Quebecor Inc.

Good morning, ladies and gentlemen, and welcome to the Quebecor conference call. My name is Hugues Simard; I'm the Chief Financial Officer.

And joining me to discuss our financial and operating results for the first quarter of 2021 are Pierre Karl Péladeau, our President and CEO; and Jean-François Pruneau, President and CEO of Videotron. Anyone unable to attend the conference call will be able to listen to our recording by telephone or webcast.

Access details will be posted on Quebecor website within 24 hours following this call. A recording will be available until August 11.

I also want to inform you that certain statements made on this call may be considered forward-looking, and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with regulatory authorities. Let's now move on to our first speaker, Pierre Karl Péladeau.

Good afternoon, everyone. I'm pleased to report another strong quarter of resilience, disciplined execution and steadily improving operational results for Quebecor despite the continuing impacts of the global pandemic on the economy.

As we delivered growth of 3.7% in our consolidated EBITDA and 4.3% in our cash flow from operations. Our telecom operations performed well in all segments, In wireless, our two brands combined brought once again, the market share of good add ads in a highly competitive environment, continuing to deliver double digit growth in revenue and EBITDA, while managing to control the conjectural impact on ad proved.

Our fifth brand continued its upward path, both in wireless and broadband, contributing to almost doubling our net add internet this quarter. Our Helix platform was also fuel our strong wireline performance, delivering again more than 100,000 new clients this quarter.

Our media segment was of course impacted by the postponement of the NHL season for the first quarter, which led to higher programming costs activity on a quarter-to-quarter comparison. That being said, we are encouraged by the improving performance of advertising revenues and confirms in our number one position in Quebec, with a 39.4% audience market share, and several highly popular shows such as [Indiscernible] which attracted average audience of 1.7 and 1.4 million viewers respectively.

On the regulatory front, we're pleased with the CRTC decision allowing the silly debate NBOs that confirms the importance of maintaining healthy competition in all regions of Canada through a strong, well funded and viable fourth wireless competitor, which invariably leads to lower prices for consumers, as we ourselves clearly demonstrated in Quebec. Speaking of strong foreign players, it's imperative that Competition Bureau and other regulatory authorities act sensibly consistently, with respect to the recently announced acquisition of Shaw by Rogers, to ensure that the important competitive role played by freedom, wireless in Ontario and the West provinces, continues through the sale of these assets to an experienced and proven operator, who will ensure the long-term viability and success of a fourth competitor in these key markets so that prices can continue to come down for Canadian consumers.

Another CRTC ruling regarding access to valid support structures, a topic we have brought up numerous times in to recent past was finally published on April 16, and was uniquely vocal, unexpected gone, I'm sorry, it's a tough word, yes. Now as contravene numerous regulation and devote those business, maybe they will do this happened -- deliberately violated the telecom telecommunication act.

Clearly these things give anti competitive behavior, which has been denounced by the [Indiscernible] many other industries stakeholders must stop. We have heard many empty promises in the last few weeks.

It is now time to walk the talk. Finally, we are happy with the recent -- operations government program initiative for which the do at home committed to connect more than 37,000 under served household, the highest allotment of -- in our footprint and as a testament to Videotron expertise and ability to carry out large scale projects.

And I will now let Hugues review our consolidated financial results.

Quebecor revenues were up 3% in the quarter to $1.09 billion. Revenues from our Telecom segment grew 4.5% to $914 million, and revenues from our Media segments remained stable at $175 million.

Quebecor's EBITDA was up 4% to $453 million. Our Telecom segment recorded EBITDA growth of 3.5% to $451 million, while our media segment recorded EBITDA of $1 million, a $3 million decrease.

We reported a net income attributable to shareholders of $121 million in the quarter or $0.49 a share, compared with net income of $132 million or $0.52 per share reported in the same quarter last year. The decrease is explained by an unfavorable variance in the valuation of financial instruments, most notably our convertible debenture partially offset by an increase in adjusted EBITDA.

Adjusted income from continuing operations excluding unusual items and gains or losses on valuation of financial instruments came in at $130 million or $0.52 per share. Compared with an adjusted income of $112 million or $0.44 per share in the same quarter last year.

