MTS swings to steep loss on pension costs, failed sale of Allstream

Manitoba Telecom Services saw its bottom line ring up a loss of almost $87.4 million in the fourth quarter, but the company’s chief executive says he doesn’t expect it will impact the company’s dividend this year.

Winnipeg-based MTS said its earnings were impacted by one-time accounting charges related to the failed sale of its Allstream business division and a recent Supreme Court decision involving one of its pension funds.

“It won’t impact at all our cash flows coming from operations and supporting our dividend,” chief executive Pierre Blouin said Thursday in an interview.

The quarterly dividend of 42.5 cents per share produces an annual yield of about 5.7 per cent based on the issue’s Thursday closing price of $30.42 cents on the Toronto Stock Exchange.

The fourth-quarter loss amounts to $1.25 on a per share basis, compared with a net profit of $25.4 million, or 38 cents per share, in the same quarter a year ago.

As a result of the high court’s decision, MTS will have to increase benefits in one of its employee pension plans by $142 million in a move that affects current employees, retirees and employees who have left the company since 1996.

“This is to be negotiated with all of the parties, which includes the employees, retirees and people who have left since 1996,” Blouin said.

“It’s a pretty complex issue and a matter that will have to be addressed with all of the parties as quickly as possible, but it’s going to take some time because of the amount of people.”

The Supreme Court of Canada upheld a lower court ruling that an original pension surplus of $43.3-million that existed when the former Manitoba Telephone System was privatized in 1997 must be returned to the workers.

A number of unions — Unifor, the Telecommunication Employees Association of Manitoba Inc. and the International Brotherhood of Electrical Workers (IBEW) — and a group of retirees have been fighting for the surplus to be returned since 1997.

Blouin said the $142 million will be funded according to pension rules and MTS has the money to do so.

He also said business division Allstream is back on track and “winning its fair share” of contracts.

MTS wasn’t able to line up another buyer for Allstream after Ottawa blocked a $520-million deal to sell it last fall.

Federal Industry Minister James Moore, acting under national security provisions of the Investment Canada Act, rejected the proposal to sell Allstream to Egyptian investment group Accelero Capital.

Accelero was co-founded by Naguib Sawiris, an Egyptian businessman who was instrumental in financing the start up of small Canadian wireless company Wind Mobile when he headed Orascom Telecom Holding.

Allstream, with almost 2,000 employees, provides Internet and other business services to about 65,000 businesses, Canadian government installations and facilities and to some provincial governments.

It competes in the business telecom market against Bell Canada (TSX:BCE), Telus (TSX:T) and the other large Canadian telecommunications carriers.

Canaccord Genuity analyst Dvai Ghose said Allstream’s financial results were “poor” with its revenue of $166 million, down 6.7 per cent year over year.

However, Ghose said the addition of 4,649 net wireless subscribers gained in the quarter by the MTS division beat his estimate of 2,200.

Meanwhile, MTS, which announced this week that it will add 50 jobs at a technical support centre in Montreal, will also build a $50-million data hosting centre in Winnipeg, Blouin said.

For all of fiscal 2013, consolidated operating revenues were $1.63 billion, down four per cent from $1.704 billion for 2012.

The net loss for the year was $84.4 million, or $1.24 per share, versus a net profit of $144.4 million, or $2.17 per share.