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.
- Revenue of $5,786 million up
1.7%, adjusted EBITDA grows 2.0% to $2,430
million, margin increases to 42.0%
- Postpaid wireless net additions up 37.8% to 122,092 ─ best
second-quarter performance since 2000 ─ driving wireless revenue
growth of 5.0% and 6.2% higher adjusted EBITDA with 0.5-point
margin expansion to 44.2%
- Total broadband Internet and IPTV net additions of
31,469, up 76.5%
- Wireline adjusted EBITDA up 1.1% on stronger organic
residential revenue growth, improved Bell Business Markets results
and stable operating costs
- Bell announces 1.5 Gigabit Internet service, the fastest
access speed to the home available in Canada; Bell Internet speeds score 30% higher
than our closest competitor in independent testing; over 4.2
million homes and businesses now served with direct fibre
connections
- Net earnings of $755 million
with net earnings attributable to common shareholders of
$704 million, or $0.79 per common share; adjusted net earnings of
$777 million generated adjusted EPS
of $0.86
MONTRÉAL, Aug. 2, 2018 /CNW
Telbec/ - BCE Inc. (TSX: BCE) (NYSE: BCE) today reported
results for the second quarter (Q2) of 2018.
"Bell's network leadership coupled with our team's dedicated
execution in a competitive marketplace delivered strong operational
performance in Q2, including 154,000 net new Fibe TV, Internet and
postpaid wireless additions, a 44.3% increase from last year, and
continued growth in customer usage of our broadband services.
Wireless continued to lead the way as we welcomed 122,092 net new
postpaid customers, up 37.8% over last year and our best Q2 result
in 18 years. The unmatched performance of Bell's fibre network
continues to propel wireline growth, including customer increases
in Fibe TV and Internet and improved performance at Bell Business
Markets. In a challenging and fast-changing media marketplace, Bell
Media continues to deliver the top conventional, pay and specialty
channels, including #1 sports network TSN and the most-watched CTV
News, innovative new viewing options, and partnerships with the
leading Canadian and international content brands," said
George Cope, President and CEO of
BCE and Bell Canada.
"With 51 consecutive quarters of year-over-year adjusted EBITDA
growth, the Bell team's consistently strong operational execution
is driving expected free cash flow growth of 3% to 7% in 2018,
fully supporting our ongoing investment in the Bell broadband
innovation strategy. Bell's network leadership was underscored in
Q2 with our ranking as by far the fastest Internet provider in
Canada and our selection by the
government of Alberta to operate
its provincial SuperNet broadband network, and again today as Bell
announces that our new 1.5 Gigabit Internet service will be
available to consumers beginning this month."
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.
BUSINESS DEVELOPMENTS
Bell announces 1.5 Gigabit Internet service; Bell Internet
ranked as Canada's fastest
Bell today announced that Bell
Fibe Internet speeds of 1.5 Gigabit per second (Gbps), the fastest
available to the home in Canada,
will launch this month in Ontario,
followed by Québec, Atlantic
Canada and Manitoba. Bell
has already taken the top spot in PCMag's The Fastest ISPs of
2018: Canada, delivering the highest overall Internet speed
index ever recorded in Canada by
the magazine and scoring more than 30% higher than our nearest
competitor. Atlantic Canada's Bell
Aliant took second place while Manitoba's Bell MTS moved into the top 10 for
the first time. Bell's fibre to the premises (FTTP) network is now
available to more than 4.2 million homes and businesses in 7
provinces and continues to expand with the announcement of new
all-fibre deployments in the communities of Oshawa, Clarington, Orillia, Chatham-Kent and Winkler.
Bell awarded Alberta SuperNet, IoT, smart city
contracts
Bell has been awarded a multi-year contract to
operate SuperNet, the Alberta
government initiative providing broadband connectivity to schools,
hospitals, libraries, provincial, municipal and Indigenous offices,
enterprise business customers and Internet service providers in
communities throughout the province. Bell has also agreed to
acquire Axia NetMedia Corporation, the Calgary-based operator of SuperNet's rural
assets, in a transaction expected to close later this month. Bell
announced a multi-year agreement with Superior Propane to deliver a
comprehensive Internet of Things (IoT) fuel tank monitoring
solution for Superior's business and residential customers. We also
launched more smart kiosks and other smart city initiatives with
the City of Orillia and Metrobus
in St. John's, and the North's
first smart kiosk in Whitehorse
with Northwestel.