Our cash flow from operations in the first quarter of 2021 increased by $13 million, or 4% to $308 million. Once again demonstrating the resilience and strength of the Quebecor's business model.

Our financial profitability propelled by the strong returns from our telecom segment remains very solid. At the end of the quarter our net debt to EBIT da ratio was 2.67x down from 2.8x reported at the end of the last quarter -- of the first quarter rather of last year, and comparing very favorably to our telecom peers.

Thanks to the success of our recent financing, where Videotron issued $650 million dollars of senior unsecured notes in the Canadian high yield market yielding 3.125 or 3.8%. Our available liquidities of $2.6 billion position us favorably for the upcoming spectrum auctions and the maturities of our note.

In the quarter, we purchased and canceled 2.6 million Class B shares for a total investment of more than $84 million. Since we initiated our NCIB 10 years ago, approximately 43.3 million Class B shares have been purchased and cancelled.

As we have demonstrated in the past, our financial position remains healthy and solid enabling us to pursue very successfully our business strategy. I will now let Jean Pruneau review our telecom segments operations.

Thank you, Hugues. And good afternoon, everyone.

I hope that everyone is well and staying safe during these challenging times as we enter into the third wave of the pandemic. Our focus obviously remains on keeping our employees safe as we continue to work from home while providing the best and safest conditions for our customers and our colleagues on site.

On April 1, we announced the acquisition of Cablovision Warwick; we're pleased to join forces with a well established cable company in the Centre-du-Québec region. Cablovision Warwick is recognized for its excellent customer service and its value proximity with local families and businesses.

We plan to upgrade its existing infrastructure in order to offer our state of the art, residential and business services. Before I get into our results for the quarter, I also wish to highlight the Videotron was awarded the most admired telecommunication company in Quebec for the 16th consecutive year according to --2021 reputation study.

This recognition reiterates the privilege place that our organization has in the life of Quebecor, and we are more than ever dedicated worship to pursuing our vision of being the partner of their connected life. For the first quarter of 2021, we posted a solid performance in wireline despite the continued sluggish economic conditions.

We recorded 11,000 broadband subscriber growth, 75% higher than last year and this seasonally slowest quarter of the year, and managed to reduce video service decline, thanks to our new Helix platform. For a third consecutive quarter, 100,000 customers signed up to our Helix service, bringing us to 827,000 video and broadband subscribers as of April 30.

Having not yet stopped selling our legacy video and internet services, we're pleased to witness that close to eight new video customers out of 10 choose to subscribe to Helix whereas it is close to nine new internet customers out of 10 would choose Helix greatly beneficial to our return rates. The Helix platform continues to evolve.

We officially launched our auto install option in March, thereby giving our customers more autonomy and safety over the installation process. I am proud to report that we get very good satisfaction ratings thus far, with a satisfaction rate of 87% from clients who selected auto install.

During the quarter, we also added new home automation partners to our Helix Fi app, including major brands such as Lutron, Lifepak, and others, adding further functions around light and indoor temperature control. The vast majority of our productions that resumed allowing us to continue creating rich content for Quebecor subscribers.

In the first quarter, we launched more exclusive content including [Indiscernible]. We have also begun filming - in April and finished filming -- as planned.

Of interest to our loyal subscribers, many original and exclusive content are to be launched in the third and the fourth quarter of 2021. On the wireless front, we posted 22,000 net add during the quarter, our growth being impacted by a complete lockdown and closed doors for the first half of the quarter, resulting in slower market activity throughout the quarter.

Nonetheless, we once again led the market with a 30.5% market share of growth head and churn what's flat year-over-year. Our total market share in Quebec now stands just shy of 21% and still growing.

Wireless ABPU declined 3.2% in the quarter, well that's explained by COVID travel related restriction and the other app explained by the diluted impact of Fizz. However, both videos on mobile and fizz exhibited year-over-year ABPU growth, which will translate in total ABPU growth once the proportion of these customers and our total base stabilizes.

Despite aggressive handset cut promotion from our rivals, we also managed to keep cost of acquisition and custom renewals well under control. Therefore, balancing customer growth and operating income growth.

During the quarter, Fizz officially introduced is access offering testing an innovative external financing business model and opening up a new addressable market for Fizz. While the pandemic brought its share of challenges.

