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 increase 2.0% to $830 million; net earnings attributable to common
shareholders up 2.5% to $778 million
or $0.89 per common share; adjusted
net earnings increase 12.1% to $824
million, driving 8.0% higher adjusted EPS of $0.94
- Focus on profitable growth delivers service revenue
increase of 1.3%, adjusted EBITDA growth of 3.2% and 1.2 point
increase in margin to 42.5%
- 113,000 net new postpaid wireless, IPTV and high-speed
Internet subscriber additions
- Wireless adjusted EBITDA up 7.7% on 4.6% growth in
service revenue and 1.7% lower operating costs, yielding 1.4 point
increase in service margin to 48.0%
- Wireline operating costs down 4.0%, driving adjusted
EBITDA increase of 0.6% for 8th consecutive quarter of
positive growth; 1.1 point increase in margin to
42.7%
- New Fibe products highlight Bell's leading broadband
TV and Internet innovation
- Bell Media increases revenue 5.3% and grows adjusted
EBITDA 3.7%
MONTRÉAL, Aug. 4,
2016 /PRNewswire/ - BCE Inc. (TSX: BCE) (NYSE:
BCE), Canada's largest communications company, today reported
results for the second quarter (Q2) of 2016.
FINANCIAL
HIGHLIGHTS
|
|
|
|
($ millions
except per share amounts)
(unaudited)
|
Q2
2016
|
Q2
2015
|
%
change
|
BCE
|
|
|
|
Operating
revenues
|
5,340
|
5,326
|
0.3%
|
Adjusted
EBITDA(1)
|
2,268
|
2,197
|
3.2%
|
Net
earnings
|
830
|
814
|
2.0%
|
Net earnings attributable
to common
shareholders
|
778
|
759
|
2.5%
|
Adjusted net
earnings(2)
|
824
|
735
|
12.1%
|
EPS
|
0.89
|
0.90
|
(1.1%)
|
Adjusted
EPS(2)
|
0.94
|
0.87
|
8.0%
|
Cash flows from operating
activities
|
1,890
|
1,841
|
2.7%
|
Free cash
flow(3)
|
934
|
931
|
0.3%
|
"Executing our strategy to lead in broadband network and
product innovation, Bell delivered strong new customer additions
and leading financial results in Q2, including adjusted EBITDA
growth across all of our operating segments. We have
positive momentum in broadband TV and Internet, media
and especially wireless, with strong revenue, adjusted EBITDA and
postpaid subscriber growth that once again surpassed our largest
wireless competitor," said George Cope, President and CEO of BCE and
Bell Canada. "Also distinguished by
improved service results and significant reductions in our
operating costs, this outstanding performance by the Bell team in a
traditionally slow quarter sets the stage for
continued leadership in broadband investment, innovation and growth
at Bell going forward."
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 unparalleled investment in
Canada's most advanced fibre and wireless network infrastructure;
continued strong marketplace performance across wireless, TV,
Internet and media growth services; and 12 increases to the BCE
common share dividend since the fourth quarter of 2008 – a total
increase of 87%.
"Our very solid financial results in the quarter
demonstrate a clear focus on subscriber profitability and price
discipline. Our steady service revenue and adjusted EBITDA growth,
margin expansion, and increased earnings and free cash flow are
consistent with the guidance targets we provided at the beginning
of the year," said Glen LeBlanc,
Chief Financial Officer of BCE and Bell
Canada. "We expect positive wireless, wireline and media
adjusted EBITDA growth for full-year 2016 and an accelerating free
cash flow trajectory that fully supports higher planned capital
spending on broadband network infrastructure, all of which provides
a strong foundation to continue executing on our dividend growth
objective."
BCE RESULTS
BCE operating revenue increased 0.3% to $5,340 million in Q2, reflecting 1.3%
year-over-year growth in total service revenues led by strong
wireless and media top-line performance as well as higher
residential Internet and TV revenues. Product revenue declined
12.3%, or $49 million, the result of
fewer wireless customer upgrades and mobile device discounting, as
well as reduced spending by business customers on wireline data
products.
