BCE Inc (BCE) 2016 Q1 法說會逐字稿

Good afternoon. My name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to the MTS first-quarter results conference call.

(Operator Instructions)

I would now like to turn the call over to Vice President and Treasurer, Brenda McInnes. Please go ahead.

Thank you, Dan.

Hello everyone, and thank you for joining us today on our Q1 2016 results call. Our news release, MD&A, financial statements and supplemental information package can be found on our website at mts.ca under the About Us link. Today our Board of Directors approved the 2106 second-quarter dividend, which has been set at CAD0.325 per share. Please note that due to the arrangement with BCE, the second-quarter 2016 quarterly cash dividend is expected to be the last dividend we declare. Our call will consist of comments by Jay Forbes, our President and CEO, followed by a question-and-answer period.

Before we start, I'd like to remind all listeners that today's presentations and remarks may contain forward-looking statements. A number of assumptions were made by us in preparing these forward-looking statements, which represent our expectations as of today. As such, they are subject to the risks that the 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.

We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. For additional information about such material factors or assumptions, please refer to our first-quarter 2016 MD&A released this morning and our 2015 annual MD&A, which are both available on our website.

I will now turn the call over to Jay.

Thanks Brenda, and good afternoon to everyone joining us on the call today.

While we are here this afternoon to discuss our Q1 2016 performance, I will briefly address the announcement made last week of the agreement that will see BCE purchase MTS. As I said on May 2 analyst call with BCE, the transaction we have announced is historic, both for MTS and for the telecommunications industry in Canada.

We are proud of what we have achieved as an independent Company, and we believe the transaction with BCE positions us for an even more successful future. It offers compelling benefits to our shareholders, our customers, and our employees, which will contribute greatly to a long-term growth and prosperity of Manitoba.

We will see a headquarters for Bell's Western Canada operations established in Winnipeg. Bell will invest CAD1 billion over the next five years to improve Manitoba telecommunications infrastructure. And our relationship with the community will go stronger, as Bell maintains and develops community sponsorships and relationships in this Province. The sensitivity Bell demonstrated in crafting an offer that addresses the unique needs of the Manitoba marketplace and community shows, in our view, that Bell is the perfect long-term owner of MTS. And under its ownership, Bell MTS will play a continued and significant role in the future of Manitoba.

We're working jointly with BCE to obtain the appropriate regulatory approvals with a view to closing the transaction late this year or early 2017. As I hope you can appreciate, we will respect the regulatory process and will not be offering further comments, other than to say that this work will be an important area of focus for us. However I would add that this will not detract from our continued efforts to serve our customers and to transform our business.

With that in mind, I'd like to turn now to our performance from the first quarter of 2016. This quarter marks the one-year anniversary of the start of our journey to transform MTS into a customer-first organization. Work on our strategic review process started early in 2015 and gained a moment to throughout the year as we launched our three-year transmission program, which we announced in Q4 of 2015.

This positive momentum allowed us to enter 2016 from a position of strength. I am pleased with the changes we have created in our business over the last several months, with the results we have generated, and the value that we have created for our shareholders.

Q1 has been built off a very successful 2015. We closed the Allstream sale in January. And following the final post-closing adjustments, we will realize net proceeds of CAD425 million. We bought back shares using the proceeds from the Allstream sale.

As of May 4 we've returned over CAD164 million to our shareholders, buying back just over 5 million shares. This represents 82% of the CAD200 million we committed to in our share buyback program earlier this year. With the announcement that BCE will be acquiring all of our issued and outstanding shares, we have suspended our normal course issuer bid.

In 2015, we identified CAD100 million in free cash flow improvements expected to be captured by our transformation program initiatives. Our progress over the last two quarters has been significant, with programs to deliver over 50% of the free cash flow improvements already implemented. We have streamlined our management and back-office processes, have implemented our new capital investment redesign initiative, and launched a refreshed MTS brand, completing these three transformation program initiatives.

We are getting ready to implement two more of our transformation programs, and have five more programs that are now in the design stage. You can find more details on these initiatives in our news release. And we look and we look forward to providing progress updates on these initiatives as we continue to work towards a successful transformation of MTS.

Looking more closely at our results of the quarter, I want to highlight some notable progress, as well as some continuing challenges. In Q1 2016 we posted a strong improvement in free cash flow, with Q1 free cash flow up by CAD12 million when compared to Q4 2015.

Our free cash flow per share increased CAD0.16, or 38%, to CAD0.58. Free cash flow of CAD45.6 million for the quarter was down CAD2.6 million compared to Q1 2015, mainly due to increased deferred wireless costs, partly offset by our lower capital investments. We continue to work through the impact of the wireless double cohort that started in Q2 2015.

