GLENTEL Inc. Reports 2014 Annual Financial Results

BURNABY, BC, March 19, 2015 /CNW/ - GLENTEL Inc. (TSX: GLN) today reported its results for the three months and year ended December 31, 2014.  Financial highlights (tabular amounts in thousands of Canadian dollars, except per share data) follow.

"We are pleased to report solid financial results for the fourth quarter and year ended December 31, 2014.  The year ended December 31, 2014 was GLENTEL's best performing year from a revenue perspective, with the Company earning $1.65 billion in revenues, a 21% increase from the record set last year.  The Company also continued to generate consistent adjusted EBITDA year over year." stated Tom Skidmore, GLENTEL's President and Chief Executive Officer.

"The Retail Canada Division generated a 20% increase in revenue and 23% increase in EBITDA year over year, driven specifically by the solid fundamentals at our Wireless Wave, Tbooth Wireless, and WIRELESS etc. (at Costco Canada) businesses.  We continue to see consumers return to our stores to upgrade their old device for a feature-rich smartphone with a competitive plan suited to their lifestyle.  With the significant network and mobile content capital investments by the Canadian carriers, we do expect smartphone penetration in Canada to continue.  The Canadian retail mobile phone market appears to be recovering from the negative ramifications experiences from the Canadian government's introduction of the Wireless Code of Conduct ("WCOC") in the second half of 2013, and management is confident that consumers are adapting to the newer pricing schemes that were brought on by WCOC.

"In the United States, Diamond Wireless experienced another record breaking revenue year in 2014, generating a 47% increase in revenues year over year.  Following its introduction on August 1, 2013, the now 161 wireless kiosks at BJ's Wholesale locations across the U.S. eastern seaboard, have been instrumental to Diamond's increased sales performance, by providing GLENTEL long-term access to a committed customer base.  GLENTEL expects continued solid results from Diamond Wireless' mall-based corporate stores and BJ's wireless kiosks for the short-term and long-term future.  Wireless Zone continues to be a solid performer for GLENTEL, generating a year over year 26% increase in revenues and an 18% increase in EBITDA.  Both Diamond Wireless and Wireless Zone continue to be accretive to GLENTEL's overall earnings, and we continue to see the U.S. as a significant growth market for the Company.

"In Australia, AMT continues to develop its Allphones relationship with its main carrier partner, Vodafone.  As part of Vodafone's growth strategy, Vodafone plans to expand its branded store footprint into more metro and regional areas, and in the 4th quarter of 2014, AMT negotiated a new licensing agreement with Vodafone whereby AMT will manage up to 14 Vodafone branded retail stores under the Australian Retail Management Services ("ARMS") business by the end of 2015. At December 31, 2014, AMT managed 4 Vodafone corporate stores.  GLENTEL continues to view the ARMS business as an area of opportunity and growth for AMT in both Australia and the Philippines.  At December 31, 2014, ARMS operated a total of 70 Allphones locations in the Philippines through its partnership with Tao Corporation and Globe Telecom of the Philippines.

"In the 4th quarter of 2014, BCE Inc. and GLENTEL entered into an arrangement agreement whereby BCE Inc. will acquire all of the fully diluted shares of GLENTEL for a total consideration of approximately $594.0 million.  Including net debt and minority interest of approximately $78.0 million, the total enterprise value of GLENTEL is approximately $670.0 million. On January 12, 2015, at a special meeting of securityholders, GLENTEL shareholders and optionholders approved the acquisition by BCE Inc. of all of the fully diluted common shares of GLENTEL.

"The full year of 2014 results reflect the positive benefits from the company's international buying power, consistent marketing focus, and continued revenues from its supply partners based on performance.  By leveraging its marketing strength and highly trained tech savvy sales professionals with the brand power of Bell, Rogers, Verizon, and Vodafone, coupled with global smartphone brands such as Samsung and Apple, GLENTEL is well equipped to provide the success fundamentals of consumer choice and independent advice to its customers for many years to come.  GLENTEL is committed to providing its global customer base in Canada, the United States, Australia, and the Philippines with industry leading quality, service, and integrity in its delivery of a unique customer experience. With the commitment of our carriers and smartphone supply partners, GLENTEL expects strong retail sales performance with profitability in 2015."

Consolidated highlights

3 months ended December 31, 2014 compared to respective period in 2013

• Sales increased 33% to $533.1 million compared to $401.4 million in 2013. EBITDA decreased 33% to $10.8 million compared to $16.0 million in 2013.  EBIT decreased 34% to $5.6 million compared to $8.4 million in 2013.
  