Net earnings and net earnings attributable to common
shareholders totalled $830 million
and $778 million, up 2.0% and 2.5%,
respectively, from $814 million and
$759 million last year, due to higher
revenues and lower operating costs that drove higher adjusted
EBITDA. Also reflecting lower finance costs, the increases in net
earnings and net earnings attributable to common shareholders were
partly offset by higher severance, acquisition and other costs from
normal-course workforce restructuring initiatives and
transaction costs related to the proposed acquisition of Manitoba
Telecom Services (MTS), higher income taxes due to an increase in
taxable income, and higher net depreciation and amortization
expense.
Despite increased net earnings attributable to common
shareholders, net earnings per share (EPS) was $0.89, compared to $0.90 in Q2 2015, due to the higher average
number of BCE common shares outstanding mainly as a result of a
$863 million bought deal offering in
December 2015. Excluding
the impact of severance, acquisition and other costs, net gains or
losses on investments, and early debt redemption costs, adjusted
net earnings increased 12.1% to $824 million or $0.94 per common share, compared to $735 million or $0.87 per common share in Q2
2015.
BCE's adjusted EBITDA grew 3.2%
to $2,268 million on increases of
7.7% at Bell Wireless, 0.6% at Bell Wireline and 3.7% at Bell
Media. This drove a 1.2 percentage-point improvement in
consolidated adjusted EBITDA
margin(1) to 42.5% from 41.3%
in Q2 2015, reflecting strong wireless average revenue per
user(4) (ARPU) flow-through, higher revenue per
household, and a 1.8% reduction in total operating
costs.
Consistent with our position as Canada's broadband leader
and our plan for 2016, BCE invested $950
million in new capital in Q2, an increase of 3.9% over last
year. This represented a capital
intensity(4) ratio (capital
expenditures as a percentage of total revenue) of 17.8%, compared
to 17.2% in Q2 2015. Capital spending was focused on expanding
broadband fibre directly to more homes and businesses, including
the buildout of Gigabit Fibe infrastructure in Toronto and other urban locations; continued
investment in Bell's award-winning 4G LTE and LTE Advanced (LTE-A)
services; and increased wireless and Internet network capacity
overall to support growth in customer additions and data
usage.
BCE cash flows from operating activities were up 2.7% in
Q2 to $1,890 million, compared to
$1,841 million last year, the result
of higher adjusted EBITDA and lower cash taxes paid, partly offset
by a decrease in working capital. Free cash flow generated this
quarter totalled $934
million, compared to $931
million in Q2 2015, reflecting higher
cash flows from operating activities that were partially offset by
a planned increase in capital expenditures.
BCE gained 69,848 net new wireless postpaid customers and
reported a net loss of 25,118 prepaid subscribers; 35,255 net new
Fibe TV customers and a net loss of 33,154 satellite TV customers;
and the addition of 7,539 new high-speed Internet customers. NAS
line net losses totalled 88,825. At June 30,
2016, BCE served a total of 8,280,693 wireless customers, up
1.9% year over year (including 7,471,069 postpaid customers, an
increase of 3.7%); total TV subscribers of 2,750,596, up 2.8%
(including 1,265,786 Fibe TV customers, an increase of 21.6%);
total high-speed Internet subscribers of 3,418,785, up 3.1%; and
total NAS lines of 6,476,683, a decrease of 6.2%.
CORPORATE DEVELOPMENTS
Acquisition of Manitoba Telecom Services
(MTS)
Announced May 2,
2016, BCE's proposed acquisition of MTS continues to move
forward, gaining the approval of MTS shareholders with 99.66% of
votes cast at a special shareholders meeting June 23, and of the Manitoba Court of Queen's Bench on
June 29. Valued at a total of
approximately $3.9 billion, the
transaction is expected to close in late 2016 or early 2017 and
requires the approval of the Competition Bureau, CRTC and ISED
Canada. BCE plans to invest $1
billion over 5 years in Manitoba's broadband communications
infrastructure following the completion of the transaction and the
creation of Bell MTS, and has already announced plans for
continuous broadband wireless coverage along Manitoba's key Highway 75 in southern
Manitoba, and the expansion of
mobile and wireline broadband networks in northern Manitoba, including in Thompson, Flin
Flon and 5 indigenous communities.
