This news release contains forward-looking statements. For a
description of the related risk factors and assumptions please see
the section entitled "Caution Concerning Forward-Looking
Statements" later in this release.
- Net earnings of $725 million
with net earnings attributable to common shareholders of
$679 million, or $0.78 per common share; adjusted net earnings of
$758 million delivered 2.4% increase
in adjusted EPS of $0.87
- Cash flow from operating activities of $1,313 million; free cash flow up 17.0%
- Service revenue growth of 2.9% and disciplined subscriber
acquisition delivered 2.4% increase in BCE adjusted EBITDA and
higher margin of 41.1% despite regulatory financial impacts in the
quarter
- 73,000 broadband subscriber net additions in postpaid
wireless, IPTV and Internet
- Strong wireless results: 35,782 postpaid net additions, up
38.7%; 8.0% increase in service revenue on 4.2% higher ARPU;
adjusted EBITDA growth of 7.5%
- Wireline adjusted EBITDA growth of 0.4%, positive for an
11th consecutive quarter; industry-leading margin
increased to 42.3% on 0.5% lower operating costs
- Rollout of Bell fibre to 1.1 million Montréal homes and
businesses announced; by the end of 2017, more than 3.6 million
locations in 7 provinces expected to have direct fibre
connections
- Acquisition of Manitoba Telecom Services successfully
completed March 17; BCE updates 2017
financial targets, Bell MTS integration under way
MONTRÉAL, April 26, 2017
/PRNewswire/ - BCE Inc. (TSX: BCE) (NYSE: BCE), Canada's largest
communications company, today reported results for the first
quarter (Q1) of 2017 and provided updated financial guidance
targets for 2017 to reflect the acquisition of Manitoba Telecom
Services Inc. (MTS).
FINANCIAL
HIGHLIGHTS
|
|
|
|
($ millions except
per share amounts) (unaudited)
|
Q1
2017
|
Q1
2016
|
%
change
|
BCE
|
|
|
|
Operating
revenues
|
5,384
|
5,270
|
2.2%
|
Net
earnings
|
725
|
758
|
(4.4%)
|
Net earnings
attributable to common shareholders
|
679
|
707
|
(4.0%)
|
Adjusted net
earnings(1)
|
758
|
734
|
3.3%
|
Adjusted
EBITDA(2)
|
2,214
|
2,163
|
2.4%
|
EPS
|
0.78
|
0.82
|
(4.9%)
|
Adjusted
EPS(1)
|
0.87
|
0.85
|
2.4%
|
Cash flows from
operating activities
|
1,313
|
1,290
|
1.8%
|
Free cash
flow(3)
|
489
|
418
|
17.0%
|
"Bell's broadband strategy continued to gain momentum in a
marketplace marked by intense competition, regulatory impacts, and
a clear opportunity for Bell's superior network, service and media
innovations to stand out. With efficient operation and marketplace
discipline, the Bell team's focus on bringing the highest-quality
communications to Canadians resulted in service revenue, adjusted
EBITDA, and free cash flow growth and a gain of 73,000 new
broadband IPTV, Internet and postpaid wireless customers in Q1,"
said George Cope, President and CEO
of BCE and Bell Canada. "Reflecting
our mobile network leadership, Bell wireless posted very strong
increases in postpaid net subscribers, revenue and adjusted EBITDA.
In wireline, ongoing usage growth and competitive discipline in
subscriber acquisition for our superior Fibe TV and Internet
services delivered residential service revenue growth and our
11th straight quarter of wireline adjusted EBITDA
growth. Bell Media's leadership across multimedia segments and
ongoing innovation in next-generation platforms like CraveTV
resulted in revenue growth despite the impact of unfortunate
regulatory decisions and a soft ad market."
"We welcomed Manitoba Telecom Services to Bell in Q1 and
launched the new Bell MTS, combining the local talent and expertise
of the MTS team with Bell's national scale to expand broadband
wireless, TV and Internet services throughout Manitoba," said Mr. Cope. "As we announce our
Q1 2017 results, BCE is proud to hold our annual general meeting of
shareholders here today in Ottawa
at the National Gallery, celebrating 150 years of Confederation and
Bell's own 137th anniversary in 3 days. Bell has been a partner in
Canada's growth and prosperity since 1880, and our team will
continue to lead investment in the world-class network
infrastructure, service and media innovations that will keep Canada
at the forefront of broadband communications worldwide."
Bell is focused on achieving a clear goal – to be recognized by
customers as Canada's leading communications company – through the
execution of 6 Strategic Imperatives: Invest in Broadband Networks
& Services, Accelerate Wireless, Leverage Wireline Momentum,
Expand Media Leadership, Improve Customer Service, and Achieve a
Competitive Cost Structure. This broadband leadership strategy has
delivered world-class fibre and wireless LTE networks; continued
strong performance across wireless, TV, Internet and media growth
services; 46 consecutive quarters of uninterrupted year-over-year
adjusted EBITDA growth; and 13 increases to the BCE common share
dividend since the end of 2008 – a total increase of 97%.
CORPORATE DEVELOPMENTS
For full details of BCE's
corporate developments in the quarter, please refer to the BCE Q1
2017 Shareholder Report at BCE.ca.
Acquisition of MTS completed
BCE launched Bell MTS in
Manitoba following the completion
of its acquisition of MTS on March
17. Uniting the local and national strengths of MTS and
Bell, the new Bell MTS will bring unprecedented expansion in
broadband communications to Manitoba cities, traffic corridors, rural
communities and remote locations with Bell's 5-year, $1 billion capital investment plan for the
province.