  
• Net income for the period was $0.8 million and basic income per common share was $0.04, compared to net income of $8.3 million and basic earnings per common share of $0.37 in 2013.
  
  
• Consolidated adjusted EBITDA was $19.5 million compared to $17.8 million in 2013.  Adjusted net income and adjusted basic earnings per share were $7.0 million and $0.31, compared to $9.3 million and $0.42 in 2013, respectively.

Year ended December 31, 2014 compared to respective period in 2013

• Sales increased 21% to $1,648.6 million compared to $1,366.5 million in 2013. EBITDA decreased 1% to $54.3 million compared to $54.6 million in 2013.  EBIT decreased 2% to $27.5 million compared to $28.2 million in 2013.
  
  
• Net loss for the period was $4.6 million and basic loss per common share was $0.21 compared to net income of $4.6 million and basic earnings per common share of $0.21.
  
  
• Consolidated adjusted EBITDA was $64.9 million compared to $62.4 million in 2013.  Consolidated adjusted net income and adjusted basic earnings per share were $20.1 million and $0.90 in 2014, compared to $25.0 million and $1.13 in 2013, respectively.

Retail Canada Division

• Sales in the 4th quarter of 2014 were 32% higher than the same period in 2013 principally due to an increase in activations and upgrades across all Retail Canada banners, as well as an increase in store count, primarily Target Mobile locations, which increased by 9 locations year over year.
  
  
• The 4th quarter of 2014 was the fifth full quarter under the new Wireless Code of Conduct ("WCOC") that the Canadian government legislated in 2013. Our carrier partners began to implement the change in wireless contract terms from three to two years in August 2013, and these changes were a factor in softer same-store sales for the first nine months of 2014, as consumers continued to be slow to embrace the higher handset costs, and the higher monthly plan fees. Given the solid financial results in the 4th quarter of 2014, management is confident that consumers are adapting to the newer pricing schemes that were brought on by WCOC. Consumers have also focused on hardware upgrades whereby they can still obtain the newest mobile device and continue to stay with their existing carrier.
  
  
• In the 3rd quarter of 2014, Costco Canada reintroduced Apple iPhone, into WIRELESS etc… and SANS FIL etc… after a three year hiatus. The steady historic financial performance of the WIRELESS etc… banner has further improved in 2014, and evidences GLENTEL's commitment to providing Costco Canada locations with a world class store-in-store offering.
  
  
• Consumers continue to migrate to smartphones versus feature phones, and smartphones come with a higher selling price and higher cost of goods than traditional feature phones. Smartphones do provide for the opportunity to earn additional commissions with the sale of voice and data plans. In the 4th quarter of 2014, Samsung and Apple smartphones, supported by solid product promotions, continued to be the highest-selling of all offerings.
  
  
• On January 15, 2015, Target Canada announced that it was seeking creditor protection under the Companies' Creditors Arrangement Act ("CCAA") and that it would be exiting the Canadian marketplace by the beginning of the 2nd quarter of 2015. On January 20, 2015 GLENTEL terminated its agreement with Target Canada for the operation of the Target Mobile banner, and exited all Target Canada locations on January 26, 2015. Per the operating contract with Target Canada, GLENTEL was entitled to a net loss recovery payment of $5.4 million upon the termination of the contract. Given that Target Canada is now under CCAA protection, GLENTEL has recorded a full allowance against the loss recovery receivable owing from Target Canada in the amount of $5.4 million. GLENTEL will continue to pursue the collection of this receivable. The Retail Canada Division restructured in 2015, to account for redundancies attributable to its termination of the Target Mobile contract.
  
  
• In July 2014, the Retail Canada Division extended its multi-year agreement with Rogers to offer Rogers, FIDO, and Chatr products and services in all of the Division's retail locations across Canada. In July 2013, the Retail Canada Division extended its multi-year agreement with Bell to offer Bell and Virgin Mobile products and services in all of the Division's retail locations across Canada.
  
  
• At December 31, 2014, the Retail Canada Division operated a total of 494 retail stores in major shopping malls and high-pedestrian-traffic locations, MacStation stores, Target retail stores, and Costco Warehouses in Canada, compared to 479 stores in 2013.