Lucky Mobile goes national; Fibe TV
innovations
Canada's low-cost prepaid wireless service Lucky
Mobile is now available in all 10 provinces with launches in
Québec, New Brunswick,
Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. Fibe TV customers in Ontario and Québec can now use the Fibe TV app
to download and go with their recorded television content on
laptops, smartphones and tablets even without an Internet
connection, and Bell MTS announced the launch of 4K Fibe TV service in Manitoba, the first live 4K programming available in the province.
Bell Media content leadership: Just for Laughs, major studio
agreements
Bell Media and Montreal Canadiens owners Groupe
CH joined ICM Partners and Howie
Mandel in acquiring Groupe Juste pour rire, producer of the
world's largest comedy festival in Montréal and other Just For
Laughs TV and live comedy productions in Canada and worldwide. Bell Media announced new
and exclusive long-term deals with major Hollywood movie studios, including
20th Century Fox, Fox Searchlight Films, Entertainment
One, Sony Pictures Entertainment, Universal Pictures, Focus
Features and Warner Bros., to bring blockbuster movies to multiple
platforms, complementing partnerships with premium TV brands HBO,
SHOWTIME and Starz already in place. Bell Media also announced new
ad-supported video-on-demand services CTV Movies and CTV Vault,
each featuring thousands of hours of content.
Mental health and environmental leadership
The Bell
Let's Talk Community Fund, which doubled in value to $2 million annually as of 2018, has selected 120
front-line community mental health groups in every province to
receive grants this year. Bell Let's Talk and The Rossy Family
Foundation made a joint $500,000
donation to the Fédération des cégeps and the Fondation de
l'Université du Québec à Montréal to support the mental health of
CÉGEP students. Bell was named one of Canada's Greenest Employers
for the second consecutive year.
BCE RESULTS
FINANCIAL
HIGHLIGHTS
|
|
|
|
($ millions except
per share amounts) (unaudited)
|
Q2
2018
|
Q2
2017
|
%
change
|
BCE
|
|
|
|
Operating
revenues
|
5,786
|
5,688
|
1.7%
|
Net
earnings
|
755
|
814
|
(7.2%)
|
Net earnings
attributable to common shareholders
|
704
|
765
|
(8.0%)
|
Adjusted net
earnings(1)
|
777
|
795
|
(2.3%)
|
Adjusted
EBITDA(2)
|
2,430
|
2,382
|
2.0%
|
EPS
|
0.79
|
0.85
|
(7.1%)
|
Adjusted
EPS(1)
|
0.86
|
0.89
|
(3.4%)
|
Cash flows from
operating activities
|
2,057
|
2,154
|
(4.5%)
|
Free cash
flow(3)
|
994
|
1,094
|
(9.1%)
|
"We delivered another solid quarter of revenue and adjusted
EBITDA growth consistent with plan, led by continued strong
wireless operating profitability, improved organic wireline revenue
growth and a healthy contribution to overall consolidated BCE free
cash flow from Bell Media," said Glen
LeBlanc, Chief Financial Officer for BCE and Bell. "With a
focus on profitable subscriber growth, we continued to leverage our
advanced broadband networks and services to deliver higher wireless
postpaid and residential wireline net customer additions in a
financially disciplined manner during a seasonally slower quarter,
providing the foundation for sustained financial performance going
forward. Our operating results in 2018 and ongoing confidence in
our business outlook provide us with considerable financial
flexibility to execute our strategy and achieve our 2018 guidance
targets, all of which we reconfirm today."
BCE operating revenue was up 1.7% in Q2 to $5,786 million, reflecting a 1.0% increase in
service revenue to $5,129 million and
7.7% higher product revenue of $657
million. This was driven by increases at both Bell Wireless
and Bell Wireline, partly offset by a modest year-over-year revenue
decline at Bell Media.
Net earnings decreased 7.2% to $755
million while net earnings attributable to common
shareholders totalled $704 million,
or $0.79 per share, down 8.0% and
7.1% respectively. Despite higher adjusted EBITDA, net earnings
declined due mainly to higher other expense and increased
depreciation and amortization.