Fibe innovation: wireless 4K PVR, powerful new Home
Hub
Delivering TV and Internet features
available from no one else has been key to Bell's growing
leadership in the residential marketplace. This month, Bell will
deliver 2 new products that sharpen our broadband innovation edge
further still. Bell will be the first TV provider in the world to
offer a completely wireless IPTV installation with the wireless 4K
PVR for Fibe TV. With the flexibility to locate Fibe TV anywhere in
your home with minimal install time, the Fibe 4K PVR will also be
the first in Canada to integrate
the 4K Netflix app. Also available this month is the Home Hub 3000
modem, featuring a throughput capability of 1 gigabit per second
and 3 times the power of the current Home Hub model, providing the
fastest and broadest home Wi-Fi coverage available.
Virgin Mobile launches Home Internet in Ontario
On July 5, 2016, Virgin Mobile Canada introduced
Home Internet service in Ontario
for eligible Virgin Mobile members, offering download speeds of up
to 25 Mbps, downloads up to 10 Mbps and 2 straightforward usage
plans. This month, Virgin Mobile will extend the wireline service
to Ontarians who aren't already Virgin Mobile customers. To learn
more, please visit
VirginMobile.ca/HomeInternet.
First Canadian trial of 5G mobile
technology
In collaboration with Nokia, Bell
has become the first wireless provider to successfully demonstrate
Fifth Generation (5G) mobile technology in Canada. Conducted at Bell's Wireless
Innovation Centre in Mississauga,
Ontario, the trial achieved sustained data speeds up to 7
times faster than 4G mobile speeds commonly available in
Canada. Bell is a
member of the Next Generation Mobile Networks consortium
(ngmn.org), the global
operator-driven body defining requirements for the international 5G
ecosystem.
Bell Fibe TV, LTE outperform in Nielsen
survey
Recent surveys have found that
Canadians are responding positively to Bell's dedication to
innovation, rating Bell's mobile LTE network and Fibe TV as the
best services of their kind in the country. Nielsen Consumer
Insights asked 1,017 adult Canadians who they think has the best
mobile network, and most respondents (33%) chose Bell. Nielsen also
asked respondents who they think has the best TV service and most
(30%) chose Bell. Almost half of respondents (47%) said Bell's Fibe
TV is the most advanced television service in Canada.
Astral Out of Home wins Toronto Pearson
exclusive
On July 27,
2016, Bell Media division Astral Out of Home (AOOH) secured
exclusive advertising rights for both in-terminal and non-terminal
concessions across Toronto Pearson International Airport, becoming
Canada's airport advertising leader with a presence in 6 Canadian
international airports, including Halifax Stanfield,
Montréal-Pierre Elliott Trudeau,
Québec City Jean Lesage, Ottawa Macdonald-Cartier and Vancouver
International. With more than 41 million passengers served at
Toronto Pearson each year, this partnership with Canada's largest
airport will bring the total number of travelers reached by AOOH
advertising platforms to 87 million annually. AOOH will also
showcase its new AeroTV platform at Toronto Pearson, featuring
entertainment programming from leading Bell Media properties
including CTV, CTV News and TSN.
BCE OPERATING RESULTS BY SEGMENT
Bell Wireless
Bell Wireless
service revenues increased 4.6% to $1,610
million from $1,539 million in
Q2 2015, reflecting strong postpaid subscriber base growth and
higher blended ARPU from accelerating data usage on Bell's 4G LTE
and LTE-A mobile networks.
Product revenues were down 23.5% to
$114 million due to fewer customer
upgrades this year as we lapped the double cohort at the beginning
of June, as well as competitive promotional handset pricing. Total
Bell Wireless operating revenue increased 2.2% to $1,735 million from $1,697
million last year.
Wireless adjusted EBITDA grew a strong 7.7% to
$772 million, delivering a 1.4
percentage-point increase in service margin to 48.0% on strong
service revenue flow-through from a higher postpaid subscriber mix
and a 1.7% reduction in operating costs.
- Postpaid net additions were up 14.4% to 69,848, compared
to 61,033 last year, due to lower churn as gross additions remained
relatively stable.
- Postpaid subscriber churn(4)
improved 0.08 percentage points to 1.15%,
reflecting fewer customer contract expiries with the lapping of the
double cohort and high customer satisfaction with network quality
and after-sales service support.
- Bell Wireless postpaid customers totalled 7,471,069 at
June 30, 2016, a 3.7% increase over
last year. Total Bell Wireless customers grew 1.9% to 8,280,693.
