Glentel Inc. reports 2013 annual financial results

BURNABY, BC, March 26, 2014 /CNW/ - GLENTEL Inc. (TSX: GLN) today reported its results for the three months and year ended December 31, 2013. Financial highlights (tabular amounts in thousands of Canadian dollars, except per share data) follow.

"We are pleased to announce that GLENTEL, in 2013, generated in excess of one billion dollars in global revenue," stated Thomas Skidmore, GLENTEL's President and Chief Executive Officer. "GLENTEL's growth over the past 50 years from being a small two-way radio dealer, to launching its first WIRELESSWAVE location 16 years ago in Burnaby, BC, Canada, to now operating and managing in excess of 1,420 locations across four countries and three continents is extraordinary. We want to thank our partners, staff and management, and GLENTEL's dedicated customers for contributing to this grand accomplishment.

"This year has proven to be challenging, but has presented the Company with tremendous growth opportunities. We have viewed this year as one of investing in our future, and believe that the events of 2013 will only make for a stronger and more flexible GLENTEL. In 2013, our Retail Canada Division opened 124 Target Mobile kiosks in Target Canada locations, the largest one-year Canadian store expansion in our history. We believe that our relationship with Target Canada will prove beneficial to all partners in the long term as Target Canada further develops its dedicated customer base in Canada. In the United States, our Diamond Wireless business assumed, from Verizon Wireless, 154 BJ's Wholesale Club Inc. kiosk locations ("BJ's") located in 12 U.S. states on the U.S. eastern seaboard. The assumption of these 154 BJ's locations almost doubles Diamond Wireless' U.S. coverage, and was transitioned under Diamond Wireless' management team in August 2013. In the Philippines, our AMT management team, working with our partners Tao Corporation and Globe Telecom, opened 40 Allphones locations in Manila. We see this endeavour as our first entry point into Asia Pacific, and are pleased that we were able to so effectively execute our expansion into this region enabled by well-established local partners. We see AMT in Australia as our dedicated beachhead and foundation for growth into Asia Pacific nations that just now are developing their wireless framework.

"We are very optimistic about our global initiatives, and are pleased that our core Canadian business remains strong and is well positioned for the long term. Retail Canada sales and profitability have been resilient, irrespective of the recent disruption in the Canadian market due to the change in wireless contractual terms from three years to two years. Our dedicated customer base continues to return for hardware upgrades and new activations, and we continue to enjoy positive relationships with all of our carrier partners. 'Quality, Service, and Integrity', GLENTEL's core values, have provided us the framework to grow our business to this level.  We look forward to 2014 and beyond as we continue to grow our business."

Consolidated highlights

3 months ended December 31, 2013 compared to respective period in 2012

• Sales for the 4th quarter ended December 31, 2013 increased 27% to $401.4 million compared to $316.9 million in 2012. Sales for the 4th quarter of 2013 include sales from Wireless Zone and AMT/Allphones, both of which were acquired part way through the 4th quarter of 2012.  EBITDA decreased 10% to $16.0 million for the 4th quarter compared to $17.8 million in 2012.  EBIT decreased 34% to $8.4 million for the 4th quarter compared to $12.7 million in 2012.
  
  
• In the 4th quarters of 2013 and 2012, GLENTEL recorded $1.6 million ($1.1 million net of tax) and $0.08 million ($0.06 million net of tax), respectively, in costs related to restructuring the AMT Allphones retail channel in Australia, costs incurred for the assumption of BJ's Wireless kiosks, and Target Mobile startup costs. Costs negatively affected basic earnings per common share by $0.05 and $0.04 in the 4th quarter of 2013 and 2012, respectively.
  
  
• Net income and basic income per common share were $8.3 million and $0.37, respectively, compared to $10.7 million and $0.48, respectively.
  
  
• Consolidated adjusted net income and adjusted basic earnings per share for the 4th quarter ended December 31, 2013 were $9.3 million and $0.42, compared to $11.5 million and $0.52 in 2012.
  