Excluding severance, acquisition and other costs, net gains or
losses on investments, net mark-to-market changes on derivatives
used to economically hedge equity settled share-based compensation
plans, early debt redemption costs and impairment charges, adjusted
net earnings decreased 2.3% to $777
million, or $0.86 per common
share.
Adjusted EBITDA grew 2.0% to $2,430
million, driven by increases of 6.2% at Bell Wireless and
1.1% at Bell Wireline. Bell Media adjusted EBITDA was down 8.5% due
to the combined impact of lower advertising revenue and higher
programming costs compared to last year. BCE's consolidated
adjusted EBITDA margin(2) expanded to 42.0% from 41.9%
in Q2 2017, reflecting the high flowthrough of strong wireless
revenue growth, increasing broadband Internet scale, improved
year-over-year wireline business markets performance, and
disciplined spending on wireless postpaid and residential wireline
subscriber acquisitions.
BCE continued to lead strategic investment in Canada's advanced
broadband wireline and wireless infrastructure with capital
expenditures of $1,056 million in Q2,
up 1.3% over last year. This represented a capital
intensity(4) ratio (capital expenditures as a percentage
of total revenue) of 18.3%, the same percentage as in Q2 2017.
Capital investment focused primarily on expanding our fibre to the
premises (FTTP) footprint and connecting more homes and businesses
directly to the network; the deployment of wireless small-cells to
optimize mobile coverage, signal quality and data backhaul; and
ongoing investment in Manitoba to
improve broadband network coverage, capacity and speeds.
BCE cash flows from operating activities were $2,057 million, down 4.5% from last year, as
higher adjusted EBITDA was more than offset by a decrease in cash
from working capital. Free cash flow generated in the quarter was
$994 million, 9.1% lower than Q2
2017, reflecting a decrease in cash flows from operating
activities, excluding acquisition and other costs paid, and higher
capital expenditures.
In Q2, BCE reported 122,092 net new wireless postpaid
subscribers and a decrease of 7,606 net wireless prepaid customers;
10,816 net new high-speed Internet customers; 20,653 net new IPTV
customers and a decrease of 19,844 net satellite TV customers; and
a decrease in residential NAS lines of 70,665.
BCE customer connections across wireless, Internet, TV and
residential NAS totalled 19,127,867 at the end of Q2, up 1.9% from
last year. The total included 9,309,534 wireless customers, up 4.6%
over last year (including 8,593,113 postpaid customers, an increase
of 5.7%); 3,856,555 high-speed Internet subscribers, up 3.7%;
2,835,227 TV subscribers (including 1,599,142 IPTV customers, an
increase of 7.9%), up 0.4%; and 3,126,551 residential NAS lines,
down 6.2%.
BCE OPERATING RESULTS BY SEGMENT
Bell Wireless
Bell Wireless delivered another strong
quarter of financial results with total Q2 operating revenue up
5.0% to $2,046 million. Service
revenue increased 3.6% to $1,574
million, reflecting continued subscriber base expansion,
including a higher proportion of postpaid customers. Product
revenue grew 9.8% to $472 million due
to increased sales of higher-value smartphones.
Wireless adjusted EBITDA was up 6.2% to $904 million, yielding a 0.5 percentage-point
increase in revenue margin to 44.2%, on strong revenue growth
flow-through and disciplined spending on postpaid customer
acquisitions and device upgrades. Operating costs were 4.0% higher
compared to last year due to increased cost of goods sold, driven
by higher handset sale volumes; increased network operating
expenses; and higher customer support costs due to subscriber base
growth and increasing data usage.
- Postpaid net additions increased 37.8% to 122,092, our best Q2
performance since 2000. This was driven by 16.1% higher gross
additions of 394,136, reflecting the success of our marketing
efforts and sales execution across retail channels, Bell's mobile
network leadership and leading line-up of high-demand smartphones,
and the ongoing onboarding of customers from our long-term mobile
services contract with Shared Services Canada. Postpaid
churn(4) increased 2 basis points to 1.10%, reflecting
promotional pricing discipline and more off-contract subscribers
compared to last year.
- Prepaid net customer losses of 7,606 represented an improvement
of 64.9% over last year as low-cost prepaid service Lucky Mobile
continued to gain traction, contributing to 74,016 prepaid gross
additions in the quarter, an increase of 15.6% over last year.