While we saw a CAD5.2 million decrease in revenue from 2015, Q1 revenues were largely in line with our plan. Our lower postpaid wireless churn and increase of subscriber adds over Q1 2015, as well as our increased wireless ARPU are all signs of the positive momentum that we are building in the business.

Capital investments were CAD12.1 million lower than Q1 2015, mainly as a result of our capital investment program process redesign, which began in the second half of 2015, and the timing of our capital investment program. We expect to ramp up our capital investment spends in the following quarters as we continue to follow our redesigned and more disciplined capital investment process. Finally, I would like to highlight the positive results from our January 1, 2016 pension funding valuations, which show our pension funds combined solvency funded ratio has significantly improved to 95%.

So we're off to a good start in the first quarter of 2016. We delivered a solid first quarter, building further on the momentum that we established throughout last year. And we've already done a lot of work in the short term as we progress towards transforming MTS to a customer-first business. Even as we move ahead with the BC acquisition proposal, we will continue this work and invest across our business to further enhance our capabilities, all the while focusing on becoming an organization that is fully aligned around putting our customers first.

With that, let's open up to whatever questions you might have.

(Operator Instructions)

Your first question comes from the line of Maher Yaghi with Desjardins Capital Markets. Your line is now open.

Yes. Thank you for taking my question. Jay, I wanted to ask you, you mentioned the improvement in ARPU, which was about 2% on wireless. But could you provide what the organic ARPU would have been if you were to exclude the OnStar wholesale subs? Because I think most of these subs come with no data plans and lower ARPU than your average ARPU.

Maher, good afternoon. You are correct in your assumption. Those OnStar client come with a much lower ARPU than what is traditionally been the case in terms of our postpaid ARPU. I don't think we have broken out the ARPU numbers on a normalized basis. We have provided -- we have some analytics that we are prepared to provide as it relates to the churn, with and without this classification, but don't have the ARPU numbers to share with you.

Okay. Would the number be negative if you were to exclude those? Because you did lose quite a bit of those subs in the quarter, right?

Yes. As you will note in the quarter-over-quarter analysis we have begin -- begun to shed those in early 2015, and have effectively shed the last of them here early in the second quarter of 2016. And so, that those will now no longer cost to part of the postpaid wireless subscriber mix as we go forward. Again, I will refrain from offering any commentary in terms of the ARPU impact of those. But we will look at doing so as part of our Q2 disclosures, Maher, assuming that we do not run into any issues around that type of disclosure.

Right. That would be helpful. I wanted to ask you a question on your solvency liability. I was surprised to see the number improve for MTS, but increase on the Allstream side. Could you talk about the difference here? Why one solvency liability would go down and the other would go up? I guess, some employees might have left or bought out their plans? Have you -- can you talk a little bit about that difference?

Hi, Maher. It's Brenda McInnes. I can answer that for you. It really boils down to how the discount rate is calculated and how the mortality tables are applied to those two plans. The CIA, Canadian Institute of Actuaries, was delayed in their recommendation for applying the mortality tables. We applied them early for MTS because we use a different basis for calculating the discount rate. That was done in the 2015's evaluation. Where for Allstream we were not allowed to adopt them until 2016's evaluation. You are seeing an impact because of that. There is a slight different basis, again, on how the discount rate is calculated for retirees. It was slightly less favorable for the Allstream pension plans and it was fairly neutral to slightly positive for the MTS plan.

Okay, great. That's helpful. Would the metrics that you are using in your assumptions be now on a -- going on run rate? Or would there be any additional changes that you expect to incur?

I am sorry, Maher. Could you repeat that question?

The assumptions that are basing your solvency liability numbers, are those as to the most updated recommendations to evaluate those liabilities, or there are still some assumptions that you have not factored in yet?

No, that is everything. There are no further changes that we are expecting at all from either the regulator or from the CIA.

Okay. Okay, great. Thank you very much.

Your next question comes from the line of Sanford Lee with Canaccord Genuity. Your line is now open.

Can you tell us what the wireless EBITDA was for the quarter? I didn't see it in the new release or supplemental.

I am sorry, Sanford. We must have a poor connection. Could you please repeat your question?

Sorry. I'm asking about the wireless EBITDA. Can you provide that number?

No, that is not a number that we breakout.

It used to be in the supplementals.

