- Adjusted net earnings up 11.0% to $648 million on strong Bell Adjusted EBITDA
growth of 3.4%; net earnings attributable to common shareholders of
$600 million, up 74.9%
- Strong wireless financial results with 7.0% service revenue
growth and 10.9% higher Adjusted EBITDA
- Total BCE wireless postpaid net customer activations in Q3
of 91,779
- Positive Wireline Adjusted EBITDA growth achieved one
quarter earlier than expected
- Best broadband market share quarter in over a decade with
strong BCE IPTV and Internet net customer activations of 74,450 and
64,254 respectively
- Bell Media to launch subscription on-demand TV streaming
service delivering superior television content including exclusive
HBO library
This news release contains forward-looking statements. For a
description of the related risk factors and assumptions please see
the section entitled "Caution Concerning Forward-Looking
Statements" later in this release.
MONTREAL, Nov. 6, 2014 /PRNewswire/ - BCE Inc. (TSX, NYSE:
BCE), Canada's largest
communications company, today reported BCE and Bell results for the
third quarter (Q3) of 2014.
FINANCIAL HIGHLIGHTS |
|
|
|
($ millions except per share
amounts) (unaudited) |
Q3 2014 |
Q3 2013 |
% change |
Bell(i) |
|
|
|
Operating revenues |
4,607 |
4,524 |
1.8% |
Adjusted
EBITDA(1) |
1,798 |
1,739 |
3.4% |
BCE |
|
|
|
Operating revenues |
5,195 |
5,099 |
1.9% |
Adjusted EBITDA |
2,115 |
2,063 |
2.5% |
Net earnings attributable to
common shareholders |
600 |
343 |
74.9% |
EPS |
0.77 |
0.44 |
75.0% |
Adjusted
EPS(2) |
0.83 |
0.75 |
10.7% |
Cash flows from operating
activities |
1,882 |
1,730 |
8.8% |
Free cash
flow(3) |
834 |
747 |
11.6% |
Free cash flow per
share(3) |
1.06 |
0.97 |
9.3% |
(i) Bell includes the Bell Wireless, Bell
Wireline and Bell Media segments.
"Bell is focused on results, executing a strategy of TV,
Internet, wireless and media innovation that's clearly winning with
customers in the marketplace. This industry-leading Q3 performance
proves Bell next-generation services like Fibe TV, Fibe Internet
and mobile LTE have changed the game in Canadian communications,"
said George Cope, President and CEO
of BCE Inc. and Bell Canada.
"We were proud to welcome Bell Aliant fully into BCE's national
team this week. Executing the Bell broadband growth strategy, our
Atlantic Canada partners have also
outperformed against their cable competition. Everyone at Bell
understands that success in a competitive communications
marketplace can only result from product innovation that truly
delivers for Canadian consumers. Our focus on advanced broadband
services and content, combined with disciplined execution by the
Bell team, delivered an outstanding quarter of results for our
customers and the company."
The Bell team is dedicated to 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.
With an expanding service footprint, Bell broadband IPTV and
Internet services continue their momentum. Compared to ongoing
declines at traditional cable companies, IPTV welcomed 74,450 net
new subscribers, and an exceptional 64,254 broadband Internet net
additions, underscoring BCE's online leadership. Wireless, with
91,779 postpaid net additions and fast-increasing consumer use of
mobile data services on smartphones, delivered industry-leading
financial results. Executing our cost imperative, Bell Wireline
reduced operating costs a further 1.7% year over year to support
the positive growth in Wireline Adjusted EBITDA. Bell Media had
industry-leading revenue market share due to its leadership in
Canadian and international news, sports and entertainment
programming.
"We delivered an excellent set of consolidated third-quarter
financial results with very strong wireless financial performance
and positive wireline Adjusted EBITDA growth driving strong growth
in Adjusted earnings and free cash flow. Notably, since we began
the strategic transformation of Bell in 2008, we have reported
uninterrupted year-over-year Adjusted EBITDA growth in every
quarter," said Siim Vanaselja, Chief
Financial Officer for Bell and BCE. "Competitively well positioned
with leading broadband wireline and wireless networks, our
operating momentum is growing as we enter the fourth quarter. With
an outlook for continued strong wireless profitability, an
improving wireline financial profile, and a sustained focus on cost
efficiency, we are on track to meet all our Bell and BCE guidance
targets for 2014."
Bell's broadband investment strategy delivers top wireless
and Internet speeds
Tests of mobile LTE services in Canada's biggest cities released on
October 28, 2014 by respected US
research company RootMetrics (rootmetrics.com/ca) found that
Canadian wireless service is faster, more reliable and "far
superior on average" than mobile service available in comparable US
and UK cities. RootMetrics also found Canadian mobile pricing was
lower than in comparable American cities. Bell's LTE service was
first or tied for first in all 6 of RootMetrics' mobile performance
categories in Canada's biggest
urban centres, Toronto and
Montréal. Bell also offers customers the largest LTE footprint in
Canada, which grew to cover 84% of
the population by the end of Q3.
