BCE reports second quarter 2019 results
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, Aug. 1, 2019 /CNW Telbec/ - BCE Inc. (TSX: BCE) (NYSE: BCE) today reported results for the second quarter (Q2) of 2019.
"Bell's strategy to bring the fastest broadband networks and the latest service innovations to Canadians in every region continued to drive strong operating and financial performance across our business in Q2," said George Cope, President and Chief Executive Officer of BCE Inc. and Bell Canada. "We significantly increased net new subscribers to our wireless, retail Internet and IPTV services, achieved our 4th consecutive quarter of growth in business markets, and again led the Canadian media industry in audience expansion and programming innovation."
"Adjusted EBITDA increased an exceptional 6.8% in Q2 – our 55th consecutive quarter of year-over-year growth – and together with ongoing operational and capital efficiency drove a strong 10% increase in free cash flow this quarter. Mirko Bibic is clearly moving the ball forward as our Chief Operating Officer, and I look forward to working with him throughout 2019 as he transitions to the role of Chief Executive Officer in 2020," said Mr. Cope.
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"Our financial performance in Q2 demonstrates a clear focus on disciplined and profitable subscriber acquisition as evidenced by continued strong revenue and adjusted EBITDA growth across all Bell operating segments, margin expansion, and higher earnings and free cash flow – all of which are consistent with our 2019 guidance targets," said Chief Financial Officer Glen LeBlanc. "Ongoing free cash flow generation and a positive financial profile for our wireless, wireline and media segments going forward provides us with considerable financial flexibility to enable Bell's broadband fibre and wireless investment strategy while positioning BCE to deliver our 12th straight year of dividend growth in 2020."
BCE operating revenue was up 2.5% in Q2 to $5,930 million, driven by a 2.0% increase in service revenue to $5,231 million. Product revenue increased 6.4% to $699 million, the result of a higher sales mix of premium mobile devices and stronger data equipment sales to large business customers.
Net earnings increased 8.2% to $817 million and net earnings attributable to common shareholders totalled $761 million, or $0.85 per share, up 8.1% and 7.6%, respectively. Higher net earnings and net earnings per common share were the result of strong growth in adjusted EBITDA, lower other expense and lower income taxes. This was partly offset by higher depreciation and interest expense, as well as higher severance, acquisition and other costs. Overall, the adoption of IFRS 16 did not have a significant impact on net earnings. Adjusted net earnings were $847 million, or $0.94 per common share, compared to $777 million, or $0.86 per common share, in Q2 last year.
Adjusted EBITDA grew 6.8% to $2,595 million on year-over-year increases of 9.9% at Bell Wireless, 2.1% at Bell Wireline and 23.9% at Bell Media. Adjusted EBITDA was positively impacted 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 43.8% from 42.0% in Q2 2018, driven by the flow-through of higher service revenue, increasing broadband Internet scale, disciplined spending on wireless subscriber acquisitions, and a 0.6% decline in total operating costs reflecting the favourable impact of IFRS 16.
BCE capital expenditures totalled $972 million, down from $1,056 million in Q2 2018, representing a capital intensity (5) ratio (capital expenditures as a percentage of total revenue) of 16.4%, compared to 18.3% last year. The year-over-year decline reflected a timing-related reduction in capital spending, which is expected to increase in the second half of the year. Capital expenditures focused on further expansion of Bell's fibre to the premises (FTTP) and fixed wireless to the home (WTTH) footprints; the connection of fibre Internet and TV services directly to more homes and businesses; and wireless network investment, including the deployment of small cells to increase network speeds, coverage and signal quality, as well as data fibre backhaul in preparation for 5G service.
BCE cash flows from operating activities were $2,093 million, up 1.8% over last year. Due mainly to higher adjusted EBITDA, the increase was partly offset by a reduction in cash from working capital and higher interest paid, reflecting the unfavourable impact from the adoption of IFRS 16. Free cash flow was $1,093 million, a 10.0% increase from Q2 2018, driven by lower capital expenditures and higher cash flows from operating activities, excluding acquisition and other costs paid.