Yes, we -- it's Paul here, Paul Cadieux. We used to provide it. And then we made a decision in 2016, just as a result of all the restructuring activities that we're doing and all the allocations we were going to have to make, that it wasn't going to be that beneficial. And arguably, we would have some concerns with (technical difficulties) on the consistent. At this point, we felt it wasn't just to provide the revenues. And then for -- with the disclosure on the COA that point, you'd make your own assessment on where the EBITDA would (technical difficulties).

I see. Okay. Another question, then. You are seeing. I guess, a nice uptick in high-speed internet subs over the past two quarters, which I assume that you're benefiting from the total internet bundles. However, you are also recording four consecutive quarters of year-over-year TV subscriber declines. Can you maybe explain what you're seeing in the marketplace? Is it a function of cord cutting? Do you expect this trajectory to change in the coming quarters?

It's Heather Tulk. Yes, thank you very much. We're quite pleased with how we've seen the internet business performing recently. And we certainly -- total internet is a piece of that. But so too is, I would say, some of the renewed focus that we have had in terms of our marketplace and sales activity. And specifically to IPTV, we do continue to see some cord cutting and cord shaving related to over-the-top. I think you would also see that similar to our internet performance. We've been refocusing ourselves on some of the work in our TV business. And actually in Q1 we were quite happy to see internet net gain come back to positive. And so we certainly, although it was down below last year, it's trending in the right direction. And when you look at a sequential-quarter basis, and we expect to see that continuing.

Great. And then one last one, if I could. I think Jay addressed it a little bit on the BC call. Can you say if there is anything related to termination clause with your network sharing deal with Rogers? Just wondering if there's anything material there.

Sanford, in terms of the network sharing agreement function we refer to as NetCo, that agreement was structured to envision a number of different occurrences over its life span, one of which was a change of control type of event. We would expect that agreement to continue as we go forward and would have many years left on it in terms of this transaction as it's currently envisioned.

Great. Okay. I'll jump back in the queue. Thanks.

(Operator Instructions)

Your next question comes from the line of Jeff Fan, Scotiabank. Your line is now open.

Wondering if you could just talk about the overall margins this quarter when we compare it from last year to this year and what's causing that? I think it went from 48% to 46%. I know you don't break down the wire line and wireless, but maybe you can give us a little bit of color there?

I think there's a number of factors that come into play on that, Jeff. As Heather has indicated, we have done well in the marketplace in terms of adds, especially around the internet business. There's been a pronounced impact in terms of the back-office streamlining that we had done in Q4 of last year. And the fact that the vast majority of the 250-plus employees that had taken part in that staff reduction program had left the organization by the end of the first quarter. So we began seeing that benefit flow through in terms of reduced operating cost.

We would say that counter to that, the capital reduction that we saw in the first quarter, as we forewarned you, we anticipated that there was going to be a degree of softness in terms of the capital investment program for the first quarter as we implemented new processes, implemented a new regime, if you will, for the organization to follow as we looked at a much more disciplined approach to capital investment. That decline in capital investment backed up some labor cost into operating results. And so we see a bit of that flowing through as well. So a variety of factors that contributed to the EBITDA profile for the quarter.

Would you say the wire line margins were relatively stable?

As Paul has mentioned, we do not break out the wire line/wireless margins. Again, as we looked at it there is far too much discretion around allocations to produce anything that was it really meaningful to our investors. As a consequence, we've decreased the disclosure around that aspect of the business.

Okay. Maybe one quick one on ARPU, following on an earlier question. Your blended ARPU did go up. I guess the question was around OnStar. But also, can you give us some color on your postpaid ARPU, whether that positive, flat, or down? Considering that given the change in your subscriber base and, I guess, the change in your blended ARPU seems to imply a lot of the change was due to the mix.

Yes. Certainly as you mentioned, a lot of the change was due to the mix, although we did have some changes in postpaid as well. You'll see that our percentage of subscribers on data plans has increased nicely, and continues to increase nicely. That's given us some good upside in our postpaid ARPU, as well as some plan price increases that we have put into place over the last year are following through nicely. That is somewhat offset by the increase in customers taking plans with features wrapped in or their long-distance calling wrapped in, which has depressed some of those lines. There is some puts and takes in there. But generally we're feeling good about the direction of ARPU, both on a postpaid standalone, as well as the blended that you see in the disclosure.

So overall it was positive?

So, generally -- so overall, yes. As you said, the ARPU we disclosed is positive. Generally we're seeing good trending in the standalone without the OnStar.

Okay, thanks.

That concludes the question-and-answer session. Ms. McInnes, please continue.

Ladies and gentlemen, we have reached the end of our Q1 2015 results conference call. Once again, thank you for joining us today.

Thank you. The conference call is now over.