We also tested new operating models. For instance, working is appreciated by employees and will remain in place beyond the sanitary crisis.

We expect that 60%, six zero of our employees will integrate some kind of teleworking post pandemic, which will result in a reduction of 75% of our office space rent expense. As far our financials, overall, we both did solid revenue growth of 4.5% to $914 million driven primarily by wireless and internet services, as well as equipment sell.

We recorded the video growth of 3.5% to $451 million. Cash flow from operations grew $10 million to $313 million.

Debt spending increased 4% or $5 million to $138 million in line with guidance. This increase is primarily explained by our LTE advanced 5G rollout, wireless CapEx increased by $19 million year-over-year to $43 million.

Let me now turn the floor back to Pierre Péladeau for a conclusion.

As a matter of fact, I would like to take this opportunity to thank you, Jean, for your important and loyal contribution, to Quebecor success over the years, both as CFO and more recently, as President of do at home. We've been working together very closely in happy time, and sometimes tough time and we succeeded, all together with the entire team to be where we are today.

We will miss you. And I sincerely wish you the very best for in your future endeavors.

Looking ahead, the team at Quebecor does it home, [Indiscernible] and all our divisions are focused on continuing to build the momentum to deliver consistent and disciplined execution, growing cash flow, and thus continuing to strengthen our solid balance sheet. I thank you for your attention.

And we will now open the lines for questions. Operator?

Thank you and good afternoon, everyone. And let me just express my thank you Jean Pruneau as well for all the years of partnership.

It's been a long journey and all the best in the next chapter. My question, I guess there are two questions.

One is just around Fizz and the Videotron brands and how they contribute to your wireless net adds. I'm just wondering if this continues to take a larger share or making a larger share of contribution to net adds or grows out over time to keep you in that 30% growth side.

And how whether -- and whether there is going to be a lapping or stabilizing of that space, whether it is just kind of continues to take a bigger, bigger share of your total base. And the second question is really a bigger picture around national wireless expansion.

I think everyone on the call is well aware that there may be some divesture is coming out of the Roger Shaw transaction. It feels like deja vu.

You guys have looked at this many, many years ago. I'm just wondering if you can share some insights on comparing and contrasting how this possible exercise may look different.

Compared to the last time you looked at this back in 2014. Thank you.

All right. I'll start with the first part of the question.

And I guess the Jean Hugues will take the second one. Well, thank you for your words, Jeff, in terms of the proportion of the share of bids in our total base and whatnot.

Well, the first thing that I would say is when you look at the share of growth that year-over-year and it's been very, very constant or very consistent for both fields and Videotron mobile. So as you mentioned in total we are 30 plus this quarter, we've been here 30 plus for three to four quarters last year.

And but when you look at the sharp growth that for Fizz, specifically for Videotron mobile brands specifically, it's very constant over time. So it's not taking a bigger share.

The thing is with respect to the ABPU growth is obviously over two thirds of our subscribers or new subscribers are either Fins or BYOD right now, and our total base has not yet stabilizing. So there's an increasing proportion year, a day after day or quarter after quarter that is BYOD and Fizz, which obviously come in lower ABPU.

So that's really the reason why you see that dilutive effect with respect to Fizz and the BYOD program. And I would add to that with, with teleworking, obviously, people are more relying on their Wi Fi than they were relying in the past, in the past, they were relying more on their wireless packages, and they don't need as much big package as they needed in the past and I think it's really circumstantial related to the pandemic.

And once the pandemic will be over, and people will start to go outside and travel and visit people, I think that we're going to get back to higher packages or bigger packages. And obviously, that will also help on the ABPU.

And I would finish by saying; the good thing is that on a year-over-year basis, inbound ABPU, for both Videotron videos and Fizz is going up. So once our supply, our base stabilizes with respect to Fizz and the total base, I think we're sure you're going to see ABPU grow.

Thanks, Jeff. From Jeff to Jean.

Jeff, I guess that you were aware and know about when we entered the wireless business 10 years ago, as you know, we entered in as an NBNO, and we entered, because we thought that it will make sense, in the future to be a facility based operator. And this is why we made a lot of representations in Ottawa, to make sure that, at the end of the day, we'll have the capacity to buy spectrum, and which is the beginning of being a facility based operator, I think that we were successful to convince the different politicians that if they were looking to have competition in Canada both operators required.