Netflix has consistently rated Bell Fibe as the fastest Internet
service in Canada in its ISP speed
index, which was introduced in April
2014. Bell Aliant's FibreOP service was also ranked first in
its territory and second nationally in the monthly Netflix speed
comparisons of up to 18 Canadian Internet service providers
(ispspeedindex.netflix.com/canada). With the fast expansion of Fibe
service, Bell high-speed Internet subscribers increased 39.1% year
over year in Q3, the biggest quarterly gain in 8 years.
Bell Media announces new TV streaming service
On October 30, 2014, Bell Media
announced it will soon launch a new streaming service devoted
exclusively to exceptional TV. Code-named Project Latte, the
service will feature best-in-class TV programming from the present
and past from around the world, including HBO's iconic programming
library, on set-top boxes and mobile, online and other platforms.
The service is being offered to all Canadian TV providers, and Bell
Media has already reached distribution agreements with TELUS, Bell
Canada and Bell Aliant to deliver this innovative service on
set-top boxes to their TV customers across the country.
Privatization of Bell Aliant completed
Announced on November 3, 2014, the
privatization of Bell Aliant simplifies BCE's corporate structure;
provides increased broadband scale with approximately 1.4 million
combined Internet, TV and wireless customers; increases overall
operating and capital investment efficiencies; and supports BCE's
dividend growth objective with strong annualized free cash flow
accretion. Integrated into BCE's national operations, the Bell
Aliant team will continue to serve customers across the 4 Atlantic
provinces from its Halifax
headquarters. BCE has committed $2.1
billion in capital expenditures for the region over the next
5 years to build on Bell Aliant's momentum as the marketplace
leader in broadband fibre TV and Internet products and service.
On October 14, 2014, BCE announced
that Chief Financial Officer Siim
Vanaselja will retire in the second quarter of 2015.
Glen LeBlanc, formerly Chief
Financial Officer of Bell Aliant, will serve as BCE's Senior Vice
President, Finance for BCE until Mr. Vanaselja's retirement and
assume the role of CFO of BCE and Bell Canada at that time. BCE's
succession plan for the CFO role leverages the exceptional
executive talent across the BCE group of companies to ensure a
smooth transition. Mr. Vanaselja will retire after BCE's 2015
Annual General Meeting of Shareholders, scheduled for April 30, 2015, and before the end of Q2 2015. As
announced on September 24, 2014, Bell
Aliant President and CEO Karen
Sheriff is retiring from the BCE group on December 31, 2014; Dan
McKeen, formerly Bell Aliant's Senior VP, Customer
Solutions, was named Vice Chair, Bell
Aliant when the privatization's completion was announced on
November 3, 2014.
Robert Dexter, Gordon Nixon join BCE Board of Directors
As previously announced, Robert
Dexter and Gordon Nixon have
joined the Board of Directors of BCE and Bell Canada. Mr. Nixon was
President and Chief Executive Officer of the Royal Bank of
Canada from August 2001 to August
2014, and is chair of MaRS and of the Queen's University
Capital Campaign. Mr. Nixon joins BCE's Management Resources and
Compensation Committee and Corporate Governance Committee. Mr.
Dexter, formerly a director of Bell Aliant, is Chairman and Chief
Executive Officer of Maritime Travel Inc. and Chairman of Sobeys
Inc. and Empire Company Limited. He also served as a director of
Maritime Tel & Tel Limited from 1997 to 1999. Mr. Dexter is a
member of the BCE Audit Committee and Pension Fund Committee.
BCE RESULTS
BCE operating revenue grew 1.9% to $5,195
million in Q3, reflecting higher revenues at Bell and Bell
Aliant. Adjusted EBITDA(1) was up 2.5% to
$2,115 million and Adjusted EBITDA
margin(1) increased slightly to 40.7%, driven by
healthy growth at Bell that was partly offset by a year-over-year
decline at Bell Aliant.
BCE's net earnings attributable to common shareholders were
$600 million, or $0.77 per share, up 74.9% and 75% respectively
from $343 million and $0.44 per share in Q3 2013. The increase was due
to a charge in Q3 2013 for the CRTC tangible benefits obligation
that Bell was ordered to pay as part of the acquisition of Astral
Media. Adjusted net earnings(2) of $648 million and Adjusted earnings per share
(EPS) of $0.83, increased 11.0% and
10.7% respectively, reflecting the flow-through of higher Adjusted
EBITDA from strong growth at Bell Wireless and a positive and
growing contribution from Bell Wireline.
BCE's cash flows from operating activities increased 8.8% to
$1,882 million, due mainly to higher
Adjusted EBITDA and an increase in working capital, partly offset
by higher income taxes paid. Free cash flow generated in the
quarter was $834 million, or 11.6%
higher than last year, reflecting an increase in cash flows from
operating activities, partly offset by higher capital expenditures.