- Bell postpaid wireless customers totalled 8,593,113 at the end
of Q2, a 5.7% increase over Q2 2017. Total wireless customers
increased 4.6% to 9,309,534.
- Blended average billing per user (ABPU)(4) increased
0.6% to $67.71, driven by a higher
postpaid subscriber mix, more customers moving to higher-value
monthly plans with larger data allotments, increased roaming
revenue and the flow-through of pricing changes.
- Bell's mobile LTE network provided coverage to more than 99% of
Canadians at the end of Q2, including 90% covered by LTE Advanced
(LTE-A) service. The percentage of postpaid subscribers on LTE has
now reached 89%.
Bell Wireline
Total wireline operating revenue was up
0.6% to $3,135 million on a 0.4%
increase in service revenue to $2,947
million and 3.9% higher product revenue of $188 million. These increases were due to
positive residential services revenue growth driven by strong
Internet and IPTV customer gains and higher household
ARPU(4), as well as improved Bell Business Markets
performance from higher Internet Protocol (IP) broadband
connectivity revenue and increased sales of professional services,
including non-recurring contributions in the quarter from the G7
Summit and Ontario general
election.
With increasing broadband subscriber scale, more favourable
business markets results and relatively stable operating costs that
grew a modest 0.2% over last year to $1,814
million, wireline adjusted EBITDA was up 1.1% to
$1,321 million, driving a 20
basis-point increase in Bell's North American-leading revenue
margin to 42.1%.
- Bell added 10,816 new net high-speed Internet customers,
compared to 1,407 in Q2 last year, driven by a rapidly expanding
FTTP footprint (which reached more than 4.2 million locations at
the end of the quarter, up from 3.4 million last year) and the
pull-through of Internet customer activations from app-based live
TV service Alt TV. BCE's high-speed Internet customer base totalled
3,856,555 at the end of Q2, up 3.7% from the same time last
year.
- Bell TV gained 20,653 net new IPTV subscribers in Q2, up 25.7%
from the 16,427 last year despite sustained aggressive cable
service bundle offers and ongoing cord cutting by customers. The
improved year-over-year performance reflected strong customer
demand for Alt TV and ongoing direct fibre footprint expansion. BCE
served 1,599,142 IPTV subscribers at the end of Q2, up 7.9% from
the same time last year.
- Satellite TV net losses improved 33.3% to 19,844 from 29,764 in
Q2 2017. The reduction was the result of fewer deactivations and
migrations reflecting a more mature subscriber base geographically
better-suited for satellite TV service, as well as increased market
activity from the traditional summer bump in activations. BCE's
total TV customer base reached 2,835,227 TV subscribers at the end
of Q2, up 0.4% from the same time last year.
- Wireline data service revenue was up 3.1% to $1,869 million on strong Internet and IPTV
subscriber growth, higher ARPU from customer upgrades to faster
Internet speeds and rate changes, and increased business IP
broadband connectivity and professional services sales to large
business customers, including contributions from the G7 Summit and
Ontario election.
- Other services revenue increased 16.4% to $64 million, driven by the incremental financial
contribution from the acquisition of AlarmForce Industries.
- Wireline product revenue was up 3.9% to $188 million, reflecting increased
telecommunications equipment sales and the AlarmForce
acquisition.
- Residential NAS net losses increased 5.5% to 70,665 from 67,005
in Q2 2017, the result of richer cable promotional service bundle
offers and lower overall customer demand for traditional landline
voice service due largely to continued wireless and Internet
technology substitution. Bell residential NAS access lines totalled
3,126,551 at the end of Q2, a 6.2% decline from the same time last
year.
- Total wireline voice revenue decreased 6.2% to $957 million due to NAS access line reductions,
decreased usage of traditional long distance services and lower
sales of wholesale international long distance minutes.
Bell Media
Bell Media reported revenues of
$791 million, a 0.6% decline over
last year as advertising revenue for conventional and non-sports
specialty TV decreased due to ongoing market softness and
viewership declines for traditional linear TV. This was moderated
by advertising revenue from the 2018 FIFA World Cup, increases at
specialty TV news service CP24 and continued growth in Astral
outdoor advertising.
