BCE reports third 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, Oct. 31, 2019 /CNW Telbec/ - BCE Inc. (TSX: BCE) (NYSE: BCE) today reported results for the third quarter (Q3) of 2019.
"Bell's commitment to build the advanced fibre and mobile networks that will take Canadian communications into the future continues to deliver strong results for our shareholders, customers and communities today. With exceptional execution by the Bell team in Q3, we achieved industry-leading subscriber growth – including record Q3 net wireless customer additions – improved customer satisfaction and a strong financial performance," said George Cope, President and Chief Executive Officer of BCE Inc. and Bell Canada. "This includes our 56th consecutive quarter of increased year-over-year adjusted EBITDA and continued strong growth in the free cash flow that fuels our network investment and shareholder value objectives."
"The unmatched reach, capacity and speed of Bell's networks, and the service and media innovations they enable, are keeping Bell at the forefront of the dynamic Canadian communications industry. I look forward to working with the next CEO of Bell, our Chief Operating Officer Mirko Bibic, and the national team to build on this momentum and close 2019 with a strong Q4 performance."
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"BCE delivered another positive financial performance in Q3 in line with our guidance targets, enabled by operating profitability growth across our wireless, wireline and media segments. The 1.8% increase in consolidated BCE revenue, together with the favourable impact of IFRS 16 and ongoing operating cost efficiency, delivered strong 5.6% growth in adjusted EBITDA. Net earnings increased 6.3% while free cash flow grew 17.3% to approximately $1.2 billion," said Chief Financial Officer Glen LeBlanc. "With 3 quarters of strong financial growth in 2019, continued competitive momentum and a solid financial and pension solvency position, BCE is well positioned to deliver ongoing expansion in our world-leading broadband networks and continued dividend growth in 2020."
BCE operating revenue increased 1.8% in Q3 to $5,984 million, reflecting year-over-year growth at all Bell operating segments. Service revenue grew 1.3% to $5,185 million on strong wireless, Internet and IPTV subscriber base growth. Product revenue was up 5.1% to $799 million, mainly the result of greater volumes of higher-value smartphones and wireless rate plans in the sales mix.
Net earnings were up 6.3% to $922 million and net earnings attributable to common shareholders totalled $867 million, or $0.96 per share, up 6.5% and 6.7%, respectively. Higher net earnings and net earnings per common share were driven by strong growth in adjusted EBITDA, higher other income, and lower severance, acquisition and other costs. This was partly offset by higher income taxes, increased depreciation and amortization expense, and higher finance costs. The adoption of IFRS 16 did not have a significant impact on net earnings.
Adjusted net earnings were $820 million, or $0.91 per common share, compared to $861 million, or $0.96 per common share, in Q3 of last year. The decrease was attributable to uncertain tax positions that were favourably resolved in Q3 2018 resulting in lower income taxes last year.
Adjusted EBITDA grew 5.6% to $2,594 million, reflecting year-over-year increases of 7.9% at Bell Wireless, 1.4% at Bell Wireline and 24.2% at Bell Media. Adjusted EBITDA was impacted positively 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 1.5 percentage points to 43.3%, from 41.8% in Q3 last year, due to the high flow-through of service revenue growth, increasing broadband Internet scale, disciplined spending on wireless postpaid subscriber acquisitions and a 0.9% reduction in total operating costs, which included the favourable impact of IFRS 16.
BCE capital expenditures totalled $1,013 million, up slightly from $1,010 million in Q3 2018, representing a capital intensity(5) ratio (capital expenditures as a percentage of total revenue) of 16.9%, compared to 17.2% in Q3 last year. Capital spending 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 to more homes and businesses, and ongoing wireless network investment, including the deployment of small cells to increase network speeds, coverage and signal quality, as well as to expand fibre backhaul in preparation for the launch of 5G service.
BCE cash flows from operating activities were $2,258 million, up 10.5% over last year. The increase was due mainly to adjusted EBITDA growth and lower income taxes paid, partly offset by increased interest paid reflecting the unfavourable impact of IFRS 16. Free cash flow generated in the quarter was $1,189 million, a 17.3% increase from Q3 2018, driven by higher cash flows from operating activities, excluding acquisition and other costs paid.
For Q3, BCE reported 204,067 net new wireless customers (127,172 postpaid and 76,895 prepaid); 58,137 net new retail Internet customers; 31,746 net new IPTV customers; a net loss of 26,904 retail satellite TV customers; and a net loss of 65,656 retail residential NAS lines.(5)
BCE wireless and retail Internet, TV and residential NAS connections totalled 18,881,978 at the end of Q3, up 1.3% over last year. The total includes 9,834,380 wireless customers(4), up 3.7% (including 9,038,341 postpaid customers, an increase of 3.6%, and 796,039 prepaid customers, up 4.9%); 3,519,962 retail Internet subscribers(4), up 4.2%; 2,772,043 retail TV subscribers, up 0.7% (including 1,745,143 IPTV customers, an increase of 6.5%, and 1,026,900 retail satellite TV customers, down 7.8%); and 2,755,593 retail residential NAS lines, down 8.8%.
BCE OPERATING RESULTS BY SEGMENT
"In wireline, service innovations like 1.5 Gbps Internet and Alt TV helped attract 89,883 net new broadband Internet and IPTV customers, including a record number of gross Internet additions, in a highly competitive residential marketplace. Our continued lead in conventional and specialty TV combined with year-over-year growth at Astral out of home and Crave subscribers delivered increased media revenue, operating profitability and cash flow," said Mr. Bibic.
Wireless adjusted EBITDA grew 7.9% in Q3 to $1,013 million, yielding a 1.7 percentage-point increase in margin to 43.1%, as total operating costs increased 0.4% to $1,335 million. The improvement in adjusted EBITDA and margin reflected a high service revenue flow-through, promotional spending discipline and the favourable impact of IFRS 16.
Wireline revenue growth was moderated by an increased decline in legacy voice revenue; the impact of acquisition and retention discounts on residential service bundles to match aggressive competitor promotions; a decline in low-margin data equipment sales to large business enterprise customers; and the lapping of the Axia NetMedia acquisition during the quarter.
Rapidly growing broadband Internet subscriber scale, improved business markets operating profitability, and a 0.8% reduction in operating costs that reflected the favourable impact of IFRS 16 as well as ongoing spending controls, fibre-related savings and continued service improvement, enabled a 1.4% increase in wireline adjusted EBITDA to $1,355 million. This drove a 50 basis-point improvement in Bell's industry-leading wireline margin to 44.2%.
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 Q3-2019 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 Q3 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 relating to Internet of Things (IoT) due to a further refinement of our subscriber definition 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 as key performance indicators 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 REGARDING 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, 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 October 31, 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 October 31, 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 October 31, 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, Second and Third Quarter MD&As dated May 1, 2019, July 31, 2019 and October 30, 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