Free cash flow per share in Q3 was $1.06, up 9.3% from $0.97 per share last year.
In Q3 of 2014, BCE (Bell Canada and Bell Aliant) added 185,468
net new customers from communications growth services (wireless,
TV, Internet): 91,779 postpaid wireless customers, partly offset by
the loss of 8,143 prepaid customers; 37,578 TV subscribers,
reflecting the addition of 74,450 net new fibre IPTV customers; and
64,254 high-speed Internet customers. Total net NAS line losses
improved 10.8% to 108,051. At September 30,
2014, BCE served a total of 8,035,130 wireless customers, up
1.1% from Q3 2013; total TV subscribers of 2,600,418, up 6.7%
(including 857,473 IPTV customers, an increase of 47.2%); 3,245,016
Internet subscribers, up 4.2%; and total NAS lines of 7,223,858, a
decrease of 6.6%.
BELL RESULTS
Bell operating revenues grew 1.8% to $4,607
million, reflecting a 2.2% increase in service revenues that
was partly offset by a 2.7% decline in low-margin wireline product
revenues. This performance was led by a strong increase at Bell
Wireless and positive Bell Wireline residential services revenue
growth. Bell Media revenues were essentially unchanged compared to
last year. Total revenues generated by Bell's growth services
(Wireless, TV, Internet/other wireline broadband, and Media) grew
$134 million, a 3.7% increase over
last year.
Bell Adjusted EBITDA was up 3.4% to $1,798 million, driven by increases of 10.9% at
Bell Wireless and 1.0% at Bell Wireline. This was moderated by an
8.5% decline at Bell Media, reflecting the impact of accelerating
TV content and multi-platform rights costs. Bell's consolidated
Adjusted EBITDA margin increased to 39.0% in Q3 2014 from 38.4% in
Q3 2013, due to higher Wireless average revenue per user (ARPU)
(4), increasing Fibe TV scale and growth in
three-product households, pricing discipline, diminishing wireline
voice erosion, and lower wireline operating costs.
Consistent with our plan, the pace of capital spending increased
this quarter as we continued to roll out fibre to more homes and
businesses, expanded our Fibe TV reach, increased 4G LTE network
speeds by up to 45%, deployed broadband mobile services to more
rural communities and small towns across Canada, and increased broadcasting capacity.
Bell invested $825 million in
capital programs in Q3 2014, representing an increase of 11.2% over
last year.
BELL OPERATING RESULTS BY SEGMENT
Bell Wireless
Bell Wireless operating revenues accelerated this quarter,
increasing 7.0% to $1,598 million
from $1,493 million in Q3 of 2013,
the result of a greater mix of postpaid subscribers in our customer
base, strong data revenue growth, and pricing discipline. Data
revenue grew 23.9% this quarter due to increased smartphone
penetration and usage, and higher average rate plan pricing,
driving our highest blended ARPU growth rate in more than 7 years.
Product revenues were up 10.4% as a result of more handset upgrades
and a greater number of higher-end smartphones in our sales
mix.
Bell Wireless Adjusted EBITDA increased 10.9% to $684 million on the strong blended ARPU growth.
With high flow-through of revenue to Adjusted EBITDA in Q3 2014,
Bell Wireless service revenue margin expanded 1.6 percentage points
to 46.6%, underscoring our disciplined focus on profitable postpaid
subscriber growth and customer retention spending.
- Postpaid net additions totalled 90,976 compared to 102,714 last
year. This reflected a 1.9% decrease in gross activations, a
sequential improvement compared to previous quarters. The
improvement was due to the moderating impact on new subscriber
activations from the elimination of lower-priced 3-year contracts
in 2013, as mandated by the new federal Wireless Code of
Conduct.
- The percentage of postpaid subscribers with smartphones
increased to 75%, compared to 69% at the end of Q3 2013.
- Postpaid customer churn(4) remained stable at 1.20%,
reflecting the quality, scope and scale of Bell's network and the
positive impact of investments in customer service and
retention.
- Prepaid net subscriber losses improved 40.6% to 7,870, due to
fewer customer deactivations.
- Bell Wireless postpaid customers totalled 6,868,818 at the end
of Q3, a 2.8% increase over last year. Total Bell Wireless
customers grew 1.1% to 7,887,193.
- Blended ARPU increased 5.9% to $61.73, driven by greater data usage on Bell's
expanding 4G LTE network, the favourable ARPU impact of new 2-year
contract pricing, and a higher percentage of postpaid subscribers
in our customer base.
- Cost of acquisition (COA)(4) increased to
$421 per subscriber from $403 in Q3 2013, due to a higher postpaid mix and
sale of more premium smartphones compared to last year.
- With more customers upgrading to high-end devices, retention
spending increased to 10.2% of wireless service revenues from 9.3%
last year.
- Bell increased mobile 4G LTE network speeds by as much as 45%
across our entire service footprint in August through spectrum
aggregation, giving customers faster mobile access to the Internet
and data services. All current Bell Mobility and Virgin Mobile
LTE-compatible devices support the speed increase.