  

Year ended December 31, 2013 compared to respective period in 2012

• Sales for the year ended December 31, 2013 increased 74% to $1,366.5 million compared to $784.8 million in 2012. Sales for the year ended December 31, 2013 include sales from Wireless Zone and AMT/Allphones, both of which were acquired in the 4th quarter of 2012.  EBITDA increased 8% to $54.6 million compared to $50.5 million in 2012, and EBIT decreased 25% to $28.2 million compared to $37.5 million in 2012.
  
  
• In the year ended December 31, 2013, the Company incurred costs of $27.4 million ($20.4 million net of tax) compared to $2.9 million ($2.1 million net of tax) in 2012. Costs incurred in 2013 relate primarily to the Company's $23.1 million ($17.6 million net of tax) impairment of its investment in AMT offset by gains attributable to the sale of tower site assets in the Company's Business Division. Costs negatively impacted basic earnings per common share by $0.92 and $0.13, in the years ended December 31, 2013 and 2012, respectively.
  
  
• Net income and basic income per common share were $4.6 million and $0.21, compared to $27.4 million and $1.23, respectively.
  
  
• Consolidated adjusted net income and adjusted basic earnings per share were $25.0 million and $1.13, compared to $30.3 million and $1.36, respectively.
  
  

Retail Canada Division

• Sales in the 4th quarter of 2013 were 6% higher than the same period in 2012 due to the launch of 124 Target Mobile locations across Canada in 2013, as well as Canadian consumers newly embracing the Black Friday weekend, which has traditionally been the busiest shopping day in the U.S.  As a result of our Canadian carrier partners introducing new Black Friday deals, the Retail Canada Division experienced strong sales across all of its banners during this period.  Record-breaking low temperatures across central Canada during the Christmas shopping season significantly reduced mall foot traffic, which negatively affected sales during the quarter as consumers in the region battled electrical outages, poor road conditions, and severe weather.  Management believes that 4th quarter results were trending higher before the impact of the highly inclement weather in central Canada during the 2013 holiday season.
  
  
• The Retail Canada Division saw same-store activations decrease in the 4th quarter of 2013 by 15% for stores that were open for both 2013 and 2012. Same-store activations declined by 9% for the year ended December 31, 2013 for stores that were open for both 2013 and 2012, primarily due to the new amendments to the Wireless Code of Conduct ("WCOC"), discussed below, and increased competition from new market entrants. However, we expect future years' results, especially 2015, to be more robust.
  
  
• On June 3, 2013, the Canadian federal government released amendments to the WCOC, which is a mandatory code for all providers of retail mobile wireless voice and data services. As part of the code, the Canadian Radio-television Telecommunications Commission instituted a new regulation that enables any wireless customer to cancel a wireless service contract after two years, at no cost to the customer, effectively requiring the industry to shift from three-year contracts to two-year contracts. The WCOC was mandated to take effect December 2, 2013. In response to the new WCOC, our carrier partners proactively implemented a new two-year pricing mandate on August 9, 2013. As part of this shift from three-year term plans to two-year term plans, our carrier partners introduced higher-priced per month two-year contracts along with higher priced hardware. Sales in the 3rd and 4th quarter of 2013 indicate that consumers have been slow to embrace the change in term and pricing, but we anticipate that by July 2014 the market will normalize, resulting in improved sales.  We anticipate that those consumers who signed up for three-year contracts in 2012 and those that entered into two-year contracts in 2013, as a result of the new WCOC, will renew for hardware upgrades in 2015.
  
  
• Customers' purchasing habits continued to evolve in 2013, with the activation mix in this quarter seeing more upgrade activations than in the past. Our carrier partners continue to focus on building deeper relationships with their quality customers, and in an effort to manage churn have focused on customer retention along with new activations. We expect this trend to continue in the future as the Canadian wireless customer base approaches a steady-state penetration rate.
  