And in order to get this requirement, you then have the desire or the requirement of adding a set asides spectrum auction, and that's the place from there we built but you will remember that, well, maybe you were not. But we were looking to have a national brand.

And it became throughout the auction, that it became very competitive. At the beginning we saw, in fact, Shaw bidding on a portion of spectrum on the western side of the country.

And we, because of this situation, we decided that we're not going to go against a Shaw, they are their natural territory. And so, we concentrated on Ontario and Quebec, at that time, you will remember that it did globalize, we found out being funded by an acquiring company are gone.

And they paid remember over $500 million for the spectrum they acquire. So we also their discipline we are and discipline, we were not going to participate in prices that we were considering not making sense, financially.

So we want that the 40,040 makers available on the spectrum set aside in Quebec and start off. As of today, I think that we've been quite successful.

We have 1.4 million customers, after 10 years, that I've been able to fuel our growth, you just well and to the answer of Jean Pruneau, there's a certain limit, we're allowed to continue to consider that we will continue to grow the kind of goal that we've been experiencing in the past. So here we are in front of this opportunity.

There are three regulatory bodies that will have to review the transaction regarding Shaw and Rogers on the wireless side. I think the evidence has been made that if you want to have competition and you have lower prices, which also on top of that, is a matter of what politicians will look at then the fourth operators and doing the job.

It was done in Quebec and competition bureau came in with a report. And it's not our numbers; it's competition bureau numbers that it shown pricing was better for consumers in Quebec than elsewhere.

It's true that for the last few years, this trend took place also in the freedom, mobile footprint. But I guess that if Roger was to buy freedom mobile this trend will completely disappear.

And you will not have a fourth operator in Quebecor project, was to buy -- in 2000. So we have a CRTC, we have IZED, and we have competition bureau that will review all this transaction.

And we certainly have Rogers with a high desire to close this transaction as quick as possible, because time is money, and then therefore, we will be ready to consider or to negotiate, what could be a fair price for this asset. We will probably not be alone.

No, I don't think it will be the case. But we certainly have all the entire expertise to run a wireless operator.

And the capacity of doing so successfully. We have the balance sheet, as you know, we've been leading 2.7x debt to EBITDA at the beginning, we had obligations not so long ago of buying back the state which is now behind us.

And we have the best balance sheet of the industry. So I would say that, all of those aspects, positioning us quite favorably for our next step.

Thanks for taking my questions. Jean, congratulations for accomplishment and good luck in your future endeavors as well.

First, on maybe on the Jean departure. Pierre, I'm sure you were already very much involved in decisions of Videotron.

But maybe can you describe your recent involvement and how you foresee this could change going forward? And then second, on CapEx in two part question.

You said in past quarters, that they were holding out the bids on CapEx due to regulatory uncertainty. There's still regulatory uncertainty for sure.

But do you feel you have the visibility needed now with DMVNO decision, maybe to step up CapEx and is your participation in the Quebec government programs areas already included in the CapEx guidance you provided them on the last call?

Good. Thank you, Jerome.

Well, yes, I guess you're right to say that I've been involved in the our, let's call it the supervision but obviously also as you can imagine, decision making at the do it home, I think that -- for the last two decades, I would say that we've been building teams around our operation in the do at home, chat for things that we see people retiring and being replaced, I think what we can use as an example is Daniel Wu who was our engineer and vice president, went to retirement and he was replaced by his number two [Indiscernible], which is now our VP and life goes on. But there's a permanent thing, which is the discipline that we've been able to put in the company for the last 20 years.

You were probably not there, Jerome. But what we said in 2000 was that we will reduce our debt, and we will increase our EBITDA.

That's a quite simple formula. But basically that's what we did.

And 20 years later, after we also was increasing and adding a new few other segments, because never forget that in 2000, at the beginning, the internet access was not the size that we have today. And we didn't -- we were not in the pack in the wireline delivery at all.

And we were far from being in the wireless. We built all this.

We built all this together with the team that we built throughout the years with the expertise. And this expertise is there also to continue to give us opportunity to grow in the future.