- 4G LTE network coverage increased to 84% of the population by
the end of Q3, and is expected to grow to more than 98% by the end
of 2015 as service is rolled out to more small towns, rural
locations and Canada's North. This
is complemented by 4G HSPA+ coverage, currently available across
Canada to more than 98% of the
population.
- Bell Mobility launched 4G wireless service in partnership with
the Government of Yukon in small
communities in the territory. It's part of Bell subsidiary
Northwestel's $233 million
modernization plan, which is delivering advanced Internet and
wireless services to customers in all 3 Canadian territories.
- Desjardins Group announced the launch of its new mobile payment
service with a number of wireless carriers, including Bell Mobility
and Virgin Mobile. The service is available on a number of
smartphones, including the Samsung Galaxy products, HTC One and
Blackberry 9900, with additional devices to be added in the coming
months.
Bell Wireline
With a steadily improving mix of Wireline growth services (TV,
Internet, other Wireline broadband) and a 1.7% year-over-year
reduction in operating costs, Bell Wireline Adjusted EBITDA
increased 1.0% in Q3 - driving a 60 basis point improvement in
margin to 37.8%.
Bell Wireline also achieved positive service revenue growth of
0.2% in Q3, offset by a 7.7% decline in lower-margin product
revenues that resulted in a 0.7% year-over-year decrease in total
Wireline operating revenues to $2,465
million. Wireline residential revenue grew 3.4% in Q3,
reflecting positive total net subscriber additions and higher ARPU
across all our consumer services. The decline in voice revenue
continued to slow with fewer residential NAS line losses compared
to last year.
In our Bell Business Markets unit, the rate of year-over-year
revenue decline in Q3 remained relatively stable compared to last
quarter. However, overall results continued to be impacted by
competitive pricing pressures and slow economic growth, which has
affected customer demand for core connectivity and business service
solutions as well as sales of data equipment.
- Total Bell residential customer net additions increased 40.5%
to 31,280 in Q3 from 22,265 last year, reflecting strong Internet
and Fibe TV subscriber growth that in turn drove higher residential
NAS activations and retention.
- High-speed Internet net subscriber additions totalled 49,555,
up 39.1% compared to 35,634 last year. The increase reflects the
pull-through of Bell Fibe TV customer activations as well as a
higher number of student activations during the back-to-school
period. Bell's high-speed Internet subscriber base increased 3.9%
over last year to 2,253,363.
- Bell Fibe TV added 61,519 net new customers in Q3 compared to
72,813 last year. The decrease reflects aggressive offers and
service bundle promotions from cable competitors, more moderate
footprint expansion compared to Q3 2013, and the positive impact in
2013 of early customer adoption of the popular Fibe wireless
receiver. Bell Fibe TV subscribers totalled 642,162 at the end of
Q3, up 53.2% from last year.
- The Bell Fibe TV footprint reached 4.8 million households at
the end of Q3, up from 4.1 million last year.
- Satellite TV net customer losses increased to 37,025 in Q3 from
26,128 last year, the result of fewer retail activations due to
aggressive offers from cable TV competitors in Bell service areas
where Fibe TV is not available. Bell Satellite also had fewer
wholesale activations due to the roll-out of IPTV service by
competing wholesale providers in Western and Atlantic Canada.
- Bell TV's subscriber base (Bell Satellite TV and Fibe TV)
totalled 2,352,448 at the end of Q3, a 4.9% increase over last
year.
- Wireline data revenues were up 3.1% to $1,470 million, the result of combined Internet
and TV service revenue growth of 7.5% and a 3.3% increase in IP
broadband connectivity revenues.
- Residential NAS net losses improved 26.8% to 43,173 from 58,957
last year, reflecting lower rates of residential NAS turnover where
Bell Fibe TV is available and improved retention in our non-Fibe TV
service areas.
- Business NAS losses increased to 31,854 in Q3 from 28,526 last
year, due mainly to competitive pressures and ongoing business
customer conversion of voice lines to IP-based and wireless
services.
- Total Bell NAS access lines at the end of the quarter were
4,959,941, a 7.1% decline from last year. As a result, Bell's local
and access revenues decreased 4.1% to $588
million, while long distance revenue fell 11.4% to
$163 million.
Bell Media
Bell Media operating revenues were essentially unchanged this
quarter, increasing 0.2% to $665 million from $664 million last year. Growth in broadcast
distributor subscriber fee revenues from the flow-through of
market-based rate increases for Bell Media specialty TV services
and higher revenues from TV Everywhere GO products was offset by
decreased advertising revenues due to general market softness and a
move of advertising dollars to the broadcast of 2014 FIFA World Cup
Soccer.
Overall, Bell Media continued to lead the Canadian media
industry in revenue market share this quarter, driven by its strong
conventional and specialty TV programming schedule and growth in
full-day audiences.