  
• The Retail Canada Division continued its commitment to develop its people to provide the best wireless experience in Canada, by revising and updating training materials and procedures to align with the carriers' focus on quality activations and churn management.
  
  
• The Retail Canada Division successfully completed the fifth and final phase of the Target Mobile rollout in the 4th quarter of 2013, opening an additional 42 stores in the quarter. The Division operated 124 Target Mobile locations across Canada at December 31, 2013. As the Target Mobile business is directly tied to foot traffic generated by Target Canada, this initiative has experienced slow sales as Target Canada continues to build its reputation and brand in Canada.  Given the cost structure for the Target Mobile business is relatively fixed, as Target Canada continues to build its customer base and generate foot traffic into its stores Target Mobile results should improve.  GLENTEL and Target Canada are committed to the Canadian marketplace and Target Canada has announced that it intends to launch an additional 9 new stores in Canada in 2014, all of which will include Target Mobile kiosks.
  
  
• At December 31, 2013, the Retail Canada Division operated a total of 479 retail stores in major shopping malls and high-pedestrian-traffic locations, MacStation stores, Target retail stores, and Costco Warehouses in Canada, compared to 336 stores in 2012.
  
  

Retail U.S. Division - Diamond Wireless

• Sales increased in the 4th quarter and for the year ended December 31, 2013 as a result of Diamond Wireless operating 154 retail stores in BJ's across 13 U.S. states since August 1, 2013. These BJ's locations were historically managed by Verizon Wireless directly, but due to a shift in mandate, the BJ's locations were assumed by Diamond Wireless in the 3rd quarter of 2013.  Although Diamond Wireless assumed an active operation in BJ's from Verizon Wireless, it still incurred costs of $1.9 million ($1.3 million net of tax) in 2013 related to the hiring of new staff, educating the staff on Diamond Wireless best practices, and the temporary and permanent transfers of key sales managers to BJ's geographies.
  
  
• The increase in Diamond Wireless' profitability was a result of several factors that are expected to continue into the future.  These factors include, but are not limited to, benefits associated with Diamond Wireless'  inventory purchasing practices, a renewed focus on selling higher-margin smartphones and tablets, and a larger national U.S. footprint that now includes the 154 kiosks within BJ's.  Sales were, however, tempered as Verizon Wireless, in the 3rd quarter of 2013, elected to extend the renewal period of customer contracts from 20 to 24 months, which ultimately reduced sales as customers delayed upgrading their smartphones.
  
  
• The Division continued to roll out employee promotions and training programs during the 4th quarter of 2013, with much of the training focused on new devices and promotion initiatives. The Division continues to focus on the "connected device," such as mobile broadband and tablets that tie into Verizon Wireless' "Share Everything" program, where it saw increased attachments by customers.
  
  
• In 2013, Diamond Wireless closed a net of 16 corporate stores, bringing the total to 197 mall-based corporate stores and 154 BJ's wireless kiosk locations at December 31, 2013, compared to 213 mall-based corporate store locations at December 31, 2012. Diamond Wireless corporate stores operate in 28 U.S. states and Diamond Wireless BJ's kiosks operate in 13 U.S. states.
  
  

Retail U.S. Division - Wireless Zone®

• Verizon Wireless' change to "Simplified Compensation Plan" in 2013 and the launch of its "Share Everything" program in 2012 positively affected sales throughout 2013. Sales of higher-priced smartphones contributed to greater wholesale sales. This trend to smartphones also contributed to higher carrier compensation per transaction. In an effort to bolster sales during the 4th quarter of 2013, Wireless Zone maximized Verizon Wireless' special incentives in November and December to drive tablet sales, which for the first year became a major contributor to sales.  By providing these special incentive offerings to its franchisees, Wireless Zone experienced growth in its revenue figures irrespective of Verizon's decision to extend the renewal period of customer contracts from 20 months to 24 months.  Wireless Zone expects that this eligibility shift in customer upgrades will continue to depress sales through the first half of 2014.
  