Subscriber revenue increased 1.9% in Q2, reflecting continued
steady growth in CraveTV and TV Everywhere GO platforms, as well as
revenue generated from our newly launched direct-to-consumer sports
streaming services TSN Direct and RDS Direct.
Adjusted EBITDA for Bell Media fell 8.5% to $205 million, mainly due to higher operating
costs from sports broadcast rights, including for the 2018 FIFA
World Cup, and CraveTV programming expansion.
- CTV was the most-watched television network for the
17th straight year, with 7 of the top 10 shows in total
viewers and more top 20 programs in key demographics than all other
competitors combined.
- TSN remains Canada's #1 specialty sports channel and the top
specialty network overall, supported by high-profile programming
including the 2018 FIFA World Cup, CFL Football, The Masters and
U.S. Open Golf, and Grand Slam tennis.
- TSN and French-language sports network RDS also announced in Q2
new TV streaming options for consumers through a monthly
subscription with the new TSN Direct and RDS Direct services.
Current TSN and RDS subscribers can also now access on-demand
content and bonus streams on all their screens through the TSN and
RDS apps and websites.
- Canada's top radio broadcaster, Bell Media reached an average
audience of 17 million radio listeners who spent approximately 72
million hours tuned in each week.
- Bell Media remains the digital media leader among Canadian
broadcast and video network competitors with monthly averages of
436 million total views, approximately 1 billion minutes spent
watching, and 79 million videos served in Q2. We reached 67% of
digital audiences with approximately 21 million unique monthly
visitors.
COMMON SHARE DIVIDEND
BCE's Board of Directors has
declared a quarterly dividend of $0.755 per common share, payable on October 15, 2018 to shareholders of record at the
close of business on September 14,
2018.
OUTLOOK FOR 2018
BCE confirmed its financial guidance
targets for 2018, which were updated on May
3, 2018 to reflect the adoption of International Financial
Reporting Standard 15 (IFRS 15):
|
|
|
|
May
3
Guidance
|
August
2
Guidance
|
Revenue
growth
|
2% – 4%
|
On track
|
Adjusted EBITDA
growth
|
2% – 4%
|
On track
|
Capital
intensity
|
approx.
17%
|
On track
|
Adjusted
EPS
|
$3.45 –
$3.55
|
On track
|
Adjusted EPS
growth
|
1% – 4%
|
On track
|
Free cash flow
growth
|
3% – 7%
|
On track
|
Annualized common
dividend per share
|
$3.02
|
$3.02
|
Dividend payout
policy(3)
|
65% – 75%
of free cash
flow
|
On track
|
CALL WITH FINANCIAL ANALYSTS
BCE will hold a
conference call for financial analysts to discuss Q2 2018 results
on Thursday, August 2 at 8:00 am (Eastern). Media are welcome to
participate on a listen-only basis. Please dial toll-free
1-800-377-0758 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 5118526#.
A live audio webcast of the conference call will be available on
BCE's website at BCE Q2-2018 conference call. The mp3 file
will be available for download on this page later in the day.
NOTES
The information contained in this news release
is unaudited.
In Q1 2018, we updated our definition of adjusted net earnings
and adjusted EPS to exclude net mark-to-market losses (gains) on
derivatives used to economically hedge equity settled share-based
compensation plans as they may affect the comparability of our
financial results and could potentially distort the analysis of
trends in business performance. Adjusted net earnings and adjusted
EPS for 2017 have also been updated for comparability purposes.
(1) The terms adjusted net earnings and adjusted EPS do not have
any standardized meaning under IFRS. Therefore, they are unlikely
to be comparable to similar measures presented by other issuers. We
define adjusted net earnings as net earnings attributable to common
shareholders before severance, acquisition and other costs, net
mark-to-market losses (gains) on derivatives used to economically
hedge equity settled share-based compensation plans, net losses
(gains) on investments, early debt redemption costs and impairment
charges. 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
mark-to-market losses (gains) on derivatives used to economically
hedge equity settled share-based compensation plans, net losses
(gains) on investments, early debt redemption costs and impairment
charges, net of tax and non-controlling interest (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 2018
|
Q2 2017
|
|
TOTAL
|
PER
SHARE
|
TOTAL
|
PER SHARE
|
Net earnings
attributable to common shareholders
|
704
|
0.79
|
765
|
0.85
|
Severance,
acquisition and other costs
|
18
|
0.02
|
27
|
0.04
|
Net mark-to-market
losses (gains) on derivatives used to economically hedge equity
settled share-based compensation plans
|
22
|
0.02
|
-
|
-
|
Net losses on
investments
|
20
|
0.02
|
-
|
-
|
Early debt redemption
costs
|
13
|
0.01
|
3
|
-
|
Impairment
charges
|
-
|
-
|
-
|
-
|
Adjusted net
earnings
|
777
|
0.86
|
795
|
0.89
|
(2) The terms adjusted EBITDA and adjusted EBITDA margin do
not have any standardized meaning under IFRS. Therefore, they are
unlikely to be comparable to similar measures presented by other
issuers. We define adjusted EBITDA as operating revenues less
operating costs, as shown in BCE's consolidated income statements.