City of Montréal fibre infrastructure buildout
Bell
plans to invest a further $854
million to bring direct fibre links and the fastest Internet
speeds available to 1.1 million residences and business locations
throughout the City of Montréal. By the end of the year, Bell's
direct fibre connections will reach approximately 40% of homes and
businesses throughout the province of Québec, and more than 3.6
million total locations across 7 provinces.
Bell Mobility LTE network first in North America to be Quad Band
capable
Bell Mobility announced on April 20 that its award-winning LTE network is
the first in North America capable
of delivering Quad Band LTE Advanced (LTE-A) speeds; with 256 QAM
(quadrature amplitude modulation) enhancements, the network can now
deliver mobile data speeds up to 750 Mbps, with expected average
speeds of 22 to 174 Mbps. Bell also announced the new Samsung
Galaxy S8 and S8+ smartphones will be the first devices able to
take advantage of these network speeds with a software update
available in coming months.
Common share dividend increase
BCE announced a 5.1%
increase in the annual common share dividend, from $2.73 per share to $2.87 per share, effective with BCE's 2017 first
quarter dividend paid on April 15,
2017. It's BCE's 13th such increase since the end
of 2008, representing overall growth of 97% in the BCE annual
common share dividend.
$1.5 billion public debt
offering
On February 27,
Bell Canada completed a public
offering of $1.5 billion of medium
term notes (MTN) debentures in 2 series: the $1 billion 2.7% Series M-44 maturing on
February 27, 2024, and the
$500 million 4.45% Series M-45
maturing on February 27, 2047. The
net proceeds were used to partially fund BCE's acquisition of MTS
and repay short-term debt.
Karen Sheriff nominated to the
BCE Board
On March 8, BCE
announced the nomination of Karen
Sheriff to the Board of Directors. One of Canada's most
successful communications executives, Ms. Sheriff was most recently
CEO of Q9 Networks and earlier CEO of Bell Aliant. Ronald Brenneman retires from the Board at BCE's
annual general shareholder meeting today after more than 13 years
of distinguished service, including as Chair of the Management
Resources and Compensation Committee and a member of the Pension
Fund Committee.
BCE RESULTS
"Our Q1 financial results demonstrated a
very good start to 2017, reflecting our team's consistent execution
in an intensely competitive marketplace and focused commitment to
deliver profitable subscriber growth, control costs and invest
significantly in advanced wireless and wireline broadband fibre
networks to well position Bell for future growth," said
Glen LeBlanc, Chief Financial
Officer of BCE and Bell Canada. "Our
successful closing of the MTS acquisition supports the increased
2017 financial guidance targets we announced today. With its
immediate free cash flow accretion, upsized operational synergies
of $100 million and substantial tax
savings, Bell MTS fully supports our broadband leadership strategy
and our dividend growth objective."
BCE operating revenue was up 2.2% in Q1 to $5,384 million, reflecting service revenue growth
for all 3 Bell operating segments. Product revenue declined 8.0% to
$333 million, reflecting intensely
competitive mobile handset promotional discounting and lower
wireline product sales to business customers.
Net earnings decreased 4.4% to $725
million in Q1 while net earnings attributable to common
shareholders totalled $679 million,
or $0.78 per share, down 4.0% and
4.9% respectively, due to higher severance, acquisition and other
costs and an increased average number of BCE common shares
outstanding, both due to the acquisition of MTS. Excluding
severance, acquisition and other costs, net losses or gains on
investments, impairment charges and early debt redemption costs,
adjusted net earnings increased 3.3% to $758
million, or $0.87 per common
share.
BCE's adjusted EBITDA grew 2.4% to $2,214
million in Q1, driven by increases of 7.5% at Bell Wireless
and 0.4% at Bell Wireline, which reflected a nominal financial
contribution from the acquisition of MTS completed on March 17. This was partly offset by a 7.6%
decline in adjusted EBITDA at Bell Media due primarily to the loss
of simultaneous substitution rights for Super Bowl LI.
BCE's consolidated adjusted EBITDA margin(2)
increased modestly to 41.1% in Q1 from 41.0% last year as the
flow-through of strong wireless service revenue growth and wireline
operating cost savings more than offset greater wireless postpaid
subscriber acquisition and retention spending, richer wireline
customer acquisition and retention discounts offered to match
aggressive competitor bundle promotions, higher media content
costs, and the margin impact from the ongoing decline in
traditional voice services.
Consolidated adjusted EBITDA and margin performance in Q1 was
also unfavourably impacted by CRTC decisions related to wholesale
Internet tariffs, customer cancellation refunds and Super Bowl
simultaneous substitution, all of which collectively totalled
approximately $35 million.
BCE continued its strategic investment in advanced broadband
wireline and wireless infrastructure with capital expenditures of
$852 million in Q1, the same total as
in Q1 2016. This represented a capital intensity(4)
ratio (capital expenditures as a percentage of total revenue)
improvement to 15.8% this quarter from 16.2% in Q1 2016. Capital
investment focused on expanding broadband fibre directly to more
homes and businesses, including the build-out of Gigabit Fibe
infrastructure in Toronto and
other urban locations; continued investment in Bell's leading LTE
and LTE Advanced (LTE-A) networks, including the deployment of
small-cell technology to optimize coverage, signal quality and data
capacity; and wireless and Internet network capacity to support
subscriber growth and accelerating data usage.