  
• In order to promote increased store sales, Wireless Zone has continued its numerous operational efforts in 2013, the top three of which were for exceeding carrier transactional minimums and Key Performance Indicators, remodeling stores to enhance customer experience, and increasing training directed towards franchisees and sales representatives. Additionally, new revenue streams for stores are being developed that include, but are not limited to, the introduction of Cable and Direct TV sales capabilities in all franchise stores and the nationwide launch of a customer device trade-in program in all Wireless Zone stores by the end of the 2nd quarter of 2014.
  
  
• In October 2013, for the third consecutive year, Verizon Wireless awarded Wireless Zone with the top agent award for customer loyalty across all Verizon Wireless retailers in the United States. Wireless Zone was recognized as the best agent in the nation for customer service and customer loyalty, based on low churn, great Net Promoter Scores, and low after-purchase customer service calls to Verizon Wireless.
  
  
• Wireless Zone reduced its store count by a net of 13 locations in 2013, operating 374 franchise and 30 corporate stores in Washington D.C. and across 28 states in the U.S. for a total of 404 stores at December 31, 2013.
  
  

Retail Australia Division - AMT (Allphones)

• AMT is the leading independent multicarrier mobile phone and telecommunications retailer in Australia, operating and managing 177 stores in Australia and the Philippines at December 31, 2013. GLENTEL acquired AMT with the intent to utilize its experienced management team, established carrier relationships, market-leading point-of-sale system, and well-recognized brand as a beachhead to develop its presence in the Asia Pacific marketplace. In 2013, AMT successfully launched 40 Allphones locations in the Philippines, with the intent to operate 175 Allphones locations in that geography by 2015. GLENTEL views the Asia Pacific market as a significant area for growth, and believes the assets at AMT are well-suited to be deployed in that region.
  
  
• The Australian retail environment continues to remain competitive, driven particularly by the largest national wireless carrier. Allphones has remained competitive in both the postpaid and outright handset market in 2013; however, same-store sales declined as a result of the Virgin Mobile Australia brand and the Optus brand exiting Allphones retail stores in June 2013 and September 2013, respectively. The exit of the Optus and Virgin Mobile Australia brands led GLENTEL to assess the carrying value of AMT's intangible assets and goodwill for impairment in the 3rd quarter of 2013, which resulted in a $23.1 million ($17.6 million net of tax) impairment charge for 2013. Prior to exiting Allphones retail locations, the Optus and Virgin Mobile Australia brands had represented a significant portion of AMT's revenues through ongoing airtime residuals. The loss of the Optus and Virgin Mobile airtime residuals resulted in AMT assessing its cost structure and viability of certain Allphones locations in particular geographies that are only supported by the Optus and Virgin Mobile Australia networks.
  
  
• In 2013, AMT closed a total of 72 Allphones locations in Australia.
  
  
• Management has been actively pursuing additional cash flows to supplement the exit of the Optus and Virgin Mobile Australia brands in Allphones locations. The Vodafone brand has proven to be resilient and has acquired a major portion of the activations lost by the exit of the Optus and Virgin Mobile Australia brands in 2013. AMT is now marketing Vodafone, with its new national 4G/LTE network as the premier carrier brand offering of Allphones in Australia. AMT expects that its relationship with Vodafone is primed for growth, as the carrier reduced its independent dealer footprint in 2013 but continued its offerings through Allphones.  With its 4G/LTE network now fully operational, AMT believes Vodafone sales will increase substantially as customers continue to be educated about the Vodafone network and product story, while benefitting from Allphones exclusive Vodafone wireless plans.
  