Retail U.S. Division – Diamond Wireless

• The sales increase in the 4th quarter of 2014 and for the year ended December 31, 2014 is mainly attributable to: 1) an increase in store count year-over-year, and particularly a full fiscal year operating BJ's Wholesale locations across 13 U.S. states; 2) continued consumer shift to more expensive higher-end smartphones and new devices, including tablets and wearable technology; 3) consumers have positively embraced the EDGE program wherein they can finance a wireless device at full retail price while still maintaining a month-to-month service agreement with Verizon; 4) Diamond Wireless' continued commitment to refreshing its locations, providing consumers with a great customer experience; 5) working closely with manufacturers to most effectively promote the newest high-end devices to customers; and, 6) solid sale performance of the iPhone 6 and iPhone 6 Plus since their release in mid-September 2014.
  
  
• In 2014, Diamond Wireless opened a net of 5 locations, bringing the total to 195 corporate retail stores and 161 BJ's wireless kiosks, for a total of 356 locations at December 31, 2014, compared to 197 corporate retail stores and 154 BJ's wireless kiosks, a total of 351 locations at December 31, 2013. Diamond Wireless corporate stores operated in 18 U.S. states, while BJ's locations operated in 13 U.S. states at December 31, 2014.

Retail U.S. Division – Wireless Zone®

• Wireless Zone's revenues are derived from payments by Verizon for commissions for new activations, related services, and airtime residual payments; a wholesale business that sells phones, accessories, and general merchandise to its franchisees for resale; and franchisee fees. Wireless Zone's wholesale business had sales of $81.3 million for the 4th quarter ended December 31, 2014 compared to $22.6 million in 2013.  Traditionally, the wholesale business operates on low margins, and this results in Wireless Zone having a lower operating income as a percentage of sales than Diamond Wireless.
  
  
• In 2014, Wireless Zone closed a net of 14 franchised locations and 8 corporate stores, thereby operating 360 franchised and 22 corporate stores at December 31, 2014, compared to 374 franchised and 30 corporate stores at December 31, 2013. The 382 Wireless Zone locations are located in 26 U.S. states and Washington, D.C.
  
  
• In the 4th quarter of 2014, despite a 5% reduction in store count, Wireless Zone saw strong top line performance driven by increased activations year-over-year. This increase in activations is the culmination of Wireless Zone's continued focus on developing initiatives that attract customers to its stores, offering solid product promotions, and ensuring that all sales staff are appropriately trained on all product offerings so as to provide a superior in store customer experience.  Wireless Zone management continues to emphasize increased productivity to its franchisees, and uses this metric as a key performance indicator when evaluating store performance. Given its long-standing, positive relationship with Verizon Wireless, in the 2nd quarter of 2014 Wireless Zone renewed and extended its agent agreement with Verizon Wireless.
  
  
• In order to promote increased store sales, Wireless Zone has continued its numerous operational efforts in 2014, the top three of which were for exceeding key performance indicators, remodeling stores to enhance customer experience, and increasing training directed towards franchisees and sales representatives.

Retail Australia Division – AMT (Allphones)

• The Australian retail environment continues to remain highly competitive, driven particularly by Telstra, the largest national wireless carrier. Allphones has remained competitive in the market; however, same-store sales declined as a result of the Virgin Mobile Australia brand and the Optus brand exiting Allphones retail stores in 2013.  Management has been actively pursuing additional cash flows to supplement the exit of the Optus and Virgin Mobile Australia brands in Allphones locations. Since the exit of the Optus and Virgin Mobile Australia brands from its Australia-based Allphones locations, AMT has worked closely with Vodafone who, with its new national 4G/LTE network, is now the premier carrier brand offering of Allphones in Australia. As part of Vodafone's acquisition strategy, Vodafone is looking to expand its branded store footprint into more metro and regional areas. In the 4th quarter of 2014, AMT negotiated a new licensing agreement with Vodafone where AMT will manage up to 14 Vodafone branded retail stores under the ARMS business by the end of 2015. At December 31, 2014, AMT managed 4 Vodafone corporate stores.
  
  
• In 2014, AMT, in partnership with Tao Corporation of the Philippines (http://www.taocommunity.com), opened 30 additional Allphones locations in Manila, Philippines, thereby operating 70 locations in the Philippines at December 31, 2014. The Allphones Philippines initiative presents a low risk model for GLENTEL as AMT's local partners are responsible for the operating expenses and the capital expenditures associated with store locations. AMT is forecasting to operate 115 locations in the Philippines by the end of 2015.  In 2012, 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. GLENTEL views the Asia Pacific market as a significant area for growth, and believes the assets at AMT are well-suited to be deployed though a similar Philippines program in that region.
  
