PR Newswire
MONTRÉAL, Nov. 2, 2017
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, Nov. 2, 2017 /PRNewswire/ - BCE Inc. (TSX: BCE) (NYSE: BCE), Canada's largest communications company, today reported results for the third quarter (Q3) of 2017.
FINANCIAL HIGHLIGHTS |
|||
($ millions except per share amounts) (unaudited) |
Q3 2017 |
Q3 2016 |
% change |
BCE |
|||
Operating revenues |
5,678 |
5,407 |
5.0% |
Net earnings |
817 |
800 |
2.1% |
Net earnings attributable to common shareholders |
770 |
752 |
2.4% |
Adjusted net earnings(1) |
799 |
784 |
1.9% |
Adjusted EBITDA(2) |
2,366 |
2,236 |
5.8% |
EPS |
0.86 |
0.87 |
(1.1%) |
Adjusted EPS(1) |
0.88 |
0.91 |
(3.3%) |
Cash flows from operating activities |
2,233 |
1,943 |
14.9% |
Free cash flow(3) |
1,183 |
951 |
24.4% |
"The competitive advantages enabled by Bell's advanced fibre and wireless networks, coupled with strong execution of our broadband innovation strategy by the Bell team throughout Canada, delivered almost 200,000 net new broadband postpaid wireless, Internet, and IPTV customers in Q3 – up more than 8% compared to last year – and significant increases in network usage, revenue, and customer satisfaction," said George Cope, President and Chief Executive Officer of BCE Inc. and Bell Canada. "The rapid pace of Bell's broadband Fibe and mobile LTE-A network deployments and service innovation supported a record number of Q3 postpaid wireless gross activations and our best Q3 postpaid net additions since 2012, as well as our first quarter of year-over-year combined Internet and IPTV customer increases since Q1 2015 – including net positive growth in our overall national TV business."
"With Bell LTE coverage reaching 99% of Canadians in Q3, and 86% of our mobile customers now using Canada's best national network, strong growth in mobile data usage continued to support industry-leading wireless revenue and adjusted EBITDA growth. Strong Fibe TV and Internet customer increases drove wireline adjusted EBITDA growth of 4.4% and enhanced customer satisfaction as the Fibe footprint continues to grow, while also improving our results in home phone and business NAS. Bell Media continued to build on its leadership in multimedia, including the most-watched programs in both conventional, specialty and pay TV, resulting in revenue growth and steady adjusted EBITDA performance in a fast-changing media marketplace."
Bell is focused on achieving a clear goal – to be recognized by customers as Canada's leading communications company – through the execution of 6 Strategic Imperatives: Invest in Broadband Networks & Services, Accelerate Wireless, Leverage Wireline Momentum, Expand Media Leadership, Improve Customer Service, and Achieve a Competitive Cost Structure. This broadband leadership strategy has delivered world-class fibre and wireless LTE networks; continued strong performance across wireless, TV, Internet, and media growth services; 48 consecutive quarters of uninterrupted year-over-year adjusted EBITDA growth; and 13 increases to the BCE common share dividend since the end of 2008 – a total increase of 97%.
CORPORATE DEVELOPMENTS
For full details of BCE corporate developments in the quarter, please refer to the BCE Q3 2017 Shareholder Report at BCE.ca.
Bell LTE mobile network reaches 99% Canadian coverage milestone
Bell MTS moving forward in Manitoba
Federal wireless and WAN contracts
Only Bell offers all of Apple's newest mobile products in Canada
Bell Business Markets service and innovation centre in New Brunswick
Bell Media grows French-language channel offering, enhances NHL coverage
Bell Let's Talk the most-used Twitter hashtag ever in Canada
BCE RESULTS
"We performed well across the business in Q3, posting a very solid quarter of service revenue, adjusted EBITDA and margin growth, driven by continued excellent wireless postpaid subscriber and financial metrics, stronger residential Internet and IPTV net customer additions, another quarter of stable media financial performance, and the favourable impact of Bell MTS," said Glen LeBlanc, Chief Financial Officer for BCE and Bell. "Our year-to-date free cash flow growth of 20.1% and balance sheet strength fully support higher planned spending on the advanced broadband networks and services that are essential to driving the long-term growth of our business as well as the successful execution of our capital markets objectives. As well, with the recent rise in interest rates and our robust asset returns, the solvency ratio of the Bell Canada defined benefit pension plan now exceeds 97%, its strongest position in more than a decade."
