Manitoba Telecom slashes payout, cuts jobs amid new strategy

After a four-month review, Manitoba Telecom Services Inc. has revealed a new strategy along with 500 job cuts at its Allstream division and a cut to the annual dividend.

One hundred employees have already left Allstream, MTS’s troubled enterprise IP services division, and an additional 400 will depart this year and next.

MTS is also decreasing its annual payout by about 24 per cent to $1.30 from $1.70 and boosting its prefunding of its pension plans, where solvency has been a perennial concern.

New CEO Jay Forbes said Thursday the changes come after a “situational assessment that openly challenged our understandings and beliefs of the business.”

“I am pleased with the insights and findings we have been able to identify over the past few months, all of which have confirmed my belief in the untapped potential of this company,” he said in a statement.

Mr. Forbes, who took over on Jan. 1 from long-time CEO Pierre Blouin, said he is taking three immediate actions, including the cuts at Allstream, slashing the dividend and investing $120-million to prefund the company’s pension plans to address solvency needs.

The 25-per-cent reduction in Allstream’s work force will result in an increase of $50-million to free cash flow; the company also said it is planning to cut capital expenditures at the division by 20 to 30 per cent.

MTS said Thursday its new strategy has six key elements, including a stronger focus on customers, finding efficiencies and capitalizing on its brand recognition in an effort to expand its existing customer base and increase revenues.

While Mr. Forbes did not announce immediate plans to put Allstream back on the market, he indicated the cost shakeup at the division is aimed in part at making it more attractive in the event of a possible sale.

“While Allstream’s strategic review identified a clear path to profitable growth, it has also reaffirmed that Allstream is not integral or strategic to MTS’s future,” MTS said in the statement. “With the expectation of being free cash flow positive hereafter, the company will evaluate its options from a position of strength.”

The company had previously found a buyer, but Ottawa blocked a $520-million deal to sell Allstream to Egyptian firm Accelero Capital Inc. in 2013, citing national security concerns.

Allstream has failed to produce top-line revenue growth even as it has made some progress on operating margins in recent months.

“We believe both the magnitude of the dividend cut combined with the near-term intention to focus on a turnaround at Allstream rather than an immediate sale is in line with expectations,” RBC Dominion Securities analyst Drew McReynolds said in a research note Thursday.

“While the pension contribution may not entirely eliminate the pension solvency deficit, as expected, the company is striking a balance between reducing risk and not overcontributing into the plans,” he wrote, adding, “With this ‘reset’ the focus now shifts to execution, and particularly management’s ability to improve the growth and margin profile of Allstream.”