As a result of significantly higher TV content costs for sports
broadcast rights that continue to escalate for the industry as a
whole, Bell Media Adjusted EBITDA decreased 8.5% in Q3 to
$182 million from $199 million last year.
- Bell Media grew its combined English and French-language
audience share among viewers aged 25 to 54 to 33% for the
broadcasting year ended August 31,
2014.
- CTV continues to be Canada's
#1 television network, broadcasting 9 of the top 20 programs
nationally among all viewers in the summer season (including the
top 2 programs: The Amazing Race Canada and MasterChef Canada) and
record-breaking success early in the 2014-2015 broadcast season
with the top 5 most-watched programs across all key adult
demographics. In the key primetime hours of 7 to 11 pm, CTV's
average audience was 44% higher than its closest conventional TV
competitor.
- Bell Media's specialty and pay TV properties reached 85% of all
Canadian English specialty and pay TV viewers in the average week
during Q3 2014, led by TSN, Discovery, and TMN.
- Bell Media continues its leadership position in Québec, with
specialty TV audiences reaching 83% of all French TV viewers in the
average week during Q3 2014, led by 4 of the top 5 specialty
channels in Québec: #1 RDS, Canal D, Canal Vie and Super
Écran.
- Bell Media continues to rank first in digital media among all
Canadian broadcast and video network competitors, and 7th among all
online properties in the country. Monthly online averages in Q3
were 15.7 million unique visitors, 2.8 million video viewers, 441
million page views, 123 million visits, and 69 million videos
served.
- Bell Media Radio, Canada's
largest radio broadcaster, saw growth in overall reach with
17.8 million listeners who spent 83.7 million hours tuned each
week in Q3.
- Astral Out-of-Home remained the 3rd largest player in
Canada with more than 9,500
advertising faces and was the #1 operator in the key markets of
Toronto and Montréal.
- Bell Media has acquired the exclusive Canadian multi-platform
rights, including subscription video-on-demand, to HBO's off-air
catalogue of TV programming. This complements a multi-year,
multi-platform agreement that will see HBO Canada exclusively
deliver the entire past-season library of every HBO scripted series
currently on air.
- Bell Media completed the required divestiture of certain Astral
Media assets on September 16 with the
sale of two TV services (MusiquePlus and MusiMax) to V Media Group,
bringing total proceeds for all required Astral asset divestitures
(including interim period dividends) to $766
million. The sales of these channels were required by the
Competition Bureau and the Canadian Radio-television and
Telecommunications Commission (CRTC) as part of Bell's acquisition
of Astral Media.
BELL ALIANT RESULTS
Bell Aliant revenues increased 0.4% in Q3 2014 to $699 million from $696
million last year, as growth in Internet, TV, other data and
wireless revenues exceeded the declines in local, long distance and
other revenues. Despite higher year-over-year operating revenues,
Bell Aliant Adjusted EBITDA decreased 2.2% this quarter to
$317 million from $324 million in Q3 2013, due to higher operating
costs related to growth of its FibreOP services and customer
base.
Bell Aliant continued to extend its fibre-to-the-home (FTTH)
network in Q3, passing 82,000 additional homes and businesses with
FibreOP services, bringing its total FTTH service footprint to
approximately 961,000 locations in more than 89 communities
throughout Atlantic Canada, Québec
and Ontario.
COMMON SHARE DIVIDEND
BCE's Board of Directors has declared a quarterly dividend of
$0.6175 per common share, payable on
January 15, 2015 to shareholders of
record at the close of business on December
15, 2014.
OUTLOOK
BCE confirmed its financial guidance targets for 2014, as provided
on February 6, 2014, as follows:
|
|
|
|
February 6 Guidance |
November 6 Guidance |
Bell (i) |
|
|
Revenue Growth |
2% - 4% |
On track |
Adjusted EBITDA Growth |
3% - 5% |
On track |
Capital Intensity
(4) |
16% - 17% |
On track |
BCE |
|
|
Adjusted EPS |
$3.10 - $3.20 |
On track |
Free Cash Flow growth |
3% - 7% |
On track |
Annual common dividend per
share |
$2.47 |
$2.47 |
Dividend payout
(4) policy |
65% - 75% of free cash flow |
No change |
(i) Bell's 2014 financial guidance
for revenue, Adjusted EBITDA and capital intensity is exclusive of
Bell Aliant.
CALL WITH FINANCIAL ANALYSTS
BCE will hold a conference call for financial analysts to discuss
Q3 2014 results on Thursday, November
6 at 8:00 a.m. (Eastern).
Media are welcome to participate on a listen-only basis. To
participate, please dial toll-free 1-800-766-6630 or (416)
340-2220. A replay will be available for one week by dialing
1-800-408-3053 or (905) 694-9451 and entering pass code
1024287#.
A live audio webcast of the conference call will be available on
BCE's website at:
http://www.bce.ca/investors/investorevents/all/show/bce-q3-2014-results-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.