The percentage of postpaid subscribers with smartphones increased
to 82% from 77% at Q2 last year, while the proportion of postpaid
subscribers on LTE reached 76%, up from 57%.
- Blended ARPU increased 2.9% to $64.32, driven by a larger
proportion of 2-year contracts, a higher postpaid smartphone
subscriber mix, and increased data usage.
- Cost of acquisition (COA)(4) was up 10.1% to
$478 per subscriber, due to a greater
postpaid customer mix, a higher sales mix of premium smartphones
and more promotional handset offers compared to last
year.
- Retention spending decreased to 11.9% of wireless service
revenues from 12.9% last year due to fewer customer device
upgrades.
- Bell's LTE-A wireless network now provides service to 50%
of the Canadian population at data speeds up to 260 megabits per
second (Mbps) (expected average download speeds of 18 to 74 Mbps)
with plans to reach more than 70% by the end of 2016. In addition,
a Tri-band LTE-A service delivers data speeds of up to 335 Mbps
(expected average 25 to 100 Mbps) in 15 cities. This is
complemented by a national 4G LTE mobile network that now reaches
97% of Canadians with data speeds ranging from 75 Mbps to 150 Mbps
(expected average 12 to 40 Mbps).
- Bell's leading wireless devices lineup expanded further
in Q2 with the introduction of the Sony Xperia XA and X Performance
smartphones and the Samsung Galaxy Tab E tablet.
Bell Wireline
Wireline operating
revenue decreased 2.1% to $2,979
million, impacted by the sale of a call centre subsidiary in
September 2015, reduced
year-over-year spending on data products by large business
customers, and softer wholesale revenues due to competitive pricing
pressures and ongoing decline of legacy voice and data services.
Excluding the revenue loss from the call centre sale, the
Residential Services unit generated positive revenue growth in Q2
due to a strong 5.2% increase in total TV and Internet
revenues.
Wireline adjusted EBITDA increased 0.6% to $1,273 million, with margin improving 1.1
percentage points to an industry-best 42.7%. This was supported by
a 4.0% reduction in operating costs reflecting ongoing
cost-management efforts and service improvement efficiencies,
including organizational restructuring initiatives in Q4 2015 and
continued Bell Aliant integration synergies.
- Bell TV added 35,255 net new Fibe TV customers, compared
to 50,466 in Q2 2015, reflecting reduced footprint expansion and
increasing maturity of established Fibe TV markets, fewer satellite
TV customer migrations, and less aggressive acquisition and bundle
offers in Québec and Toronto. At
the end of Q2 2016, BCE served 1,265,786 Fibe TV subscribers, up
21.6% over Q2 last year.
- Satellite TV net customer losses improved 1.8% to 33,154
compared to last year due to fewer customer deactivations. Total TV
subscribers for all BCE TV services increased 2.8% to 2,750,596 at
the end of Q2.
- High-speed Internet net additions totalled 7,539, down
from 18,606 last year, due to fewer wholesale subscriber net
additions and higher deactivations reflecting aggressive cable
bundle offers in Toronto we did
not entirely match, and an increased number of retail customers
with expired promotions. BCE's high-speed Internet customer base
totalled 3,418,785 at the end of Q2, up 3.1% compared to Q2
2015.
- Wireline data revenue increased 1.9% to $1,807 million, reflecting continued Internet and
TV revenue growth. This was partly offset by reduced data product
and business service solutions sales to enterprise customers due to
the soft economy and competitive pricing pressures across our
business and wholesale markets.
- Residential NAS net losses improved 9.5% to 68,593, from
75,819 last year, benefitting from the continued strong
pull-through of Fibe TV service bundle activations. Business NAS
net losses improved 46.3% to 20,232, from 37,690 last year, the
result of fewer large business customer deactivations and decreased
business voice line conversion to IP-based services. Total NAS
access lines at the end of Q2 2016 totalled 6,476,683, representing
a 6.2% year-over-year decline. BCE's local and access revenue
decreased 5.6% to $781 million while
long distance revenue fell 11.6% to $183
million, mainly the result of continued reductions in NAS
access lines.
Bell Media
Media revenue totalled
$779 million, up 5.3%
from $740 million last year, on
higher subscriber and advertising revenues.