BCE cash flows from operating activities were $1,313 million, up 1.8% from $1,290 million in Q1 2016, the result of higher
adjusted EBITDA, lower severance and other costs paid, and a
positive change in working capital. This was partly offset by
higher acquisition and other costs paid related mainly to the MTS
acquisition and higher income taxes. BCE free cash flow generated
this quarter was $489 million, 17.0%
higher than last year, driven by increased cash flows from
operating activities excluding acquisition and other costs
paid.
In Q1 2017, BCE gained 35,782 net new wireless postpaid
customers, and reported a net loss of 35,110 prepaid subscribers;
22,402 net new Fibe TV customers, and a net loss of 38,065
satellite TV customers; and 14,989 net new high-speed Internet
customers. NAS line net losses totalled 103,274. As a result of the
MTS acquisition, Bell's wireless subscriber base increased by
476,932 (including 418,427 postpaid customers), while high-speed
internet, TV and NAS subscribers increased by 229,470, 108,107
(including 104,661 IPTV customers) and 419,816 respectively.
Total BCE customer connections across all services, including
MTS, totalled 22,075,373 at the end of Q1, up 5.3% from the year
before. The total includes 8,946,476 wireless customers, up 8.6%
over last year (including 8,144,936 postpaid customers, an increase
of 10.0%); total high-speed Internet subscribers of 3,717,270, up
9.0%; total TV subscribers of 2,837,353, up 3.2% (including
1,465,007 Fibe TV customers, an increase of 19.1%); and total NAS
lines of 6,574,274, an increase of 0.1%.
BCE OPERATING RESULTS BY SEGMENT
Bell Wireless
Wireless revenue growth further
accelerated in Q1, increasing 7.1% over Q1 2016 to $1,814 million. Service revenue increased 8.0% to
$1,715 million, driven by an
expanding postpaid subscriber base, strong growth in blended
average revenue per user (ARPU)(4) and a favourable
contribution from MTS. Despite a higher number of subscriber gross
additions and customer device upgrades year over year, product
revenue decreased 5.7% to $99 million
due to competitive promotional smartphone pricing.
Wireless adjusted EBITDA grew 7.5% to $818 million, from $761
million in Q1 2016, on the flow-through of strong service
revenue growth and price discipline, yielding a service revenue
margin of 47.7%. This was achieved even with a $35 million increase in total combined retention
spending and subscriber acquisition costs, which increased
operating costs 6.9% over Q1 last year.
- Postpaid gross additions totalled 296,616, up 7.7% over Q1
2016, driving 38.7% higher postpaid net additions of 35,782. This
strong performance reflects Bell's mobile network leadership,
leading line-up of high-demand smartphones and other mobile
devices, and effective sales execution across all retail
channels.
- Postpaid customer churn(4) increased 0.02 percentage
points in Q1 to 1.17% due to the remaining deactivation of low-ARPU
customers from the loss of a corporate contract in 2016.
- At the end of Q1 2017, Bell Wireless postpaid customers
totalled 8,144,936, a 10.0% increase over last year. Total wireless
customers grew 8.6% to 8,946,476. This included 476,932 subscribers
acquired from MTS (418,427 on postpaid service). Subsequent to the
end of the quarter on April 1,
approximately one-quarter of the acquired MTS postpaid subscribers
were sold to Telus.
- Blended ARPU grew 4.2% to $65.66
from a more favourable postpaid subscriber mix, increased LTE data
usage, reflected in a greater number of subscribers on plans with
larger data thresholds, and the flow-through of 2016 industry
pricing initiatives to reflect the weaker Canadian dollar and its
impact on handset costs.
- Bell's mobile LTE network provided coverage to almost 98% of
Canadians at the end of Q1, including 74% of the population covered
by LTE Advanced service. The percentage of postpaid subscribers
with LTE devices reached 83% in Q1, up from 73% at the same last
year.
Bell Wireline
Wireline service revenue increased 0.7%
to $2,743 million, reflecting
positive residential services revenue growth from broadband
Internet and IPTV customer gains and higher household ARPU,
improved business performance supported by the acquisition of data
centre operator Q9, and the incremental financial contribution
starting March 17 from the MTS
acquisition.
Lower product revenue, together with the financial impact from
downward revisions to wholesale Internet tariffs and refunds for
cancelled services as mandated by the CRTC, contributed to a 0.1%
decrease in Q1 Bell Wireline operating revenue to $2,980 million.
Wireline adjusted EBITDA increased 0.4% to $1,262 million in Q1, even with approximately
$19 million in unfavourable
regulatory-related financial impacts in the quarter. Operating
costs improved 0.5% to $1,718
million, driving a 0.2 percentage-point increase in our
industry-leading margin of 42.3%. This reduction in operating costs
reflected ongoing disciplined cost management, fibre-related
savings and further service improvement efficiencies.
