue guidance for 2014. Just wanted to make sure. Did you change something today? You said CAD1.6 billion to CAD1.7 billion. Are you just rounding or did you chop CAD20 million off it?

No. I was just rounding. Yes.

Okay. Perfect. And just to clarify on the amount you have used from the equity issue to fund the pension deficit so far, when you did announce the Allstream deal last year, you indicated you would use CAD170 million of the proceeds for incremental funding, and you have ended up only doing CAD55 million. Is that difference basically just you saw what discount rates did and you saw the return on assets and decided you didn't need CAD170 million, CAD55 million was sufficient?

Yes, that is pretty much it. We decided given that the tailend of the year was really good from the asset side, that we would like to be a bit cautious in terms of how much we put in. And so we waited on that a little bit or made the amount less and decided to see what happens in 2014 before we did anything further.

Okay. And two other little ones. One, we had Bell's results this morning, as you probably know. There was no slide this time on their activities in Manitoba wireless and the huge opportunity for them there. So I am wondering if you can give us any update on what you are seeing from them? Does it remain aggressive, a lot of store expansion, is it moving the needle much?

Vince, it is Kelvin here. So, I mean, Bell's been in market now for a year or a little bit more. I think their activity is pretty consistent. You have seen our results. They are pretty good, I think, on the wireless front. Revenue is pretty solid, even taking out the impact of -- even with the impact of some of the wireless wholesale decline, we had solid revenue in ARPU growth. We are seeing our market share pretty steady at better than 50%. So I can't really comment on what all they are doing. But clearly they have been in the market for a while, and you are seeing us continue to perform pretty well, I think.

Okay. Great. And last one. You mentioned the orders, or the IP orders, I should say, at Allstream were up 29% end of 2013 versus end of 2012. Can we just understand that a bit more? Is that basically including all of the shared services Canada stuff you have in the pipeline is driving most of that? Can you talk about beyond that contract that we all know and can quantify beyond that what sort of sales traction and pipeline you are seeing?

Sure thing. Thanks for the question, Vince. So, yes, orders on hand up 29% at the end of the year. A lot of that is the shared services contract which is materializing primarily in the fourth quarter and then will turn into revenue in Q1 and Q2. And then as the rest of those shared services contracts come in the first part of this year, then they get installed throughout the course of the rest of the year. And also we will see the strength we have seen in IP sales in the back half of the year and IP revenues in Q4 carry into Q1 also.

All right. Sorry. Are you seeing good traction from other customers, other than that one contract?

We are seeing -- yes. Those contracts from shared services Canada was actually one in December of 2012. And as we talked about earlier, we are seeing strength across the IP portfolio, generally, not just the shared services contract.

Mike, you are also increasing the sales force by a substantial number of salespeople which should, not in the short short term, but through the year start to generate even increased IP sales.

Okay. Thanks.

And, you know, just back on some of Wayne's answers. We realize that, as I said earlier, that the financial results are pretty complex and have many one-time events. So as you write your report, if you are not certain or if you have more questions about what we have reported, please do not hesitate to call us as I realize that it could become quite challenging.

And that concludes the question-and-answer session. Mr. Peters, please continue.

Ladies and gentlemen, we have reached the end of our 2013 Q4 and annual results conference call. Once again thank you for joining us today.

And this concludes today's conference call. You may now disconnect.