PR Newswire
MONTRÉAL, May 2, 2019
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.
MONTRÉAL, May 2, 2019 /PRNewswire/ - BCE Inc. (TSX: BCE) (NYSE: BCE) today reported results for the first quarter (Q1) of 2019 in accordance with the newly adopted International Financial Reporting Standard 16 for leases (IFRS 16). Prior periods were not adjusted.
"The strength of Bell's industry-leading broadband networks delivered leading customer additions in broadband Internet, TV and postpaid wireless, and higher customer satisfaction reflected in improved churn performance across our operating segments in Q1. A strong start to the year, and the Bell team will continue to lead the way in network, service and content innovation in 2019, including the ongoing expansion of our broadband services into rural Canada and preparation for the introduction of 5G wireless," said George Cope, President and CEO of BCE Inc. and Bell Canada.
"Consistent strategic execution across our wireless, wireline and media growth segments delivered growth in revenue, adjusted EBITDA – representing our 54th consecutive quarter of year-over-year adjusted EBITDA growth – and free cash flow. Canada's best national mobile network attracted 50,000 net new postpaid wireless customers and supported higher data usage and revenue per customer, delivering revenue growth of 4.5%, 11.6% higher adjusted EBITDA and our best churn performance since 2004. In wireline, positive topline growth in business, wholesale and residential – including combined retail Internet and IPTV net additions of 44,000 in Q1, up 37.4% over last year – increased revenue by 1.8% and adjusted EBITDA by 2.0%. In a challenging media marketplace, Bell Media continued to grow TV advertising revenue, attract new subscribers to next-generation platforms like Crave and achieve substantial cost savings, resulting in a 26.9% increase in adjusted EBITDA for Q1."
BUSINESS DEVELOPMENTS
Lucky Mobile and Virgin Mobile prepaid at Dollarama
Bell's Lucky Mobile and Virgin Mobile Canada now offer prepaid wireless service at value retailer Dollarama Inc.'s more than 1,200 locations across Canada. The exclusive partnership enables budget-conscious Canadians to purchase a Lucky or Virgin Mobile prepaid SIM card at Dollarama and activate their own mobile device with no activation fee. With talk and text plans starting at just $10 per month, Lucky Mobile has proven exceptionally popular with Canadians looking for low-cost wireless access, welcoming the most net new prepaid customers in 2018.
Broadband Internet expansion in rural communities
Bringing broadband Internet to smaller towns and rural locations, Bell's innovative Wireless Home Internet service has now reached more than 60 communities in Ontario and Québec. Recent expansions include the cottage country regions of Muskoka and Haliburton County, Kawartha Lakes and Peterborough County, as well as Quinte West and Hastings, Lennox & Addington, Northumberland and Prince Edward Counties. Bell also announced the expansion of fibre to the premises (FTTP) connections to the communities of Louiseville, Québec and Carman, Manitoba.
Bell spectrum update
With significant spectrum assets in low, mid and high frequency bands, Bell chose not to acquire any low-band 600 MHz spectrum in the recent federal auction. Our existing low-band spectrum, combined with network enhancements like cell splitting as well as re-farming of spectrum made available from the shutdown of Bell's CDMA network on April 30, enable Bell to deliver broadband 4G and 5G services for significantly less capital than buying 600 MHz spectrum. Note that Bell's main peer companies in the United States also chose not to own any 600 MHz spectrum in their markets. Bell looks forward to participating in the upcoming auctions of 3500 MHz and high band millimetre wave spectrum that will enable the deployment of 5G wireless service.
Bell LTE wireless again recognized as Canada's fastest
Bell's 4G LTE wireless network continues to be recognized as the fastest in Canada, most recently by Tutela. The network analysis firm found Bell LTE Advanced delivers the best average upload and download speeds of any mobile network in Canada. Tutela's report, which also gave Bell Mobility and Virgin Mobile top scores for consistent connection quality, follows PCMag's Fastest Mobile Networks in Canada study, in which Bell clocked the fastest maximum wireless upload and download speeds in the country.
BBM expands cloud services with Google
Bell Business Markets (BBM) and Google have introduced hybrid cloud connectivity for business customers to connect to the Google Cloud Platform globally via direct fibre connections on Bell's private network. The new service joins the Bell Cloud Connect portfolio of cloud and data centre solutions with partners including Amazon Web Services, IBM and Microsoft.
Excellence in Canadian media, record-breaking viewership
The season 8 premiere of HBO's Game of Thrones on Crave was the most-watched episode in Canadian entertainment specialty and pay TV history attracting 3.3 million viewers across Crave's linear, on demand and streaming platforms. CTV's original comedy Jann is the most-watched new Canadian series of the year. Premium pay TV channel Starz launched March 5, replacing the former TMN Encore. Day Pass subscriptions to TSN Direct and RDS Direct, the first single day all-access streaming option in Canada, launched March 4. Bell Media and its production partners received 55 awards at the Canadian Screen Awards for excellence in Canadian content creation.