So when I'm talking about discipline and this is probably also one of the reasons of our success. And one of the reasons that we've been being successful in the formula I mentioned earlier, regarding increasing EBITDA and reducing debt is that we were disciplined in capital expenditures.

And we will continue to do so I think it's important to make sure that we will spend where it's worth as much as possible to spend. And I guess that you've been raising a very interesting example, which is a [Indiscernible] I guess that you're familiar with the Quebec situation in the news.

So we were awarded the largest state in the new program, as you know internet access is considered as an essential service. We've been successful also in our complaint in front of the CRTC, against Bell, and our desire and requirements to put our network on their poles.

This will deliver very interesting result at the very lowest lower price. So we look forward to continue the same philosophy that I've been built, and that I've been established for the last 20 years.

It's a toughie. Anyway just on the mobile net add 22,000 in the quarter.

I noticed. You obviously said that your share of the growth stands for 30% plus.

But I thought last quarter you might have been a little disappointed with your mobile net adds. And I was just wondering, this quarter, is it the same?

Are you happy with that level of net adds of 22 and I was wondering if you could disclose some other wireless metrics that usually disclose such churn and the wireless EBITDA growth? Thank you.

Yes. Well, let me give you a few factors that I believe explains our 22,000, or lower growth than last year, and obviously, sequentially, sequentially, it's easy to understand because our business is seasonal and you know it.

Q4 is a very active, very active market, you have the Boxing Day, and you have the Black Friday promotions, so it's very active quarter. So sequentially, I guess it's just normal that we're seeing lower growth.

But if you look at the year-over-year, obviously, this year, we had half after the quarter where we were in lockdown, and the stores were closed. Last year, obviously, the pandemic started in mid March.

So it was only two weeks essentially of a lockdown and closed doors. So it obviously had an impact.

And as you know, in wireless, since we are the challenger, when the market is slow we tend to show slower growth than the previous year, because the market is too slow. The good thing I believe is that is that despite the slow market, we continue to grab more than 30% share of growth side so and churn is stable.

So it's not like churn is growing or increasing, and then we're losing our customer, not at all churn is stable this quarter compared to on the last quarter, the same quarter last year. One other thing I would add is, with the reopening of the stores, mid February, what we've seen is and I think I told that I said the same in the third quarter of last year following the reopening of the stores, and in late June I once again, we sort of saw or witnessed some kind of panic from our competitors, with the crazy promotions on handset.

And we didn't play that game. In fact, I think that's one thing that characterize us is really, that we're able to achieve a balance between operating income that is growing and such that are growing we don't want to kill our property income, just because we're chasing customers, and doing the same the big three are doing essentially.

So I think that is something that is very important to understand is balance that is not an easy task, but I think we're able to achieve this, this balance. And I would finish by saying that the following thing in 2014, there was a break some kind of a breakout in our business, when we launched our LTE network, we got the Apple phone, and we innovated with by creating the biggest data buckets in Canada.

And that's essentially allowed us to improve or share growth that from the mid-teens to low 20s. And that is when in 2018, we went with another innovation.

And another thing that is that was the different to our customers, which was Fizz, a new operating model and new business models and new brands. And we've been able to grow from the low 20s to the low 30s our share of growth that and I think now we're ready for a next phase of growth.

And one thing that we're essentially working on is the equipment installment plan. We're working on this initiative, and I think it's going to be a new thing that will are again broaden our addressable market and we'll probably and I believe will improve our share of growth further and on top of that Fizz, as you probably know, is now offering assets which Fizz wasn't in the past.

Again, broadening our addressable market. I think future is great in terms of subscriber growth and I'm not disappointed on it obviously on an absolute basis, in some ways you can be disappointed with the gross add, but I think that's on a relative basis and based on the market that we have in Quebec, it's a very, very, very strong performance.

Okay and then can you comment on wireless EBITDA growth?

High teen.

Okay, thank you. And then just on -- because Quebecor is not having a conference call now.

Maybe a question for telecom. So I was just wondering what's the latest with achieving a higher stability from Bell, I think they're really underpinning compared with everybody else.

Well, it's a never ending story. David with Bell as a distributor and as a broadcaster and as a competitor of TVA as well.