BCE operating revenue grew 5.0% in Q3 to $5,678 million. This was driven by 5.9% higher service revenue, reflecting increases at both Bell Wireless and Bell Wireline, which included a favourable financial contribution from the acquisition of Manitoba Telecom Services Inc. (MTS), completed on March 17, as well as top-line growth at Bell Media. Product revenue decreased 6.8% to $356 million due to lower wireline data product sales to business customers.
Net earnings increased 2.1% to $817 million while net earnings attributable to common shareholders grew 2.4% to $770 million, or $0.86 per share, compared to $0.87 per share in Q3 2016. Higher net earnings were due to growth in operating revenue that drove higher adjusted EBITDA as well as lower income taxes, partly offset by increased net depreciation and amortization expense and higher interest and other expense. Excluding severance, acquisition and other costs, net losses or gains on investments, impairment charges and early debt redemption costs, adjusted net earnings were up 1.9% in Q3 to $799 million, or $0.88 per common share, down from $0.91 per share last year. The increase in BCE's average number of common shares outstanding, due to the shares issued for the equity component of the MTS acquisition, resulted in earnings per share dilution this quarter.
BCE's adjusted EBITDA increased 5.8% to $2,366 million on year-over-year growth of 9.4% at Bell Wireless and 4.4% at Bell Wireline, supported by the financial contribution of Bell MTS. Bell Media adjusted EBITDA of $187 million was stable compared to last year.
BCE's consolidated adjusted EBITDA margin(2) expanded to 41.7% from 41.4% last year as the flow-through of strong wireless service revenue growth, increasing broadband Internet scale, Bell MTS integration synergies, and greater fibre-related cost savings more than offset higher year-over-year wireless postpaid subscriber retention and acquisition spending, higher residential wireline acquisition and retention costs required to match aggressive competitor bundle promotions, higher media content costs, and the margin impact from the steady decline in traditional legacy voice services. Consolidated adjusted EBITDA and margin performance in Q3 was also moderated by the adverse impact of CRTC decisions related to wholesale Internet tariffs and customer cancellation refunds, which in aggregate totalled approximately $26 million in the quarter.
BCE continued its industry-leading investment in advanced broadband wireline and wireless infrastructure with total consolidated capital expenditures of $1,040 million, up 6.6% from Q3 2016, representing an increased capital intensity(4) ratio (capital expenditures as a percentage of total revenue) of 18.3% compared to 18.1% last year. Higher spending mainly reflected ongoing broadband fibre deployment to more homes and businesses, including the build-out of Gigabit Fibe infrastructure in Toronto and other urban centres; increasing wireless LTE-A network speeds through carrier aggregation; deployment of small-cell technology to optimize mobile coverage, signal quality and data backhaul; augmenting wireless and Internet network capacity to support subscriber growth and rapid increases in video and other data usage; the impact of acquisitions and new contract wins at Astral Out of Home (AOOH); and upgrades to Bell Media broadcast studios and TV production equipment. The increase in the quarter also reflected investment in Manitoba to improve network coverage, capacity and speeds, and the ongoing integration of MTS billing and other systems with Bell's.
BCE cash flows from operating activities were up 14.9% to $2,233 million in Q3. The increase was the result of higher adjusted EBITDA, a positive change in working capital and lower income taxes paid, partly offset by higher interest payments, all of which reflected the incremental financial contribution of Bell MTS in the quarter. BCE generated $1,183 million of free cash flow this quarter, 24.4% higher than Q3 of last year, driven by an increase in cash flows from operating activities and partly offset by higher capital expenditures.