(1) |
Beginning with Q2 2014, we reference
Adjusted EBITDA and Adjusted EBITDA margin as non-GAAP financial
measures. These terms replace the previously referenced non-GAAP
financial measures EBITDA and EBITDA margin. Our definition of
Adjusted EBITDA and Adjusted EBITDA margin are unchanged from our
former definition of EBITDA and EBITDA margin respectively.
Accordingly, this change in terminology has no impact on our
reported financial results for prior periods. 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 3 to
BCE's Q2 2014 consolidated 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 also is 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 EBITDA.
|
($ millions) |
|
|
|
Q3 2014 |
Q3 2013 |
Net earnings |
703 |
452 |
Severance, acquisition and other
costs
|
66
|
297
|
Depreciation |
739 |
683
|
Amortization |
116 |
162
|
Finance costs |
|
|
|
Interest expense |
227 |
242 |
|
Interest on post-employment benefit obligations |
25 |
38 |
Other expense |
(2) |
24 |
Income taxes |
241 |
165 |
Adjusted EBITDA |
2,115 |
2,063 |
|
BCE Operating Revenues |
5,195 |
5,099 |
Adjusted EBITDA Margin |
40.7% |
40.5% |
(2) |
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 (gains) losses on investments, and
premiums on early redemption of debt. 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 (gains) losses on
investments, and premiums on early redemption of debt, 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) |
|
|
|
Q3 2014 |
Q3 2013 |
|
TOTAL |
PER SHARE |
TOTAL |
PER SHARE |
Net earnings attributable to common
shareholders |
600 |
0.77 |
343 |
0.44 |
Severance, acquisition and other costs |
45 |
0.06 |
222 |
0.29 |
Net gains on investments |
- |
- |
(2) |
(0.01) |
Premium on early redemption of debt |
3 |
- |
21 |
0.03 |
Adjusted net earnings |
648 |
0.83 |
584 |
0.75 |
(3) |
The terms free cash flow and free
cash flow per share 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
costs paid and voluntary pension funding, plus dividends received
from Bell Aliant, less capital expenditures, preferred share
dividends, dividends paid by subsidiaries to NCI and
Bell Aliant free cash flow. We define free cash flow per
share as free cash flow divided by the average number of common
shares outstanding.
We consider free cash flow and free cash flow per share to be
important indicators of the financial strength and performance of
our businesses because they show 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. We believe that certain
investors and analysts also use free cash flow and free cash flow
per share to evaluate the financial strength and performance of our
businesses. The most comparable IFRS financial measure is cash
flows from operating activities. The following table is a
reconciliation of cash flows from operating activities to free cash
flow on a consolidated basis. |
($ millions except per share amounts) |
|
|
|
Q3 2014 |
Q3 2013 |
Cash flows from operating
activities |
1,882 |
1,730 |
Bell Aliant dividends to BCE |
47 |
48 |
Capital expenditures |
(975) |
(880) |
Cash dividends paid on preferred
shares |
(31) |
(38) |
Cash dividends paid by subsidiaries to
non-controlling interest |
(69) |
(68) |
Acquisition costs paid |
33 |
32 |
Bell Aliant free cash flow |
(53) |
(77) |
Free cash flow |
834 |
747 |
|
Average number of common shares outstanding |
782.1 |
775.9 |
Free cash flow per share |
1.06 |
0.97 |
(4) |
We use ARPU, churn, COA, capital intensity and dividend payout
ratio 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. See
section 8.2, Non-GAAP Financial Measures and Key Performance
Indicators (KPIs) in BCE's Q2 2014 MD&A for a definition of
such KPIs. |
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 2014 financial guidance (including
revenues, Adjusted EBITDA, capital intensity, Adjusted EPS and free
cash flow), our business outlook, objectives, plans and strategic
priorities, BCE's 2014 annualized common share dividend and common
share dividend policy, our network deployment plans, certain
strategic and financial benefits expected to result from the Bell
Aliant privatization, the integration of Bell Aliant into BCE's
national operations, the nature and value of investments expected
to be made in Atlantic Canada over
the next 5 years, 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
November 6, 2014 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 non-recurring
or other special items or of any dispositions, monetizations,
mergers, acquisitions, other business combinations or other
transactions that may be announced or that may occur after
November 6, 2014. The financial
impact of these transactions and non-recurring and other 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 purposes of providing information concerning the
expected impacts of the Bell Aliant privatization, and of assisting
investors and others in understanding certain key elements of our
expected 2014 financial results, as well as our objectives,
strategic priorities and business outlook for 2014, and in
obtaining a better understanding of our anticipated operating
environment. Readers are cautioned that such information may not be
appropriate for other purposes. The value of investments expected
to be made in Atlantic Canada over
the next 5 years assumes that investments will continue at current
levels. However, there can be no assurance that such investment
levels will be maintained with the result that the value of actual
investments made in Atlantic
Canada could materially differ from current
expectations.