Adjusted EBITDA for BCE's segments is the same as segment profit as
reported in Note 4, Segmented information, in BCE's Q2 2018
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
2018
|
Q2
2017
|
Net
earnings
|
755
|
814
|
Severance,
acquisition and other costs
|
24
|
36
|
Depreciation
|
787
|
767
|
Amortization
|
221
|
210
|
Finance
costs
|
|
|
|
Interest
expense
|
246
|
238
|
|
Interest on
post-employment benefit obligations
|
17
|
18
|
Other (expense)
income
|
88
|
1
|
Income
taxes
|
292
|
298
|
Adjusted
EBITDA
|
2,430
|
2,382
|
|
BCE operating
revenues
|
5,786
|
5,688
|
Adjusted EBITDA
margin
|
42.0%
|
41.9%
|
(3) The terms free cash flow and dividend payout ratio do
not have any standardized meaning under IFRS. Therefore, they are
unlikely to be comparable to similar measures presented by other
issuers. We define free cash flow as cash flows from operating
activities, excluding acquisition and other costs paid (which
include significant litigation costs) and voluntary pension
funding, less capital expenditures, preferred share dividends and
dividends paid by subsidiaries to NCI. We exclude acquisition and
other costs paid and voluntary pension funding because they affect
the comparability of our financial results and could potentially
distort the analysis of trends in business performance. Excluding
these items does not imply they are nonrecurring. We consider free
cash flow to be an important indicator of the financial strength
and performance of our businesses because it shows how much cash is
available to pay dividends, repay debt and reinvest in our company.
We believe that certain investors and analysts use free cash flow
to value a business and its underlying assets and to evaluate the
financial strength and performance of our businesses. The most
comparable IFRS financial measure is cash flows from operating
activities. We define dividend payout ratio as dividends paid on
common shares divided by free cash flow. We consider dividend
payout ratio to be an important indicator of the financial strength
and performance of our businesses because it shows the
sustainability of the company's dividend payments. The following
table is a reconciliation of cash flows from operating activities
to free cash flow on a consolidated basis.
($
millions)
|
|
|
|
Q2 2018
|
Q2 2017
|
Cash flows from
operating activities
|
2,057
|
2,154
|
Capital
expenditures
|
(1,056)
|
(1,042)
|
Cash dividends paid
on preferred shares
|
(35)
|
(30)
|
Cash dividends paid
by subsidiaries to non-controlling interest
|
-
|
(9)
|
Acquisition and costs
paid
|
28
|
21
|
Free cash
flow
|
994
|
1,094
|
(4) We use ABPU, ARPU, churn and capital intensity to
measure the success of our strategic imperatives. These key
performance indicators are not accounting measures and may not be
comparable to similar measures presented by other issuers.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
Certain
statements made in this news release are forward-looking
statements. These statements include, without limitation,
statements relating to our 2018 financial guidance (including
revenues, adjusted EBITDA, capital intensity, adjusted EPS and free
cash flow), BCE's common share dividend payout policy and 2018
annualized common share dividend, 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 2, 2018 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 2,
2018. 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 2018 financial
results, as well as our objectives, strategic priorities and
business outlook for 2018, and in obtaining a better understanding
of our anticipated operating environment. Readers are cautioned
that such information may not be appropriate for other
purposes.