- Bell TV added 22,402 net new Fibe TV subscribers in Q1, a
decrease from 47,740 gained last year due to a higher number of
Bell retail customers with expired pricing promotions, reduced new
footprint expansion and maturing penetration in current Fibe TV
markets, fewer satellite TV migrations, and growing over-the-top
substitution. Together with 104,661 IPTV subscribers gained from
the MTS acquisition, these new Fibe TV net additions increased
BCE's total IPTV customer base to 1,465,007 at the end of Q1, up
19.1% over last year.
- Satellite TV net customer losses were relatively stable at
38,065 compared to 37,741 in Q1 last year. At the end of Q1, BCE
had a total of 2,837,353 TV subscribers (including a total of
108,107 from the MTS acquisition), compared to 2,748,495 at Q1
2016.
- High-speed Internet net additions totalled 14,989 compared to
19,783 in Q1 2016. Despite higher year-over-year growth in
residential customer activations driven by an expanding fibre
footprint, total Internet net additions decreased due to higher
customer churn from exceptionally aggressive bundle promotions by
cable competitors.
- BCE's high-speed Internet customer base totalled 3,717,270 at
the end of Q1, up 9.0% year over year, which also included 229,470
customers gained from the MTS acquisition.
- Wireline data service revenue increased 3.0% to $1,707 million, reflecting Internet and TV
subscriber, usage and ARPU growth and higher business service
solutions revenue reflecting the incremental financial contribution
of Q9.
- Wireline product revenue decreased 8.8% to $237 million, due to lower year-over-year
equipment sales to large enterprise business and wholesale
customers.
- Residential NAS net losses increased 8.9% to 73,421 from 67,428
in Q1 2016, the result of aggressive bundle promotions by cable
competitors and ongoing wireless and Internet technology
substitution.
- Business NAS net losses improved 25.7%, to 29,853 from 40,204
in Q1 last year, due to fewer large business customer deactivations
and improved small business performance.
- Total NAS access lines at the end of Q1 2017 totalled
6,574,274, up 0.1% over Q1 last year, including 419,816 subscribers
gained from the MTS acquisition. Local and access revenue decreased
1.8% to $775 million due mainly to
ongoing NAS erosion and CRTC-mandated customer refunds for
cancelled services. Long distance revenue was down 12.0% to
$168 million due to NAS losses,
technology substitution by wireless and Internet technology, and
lower sales of international long distance to wholesale
customers.
Bell Media
Media operating revenue increased 1.3% to
$751 million, up from $741 million in Q1 last year. Strong subscriber
revenue growth in the quarter reflected the national expansion of
The Movie Network (TMN) beginning in March
2016, contract renewals with several TV distributors, and
higher revenues from CraveTV and TV Everywhere GO products.
Advertising revenue was impacted by the CRTC's decision to ban
simultaneous substitution for Super Bowl LI as well as continued
soft TV and radio advertising markets. This was partly offset by
modestly higher year-over-year revenues from Bell Media's specialty
sports and news channels and growth in outdoor advertising at
Astral Out of Home (OOH).
Media adjusted EBITDA decreased 7.6% to $134 million, from $145
million in Q1 2016, the result of a 3.5% increase in
operating costs from higher costs for sports broadcast rights and
CraveTV programming expansion, TMN's national expansion, and
increased costs at Astral OOH from acquisitions and the execution
of new contracts. Excluding the Super Bowl financial impact, Bell
Media adjusted EBITDA in Q1 was stable compared to last year.
- CTV was the top ranked Canadian network for the 13th
consecutive winter season among total viewers and in all key adult
demographics in primetime, with 9 of the top 20 programs among
total viewers and 10 of the top 20 in all key adult
demographics.
- Bell Media English specialty and pay TV properties reached 81%
of Canadian English-language specialty and pay TV viewers in the
average week. Bell Media had 9 of the top 20 Entertainment programs
among overall viewers in Q1, and 4 of the top 10 specialty and pay
channels among viewers aged 25 to 54: TSN, Discovery, Space and
TMN.
- Bell Media maintained its leadership position in the Québec
market with audiences for specialty and pay TV reaching 77% of all
French-language TV viewers in the average week in Q1. Three of the
top 5 specialty and pay channels among key viewers aged 25 to 54
are Bell Media properties: RDS, Super Écran and Canal D.
- Core primetime viewership for TSN was up 13% over Q1 last year,
supported by higher average audiences for the Toronto Raptors, NCAA
Football, Australian Open Tennis and NASCAR. In February, TSN and
RDS reached a multi-year contract extension with NASCAR, retaining
exclusive Canadian media rights to all Monster Energy NASCAR Cup
Series and NASCAR Xfinity Series races across all platforms,
including exclusive Canadian coverage of the Daytona 500.
- Bell Media continued to lead in digital media among Canadian
broadcast and video network competitors, reaching a record 62% of
the digital audience and 19 million unique monthly visitors in Q1,
with average monthly time spent of 851 million minutes and 48
million videos viewed.
- Bell Media remained Canada's top radio broadcaster in Q1,
reaching 16.7 million listeners who spent more than 75 million
hours tuned in each week.
- Bell Media and its production partners were honoured with 53
awards by the Academy of Canadian Cinema and Television at the
recent annual Canadian Screen Awards. Showcasing its growing
commitment to creating and developing exceptional original Canadian
content, Bell Media and its partners took home 35 TV awards, with
wins in major categories including Best News, Best Dramatic Series,
Best Comedy Series and Best Reality/Competition, Best Music and
Best Talk Program or Series. TSN won 4 awards, more than all other
sports broadcasters, including Best Direction in a Live Sporting
Event for the 2016 Grey Cup. Bell Media-supported film projects won
18 awards, including Best Motion Picture, Best Direction, Best
Performance by an Actress in a Leading Role, and Best Original
Screenplay.