Material Assumptions
A number of economic, market, operational and financial assumptions
were made by BCE in preparing its forward-looking statements for
2014 contained in this news release, including, but not limited
to:
Canadian Economic and Market Assumptions
- growth in the Canadian GDP of 2.3% in 2014, based on the Bank
of Canada's most recent estimate,
a ten basis point increase compared to an earlier estimate of
2.2%
- a faster pace of employment growth compared to 2013
- a sustained level of wireline and wireless competition in both
consumer and business markets
- higher, but slowing, wireless industry penetration driven by
the increasing adoption of smartphones, tablets and other 4G
devices, the expansion of LTE service in non-urban markets, the
availability of new data applications and services, as well as
population growth
- a softer advertising market for Bell Media
Assumptions Concerning our Bell Wireless
Segment
- higher, but slowing, wireless industry penetration in
Canada
- maintaining Bell's market share of incumbent wireless postpaid
net activations
- continued adoption of smartphone devices, tablets and data
applications, as well as the introduction of more 4G LTE devices
and new data services
- our ability to monetize increasing data usage and customer
subscription to new data services
- further expansion of our 4G LTE wireless network in rural areas
and in more urban markets across Canada
- ongoing technological improvements by handset manufacturers and
faster data network speeds that allow customers to optimize the use
of our services
- no material financial, operational and competitive consequences
of adverse changes in regulations affecting our wireless
business
Assumptions Concerning our Bell Wireline
Segment
- increasing wireless and Internet-based technological
substitution
- aggressive residential service bundle offers from cable TV
competitors in our local wireline areas
- stabilizing residential NAS line erosion rate as we leverage
our broadband investment in Fibe TV to drive three-product
household penetration, increase our MDU market share, and generate
higher pull-through attach rates for our residential Internet and
Home Phone services
- higher revenue per household and flow-through of market-based
price increases across residential products from increasing
penetration of three-product households
- faster pace of employment and economic growth compared to
2013
- continued business customer migration to IP-based systems
- ongoing competitive price pressures in our residential,
business and wholesale markets
- ability to realize cost savings from management workforce
attrition and retirements, call centre efficiencies, field service
productivity improvements, reduction in supplier contract rates,
lower print and mail costs, content cost management and reducing
traffic that is not on our own network
- growing consumption of OTT TV services and streaming video,
projected growth in TV Everywhere as well as the proliferation of
devices, such as tablets, that consume vast quantities of
bandwidth, will require considerable ongoing capital
investment.
Assumptions Concerning our Bell Media Segment
- softer advertising market
- escalating costs to secure TV programming and sports
content
- ability to successfully acquire highly-rated programming and
differentiated content
- market rates for specialty content generally increasing
- building and maintaining strategic supply arrangements for
content on all four screens
- full realization of cost synergies from the integration of
Astral into Bell Media
- no material financial, operational or competitive consequences
of adverse changes in media regulation
Assumptions Concerning our Bell Aliant Segment
- faster pace of employment and economic growth compared to
2013
- competitive activity in both consumer and business will
continue to be intense
- wireless substitution for wireline services will increase in
Bell Aliant markets, but is expected to lag behind other regions of
Canada
- NAS net decline stabilizing
- steady demand for FibreOP service driving Internet and IPTV
customer acquisition at similar levels as 2013
- cost reductions achieved through productivity initiatives will
continue, largely offsetting cost increases associated with growth
in IPTV customers and associated TV content costs and normal
inflationary pressures
Financial Assumptions Concerning Bell (Excluding Bell
Aliant)
The following constitute Bell's principal financial assumptions
for 2014:
- the maintenance of a relatively stable consolidated Adjusted
EBITDA margin;
- increasing wireless Adjusted EBITDA contribution and margin
expansion;
- an improving year-over-year rate of decline in wireline revenue
and Adjusted EBITDA;
- Bell's total post-employment benefit plans cost to be
approximately $310 million, based on
an estimated accounting discount rate of 4.9%, comprised of an
estimated above Adjusted EBITDA post-employment benefit plans
service cost of approximately $220
million and an estimated below Adjusted EBITDA net
post-employment benefit plans financing cost of approximately
$90 million;
- total pension plan cash funding of approximately $350 million;
- cash taxes of approximately $600
million;
- net interest expense of approximately $775 million, instead of $750 million;
- net interest payments of approximately $775 million; and
- working capital changes and severance and other costs of
approximately $175 million.