BCE RESULTS
FINANCIAL HIGHLIGHTS | |||
($ millions except per share amounts) (unaudited) | Q1 2019 | Q1 2018 | % change |
BCE | |||
Operating revenues | 5,734 | 5,590 | 2.6% |
Net earnings | 791 | 709 | 11.6% |
Net earnings attributable to common shareholders | 740 | 661 | 12.0% |
Adjusted net earnings(1) | 692 | 719 | (3.8%) |
Adjusted EBITDA(2) | 2,409 | 2,254 | 6.9% |
EPS | 0.82 | 0.73 | 12.3% |
Adjusted EPS(1) | 0.77 | 0.80 | (3.8%) |
Cash flows from operating activities | 1,516 | 1,496 | 1.3% |
Capital expenditures | (850) | (931) | 8.7% |
Free cash flow(3) | 642 | 537 | 19.6% |
"The first quarter represents a very positive beginning to 2019 as diligent operational execution delivered strong financials well within our guidance targets, even adjusting for the application of IFRS 16," said Glen LeBlanc, Chief Financial Officer for BCE and Bell Canada. "Excluding IFRS 16, adjusted EBITDA increased in line with our historical rate of 2% to 4%. This positive year-over-year growth across all Bell operating segments, together with a declining capital intensity ratio, propelled a 19.6% increase in free cash flow in Q1. With a favourable profile for all our operating segments as we move forward in 2019, we expect continued free cash flow generation to enable our capital investment plans while fully supporting the increased BCE common share dividend for 2019."
BCE operating revenue was up 2.6% in Q1 to $5,734 million. Service revenue grew 1.6% to $5,045 million and product revenue increased 10.1% to $689 million. This reflects increases at Bell Wireless and Bell Wireline, partly offset by a modest year-over-year revenue decline at Bell Media.
Net earnings increased 11.6% to $791 million and net earnings attributable to common shareholders totalled $740 million, or $0.82 per share, up 12.0% and 12.3% respectively over Q1 2018. Higher net earnings and net earnings per common share were the result of growth in adjusted EBITDA and higher other income, driven mainly by net mark-to-market gains on derivatives used to economically hedge equity settled share-based compensation plans. This was moderated by higher depreciation, finance costs, income taxes, and severance, acquisition and other costs. Overall, the adoption of IFRS 16 did not have a significant impact on net earnings.
Excluding 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, adjusted net earnings were $692 million, or $0.77 per common share, compared to $719 million, or $0.80 per common share, in Q1 of last year.
Adjusted EBITDA grew 6.9% to $2,409 million in Q1, driven by year-over-year increases of 11.6% at Bell Wireless, 2.0% at Bell Wireline and 26.9% at Bell Media. Adjusted EBITDA was positively impacted in the quarter by IFRS 16 as most operating lease expenses are now recorded as depreciation and interest expense rather than operating costs within adjusted EBITDA. BCE's consolidated adjusted EBITDA margin (2) increased to 42.0% from 40.3% in Q1 2018, reflecting the high flow-through of wireless and wireline revenue growth, increasing broadband Internet scale, and the favourable year-over-year benefit on adjusted EBITDA from the application of IFRS 16.
BCE capital expenditures totalled $850 million, down from $931 million in Q1 2018, representing a capital intensity (5) ratio (capital expenditures as a percentage of total revenue) of 14.8%, compared to 16.7% last year. The year-over-year decline reflected slower construction activity this winter compared to last year together with lower planned spending in 2019. Capital spending this quarter focused on expanding our FTTP and fixed wireless to the home (WTTH) footprints to more locations; ongoing wireless investment, including the deployment of small cells, to improve network coverage, signal quality, data backhaul and speeds; and higher spending on digital media platforms.
BCE cash flows from operating activities totalled $1,516 million, up 1.3% over Q1 2018. The increase was mainly the result of higher adjusted EBITDA, partly offset by a decrease in cash from working capital, higher interest paid, which reflects the unfavourable impact from the adoption of IFRS 16, and higher severance and other costs paid. Free cash flow generated in the quarter was $642 million, a 19.6% increase from Q1 of last year, driven by higher cash flows from operating activities excluding acquisition and other costs paid, and lower capital expenditures.
Starting this quarter, we no longer report wholesale subscribers in our Internet, TV and residential NAS subscriber bases, due to our focus on the retail market. Previously reported 2018 subscriber figures were restated for comparability. In Q1, BCE reported 50,204 net new wireless postpaid subscribers and a net loss of 11,922 wireless prepaid subscribers; 22,671 net new retail Internet customers; 20,916 net new IPTV customers; and a decrease of 22,476 net retail satellite TV customers. Retail residential NAS line net losses totalled 66,779.