In Q2, BCE reported 149,478 net new wireless subscribers (102,980 postpaid and 46,498 prepaid customers); 19,414 net new retail Internet customers; 16,775 net new IPTV customers; a net loss of 14,425 retail satellite TV customers; and a net loss of 72,780 retail residential NAS lines.(5)
BCE wireless and retail Internet, TV and residential NAS connections totalled 18,680,588 at the end of Q2, up 1.1% over last year. The total includes 9,630,313 wireless customers(4), up 3.4% (including 8,911,169 postpaid customers, an increase of 3.7%, and 719,144 prepaid customers, up 0.4%); 3,461,825 retail Internet subscribers(4), up 4.1%; 2,767,201 retail TV subscribers, up 1.0% (including 1,713,397 IPTV customers, an increase of 7.1%, and 1,053,804 retail satellite TV customers, down 7.6%); and 2,821,249 retail residential NAS lines, down 8.8%.
BCE OPERATING RESULTS BY SEGMENT
"Bell delivered increased revenue and adjusted EBITDA in all of our wireless, wireline and media operating segments. Overall broadband customer additions grew 25.5% year over year to 186,000, reflecting Bell's network and service leadership, unmatched national distribution network and outstanding execution by our team in a competitive marketplace," said Chief Operating Officer Mirko Bibic.
"Exceptional wireless growth of more than 149,000 net additions, our best Q2 performance since 2001, was supported by significant churn improvement in postpaid and by Bell's resurgence in the prepaid marketplace with the ongoing success of Lucky Mobile. Retail Internet net additions grew by more than 19,000 – up 51.6% over last year – and IPTV customers by almost 17,000 as we delivered the fastest home Internet speeds and best TV services over Bell's growing all-fibre network. The only Canadian media company to grow audiences in all key demographics year over year, Bell continued to deliver the country's most-watched sports, entertainment and news programming across conventional, pay and specialty TV, drawing record-breaking audiences for the Toronto Raptors NBA Championship and the finales of Game of Thrones and The Big Bang Theory, while achieving our 4th consecutive quarter of year-over-year TV advertising growth."
Wireless adjusted EBITDA totalled $980 million, 9.9% higher than Q2 2018, delivering a 2.7 percentage-point increase in margin to 44.8%. This was driven by the flow-through of high margin service revenue, promotional pricing discipline, and a 1.6% improvement in operating costs due mainly to the favourable impact of IFRS 16.
Wireline adjusted EBITDA increased 2.1% to $1,361 million, driven by broadband Internet and IPTV subscriber growth, improved business markets results and stable operating costs, which declined 0.1% over last year on the favourable impact of IFRS 16, savings from workforce reductions in 2018 and fibre-related operating efficiencies. This drove a 60 basis-point increase in our industry-leading margin to 44.1%.
COMMON SHARE DIVIDEND
OUTLOOK FOR 2019
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
A live audio webcast of the conference call will be available on BCE's website at: BCE Q2-2019 conference call. The mp3 file will be available for download on this page later in the day.
(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.
(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 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.
(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.
(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 mainly from 120 days for Bell and Virgin Mobile and 150 days for Lucky Mobile to 90 days; 43,670 postpaid subscribers due to a further refinement of our subscriber definition for Internet of Things (IoT) as a result of technology evolution and 9,366 postpaid fixed wireless Internet customers transferred to Bell Internet.
(5) We use ABPU, churn, capital intensity and subscriber units to track KPIs in annual MD&A 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, BCE's expected dividend growth in 2020, our network deployment and capital investment plans, the expected completion of the proposed acquisition of conventional television network V and related digital assets, 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 August 1, 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 August 1, 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 financial results, as well as our objectives, strategic priorities and business outlook, and in obtaining a better understanding of our anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
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 foregoing assumptions, although considered reasonable by BCE on August 1, 2019, may prove to be inaccurate. Accordingly, our actual results could differ materially from our expectations as set forth in this news release.
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 and Second Quarter MD&As dated May 1, 2019 and July 31, 2019, 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.
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.
SOURCE Bell Canada
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