Financial Assumptions Concerning BCE
The following constitute BCE's principal financial assumptions
for 2014:
- BCE's total post-employment benefit plans cost to be
approximately $390 million, including
approximately $80 million for Bell
Aliant, comprised of an estimated above Adjusted EBITDA
post-employment benefit plans service cost of approximately
$280 million and an estimated below
Adjusted EBITDA net post-employment benefit plans financing cost of
approximately $110 million;
- depreciation and amortization expense approximately
$115 million higher compared to
2013;
- net interest expense of approximately $925 million, instead of $900 million;
- tax adjustments (per share) of approximately $0.05, instead of $0.04;
- an effective tax rate of approximately 26%;
- non-controlling interest of approximately $220 million, instead of $280 million;
- average common shares outstanding of approximately 794 million,
instead of 778 million; and
- an annual common share dividend of $2.47 per share
The foregoing assumptions, although considered reasonable by BCE
on November 6, 2014, 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 2014 financial guidance,
are listed below. The realization of our forward-looking
statements, including our ability to meet our 2014 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:
- the intensity of competitive activity, and the resulting impact
on our ability to retain existing customers and attract new ones,
as well as on our pricing strategies, financial results and
operating metrics such as ARPU
- the level of technological substitution and the presence of
alternative service providers, contributing to reduced utilization
of traditional wireline voice services
- the adverse effect of new technology and increasing
fragmentation in Bell TV's TV distribution market and Bell Media's
TV and radio markets
- variability in subscriber acquisition and retention costs based
on subscriber acquisitions, retention volumes, smartphone sales and
handset discount levels
- regulatory initiatives and proceedings, government
consultations and government positions that affect us and influence
our business
- economic and financial market conditions, the level of consumer
confidence and spending, and the demand for, and prices of, our
products and services
- Bell Media's significant dependence on continued demand for
advertising, and the potential adverse effect thereon from economic
conditions, cyclical and seasonal variations and ratings/audience
levels
- the complexity of our product offerings, pricing plans,
promotions, technology platforms and billing systems
- our failure to satisfy customer expectations and build a low
cost operational delivery model
- our failure to carry out wireline network evolution activities,
and to meet network upgrade or deployment timelines within our
capital intensity target
- our failure to maintain network operating performance in the
context of significant increases in broadband demand and in the
volume of wireless data-driven traffic
- our failure to anticipate and respond to technological change,
upgrade our networks and rapidly offer new products and
services
- our failure to implement or maintain, on a timely basis,
effective IT systems, and the complexity and costs of our IT
environment
- our inability to protect our data centres, electronic and
physical records and the information stored therein
- employee retention and performance, and labour disruptions
- our failure to execute our strategic imperatives and business
development plans in order to produce the expected benefits,
including to continue to implement our targeted cost reduction
initiatives
- ineffective change management resulting from restructurings and
other corporate initiatives, and the failure to successfully
integrate business acquisitions and existing business units
- pension obligation volatility and increased contributions to
post-employment benefit plans
- events affecting the ability of third-party suppliers to
provide to us, and our ability to purchase, critical products and
services
- the quality of our network and customer equipment and the
extent to which they may be subject to manufacturing defects
- events affecting the functionality of, and our ability to
protect, test, maintain and replace, our networks, equipment and
other facilities
- in-orbit risks of satellites used by Bell TV
- unfavourable resolution of legal proceedings and, in
particular, class actions
- unfavourable changes in applicable laws
- our capital and other expenditure levels, financing and debt
requirements and inability to access adequate sources of capital
and generate sufficient cash flows from operations to meet our cash
requirements and implement our business plan, as well as our
inability to manage various credit, liquidity and market risks, and
to cause our net debt leverage ratio to return within our net debt
leverage ratio target range
- our inability to discontinue certain services as necessary to
improve capital and operating efficiencies
- our failure to evolve practices and effectively monitor and
control fraudulent activities
- the theft of our DTH satellite TV services
- copyright theft and other unauthorized use of our content
- higher taxes due to new taxes, higher tax rates or changes to
tax laws, and our inability to predict the outcome of government
audits
- health concerns about radio frequency emissions from wireless
devices and equipment
- our inability to maintain customer service and our networks
operational in the event of the occurrence of epidemics, pandemics
and other health risks
- BCE's dependence on the ability of its subsidiaries, joint
arrangements and other entities in which it has an interest to pay
dividends or otherwise make distributions to it
- uncertainty as to whether dividends will be declared by BCE's
board of directors or BCE's dividend policy will be maintained
- stock market volatility
- the failure to successfully integrate Bell Aliant into
Bell
- the expected timing and completion of the proposed Bell Aliant
note exchange transactions are subject to risks and uncertainties
and there can be no certainty that the anticipated benefits will be
realized.
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 2013 Annual
MD&A dated March 6, 2014
(included in the BCE 2013 Annual Report) and BCE's 2014 First,
Second and Third Quarter MD&As dated May
5, 2014, August 6, 2014 and
November 5, 2014 respectively, 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
BCE is Canada's largest
communications company, providing a comprehensive and innovative
suite of broadband communication services to residential and
business customers under the Bell Canada and Bell Aliant brands.
Bell Media is Canada's premier
multimedia company with leading assets in television, radio, out of
home and digital media, including CTV, Canada's #1 television network, and the
country's most-watched specialty channels. 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 Clara's Big
Ride for Bell Let's Talk and 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.
SOURCE BCE Inc.