  
• In the 2nd quarter of 2014, AMT received notice from Optus of its intent to assume the management of its Virgin Mobile branded corporate stores that were managed by AMT through ARMS business. AMT ended its relationship managing the remaining 44 Optus' Virgin Mobile corporate stores in the 4th quarter of 2014, and worked throughout the 3rd and 4th quarter to ensure a clean transition.  In 2013, Optus decided to terminate its agreements with dealer partners in an effort to take greater control of the end-to-end customer experience for each of the Optus and Virgin Mobile Australia brands.  In the 2nd quarter of 2014, AMT recorded a pre-tax impairment charge of $24.9 million related to the early termination of the Virgin Mobile ARMS agreement.
  
  
• At December 31, 2014, AMT, in Australia, operated a total of 77 locations, consisting of 30 Allphones corporate, 40 Allphones franchised and licensed stores, 4 Vodafone corporate retail stores, and 3 Samsung locations managed through AMT's Australian Retail Managed Services ("RMS") business. Since the exit of Optus and Virgin Mobile Australia brands from Australia-based Allphones locations in 2013, AMT has managed its store count to ensure that underperforming stores either execute on their turn-around plan or close.  The Division closed 20 underperforming Australia-based Allphones locations in 2014. 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 the immediate future, as the Australian mobile phone retail market stabilizes, and will look for strategic growth opportunities based on carrier offerings. At December 31, 2014, AMT operated 70 mall-based Allphones locations in the Philippines, opening 30 locations in 2014. At December 31, 2014, AMT operated and managed a total of 147 locations in Australia and the Philippines.

Business Division

• Sales decreased as the Division no longer operates the MSAT business nor receives significant tower site lease revenue given the recent divestiture of those assets. As a cyclical business, in 2014, the Division suffered from a general slowdown in large capital projects in oil and gas and mining related investment in Canada.  In the second half of 2014, the Division experienced a significant decline in both run-rate and project based business, and was further impacted by the loss of recurring rental revenue from tower sites, as the Division continued to divest its tower site assets.
  
  
• In the 4th quarter of 2014, the Business Division completed 3 tranches of its tower site sale, resulting in net proceeds of $0.6 million for the sale of 5 tower site assets and related customer agreements. 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, 2014, all of the Company's remaining tower site assets were classified as assets held for sale.

Corporate

• Corporate costs include administrative, finance, information technology, and marketing services that are managed in Canada, the U.S. and Australia and are not allocated directly to the operating divisions. Management strives to leverage the divisional cost structure to maximize productivity and value from its resources.
  
  
• Corporate operating and administrative expenses for the year ended December 31, 2014 increased to $48.3 million compared to $44.4 million in 2013. Corporate operating costs were 3% (2013 – 3%) of consolidated sales for the year ended December 31, 2014. Corporate operating costs include Retail U.S. Division – Diamond Wireless corporate costs of $9.3 million (2013 - $9.2 million), Retail U.S. Division – Wireless Zone corporate costs of $10.2 million (2013 - $9.4 million), and Retail Australia Division – AMT (Allphones) corporate costs of $5.1 million (2013 - $4.9 million) for the year ended December 31, 2014. Corporate costs increased primarily as a result of a $1.9 million accrual, recorded in the 4th quarter of 2014, for transaction costs related to the BCE acquisition of GLENTEL.

Income Taxes

• Income taxes for the year ended December 31, 2014 increased to $1.3 million expense compared to the $0.4 million tax recovery in 2013.  The resulting 2014 tax expense is comprised of realized gains associated with the disposal of certain assets in Canada and Australia, non-deductible fair values losses related to the Company's redeemable financial instruments, and prior period adjustments related to the alignment of carrying values on certain Australian capital assets.  The tax expense was partially offset by the utilization of available business losses in Canada and the overall lower operating income in Australia.

Subsequent Events

• On January 12, 2015, at a special meeting of securityholders, GLENTEL shareholders and optionholders approved the acquisition by BCE Inc. of all of the outstanding common shares of GLENTEL and the purchase for cancellation by GLENTEL of all of the outstanding options to purchase common shares of GLENTEL, subject to the provisions of the arrangement agreement dated November 28, 2014 between GLENTEL and BCE Inc. The closing of this transaction is subject to certain conditions which have not yet been fulfilled.

About GLENTEL

Based in Burnaby, BC, Canada, GLENTEL (TSX: GLN) is one of the leading providers 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 one of the largest independent multicarrier mobile phone retailers 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 30, 2014, the Company employed over 4,800 employees and operated more than 1,388 locations, including: 503 locations in Canada, located in retail malls, Costco Wholesale stores, Target retail stores, and business centres; 738 corporate, franchise, and BJ's Wholesale Inc. kiosk retail locations in the United States; and 147 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 2014 Annual Information Form, in the 2014 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.

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