BCE reported 117,182 net new wireless postpaid customers in Q3, a net loss of 10,200 wireless prepaid subscribers; 44,424 net new high-speed Internet customers; 36,399 net new IPTV customers, and a net loss of 34,661 satellite TV customers. Residential and business NAS line net losses totalled 84,762. At the end of Q3, BCE customer connections across all services totalled 21,991,681, up 5.0% from last year. The total includes 9,008,273 wireless customers, up 7.5% over last year (including 8,243,446 postpaid customers, an increase of 8.8%); total high-speed Internet subscribers of 3,763,101, up 8.8%; total TV subscribers of 2,825,754, up 2.9% (including 1,517,833 IPTV customers, an increase of 16.6%); and total NAS lines of 6,394,553, an increase of 0.6%.
BCE OPERATING RESULTS BY SEGMENT
Bell Wireless
Continued sharp operational execution and focus on subscriber profitability drove another quarter of strong financial performance for Bell Wireless. Service revenue increased 11.2% to $1,913 million, reflecting continued postpaid subscriber base growth, higher blended average revenue per user (ARPU)(4) as customers move to higher-rate plans with accelerating data usage, and the financial contribution from Bell MTS. Product revenue remained unchanged compared to Q3 of 2016 at $127 million despite more customer transactions, due to competitive promotional smartphone pricing. Total operating revenue grew 10.4% to $2,040 million.
Wireless adjusted EBITDA was up 9.4% to $871 million in Q3, driven by the high flow-through of service revenue from a greater mix of higher-value postpaid subscribers in our overall customer base and overall price discipline. Bell Wireless also contributed significantly to consolidated free cash flow generation in Q3 with growth in adjusted EBITDA less capital expenditures of 14.0% to $685 million. However, service revenue margin declined to 45.5% from 46.3% in Q3 2016, due to $74 million in higher year-over-year total combined retention spending and subscriber acquisition costs that reflected more handset upgrades attributable to a higher number of customers with expired contracts and a higher sales mix of premium smartphones. This, together with the incremental expense contribution of Bell MTS, drove operating cost growth of 11.1% in the quarter.
Bell Wireline
Wireline operating revenue increased 2.9% in Q3 to $3,092 million, the result of 4.1% higher service revenue of $2,860 million driven by stronger Internet and IPTV net subscriber gains, 4.5% growth in household ARPU, improved year-over-year business performance reflecting financial contributions from data centre operator Q9 Networks (Q9) acquired in October 2016, and Bell MTS. This was partly offset by approximately $21 million in unfavourable regulatory-related financial impacts, compared to last year, from downward revisions to wholesale Internet tariffs and refunds for cancelled services mandated by the CRTC, as well as a $25 million, or 9.7%, decrease in low-margin product revenue to $232 million.
Wireline adjusted EBITDA growth accelerated this quarter, increasing 4.4% over Q3 2016 to $1,308 million, which yielded a 0.6-point expansion in margin to 42.3%. This was driven by higher year-over-year service revenue, customer service operating efficiencies, fibre-related savings, and Bell MTS integration synergies, despite the adverse financial impact of CRTC-related regulatory decisions and higher operating costs compared to last year. Operating costs were up 1.8% to $1,784 million, due mainly to the acquisitions of MTS and Q9. Excluding regulatory impacts, wireline adjusted EBITDA was up 6.1% in the quarter.
Bell Media
In a seasonally low quarter for the media sector, Bell Media operating revenue increased 1.0% in Q3 to $723 million, the result of higher advertising and subscriber revenues.
Advertising revenue was up over Q3 2016 due to continued growth in outdoor advertising at Astral Out of Home (AOOH). Although results this quarter reflected the recapture of advertising dollars following the shift in Q3 last year to the main broadcaster of the Rio Summer Olympics, conventional and overall specialty TV revenues decreased due to continued market softness and a steady decline in audience levels. Subscriber revenue also increased over last year on higher revenues from CraveTV and TV Everywhere GO products.