COMMON SHARE DIVIDEND
BCE's Board of Directors has
declared a quarterly dividend of $0.7175 per common share, payable on July 15, 2017 to shareholders of record at the
close of business on June 15,
2017.
OUTLOOK FOR 2017
As a result of the closing of the
acquisition of MTS on March 17, 2017,
BCE has updated its financial guidance targets for 2017 as
follows:
|
February 2
Guidance
|
April 26
Guidance
|
Revenue
growth
|
1% – 2%
|
4% – 6%
|
Adjusted EBITDA
growth
|
1.5% –
2.5%
|
4% – 6%
|
Capital
intensity
|
approx.
17%
|
approx.
17%
|
Adjusted
EPS
|
$3.42 –
$3.52
|
$3.30 –
$3.40
|
Free cash flow
growth
|
approx. 3% –
7%
|
approx. 5% –
10%
|
Annualized common
dividend per share
|
$2.87
|
$2.87
|
Dividend payout
policy(3)
|
65% – 75%
of free cash
flow
|
65% – 75%
of free cash
flow
|
CALL WITH FINANCIAL ANALYSTS
BCE will hold a
conference call for financial analysts to discuss Q1 2017 results
and updated 2017 financial guidance on Wednesday, April 26 at 8:00 am (Eastern). Media are welcome to
participate on a listen-only basis. Please dial toll-free
1-866-223-7781 or 416-340-2216. A replay will be available for one
week by dialing 1-800-408-3053 or 905-694-9451 and entering pass
code 5361883#.
A live audio webcast of the conference call will be available on
BCE's website at: BCE Q1-2017 conference call. The mp3 file will be
available for download on this page later in the day.
NOTES
The information contained in this news release
is unaudited.
In Q1 2017, we updated our definition of adjusted net earnings
and adjusted EPS to also exclude impairment charges as they may
affect the comparability of our financial results and could
potentially distort the analysis of trends in business performance.
There was no impact on our Q1 2017 results, or for any previously
reported results in 2016, as a result of this change.
(1) The terms adjusted net earnings and adjusted EPS do
not have any standardized meaning under IFRS. Therefore, they are
unlikely to be comparable to similar measures presented by other
issuers. We define adjusted net earnings as net earnings
attributable to common shareholders before severance, acquisition
and other costs, net losses (gains) on investments, impairment
charges, and early debt redemption costs. We define adjusted EPS as
adjusted net earnings per BCE common share. We use
adjusted net earnings and adjusted EPS, and we believe that certain
investors and analysts use these measures, among other ones, to
assess the performance of our businesses without the effects of
severance, acquisition and other costs, net losses (gains) on
investments, impairment charges, and early debt redemption costs,
net of tax and NCI. We exclude these items because they affect the
comparability of our financial results and could potentially
distort the analysis of trends in business performance. Excluding
these items does not imply they are non-recurring. The most
comparable IFRS financial measures are net earnings attributable to
common shareholders and EPS. The following table is a
reconciliation of net earnings attributable to common shareholders
and EPS to adjusted net earnings on a consolidated basis and per
BCE common share (adjusted EPS), respectively.
($ millions except
per share amounts)
|
|
|
|
Q1 2017
|
Q1 2016
|
|
TOTAL
|
PER
SHARE
|
TOTAL
|
PER SHARE
|
Net earnings
attributable to common shareholders
|
679
|
0.78
|
707
|
0.82
|
Severance,
acquisition and other costs
|
65
|
0.07
|
31
|
0.03
|
Net losses (gains) on
investments
|
14
|
0.02
|
(12)
|
(0.01)
|
Early debt redemption
costs
|
-
|
-
|
8
|
0.01
|
Adjusted net
earnings
|
758
|
0.87
|
734
|
0.85
|
(2) The terms adjusted EBITDA and adjusted EBITDA margin
do not have any standardized meaning under IFRS. Therefore, they
are unlikely to be comparable to similar measures presented by
other issuers. We define adjusted EBITDA as operating revenues less
operating costs, as shown in BCE's consolidated income statements.
Adjusted EBITDA for BCE's segments is the same as segment profit as
reported in Note 4, Segmented Information, in BCE's Q1 2017
Financial Statements. We define adjusted EBITDA margin as adjusted
EBITDA divided by operating revenues. We use adjusted EBITDA and
adjusted EBITDA margin to evaluate the performance of our
businesses as they reflect their ongoing profitability. We believe
that certain investors and analysts use adjusted EBITDA to measure
a company's ability to service debt and to meet other payment
obligations or as a common measurement to value companies in the
telecommunications industry. We believe that certain investors and
analysts also use adjusted EBITDA and adjusted EBITDA margin to
evaluate the performance of our businesses. Adjusted EBITDA is also
one component in the determination of short-term incentive
compensation for all management employees.
Adjusted EBITDA and adjusted EBITDA margin have no directly
comparable IFRS financial measure. Alternatively, the following
table provides a reconciliation of net earnings to adjusted
EDITDA.