It's true for the sports segment, but it's true also for the other channels, specialty channels and what we call the fair market value. We've been able to negotiate the prices with all the other distributors and for a reason, which we consider and easily understandable and have the same kind of agreements are not able to be reached with Bell as a distributor.

So, this is why we've been in front of the CRTC. And we've been in the front also of the court to be able to establish what we consider being fair market value.

It's a long process with them through this process 15 years ago, when Bell did decided that they will not follow the rules, and the fair business practices in term of piracy. And your rule, you will remember, they did that in 2015, the appeal court of Quebec, condemn Bell to pay $140 million, because of that to do at home, and DVA.

So, it's unfortunate to say that that will end as I began is it's a never ending story with Bell.

Okay, so we're not waiting on any CRTC decision or anything. It's just kind of still kind of status quo.

Right now it is status quo, and it's in front of the federal courts.

Federal court. Okay.

All right. And then lastly, a question for, can you just update us what the CapEx plan is for 2021?

No change in our CapEx guidance for the year.

Can you remind us what it is?

600 to 650 for Videotron, exactly. That's the only guidance we gave.

Hi. Thanks very much.

Let me just stay on the CapEx for a second. Hugues I'm not sure we answered your own question from earlier on.

How many this new rural households, the 37,000 that you've won, in partnership with the government? How much that will cost you and is none of that spend start to happen this year?

Or is it not big enough to change your CapEx budget even if it is this year?

Yes, I think that Vince so obviously, it's a pay as you go, as you can imagine, but we've been assisted and we are assisted from subsidies standpoint, we are assisted by the government and are part of the deal. I wouldn't say is minimal.

But it's not that material on a two year basis, because obviously, our investment will be spread over two years. So there won't -- we won't see any change in our guidance because of this program.

And mostly for 2021 it won't affect our budget.

Okay, thanks, Jeff. And, by the way, best of luck to you guy, Jeff you've been fantastic to work with over the years, I shouldn't, you're missing and saying that as well.

Second question, internet revenue up 6.4% this quarter, that's what a double what you were doing through for almost 2020? And it's nice to see you can you talk to that a little bit?

Is it just some delayed rate increases that finally went through? Or is there a bit more usage by your customers moving to higher tiers, or perhaps a bit more promotional discipline in the market?

So you don't have to have as many subs on heavy discounts. If you can just talk to what the key drivers are there be great.

Sure. So two things I would say the two major things that are obviously our price increases.

So as you know, prices increases were effective March 1, so we got one month of those price increases kicking in and they were to the level of 4% to 6%, approximately, depending on the kind of package. So it's obviously had an impact.

The second thing is you're right in imagining that people are looking for higher tiers services. And teleworking is obviously a source for that.

So we're seeing people subscribing to higher tiers packages, yes.

Excellent. Thank you.

And last question probably for Pierre Péladeau. In your answer to Jeff's question earlier regarding freedom mobile, you mentioned having to negotiate a fair price for the asset.

Assuming that it does come for sale, I'm wondering what the terms of the deal as much as the price stability, you think that you could just acquire what they have and then be a standalone, wireless player with that network and that spectrum position? Or is it important to you to also try to gain some sort of network access or network sharing, in tandem with any deal that you'd be willing to do?

Well, we're always going to be open and flexible regarding different types of transaction. And eventually possibly any kind of partnership.

Also maybe we'll we can as the -- on all this, and again, I think it's positioning ourselves quite favorably as the MDNO decisions that have been released by the CRTC. I guess that's the idea.

It was inspired by [Indiscernible] position but also, from also our position, we've been always saying that to be fair in an industry that requires a significant capital expenditure. You need to sponsor facility based operators.

And as you know, the CRTC decisions of avoiding any kind of MDNO of a commitment to build your own network in a certain period of time, in fact, it's seven years. So here we are in front of a present market and condition a regulatory market with proper conditions.

That's giving us also the availability of growing our business at certainly probably at the speed or the rate that we will consider being the best way to do so. And in front of us, you also have this fourth operator that may be or must be considered for sale regarding competition, purpose, and meeting expectation from regulatory body.

So, this is also being mentioned in add on favorable conditions, the proper level and the discipline kind of execution that we're looking for.

Excellent. All right.

Well, thank you very much all and talk to you next quarter.