Media adjusted EBITDA of $187 million in Q3 was unchanged, compared to last year, as higher revenue was offset by a 1.3% increase in operating costs due to higher programming and content costs driven by the ongoing ramp-up of content for our CraveTV and pay TV services, deal renewals for specialty TV programming, and increased costs at AOOH as a result of acquisitions and new outdoor advertising contract wins over the past year.
COMMON SHARE DIVIDEND
BCE's Board of Directors has declared a quarterly dividend of $0.7175 per common share, payable on January 15, 2018 to shareholders of record at the close of business on December 15, 2017.
OUTLOOK FOR 2017
BCE confirmed its financial guidance targets for 2017, as updated on April 26, 2017 to reflect the acquisition of MTS, as follows:
April 26 Guidance |
November 2 Guidance | |
Revenue growth |
4% – 6% |
On track |
Adjusted EBITDA growth |
4% – 6% |
On track |
Capital intensity |
approx. 17% |
On track |
Adjusted EPS |
$3.30 – $3.40 |
On track |
Free cash flow growth |
approx. 5% – 10% |
On track |
Annualized common dividend per share |
$2.87 |
$2.87 |
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 Q3 2017 results on Thursday, November 2 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 1946321#.
A live audio webcast of the conference call will be available on BCE's website at: BCE Q3-2017 conference call. The mp3 file will be available for download on this page later in the day.
NOTES
The information contained in this news release is unaudited.
In Q1 2017, we updated our definition of adjusted net earnings and adjusted EPS to also exclude impairment charges as they may affect the comparability of our financial results and could potentially distort the analysis of trends in business performance.
(1) The terms adjusted net earnings and adjusted EPS do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We define adjusted net earnings as net earnings attributable to common shareholders before severance, acquisition and other costs, net losses (gains) on investments, impairment charges, and early debt redemption costs. We define adjusted EPS as adjusted net earnings per BCE common share. We use adjusted net earnings and adjusted EPS, and we believe that certain investors and analysts use these measures, among other ones, to assess the performance of our businesses without the effects of severance, acquisition and other costs, net losses (gains) on investments, impairment charges, and early debt redemption costs, net of tax and NCI. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. The most comparable IFRS financial measures are net earnings attributable to common shareholders and EPS. The following table is a reconciliation of net earnings attributable to common shareholders and EPS to adjusted net earnings on a consolidated basis and per BCE common share (adjusted EPS), respectively.
($ millions except per share amounts) |
||||
Q3 2017 |
Q3 2016 | |||
TOTAL |
PER SHARE |
TOTAL |
PER SHARE | |
Net earnings attributable to common shareholders |
770 |
0.86 |
752 |
0.87 |
Severance, acquisition and other costs |
17 |
0.01 |
20 |
0.03 |
Net losses on investments |
- |
- |
12 |
0.01 |
Early debt redemption costs |
12 |
0.01 |
- |
- |
Adjusted net earnings |
799 |
0.88 |
784 |
0.91 |
(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 Q3 2017 Financial Statements. We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues. We use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses as they reflect their ongoing profitability. We believe that certain investors and analysts use adjusted EBITDA to measure a company's ability to service debt and to meet other payment obligations or as a common measurement to value companies in the telecommunications industry. We believe that certain investors and analysts also use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses. Adjusted EBITDA is also one component in the determination of short-term incentive compensation for all management employees.
Adjusted EBITDA and adjusted EBITDA margin have no directly comparable IFRS financial measure. Alternatively, the following table provides a reconciliation of net earnings to adjusted EBITDA.