Higher subscriber revenues reflected the national
expansion of The Movie Network (TMN) in March, continued growth in
CraveTV and TV Everywhere GO products, and rate increases on some
specialty channels. Advertising revenues
increased modestly on specialty sports TV
growth, driven by the NBA playoffs and the successful Toronto
Raptors' post-season as well as the UEFA Euro Cup 2016 on TSN and
RDS. Growth at Astral Out of Home from acquisitions and new
contract wins over the past year also contributed to higher
advertising revenues.
Media adjusted EBITDA increased 3.7% to $223 million from $215
million last year on higher revenues and workforce
restructuring savings, which moderated operating cost growth of
5.9% due to increases in sports broadcast rights and CraveTV
content costs.
- CTV led the spring TV season with over half of the top 20
programs, more than all other Canadian networks combined. According
to figures from Numeris for the 2015/2016 television viewing
season, CTV had all of the top 5 new programs in total viewers and
all key demographics and 7 of the top 10. CTV ended the season as
the most-watched television network in primetime for an
unprecedented 15 years in a row. Reaching 18.2 million viewers on
average each week in primetime, CTV attracted nearly 4 million more
viewers than its closest competitor.
- Bell Media presented the network's new schedule for the
2016/2017 broadcast season to advertisers in June, featuring 11 new
primetime series and 12 regularly scheduled top 20 hits. CTV will
deliver its entire primetime fall schedule in simulcast, 19.5 hours
overall, more than last season and more than any other Canadian
network. CTV is also home to the biggest slate of live event TV
programming, including the 89th Academy Awards, the
Super Bowl LI, the 74th Annual
Golden Globe Awards, the 68th Primetime Emmy Awards, the
2016 American Music Awards, the 2017 Juno Awards, and the 2017
Billboard Music Awards.
- Bell Media's specialty and pay TV properties reached 83%
of Canadian English specialty and pay TV viewers in the average
week in Q2. Discovery was the top entertainment specialty station
in primetime with viewers aged 25 to 54 while Space, Comedy and
Bravo all ranked in the top 10.
- Bell Media maintained its leadership position in Québec's
French-language market with its specialty TV reaching 76% of the
French-speaking population in the average week. Five of the top 10
specialty channels in Québec are Bell Media properties.
- A new Star Trek franchise is coming to Canadian
television for the first time since 2005 thanks to Bell Media's
exclusive licensing agreement with CBS Studios International
announced July 19. Production of Star
Trek: Discovery begins this September in Toronto, premieres January 2017 on
CTV, and will air later on Space,
on Z in French and on CraveTV. Fans of the franchise can watch the
entire Star Trek TV library now on
CraveTV, including all 727 episodes
from past series, also coming soon to Space and on Cinépop in
French.
- Building on its content leadership across multiple
platforms in Q2, Bell Media concluded multi-studio deals for the
exclusive rights to Hollywood's
biggest new dramas for CraveTV, including with Warner Bros.
International Television, Entertainment One (eOne), and Sony
Pictures Television; expanded its licensing agreement with Viacom
International Media Networks to make Comedy Central programming
available across multiple platforms including CraveTV; and extended
its agreement with the International Ice Hockey Federation for
exclusive multimedia rights to the IIHF Ice Hockey World
Championship for live broadcast on TSN and RDS and the TSN GO and
RDS GO TV Everywhere platforms. Bell Media also announced in Q2
that it will launch its first food and lifestyle specialty channel
under the established Gusto brand later this year, featuring
cooking, home design, travel, and lifestyle
programming.
- Bell Media announced in Q2 that all new scripted TV
series it commissions will be produced in the 4K ultra high
definition format. During the quarter, TSN's 5 national feeds
featured 4K broadcasts of Toronto Raptors, Toronto Maple Leafs and
Ottawa Senators games, The Masters
and UEFA Champions League Final. CTV's broadcast of the 2016 Juno
Awards was the first live awards show in North America produced in 4K and the
iHeartRadio Much Music Video Awards was also broadcast in
4K.
- Bell Media continues to lead the Canadian digital
landscape in unique visitors (18.1 million unique visitors), time
spent (898 million minutes), and videos served (51.7
million).
- Bell Media remained Canada's top radio broadcaster in Q2,
reaching 16.9 million listeners who spent in excess of 79 million
hours tuned in each week.
- AOOH also launched a range of innovative products in Q2,
including the first Digital Transit Shelter network in Québec City
and an LED video wall unit at Vancouver International Airport.