($
millions)
|
|
|
|
Q1
2017
|
Q1
2016
|
Net
earnings
|
725
|
758
|
Severance,
acquisition and other costs
|
84
|
42
|
Depreciation
|
722
|
739
|
Amortization
|
185
|
149
|
Finance
costs
|
|
|
|
Interest
expense
|
234
|
219
|
|
Interest on
post-employment benefit obligations
|
18
|
20
|
Other
income
|
(17)
|
(23)
|
Income
taxes
|
263
|
259
|
Adjusted
EBITDA
|
2,214
|
2,163
|
|
BCE operating
revenues
|
5,384
|
5,270
|
Adjusted EBITDA
margin
|
41.1%
|
41.0%
|
(3) The terms free cash flow and dividend payout ratio do
not have any standardized meaning under IFRS. Therefore, they are
unlikely to be comparable to similar measures presented by other
issuers. We define free cash flow as cash flows from operating
activities, excluding acquisition and other costs paid (which
include significant litigation costs) and voluntary pension
funding, less capital expenditures, preferred share dividends and
dividends paid by subsidiaries to NCI. We exclude acquisition and
other costs paid and voluntary pension funding because they affect
the comparability of our financial results and could potentially
distort the analysis of trends in business performance. Excluding
these items does not imply they are non-recurring. We consider free
cash flow to be an important indicator of the financial strength
and performance of our businesses because it shows how much cash is
available to pay dividends, repay debt and reinvest in our company.
We believe that certain investors and analysts use free cash flow
to value a business and its underlying assets and to evaluate the
financial strength and performance of our businesses. The most
comparable IFRS financial measure is cash flows from operating
activities. We define dividend payout ratio as dividends paid on
common shares divided by free cash flow. We consider dividend
payout ratio to be an important indicator of the financial strength
and performance of our businesses because it shows the
sustainability of the company's dividend payments. The following
table is a reconciliation of cash flows from operating activities
to free cash flow on a consolidated basis.
($
millions)
|
|
|
|
Q1 2017
|
Q1 2016
|
Cash flows from
operating activities
|
1,313
|
1,290
|
Capital
expenditures
|
(852)
|
(852)
|
Cash dividends paid
on preferred shares
|
(43)
|
(36)
|
Cash dividends paid
by subsidiaries to non-controlling interest
|
(12)
|
(12)
|
Acquisition and costs
paid
|
83
|
28
|
Free cash
flow
|
489
|
418
|
(4) We use ARPU, churn and capital intensity to measure
the success of our strategic imperatives. These key performance
indicators are not accounting measures and may not be comparable to
similar measures presented by other issuers.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
Certain
statements made in this news release are forward-looking
statements. These statements include, without limitation,
statements relating to our 2017 financial guidance (including
revenues, adjusted EBITDA, capital intensity, adjusted EPS and free
cash flow), BCE's 2017 annualized common share dividend and common
share dividend payout policy, our network deployment plans and
related capital investments, our business outlook, objectives,
plans and strategic priorities, and other statements that are not
historical facts. Forward-looking statements are typically
identified by the words assumption, goal, guidance, objective,
outlook, project, strategy, target and other similar
expressions or future or conditional verbs such as aim,
anticipate, believe, could, expect, intend, may, plan, seek,
should, strive and will. All such forward-looking
statements are made pursuant to the 'safe harbour' provisions of
applicable Canadian securities laws and of the United States Private Securities
Litigation Reform Act of 1995.
Forward-looking statements, by their very nature, are subject to
inherent risks and uncertainties and are based on several
assumptions, both general and specific, which give rise to the
possibility that actual results or events could differ materially
from our expectations expressed in or implied by such
forward-looking statements and that our business outlook,
objectives, plans and strategic priorities may not be achieved. As
a result, we cannot guarantee that any forward-looking statement
will materialize and we caution you against relying on any of these
forward-looking statements. The forward-looking statements
contained in this news release describe our expectations as of
April 26, 2017 and, accordingly, are
subject to change after such date. Except as may be required by
Canadian securities laws, we do not undertake any obligation to
update or revise any forward-looking statements contained in this
news release, whether as a result of new information, future events
or otherwise. Except as otherwise indicated by BCE, forward-looking
statements do not reflect the potential impact of any special items
or of any dispositions, monetizations, mergers, acquisitions, other
business combinations or other transactions that may be announced
or that may occur after April 26,
2017. The financial impact of these transactions and special
items can be complex and depends on the facts particular to each of
them. We therefore cannot describe the expected impact in a
meaningful way or in the same way we present known risks affecting
our business. Forward-looking statements are presented in this news
release for the purpose of assisting investors and others in
understanding certain key elements of our expected 2017 financial
results, as well as our objectives, strategic priorities and
business outlook for 2017, and in obtaining a better understanding
of our anticipated operating environment. Readers are cautioned
that such information may not be appropriate for other
purposes.
Material Assumptions
A number of economic, market,
operational and financial assumptions were made by BCE in preparing
its forward-looking statements contained in this news release,
including, but not limited to:
Canadian Economic and Market Assumptions
- Gradual improvement in economic growth, given the Bank of
Canada's most recent estimated growth in Canadian gross domestic
product of 2.6% in 2017, representing a 50 basis-point increase
from an earlier estimate of 2.1%
- Modest employment growth, as the overall level of business
investment is expected to remain soft
- Canadian dollar expected to remain at or around near current
levels. Further movements may be impacted by the degree of strength
of the U.S. dollar, interest rates and changes in commodity
prices.