  
• Allphones has continued to attract customers to its retail stores by leveraging its national presence in Australia consisting of 90 Allphones locations. AMT continues to operate 45 Virgin corporate retail stores through its Retail Management Services business. Also, AMT has partnered with two national carriers to sell their respective Mobile Virtual Network Operator ("MVNO") offerings in Allphones locations across Australia. These MVNO offerings allow customers to participate at a lower price point than that currently available from the larger national carriers, however still providing the dependable network backbone that customers demand. Further, AMT, in partnership with Tao Corporation (http://www.taocommunity.com) of the Philippines, opened 40 Allphones mobile phone stores in Manila, Philippines in 2013, forecasting to operate a total of 100 locations by the end of 2014, and 175 locations by the end of 2015.
  
  
• Aside from the impairment charge noted above, for the year ended December 31, 2013, AMT experienced costs of $3.4 million ($2.4 million net of tax), consisting of $0.3 million ($0.2 million net of tax) in one-time startup costs for the launch of Allphones locations in the Philippines, $0.2 million ($0.1 million net of tax) of startup costs for the MySaver MVNO brand, and $2.9 million ($2.1 million net of tax) of costs related to retail location restructuring. Amortization expense of property, equipment, and intangible assets for the 4th quarter ended December 31, 2013 was $3.3 million.
  
  
• At December 31, 2013, AMT, in Australia, operated a total of 137 locations, consisting of 33 Allphones corporate, 29 Allphones franchised, and 28 Allphones licensed stores, 45 Virgin corporate retail stores, and 2 smartphone manufacturer locations managed through AMT's Retail Management Services business. The Division closed 12 underperforming Allphones locations in the 4th quarter of 2013. AMT has actively managed its store count since the exit of the Optus and Virgin Mobile Australia brands in Australia-based Allphones locations in 2013. Management has reduced its retail store exposure by eliminating underperforming stores, while ensuring that customers' product demands are still met. Management will continue to assess underperforming stores, and their respective cost structures, in 2014 as the Australian mobile phone retail market stabilizes, and will look for strategic growth opportunities based on carrier offerings. At December 31, 2013, AMT operated 40 mall-based Allphones locations in the Philippines, opening 17 locations during the 4th quarter of 2013. At December 31, 2013, AMT operated and managed a total of 177 locations in Australia and the Philippines.
  
  

Business Division

• Sales increased in the 4th quarter and in the year ended December 31, 2013 compared to the same periods in 2012. The Division had a steady stream of revenues from small- to medium-sized projects as well as a few large projects, maintaining recurring revenues for airtime and maintenance agreements while continuing to see significant growth in recurring rental revenue. Recurring revenue from tower sites continues to decline as the Division continues to sell tower assets. Gross margins decreased by 1.7% in the 4th quarter of 2013 and increased by 0.5% in the year ended December 31, 2013 compared to their respective periods in 2012.
  
  
• In the 4th quarter of 2013, the Company, through its Business Division, closed two tranches of its tower site sale, resulting in net proceeds of $1.4 million for the sale of nine tower site assets and related customer agreements. In the year ended December 31, 2013, the Business Division closed six tranches of its tower site sale, resulting in net proceeds of $6.3 million for the sale of 38 tower site assets. These asset sales were pursuant to the August 2012 agreement with the purchaser for the sale of GLENTEL's non-core tower site assets. At December 31, 2013 all of the Company's remaining tower site assets were classified as assets held for sale in its annual consolidated financial statements.

Corporate

• For the 4th quarter ended December 31, 2013, corporate operating costs totaled $15.5 million (2012 - $9.3 million). Corporate operating costs include Retail U.S. Division - Diamond Wireless corporate costs of $3.7 million (2012 - $1.4 million), Retail U.S. Division - Wireless Zone corporate costs of $2.8 million (2012 - $0.8 million), and Retail Australia Division corporate costs of $1.1 million (2012 - $2.7 million including transaction costs). The quarter ended December 31, 2013 includes corporate costs for Wireless Zone and Retail Australia while the 4th quarter of 2012 only includes two months of Retail Australia corporate costs and one month of Retail U.S. Division - Wireless Zone corporate costs.
  