BCE customer connections across wireless and retail Internet, TV and residential NAS totalled 18,582,126 at the end of Q1, up 1.0% over last year. The total included 9,480,835 wireless customers(4), up 3.1% (including 8,808,189 postpaid customers, an increase of 4.0%); 3,442,411 retail Internet subscribers(4), up 3.9%; 2,764,851 retail TV subscribers, up 1.1% (including 1,696,622 IPTV customers, an increase of 7.5%); and 2,894,029 retail residential NAS lines, down 8.5%.
BCE OPERATING RESULTS BY SEGMENT
To align with changes in how we manage our business and assess performance, the operating results of The Source (Bell) Electronics Inc. (The Source) are now included entirely within our Wireless segment effective January 1, 2019, with prior periods restated for comparative purposes. Previously, The Source's results were included within our Wireless and Wireline segments.
Bell Wireless
Total operating revenue increased 4.5% to $2,112 million, with service revenue up 3.4% to $1,566 million driven mainly by healthy year-over-year subscriber base growth. Service revenue in Q1 2018 was impacted unfavourably by a $14 million regulatory charge related to lower final rates set by the CRTC in its decision regarding wholesale domestic roaming tariffs. Product revenue grew 7.7% to $546 million on a higher sales mix of premium handsets compared to last year.
Wireless adjusted EBITDA grew 11.6% to $905 million, yielding a 2.8 percentage-point increase in margin to 42.9%. This reflected the flow-through of strong revenue growth, and a 0.2% decline in operating costs due to the favourable impact of IFRS 16, lower advertising expense and reduced labour costs driven by cost saving initiatives, largely offset by higher year-over-year handset costs and increased network operating expenses.
Bell Wireline
Wireline operating revenue increased 1.8% to $3,064 million, reflecting positive top-line growth across Bell's residential, business and wholesale units. Service revenue was up 1.1% to $2,920 million, driven by Internet and IPTV subscriber base growth; the flow-through of annual price increases for residential services that contributed to higher revenue per household, growth in business IP connectivity and business services revenue, including the contribution of Axia NetMedia; and increased sales of international wholesale long distance minutes. Product revenue grew 20.0% to $144 million, the result of increased data product sales particularly to large enterprise business customers in the public sector.
Wireline adjusted EBITDA was up 2.0% to $1,339 million due to continued strong broadband customer growth, improved business markets results and the favourable impact of IFRS 16 on operating costs. This drove a 10 basis-point increase in Bell Wireline's North American-leading revenue margin to 43.7%.
Bell Media
Media operating revenue declined 0.5% to $745 million, the result of lower year-over-year advertising revenue, while subscriber revenue was essentially stable compared to Q1 2018. Radio advertising revenue decreased due to continued market softness. This was largely offset by higher TV advertising revenue, supported by improved pricing flexibility and stronger advertising demand following the shift in spending last year to the main broadcaster of the 2018 Winter Olympics. This was the third consecutive quarter of year-over-year TV advertising growth for Bell Media.
Media adjusted EBITDA increased 26.9% to $165 million, due to a 6.3% reduction in operating costs to $580 million, driven mainly by the favourable impact of IFRS 16 as well as programming and production cost containment initiatives.
COMMON SHARE DIVIDEND
BCE's Board of Directors has declared a quarterly dividend of $0.7925 per common share, payable on July 15, 2019 to shareholders of record at the close of business on June 14, 2019.
OUTLOOK FOR 2019
BCE confirmed its financial guidance targets for 2019, as provided on February 7, 2019, as follows:
February 7 Guidance | May 2 Guidance | |
Revenue growth | 1% – 3% | on track |
Adjusted EBITDA growth | 5% – 7% | on track |
Capital intensity | approx. 16.5% | on track |
Adjusted EPS | $3.48 – $3.58 | on track |
Free cash flow growth | 7% – 12% | on track |
Annualized common dividend per share | $3.17 | $3.17 |
Dividend payout policy(3) | 65% – 75% of free cash flow | on track |
Note that excluding the impact of IFRS 16, adjusted EBITDA growth for 2019 is projected to be 2% to 4%, consolidated free cash flow growth 3% to 7%, and adjusted EPS $3.53 to $3.63.
CALL WITH FINANCIAL ANALYSTS
BCE will hold a conference call for financial analysts to discuss Q1 2019 results on Thursday, May 2 at 8:00 am (Eastern). Media are welcome to participate on a listen-only basis. Please dial toll-free 1-800-478-9326 or 416-340-2219. A replay will be available until midnight June 6, 2019 by dialing 1-800-408-3053 or 905-694-9451 and entering passcode 7915771#.