Material Assumptions
A number of economic, market,
operational and financial assumptions were made by BCE in preparing
its forward-looking statements contained in this news release,
including, but not limited to:
Canadian Economic and Market Assumptions
- Lower economic growth, given the Bank of Canada's most recent
estimated growth in Canadian gross domestic product of 2.0% in
2018
- Employment gains expected to slow in 2018, as the overall level
of business investment is expected to remain soft
- Interest rates expected to increase modestly in 2018
- Canadian dollar expected to remain at near current levels.
Further movements may be impacted by the degree of strength of the
U.S. dollar, interest rates and changes in commodity prices
- A higher level of wireline and wireless competition in
consumer, business and wholesale markets
- Higher, but slowing, wireless industry penetration and
smartphone adoption
- A soft media advertising market, due to variable demand, and
continued escalation of costs to secure TV programming
- Ongoing linear TV subscriber erosion, due to growing
cord-cutter and cord-never customer segments
Assumptions Concerning our Bell Wireless
Segment
- Maintain our market share of incumbent wireless postpaid net
additions
- Continued adoption of smartphone devices, tablets and data
applications, as well as the introduction of more 4G LTE and LTE-A
devices and new data services
- Higher handset cost, driven by a higher sales mix of premium
devices, increased new customer activations and more customer
device upgrades attributable to a higher number of off-contract
subscribers due to earlier expiries under two-year contracts
- Wireless revenue growth driven by postpaid subscriber base
expansion and a higher volume of handset sales
- Expansion of the LTE-A network coverage to approximately 92% 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
- Continued growth in residential IPTV and Internet
subscribers
- Increasing wireless and Internet-based technological
substitution
- Residential services household ARPU growth from increased
penetration of multi-product households and price increases
- Aggressive residential service bundle offers from cable TV
competitors in our local wireline areas
- Continued large business customer migration to IP-based
systems
- Ongoing competitive repricing pressures in our business and
wholesale markets
- Continued competitive intensity in our small and mid-sized
business markets as cable operators and other telecom competitors
continue to intensify their focus on business customers
- Traditional high-margin product categories challenged by large
global cloud and OTT providers of business voice and data solutions
expanding into Canada with on-demand services
- Ongoing deployment of direct fibre and growing consumption of
OTT TV services and on-demand streaming video, as well as the
proliferation of devices, such as tablets, that consume vast
quantities of bandwidth, will require considerable ongoing capital
investment
- Accelerating customer adoption of OTT services resulting in
downsizing of TV packages
- Realization of cost savings related to management workforce
attrition and retirements, lower contracted rates from our
suppliers, reduction of traffic that is not on our network and
operating synergies from the integration of MTS
- No material financial, operational or competitive consequences
of changes in regulations affecting our wireline business
Assumptions Concerning our Bell Media Segment
- Revenue performance is expected to reflect an improving TV
advertising sales trajectory supported by our broadcast of the 2018
FIFA World Cup, further CraveTV subscriber growth and continued
growth in outdoor advertising
- Operating cost growth driven by higher TV programming and
sports broadcast rights costs, as well as continued investment in
CraveTV content
- Continued scaling of CraveTV
- Ability to successfully acquire and produce highly rated
programming and differentiated content
- Building and maintaining strategic supply arrangements for
content across all screens and platforms
- Increased revenue generation from monetization of content
rights and Bell Media properties across all platforms
- TV unbundling and growth in OTT viewing expected to result in
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
2018:
- total post-employment benefit plans cost to be approximately
$335 million to $355 million, based on an estimated accounting
discount rate of 3.6%, comprised of an estimated above adjusted
EBITDA post-employment benefit plans service cost of approximately
$270 million to $280 million and an estimated below adjusted
EBITDA net post-employment benefit plans financing cost of
approximately $65 million to
$75 million
- depreciation and amortization expense of approximately
$4,000 million to $4,050 million
- interest expense of approximately $975
million to $1,000 million
- an effective tax rate of approximately 25%
- NCI of approximately $50
million
- total pension plan cash funding of approximately $400 million
- cash taxes of approximately $700
million to $750 million
- net interest payments of approximately $950 million to $975
million
- other free cash flow items, which include working capital
changes, severance and other costs paid, preferred share dividends
and NCI paid, of approximately $25
million
- average BCE common shares outstanding of approximately 900
million
- Common share buybacks totalling $175
million
- an annual common share dividend of $3.02 per share
The foregoing assumptions, although considered reasonable by BCE
on August 2, 2018, 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 2018 financial guidance,
are listed below. The realization of our forward-looking
statements, including our ability to meet our 2018 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, including from new and