  
• For the year ended December 31, 2013 corporate operating costs totaled $45.4 million (2012 - $25.6 million). Corporate operating costs include Retail U.S. Division - Diamond Wireless corporate costs of $9.2 million (2012 - $5.6 million), Retail U.S. Division - Wireless Zone corporate costs of $9.4 million (2012 - $0.8 million), and Retail Australia Division corporate costs of $4.9 million (2012 - $2.7 million). The year December 31, 2012 only includes two months of Retail Australia corporate costs and one month of Retail U.S. Division - Wireless Zone corporate costs.

Income Taxes

• Income tax for the three months ended and year ended December 31, 2013 were $1.9 million expense and $0.4 million recovery, respectively, compared to the income tax expenses of $3.7 million and $10.1 million for comparable periods in 2012. The reduction of income tax expenses in the current year is predominately attributable to a decrease in operating income and a reduction to deferred tax liabilities in Australia as a result of the impairment of certain AMT intangible assets and goodwill.

Subsequent Events

• On January 9, 2014, the Company completed the sale of its Business Division's non-core MSAT satellite assets for nominal cash consideration and future cash payments based on performance over seven years.
  
  
• Subsequent to year end, the Company amended its 5-year syndicated credit agreement whereby Facilities B and C are now amortized over a period of 10 years.  As part of the amendment, the Company negotiated a Facility B principal payment holiday and Facility C one-time principal payment reduction to $0.7 million for the quarterly payment due March 31, 2014.  For the remainder of the term of the syndicated credit agreement, Facility B quarterly repayments will be $0.6 million and Facility C quarterly repayments will be $3.2 million. Certain financial covenants, including the fixed charge covenant and cash flow sweep threshold amount based on debt to cash flow covenant were also amended. No changes were made to loan pricing of Facilities A, B, or C.  All credit facilities within the agreement mature October 2017.
  
  
• On March 20, 2014, the Company signed an agreement for the sale of certain intangible assets within its Retail Australia Division. The intangible assets are related to sale and distribution of accessories that is ancillary to the Allphones retail business. The sale is for proceeds of AUD$2.5 million over the next two years.

About GLENTEL

Based in Burnaby, BC, Canada, GLENTEL (TSX: GLN) is a leading provider of innovative and reliable wireless communications services and solutions, offering a choice of network carrier and wireless or mobile products and services to consumers and commercial customers. GLENTEL is the largest independent multicarrier mobile phone retailer in Canada and Australia.  In the United States, GLENTEL operates two of the six National Premium Retailers for Verizon Wireless. To its business and government customers, GLENTEL offers wireless systems and hardware, rental equipment, and system implementation services.  GLENTEL celebrated its 50th anniversary in 2013.

GLENTEL's own brands, including GLENTEL Wireless Solutions, WIRELESSWAVE, WAVE SANS FIL, Tbooth wireless, la cabine T sans fil, WIRELESS etc…, SANS FIL etc…, MacStation, iStation, Diamond Wireless, Wireless Zone®, and Allphones span four countries and three continents. At December 31, 2013, the Company employed over 4,700 employees and operated more than 1,420 locations, including more than 485 locations in Canada, located in retail malls, Costco Wholesale stores, Target retail stores, and business centres; more than 750 corporate, franchise, and BJ's Wholesale Inc. kiosk retail locations in the United States; and more than 175 retail locations in Australia and the Philippines.

Forward-Looking Statements

This news release contains statements about financial and operating performance of GLENTEL and future events that are forward looking. By their nature, forward-looking statements require GLENTEL to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate.  Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the qualifications and risk factors referred to in GLENTEL's 2013 Annual Information Form, in the 2013 annual report, and any assumptions, qualifications and risk factors contained in other GLENTEL public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com). Except as required by law, GLENTEL disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.

NO STOCK EXCHANGE, SECURITIES COMMISSION, OR OTHER REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED HEREIN.

For a copy of GLENTEL's annual report or for additional information visit www.glentel.com or www.sedar.com.

SOURCE Glentel Inc.