COMMON SHARE DIVIDEND
BCE's Board
of Directors has declared a quarterly dividend of
$0.6825 per common
share, payable on October 15, 2016 to
shareholders of record at the close of business on September 15, 2016.
OUTLOOK FOR 2016
BCE confirmed its
financial guidance targets for 2016, as provided on February 4, 2016, as follows:
|
February
4
Guidance
|
August
4
Guidance
|
Revenue
growth
|
1% –
3%
|
On
track
|
Adjusted EBITDA
growth
|
2% –
4%
|
On
track
|
Capital
intensity
|
approx.
17%
|
On
track
|
Adjusted
EPS
|
$3.45 –
$3.55
|
On
track
|
Free cash flow
growth
|
approx. 4% –
12%
|
On
track
|
Annualized common dividend
per
share
|
$2.73
|
$2.73
|
Dividend
payout(4)
policy
|
65% –
75%
of free cash
flow
|
On
track
|
CALL WITH FINANCIAL ANALYSTS
BCE
will hold a conference call for financial analysts to discuss Q2
2016 results on Thursday, August 4 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 4098409#.
A live audio webcast of the conference call will be
available on BCE's website at: BCE Q2-2016
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)
|
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 to BCE's Q2 2016 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 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
EBITDA.
|
($
millions)
|
|
|
|
Q2
2016
|
Q2
2015
|
Net
earnings
|
830
|
814
|
Severance, acquisition and
other
costs
|
57
|
24
|
Depreciation
|
713
|
720
|
Amortization
|
156
|
134
|
Finance
costs
|
|
|
|
Interest
expense
|
217
|
230
|
|
Interest on post-employment
benefit
obligations
|
21
|
28
|
Other
income
|
(41)
|
(43)
|
Income
taxes
|
315
|
290
|
Adjusted
EBITDA
|
2,268
|
2,197
|
|
BCE operating
revenues
|
5,340
|
5,326
|
Adjusted EBITDA
margin
|
42.5%
|
41.3%
|
(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 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 (gains) losses on
investments, 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)
|
|
|
|
Q2
2016
|
Q2
2015
|
|
TOTAL
|
PER
SHARE
|
TOTAL
|
PER
SHARE
|
Net earnings attributable
to common
shareholders
|
778
|
0.89
|
759
|
0.90
|
Severance, acquisition and
other
costs
|
44
|
0.05
|
16
|
0.01
|
Net (gains) losses on
investments
|
2
|
-
|
(40)
|
(0.04)
|
Early debt redemption
costs
|
-
|
-
|
-
|
-
|
Adjusted net
earnings
|
824
|
0.94
|
735
|
0.87
|
(3)
|
The term free cash flow
does not have any standardized meaning under IFRS. Therefore, it is
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 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. 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)
|
|
|
|
Q2
2016
|
Q2
2015
|
Cash flows from operating
activities
|
1,890
|
1,841
|
Capital expenditures
|
(950)
|
(914)
|
Cash dividends paid on
preferred
shares
|
(35)
|
(37)
|
Cash dividends paid by
subsidiaries to non-controlling
interest
|
(10)
|
(7)
|
Acquisition and other costs
paid
|
39
|
48
|
Free cash
flow
|
934
|
931
|
(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 2016 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 2016
financial guidance (including revenues, adjusted EBITDA, capital
intensity, adjusted EPS and free cash flow), BCE's 2016 annualized
common share dividend and common share dividend policy, the
expected timing and completion BCE's proposed acquisition of all of
the issued and outstanding shares of MTS, 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
August 4, 2016 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 August 4,
2016. 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 2016 financial
results, as well as our objectives, strategic priorities and
business outlook for 2016, 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 nature and value of capital investments planned to be made by
BCE in Manitoba over five years
assumes completion of the MTS transaction as well as our ability to
access or generate the necessary sources of capital. However, there
can be no assurance that such transaction will be completed or that
the required sources of capital will be available with the result
that the actual capital investments made by BCE in Manitoba during such period 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 contained in
this news release, including, but not limited to:
Canadian Economic and Market
Assumptions
- Slow economic growth, given the Bank of Canada's most
recent estimated growth in Canadian gross domestic product of 1.3%
in 2016, down forty basis points from an earlier estimate of
1.7%
- Sustained weak employment growth, as the overall level of
business investment is expected to remain soft
- Interest rates to remain relatively stable for the
remainder of 2016 after declining in the first half of the
year
- Strengthened Canadian dollar since the beginning of the
year 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 sustained level of wireline and wireless competition in
both consumer and business markets
- Higher but slowing wireless industry penetration and
smartphone adoption
- Wireless industry pricing discipline
maintained
- Soft 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
- Earlier expiries under two-year contracts compared to
three-year contracts, leading to an increase in the number of
subscribers who are eligible for upgrades
- 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 98% of the
Canadian population and expansion of the LTE-A network coverage to
over 70% of the Canadian population
