Paul Chiasson
Quebecor Inc. posted strong gains in the fourth quarter and ended the 2009 fiscal year with nearly 50-per-cent profit growth, mainly on the strength of its telecommunications division, Vidéotron Ltée, and recovery in its media divisions.
But even as the company closed a profitable 2009, analysts were looking at the Vidéotron's upcoming wireless launch, where they expect to see strength as growth in the company's cable sector slows.
The Montreal-based company reported fourth quarter profits on Wednesday morning of $73.8-million, or $1.15 per share, compared to a net loss of $343.6-million a year ago because of non-cash charge impairments of goodwill and intangible assets. Results were largely in line with or beat analysts' expectations as the company continues to show strong growth in its cable TV division and its media assets begin to show signs of life after the recession.
Quebecor's news division, which includes both Osprey and Sun Media newspaper chains, were hard-hit during the downturn and continue to drag on the company. After restructuring and a slight recovery in advertising, which dropped sharply during the downturn, the media segment saw an increase in operating income by $14.5-million, or 26.5 per cent.
"Despite the economic crisis, which has hit the media industry hard, Quebecor's diversified business model proved to be a robust driver of growth. Our restructuring programs in the news media segment also bore fruit," said Pierre Karl Péladeau, Quebecor's president and chief executive officer.
The year's growth was driven mainly by the company's telecom services, especially customer growth at Vidéotron. Net income for the year was $277.7-million, or $4.32 per share, compared to just $89.7-million at the end of 2008. Pre-released subscriber numbers from Vidéotron hinted that this would be a good quarter for financials, given the company was able to continue raising prices and expand its subscriber base. Operating income at Quebecor's telecom segment was up 21.9 per cent, or $175-million.
With 2009 behind it, Quebecor's Vidéotron can now focus fully on the year ahead: This summer the broad-based telecom provider will branch into the wireless game, joining other new entrants in Canada as they push for market share dominated by wireless incumbents like Rogers Communications Inc. , BCE Inc.'s Bell Canada unit, and Telus Corp. In Quebec, Quebecor's home territory, Bell is the biggest incumbent and has suffered an erosion of market share as Vidéotron pushes into new services, like residential phone lines and high-speed Internet.
Analysts expect that when Vidéotron launches cellphone services, it will price extremely aggressively and bundle wireless offerings with TV, Internet and home phone services. It already outbid many of the new entrants for Quebec's new wireless spectrum licenses at a government auction in 2008.
Almost everyone in the industry expects wireless success from Vidéotron, which will provide more long-term potential than slowing growth in cable and landline phone services.
"A maturing product market will cause growth to decelerate over time within core cable operations, but should be offset by wireless, which will provide the next leg of growth for the company," wrote Maher Yaghi, an analyst with Desjardins Securities in Montreal, in a research note Wednesday morning.
Robert Dépatie, president and chief executive officer of Vidéotron, has made no secret of how he will differentiate the company's mobile services from those of the incumbents in Quebec: Vidéotron will take advantage of Quebecor's vast French-language media assets and offer them across multiple platforms, including wireless.
Although analysts are not always bullish on media "convergence," due to some high-profile disasters, many think that it will work for Quebecor and Vidéotron given the unique nature of Quebec.
"We believe Vidéotron is well positioned to succeed in the Quebec wireless market given the strong brand presence and its current base of customers, with the province having one of the lowest wireless penetration rates in Canada," Mr. Yaghi wrote.
On a conference call Wednesday morning, a confident Mr. Dépatie even took a swing at Wind Mobile, a new entrant that launched wireless service in December but has been plagued, analysts say, with spotty network coverage and weak subscriber growth.
"Lessons taught us recently, from the new entrants, don't be too pressured to go to the market, make sure that your network is well-built, [and has]good coverage," said Mr. Dépatie, alluding to recent press coverage of executive departures at Wind and hints that the upstart's new network is struggling.