($ millions) |
|||
Q3 2017 |
Q3 2016 | ||
Net earnings |
817 |
800 | |
Severance, acquisition and other costs |
23 |
25 | |
Depreciation |
765 |
706 | |
Amortization |
208 |
161 | |
Finance costs |
|||
Interest expense |
242 |
227 | |
Interest on post-employment benefit obligations |
18 |
20 | |
Other expense (income) |
56 |
13 | |
Income taxes |
237 |
284 | |
Adjusted EBITDA |
2,366 |
2,236 | |
BCE operating revenues |
5,678 |
5,407 | |
Adjusted EBITDA margin |
41.7% |
41.4% |
(3) The terms free cash flow and dividend payout ratio do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI. We exclude acquisition and other costs paid and voluntary pension funding because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. We consider free cash flow to be an important indicator of the financial strength and performance of our businesses because it shows how much cash is available to pay dividends, repay debt and reinvest in our company. We believe that certain investors and analysts use free cash flow to value a business and its underlying assets and to evaluate the financial strength and performance of our businesses. The most comparable IFRS financial measure is cash flows from operating activities. We define dividend payout ratio as dividends paid on common shares divided by free cash flow. We consider dividend payout ratio to be an important indicator of the financial strength and performance of our businesses because it shows the sustainability of the company's dividend payments. The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.
($ millions) |
||
Q3 2017 |
Q3 2016 | |
Cash flows from operating activities |
2,233 |
1,943 |
Capital expenditures |
(1,040) |
(976) |
Cash dividends paid on preferred shares |
(21) |
(34) |
Cash dividends paid by subsidiaries to non-controlling interest |
(13) |
(13) |
Acquisition and other costs paid |
24 |
31 |
Free cash flow |
1,183 |
951 |
(4) We use ARPU, churn, and capital intensity to measure the success of our strategic imperatives. These key performance indicators are not accounting measures and may not be comparable to similar measures presented by other issuers. See section 8.2, Non-GAAP financial measures and key performance indicators (KPIs) in BCE's Q3 2017 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 2017 financial guidance (including revenues, adjusted EBITDA, capital intensity, adjusted EPS and free cash flow), BCE's annualized common share dividend and common share dividend payout policy, our network deployment plans and related capital investments, the expected timing and completion of the proposed acquisition of the Séries+ and Historia French-language specialty channels from Corus Entertainment Inc. (Corus) and certain benefits expected to result from such proposed transaction, 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 November 2, 2017 and, accordingly, are subject to change after such date. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statements contained in this news release, whether as a result of new information, future events or otherwise. Except as otherwise indicated by BCE, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after November 2, 2017. The financial impact of these transactions and special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business. Forward-looking statements are presented in this news release for the purpose of assisting investors and others in understanding certain key elements of our expected 2017 financial results, as well as our objectives, strategic priorities and business outlook for 2017, and in obtaining a better understanding of our anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
Material Assumptions
A number of economic, market, operational and financial assumptions were made by BCE in preparing its forward-looking statements contained in this news release, including, but not limited to:
Canadian Economic and Market Assumptions
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 2017:
The foregoing assumptions, although considered reasonable by BCE on November 2, 2017, may prove to be inaccurate. Accordingly, our actual results could differ materially from our expectations as set forth in this news release.
Material Risks
Important risk factors that could cause our assumptions and estimates to be inaccurate and actual results or events to differ materially from those expressed in, or implied by, our forward-looking statements, including our 2017 financial guidance, are listed below. The realization of our forward-looking statements, including our ability to meet our 2017 financial guidance, essentially depends on our business performance which, in turn, is subject to many risks. Accordingly, readers are cautioned that any of the following risks could have a material adverse effect on our forward-looking statements. These risks include, but are not limited to:
We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. We encourage investors to also read BCE's 2016 Annual MD&A dated March 2, 2017 (included in the BCE 2016 Annual Report) and BCE's 2017 First, Second and Third Quarter MD&As dated April 25, 2017, August 2, 2017 and November 1, 2017, 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 the broadest range of broadband wireless, TV, Internet and business communication services to consumer and business customers throughout the country. Bell Media is Canada's premier multimedia company with leading assets in television, radio, out of home and digital media. To learn more, please visit BCE.ca.
The Bell Let's Talk initiative promotes Canadian mental health with national awareness and anti-stigma campaigns like Bell Let's Talk Day and significant Bell funding of community care and access, research, and workplace initiatives. To learn more, please visit Bell.ca/LetsTalk.
Media inquiries:
Jean Charles Robillard
514-870-4739
[email protected]
Investor inquiries:
Thane Fotopoulos
514-870-4619
[email protected]
SOURCE Bell Canada