emerging competitors, and the resulting impact on the cost of
retaining existing customers and attracting new ones, as well as on
our market shares, service volumes and pricing strategies
- the level of technological substitution and the presence of
alternative service providers contributing to reduced utilization
of our traditional wireline services
- 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, spectrum auctions, approval of acquisitions,
broadcast licensing and foreign ownership requirements
- the inability to protect our physical and non-physical assets,
including networks, IT systems, offices, corporate stores 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 adverse effect of the fundamental separation of content and
connectivity, which is changing our TV and media ecosystems and may
accelerate the disconnection of TV services and the reduction of TV
spending, as well as the fragmentation of, and changes in, the
advertising market
- competition with global competitors, in addition to traditional
Canadian competitors, for programming content could drive
significant increases in content acquisition costs and challenge
our ability to secure key content
- adverse economic and financial market conditions, a declining
level of retail and commercial activity, and the resulting negative
impact on the demand for, and prices of, our products and services
and the level of bad debts
- the failure to optimize network and IT deployment and upgrade
timelines, accurately assess the potential of new technologies, and
invest and evolve in the appropriate direction
- the failure to continue investment in a disciplined and
strategic manner in next-generation capabilities, including
real-time information-based customer service strategies
- the inability to drive a positive customer experience
resulting, in particular, from the failure to embrace new
approaches and challenge operational limitations
- the complexity in our operations resulting from multiple
technology platforms, billing systems, marketing databases and a
myriad of rate plans, promotions and product offerings
- the failure to maintain optimal network operating performance
in the context of significant increases in capacity demands on our
Internet and wireless networks
- the failure to implement or maintain highly effective IT
systems supported by an effective governance and operating
framework
- the risk that we may need to incur significant capital
expenditures beyond our capital intensity target in order to
provide additional capacity and reduce network congestion
- the failure to generate anticipated benefits from our corporate
restructurings, system replacements and upgrades, process redesigns
and the integration of business acquisitions
- events affecting the functionality of, and our ability to
protect, test, maintain and replace, our networks, IT systems,
equipment and other facilities
- in-orbit and other operational risks to which the satellites
used to provide our satellite TV services are subject
- the failure to attract and retain employees with the
appropriate skill sets and to drive their performance in a safe and
secure environment
- labour disruptions
- the inability to access adequate sources of capital and
generate sufficient cash flows from operations to meet our cash
requirements, fund capital expenditures and provide for planned
growth
- uncertainty as to whether dividends will be declared by BCE's
board of directors or whether BCE's dividend payout policy will be
maintained
- the inability to manage various credit, liquidity and market
risks
- pension obligation volatility and increased contributions to
post-employment benefit plans
- higher taxes due to new tax laws or changes thereto or in the
interpretation thereof, and the inability to predict the outcome of
government audits
- the failure to reduce costs as well as unexpected increases in
costs
- the failure to evolve practices to effectively monitor and
control fraudulent activities
- online content theft and piracy and the absence of effective
legal recourses to combat them
- events affecting the continuity of supply of products and
services that we need to operate our business and to comply with
various obligations from our third-party suppliers, outsourcers and
consultants
- 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
- unfavourable resolution of legal proceedings and, in
particular, class actions
- unfavourable changes in applicable laws and the failure to
proactively address our legal and regulatory obligations
- health concerns about radiofrequency emissions from wireless
communications devices
- the inability to maintain customer service and our networks
operational in the event of the occurrence of epidemics, pandemics
and other health risks
- the failure to recognize and adequately respond to climate
change concerns or public and governmental expectations on
environmental matters
We caution that the foregoing list of risk factors is not
exhaustive and other factors could also adversely affect our
results. We encourage investors to also read BCE's 2017 Annual
MD&A dated March 8, 2018
(included in BCE's 2017 Annual Report) and BCE's 2018 First and
Second Quarter MD&As dated May 2,
2018 and August 1, 2018,
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 advanced Bell broadband wireless, TV, Internet
and business communication services throughout the country. Bell
Media is Canada's premier content creation company with leading
assets in television, radio, out of home, and digital media. To
learn more, please visit Bell.ca or 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 mental health 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
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SOURCE Bell Canada