- 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
- In the BCE 2015 Annual MD&A, we disclosed our
assumption of positive full-year 2016 residential net customer
additions within our wireline footprint. As a result of competitive
pressures, in particular in our wholesale business, we are no
longer assuming positive full-year 2016 residential net customer
additions within our wireline footprint but rather positive
full-year 2016 residential TV and Internet net customer
additions
- Increasing wireless and Internet-based technological
substitution
- Residential services household ARPU growth from increased
penetration of multi-product households, promotion expiries 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 units 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, projected growth in TV Everywhere services, as
well as the proliferation of devices, such as tablets, that consume
vast quantities of bandwidth, will require considerable ongoing
capital investment
- Limited downsizing of current TV packages by customers as
a result of the implementation of TV unbundling
- Realization of cost savings related to management
workforce attrition and retirements, lower contracted rates from
our suppliers and reduction of traffic that is not on our
network
- No material financial, operational or competitive
consequences of changes in regulations affecting our wireline
business
Assumptions Concerning our Bell Media
Segment
- Positive full-year adjusted EBITDA growth driven by the
national expansion of our TMN pay TV service, labour savings from
workforce reductions in 2015, and CraveTV subscriber growth, more
than offsetting higher TV programming and sports rights costs,
continued CraveTV investment and the financial impact of TV
unbundling
- Continued scaling of CraveTV, including a successful
direct-to-consumer launch
- Ability to successfully acquire highly rated programming
and differentiated content
- Building and maintaining strategic supply arrangements
for content on all four screens
- 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 2016:
- total post-employment benefit plans cost to be
approximately $300 million to $350
million, based on an estimated accounting discount rate of
4.2%, comprised of an estimated above adjusted EBITDA
post-employment benefit plans service cost of approximately
$230 million to $270 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
$3,525 million to $3,575
million
- net interest expense of approximately $875 million to $925 million
- tax adjustments (per share) of approximately $0.05
- an effective tax rate of approximately 26%
- non-controlling interest (NCI) of approximately
$40 million to $60
million
- total pension plan cash funding of approximately
$400 million to $450
million
- cash taxes of approximately $675
million to $725 million
- net interest payments of approximately $875 million to $925 million
- other free cash flow items, which include working capital
changes, severance and other costs paid, preferred share dividends
and NCI paid, of approximately ($50)
million to $25
million
- average BCE common shares outstanding of approximately
870 million
- an annual common share dividend of $2.73 per share
The foregoing assumptions, although considered reasonable
by BCE on August 4, 2016, 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 2016 financial guidance, are listed below. The
realization of our forward-looking statements, including our
ability to meet our 2016 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 our ability
to retain existing customers and attract 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 emerging 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 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
- security and data leakage exposure if security control
protocols applicable to our cloud-based solutions are
bypassed
- 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 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 failure to maintain optimal network operating
performance in the context of significant increases in capacity
demands on our Internet and wireless networks
- 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 implement or maintain highly effective IT
systems supported by an effective governance and operating
framework
- 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 by our Bell TV business unit are
subject
- 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
- 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 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
- 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
- the expected timing and completion of the proposed
acquisition of MTS and of the proposed subsequent divestiture of
certain postpaid wireless subscribers and dealer locations of MTS
to TELUS Corporation are subject to closing conditions and other
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 2015 Annual
MD&A dated March 3, 2016
(included in the BCE 2015 Annual Report), BCE's 2016 First and
Second Quarter MD&As dated April 27,
2016 and August 3, 2016,
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
Canada's largest
communications company, BCE provides broadband wireless, TV,
Internet and business communication services from Bell
Canada and Bell Aliant. 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