- A higher level of wireline and wireless competition in
consumer, business and wholesale markets
- Higher, but slowing, wireless industry penetration and
smartphone adoption
- Wireless industry pricing discipline maintained
- Soft media advertising market expected, due to variable demand,
and escalating costs to secure TV programming
Assumptions Concerning our Bell Wireless
Segment
- Maintain our market share of incumbent wireless postpaid
subscriber activations
- Continued adoption of smartphone devices, tablets and data
applications, as well as the introduction of more 4G LTE devices
and new data services
- Higher subscriber acquisition and retention spending, driven by
higher handset costs and more customer device upgrades, reflecting
a higher number of off-contract subscribers due to earlier expiries
under two-year contracts
- Higher blended ARPU, driven by a higher postpaid smartphone
mix, increased data consumption on 4G LTE and LTE-A networks, and
higher access rates from price increases
- Completion of the LTE network buildout to 99% of the Canadian
population and expansion of the LTE-A network coverage to
approximately 87% of the Canadian population, including
Manitoba
- Ability to monetize increasing data usage and customer
subscriptions to new data services
- Ongoing technological improvements by handset manufacturers and
from faster data network speeds that allow customers to optimize
the use of our services
- No material financial, operational or competitive consequences
of changes in regulations affecting our wireless business
Assumptions Concerning our Bell Wireline
Segment
- Positive full-year adjusted EBITDA growth
- Continued growth in residential IPTV and Internet
subscribers
- Increasing wireless and Internet-based technological
substitution
- Residential services household ARPU growth from increased
penetration of multi-product households and price increases
- Aggressive residential service bundle offers from cable TV
competitors in our local wireline areas
- Continued large business customer migration to IP-based
systems
- Ongoing competitive repricing pressures in our business and
wholesale markets
- Continued competitive intensity in our small and mid-sized
business markets as cable operators and other telecom competitors
continue to intensify their focus on business customers
- Growing consumption of OTT TV services and on-demand streaming
video, as well as the proliferation of devices, such as tablets,
that consume vast quantities of bandwidth, will require
considerable ongoing capital investment
- TV unbundling will not materially accelerate the downsizing of
TV packages by customers
- Realization of cost savings related to management workforce
attrition and retirements, lower contracted rates from our
suppliers, reduction of traffic that is not on our network and
operating synergies from the integration of MTS
- Softer wholesale financial performance due to a CRTC decision
in October 2016 that significantly
lowered capacity-based billing rates for aggregated wholesale
high-speed Internet access services
- No other changes in regulations affecting our wireline business
having material financial, operational or competitive
consequences
Assumptions Concerning our Bell Media Segment
- Higher year-over-year revenue, reflecting further CraveTV
subscriber growth, The Movie Network's national expansion that
began in March 2016, and growth in
outdoor advertising supported by acquisitions and new contract
wins
- Operating cost growth driven by higher TV programming and
sports broadcast rights costs, as well as continued investment in
CraveTV content
- Continued scaling of CraveTV
- Ability to successfully acquire and produce highly rated
programming and differentiated content
- Building and maintaining strategic supply arrangements for
content across all screens and platforms
- Increased revenue generation from monetization of content
rights and Bell Media properties across all platforms
- TV unbundling and growth in OTT viewing expected to result in
moderately lower subscriber levels for many Bell Media TV
properties
- No material financial, operational or competitive consequences
of changes in regulations affecting our media business
Financial Assumptions Concerning BCE
The
following constitute BCE's principal financial assumptions for
2017:
- total post-employment benefit plans cost to be approximately
$320 million to $340 million, based
on an estimated accounting discount rate of 4.0%, comprised of an
estimated above adjusted EBITDA post-employment benefit plans
service cost of approximately $250 million
to $260 million and an estimated below adjusted EBITDA net
post-employment benefit plans financing cost of approximately
$70 million to $80 million
- depreciation and amortization expense of approximately
$3,850 million to $3,900 million
- net interest expense of approximately $950 million to $975 million
- tax adjustments (per share) of approximately $0.01
- an effective tax rate of approximately 27%
- non-controlling interest (NCI) of approximately $50 million
- total pension plan cash funding of approximately $400 million to $450 million
- cash taxes of approximately $650 million
to $700 million
- net interest payments of approximately $950 million to $975 million
- other free cash flow items, which include working capital
changes, severance and other costs paid, preferred share dividends
and NCI paid, of approximately ($25)
million to ($150) million
- average BCE common shares outstanding of approximately 895
million
- an annual common share dividend of $2.87 per share
The foregoing assumptions, although considered reasonable by BCE
on April 26, 2017, may prove to be
inaccurate. Accordingly, our actual results could differ materially
from our expectations as set forth in this news release.