A live audio webcast of the conference call will be available on BCE's website at: BCE Q1-2019 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 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, net of tax and non-controlling interest (NCI). 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 NCI. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. The most comparable IFRS financial measures are net earnings attributable to common shareholders and EPS. The following table is a reconciliation of net earnings attributable to common shareholders and EPS to adjusted net earnings on a consolidated basis and per BCE common share (adjusted EPS), respectively.
($ millions except per share amounts) | ||||
Q1 2019 | Q1 2018 | |||
TOTAL | PER SHARE | TOTAL | PER SHARE | |
Net earnings attributable to common shareholders | 740 | 0.82 | 661 | 0.73 |
Severance, acquisition and other costs | 18 | 0.02 | (1) | - |
Net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans | (73) | (0.07) | 56 | 0.07 |
Net losses on investments | 4 | - | - | - |
Impairment charges | 3 | - | 3 | - |
Adjusted net earnings | 692 | 0.77 | 719 | 0.80 |
(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 5, Segmented information, in BCE's Q1 2019 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) | ||
Q1 2019 | Q1 2018 | |
Net earnings | 791 | 709 |
Severance, acquisition and other costs | 24 | - |
Depreciation | 882 | 780 |
Amortization | 221 | 212 |
Finance costs | ||
Interest expense | 283 | 240 |
Interest on post-employment benefit obligations | 16 | 17 |
Other (income) expense | (101) | 61 |
Income taxes | 293 | 235 |
Adjusted EBITDA | 2,409 | 2,254 |
BCE operating revenues | 5,734 | 5,590 |
Adjusted EBITDA margin | 42.0% | 40.3% |
(3) The terms free cash flow and dividend payout ratio do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI. We exclude acquisition and other costs paid and voluntary pension funding because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. We consider free cash flow to be an important indicator of the financial strength and performance of our businesses because it shows how much cash is available to pay dividends on common shares, repay debt and reinvest in our company. We believe that certain investors and analysts use free cash flow to value a business and its underlying assets and to evaluate the financial strength and performance of our businesses. The most comparable IFRS financial measure is cash flows from operating activities. We define dividend payout ratio as dividends paid on common shares divided by free cash flow. We consider dividend payout ratio to be an important indicator of the financial strength and performance of our businesses because it shows the sustainability of the company's dividend payments. The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.
($ millions) | ||
Q1 2019 | Q1 2018 | |
Cash flows from operating activities | 1,516 | 1,496 |
Capital expenditures | (850) | (931) |
Cash dividends paid on preferred shares | (26) | (33) |
Cash dividends paid by subsidiaries to NCI | (27) | (13) |
Acquisition and other costs paid | 29 | 18 |
Free cash flow | 642 | 537 |
(4) At the beginning of Q1 2019, we adjusted our wireless subscriber base to remove 167,929 subscribers (72,231 postpaid and 95,698 prepaid) as follows: 65,798 subscribers (19,195 postpaid and 46,603 prepaid) due to the completion of the shutdown of the CDMA network on April 30, 2019; 49,095 prepaid subscribers as a result of a change to our deactivation policy across all brands to 90 days from 120-150 days previously; 43,670 postpaid subscribers due to a further refinement of our subscriber definition for Internet of Things (IoT) as a result of technology evolution; the transfer of 9,366 postpaid fixed wireless Internet customers to Bell Internet.
(5) We use ABPU, 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 financial guidance (including revenues, adjusted EBITDA, capital intensity, adjusted EPS and free cash flow), BCE's 2019 annualized common share dividend and common share dividend payout policy, our network deployment and capital investment plans, 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. These statements are not guarantees of future performance or events, 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 May 2, 2019 and, accordingly, are subject to change after such date. Except as may be required by applicable 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 May 2, 2019. 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 2019 financial results, as well as our objectives, strategic priorities and business outlook for 2019, 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
Assumptions Concerning our Bell Wireless Segment
Assumptions Concerning our Bell Wireline Segment
Assumptions Concerning our Bell Media Segment
Financial Assumptions Concerning BCE
The following constitute BCE's principal financial assumptions for 2019:
The foregoing assumptions, although considered reasonable by BCE on May 2, 2019, 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 2019 financial guidance, are listed below. The realization of our forward-looking statements, including our ability to meet our 2019 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:
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 2018 Annual MD&A dated March 7, 2019 (included in BCE's 2018 Annual Report) and BCE's 2019 First Quarter MD&A dated May 1, 2019 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 communications services alongside Canada's premier content creation and media assets from Bell 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 leadership initiatives. To learn more, please visit Bell.ca/LetsTalk.
Media inquiries:
Marie-Eve Francoeur
514-391-5263
[email protected]
Investor inquiries:
Thane Fotopoulos
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SOURCE Bell Canada