Material Risks
Important risk factors that could cause
our assumptions and estimates to be inaccurate and actual results
or events to differ materially from those expressed in, or implied
by, our forward- looking statements, including our 2017 financial
guidance, are listed below. The realization of our forward-looking
statements, including our ability to meet our 2017 financial
guidance, essentially depends on our business performance which, in
turn, is subject to many risks. Accordingly, readers are cautioned
that any of the following risks could have a material adverse
effect on our forward-looking statements. These risks include, but
are not limited to:
- regulatory initiatives, proceedings and decisions, government
consultations and government positions that affect us and influence
our business, including, in particular, those relating to mandatory
access to networks, net neutrality, spectrum auctions, approval of
acquisitions, broadcast licensing and foreign ownership
requirements
- the intensity of competitive activity, including from new and
emerging competitors, and the resulting impact on the cost of
retaining existing customers and attracting new ones, as well as on
our market shares, service volumes and pricing strategies
- the level of technological substitution and the presence of
alternative service providers contributing to reduced utilization
of our traditional wireline services
- the adverse effect of the fundamental separation of content and
connectivity, which is changing our TV and media ecosystems and may
accelerate the disconnection of TV services and the reduction of TV
spending, as well as the fragmentation of, and changes in, the
advertising market
- competition with global competitors, in addition to traditional
Canadian competitors, for programming content could drive
significant increases in content acquisition costs and challenge
our ability to secure key content
- adverse economic and financial market conditions, a declining
level of retail and commercial activity, and the resulting negative
impact on the demand for, and prices of, our products and services
and the level of bad debts
- the inability to protect our assets, including networks, IT
systems, offices and sensitive information, from events and attacks
such as cyber threats, and damage from fire and natural
disasters
- the failure to optimize network and IT deployment and upgrading
timelines, accurately assess the potential of new technologies, and
invest and evolve in the appropriate direction
- the failure to continue investment in a disciplined and
strategic manner in next-generation capabilities, including
real-time information-based customer service strategies
- the inability to drive a positive customer experience
resulting, in particular, from the failure to embrace new
approaches and challenge operational limitations
- the complexity in our operations resulting from multiple
technology platforms, billing systems, marketing databases and a
myriad of rate plans, promotions and product offerings
- the failure to maintain optimal network operating performance
in the context of significant increases in capacity demands on our
Internet and wireless networks
- the failure to implement or maintain highly effective IT
systems supported by an effective governance and operating
framework
- the risk that we may need to incur significant capital
expenditures beyond our capital intensity target in order to
provide additional capacity and reduce network congestion
- the failure to generate anticipated benefits from our corporate
restructurings, system replacements and upgrades, process redesigns
and the integration of business acquisitions
- events affecting the functionality of, and our ability to
protect, test, maintain and replace, our networks, IT systems,
equipment and other facilities
- in-orbit and other operational risks to which the satellites
used to provide our satellite TV services are subject
- the failure to attract and retain employees with the
appropriate skill sets and to drive their performance in a safe and
secure environment
- labour disruptions
- the inability to access adequate sources of capital and
generate sufficient cash flows from operations to meet our cash
requirements, fund capital expenditures and provide for planned
growth
- uncertainty as to whether dividends will be declared by BCE's
board of directors or whether BCE's dividend payout policy will be
maintained
- the inability to manage various credit, liquidity and market
risks
- pension obligation volatility and increased contributions to
post-employment benefit plans
- higher taxes due to new tax laws or changes thereto or in the
interpretation thereof, and the inability to predict the outcome of
government audits
- the failure to reduce costs as well as unexpected increases in
costs
- the failure to evolve practices to effectively monitor and
control fraudulent activities, including unauthorized use of our
content and the theft of our TV services
- events affecting the continuity of supply of products and
services that we need to operate our business from our third-party
suppliers and outsourcers
- the failure of our procurement and vendor management practices
to address risk exposures associated with existing and new supplier
models
- the quality of our products and services and the extent to
which they may be subject to manufacturing defects or fail to
comply with applicable government regulations and standards
- security and data leakage exposure if security control
protocols applicable to our cloud-based solutions are bypassed
- unfavourable resolution of legal proceedings and, in
particular, class actions
- unfavourable changes in applicable laws and the failure to
proactively address our legal and regulatory obligations
- health concerns about radiofrequency emissions from wireless
communications devices
- the inability to maintain customer service and our networks
operational in the event of the occurrence of epidemics, pandemics
and other health risks
- the failure to recognize and adequately respond to climate
change concerns or public and governmental expectations on
environmental matters
We caution that the foregoing list of risk factors is not
exhaustive and other factors could also adversely affect our
results. We encourage investors to also read BCE's 2016 Annual
MD&A dated March 2, 2017
(included in the BCE 2016 Annual Report) and BCE's 2017 First
Quarter MD&A dated April 25, 2017
for additional information with respect to certain of these and
other assumptions and risks, filed by BCE with the Canadian
provincial securities regulatory authorities (available at
Sedar.com) and with the U.S. Securities and Exchange Commission
(available at SEC.gov). These documents are also available at
BCE.ca.
ABOUT BCE
Canada's largest communications company, BCE
provides the broadest range of broadband wireless, TV, Internet and
business communication services to consumer and business customers
throughout the country. Bell Media is Canada's premier multimedia
company with leading assets in television, radio, out of home and
digital media. To learn more, please visit BCE.ca.
The Bell Let's Talk initiative promotes Canadian mental health
with national awareness and anti-stigma campaigns like Bell Let's
Talk Day and significant Bell funding of community care and access,
research, and workplace initiatives. To learn more, please visit
Bell.ca/LetsTalk.
Media inquiries:
Jean Charles Robillard,
514-870-4739
jean_charles.robillard@bell.ca
Investor inquiries:
Thane Fotopoulos
514-870-4619
thane.fotopoulos@bell.ca
SOURCE Bell Canada