MONTREAL, Quebec, May 7 /PRNewswire-FirstCall/ - Revenue growth and
disciplined cost control at Bell led to steady financial performance as BCE
Inc. (TSX, NYSE: BCE), Canada's largest communications company, today reported
results for the first quarter of 2008.
"During the quarter, we made good progress on the completion of the
privatization transaction and delivered solid financial results, consistent
with our plan for the year," said Michael Sabia, Chief Executive Officer of
Bell Canada. "With respect to the privatization transaction, the Quebec
Superior Court approved the plan of arrangement and dismissed the
debentureholders' lawsuits. The Quebec Court of Appeal hearing has concluded
and the court has indicated that it expects to render a decision
expeditiously. Subject to meeting certain conditions, we will have received
CRTC and Industry Canada approvals and expect the closing of this transaction
before the end of Q2 2008."
"In addition, Bell had its best operating revenue growth in over two years
along with steady EBITDA growth. BCE's earning per share before special items
grew by 9.6%," Mr. Sabia said.
Bell's operating revenues grew 2.3% this quarter to $3,663 million as
growth in wireless, video, data and equipment and other revenues more than
offset declines in local and access and long distance revenues.
Bell's EBITDA(1) grew by 2.8% to $1,421 million due to a focus on
profitability, cost containment, ARPU growth and lower pension costs. Bell's
operating income was $471 million, or 34% lower than last year due to higher
restructuring and other charges which included a $236 million charge related
to the CRTC's approval of the use of deferral account funds for the uneconomic
expansion of broadband service to an additional 86 communities.
"In our wireline business, this is the first quarter in over two years
that operating revenues have held steady," said George Cope, President and
Chief Operating Officer of Bell Canada. "Wireline EBITDA also showed strength
with growth of 3.3% based on a strong performance from our Enterprise and
Video units along with lower labour and pension costs. In addition,
significant growth in winbacks led to fewer residential line losses."
Growth in customer winbacks and the success of The Bell Better Home(TM)
marketing program led to another quarter of year-over-year improvement in the
rate of residential line (NAS) losses. Total NAS declined by 10.4% over the
last twelve months. However, normalized for the previously announced loss of a
major wholesale customer, and an adjustment to our residential NAS base
following a review of historical records total NAS declined by 6.6%.
"We continued to make operating progress this quarter with a record Q1 for
wireless gross activations. We were pleased that the momentum we built in the
second half of 2007 in acquiring wireless subscribers continued this quarter
and that 82% of our net activations were on postpaid rate plans. Customers
responded to our offers and our wide array of new full-function smartphones.
However, the high level of these activations and increased spending on
customer retention and handset upgrades had an impact on our wireless EBITDA
growth this quarter," Mr. Cope said.
The Bell Wireless segment(2) had 351,000 gross activations, or 18.6% more
than last year. Net activations this quarter were 34,000, significantly higher
than the 13,000 net activations experienced in Q1 2007. Total Bell Wireless
operating revenues increased by 8.7% and blended ARPU increased by $0.74 to
$52.32.
Bell invested $456 million of capital this quarter, or $85 million less
than last year, with a continued focus on key priorities including improving
the customer experience, enhancing the wireless network, and continuing the
expansion of the Fibre-to-the-node (FTTN) program.
Financial Highlights
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Q1 2008 Q1 2007 % change
($ millions except per share amounts)
(unaudited)
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Bell(i) Operating Revenues $3,663 $3,579 2.3%
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BCE(ii) Operating Revenues $4,391 $4,385 0.1%
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Bell EBITDA $1,421 $1,382 2.8%
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BCE EBITDA $1,750 $1,743 0.4%
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Bell Operating Income(iii) $471 $714 (34.0%)
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BCE Operating Income $647 $921 (29.8%)
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BCE Cash From Operating Activities $894 $968 (7.6%)
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BCE Free Cash Flow(3) ($75) ($157) 52.2%
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BCE EPS $0.32 $0.62 (48.4%)
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BCE EPS before restructuring and other
and net gains on investments(4) $0.57 $0.52 9.6%
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(i) Bell includes the Bell Wireless and Bell Wireline segments.
(ii) BCE's results for Q1 2007 include Bell, Bell Aliant and Telesat
while BCE's results for Q1 2008 include only Bell and Bell
Aliant.
(iii) Bell operating income for Q1 2008 includes a $236 million charge
related to the CRTC's approval of the use of deferral account
funds for the uneconomic expansion of broadband service to an
additional 86 communities.
On October 31, 2007, BCE completed the sale of Telesat. Accordingly, BCE's
results for Q1 2008 no longer reflect Telesat's financial results while BCE's
results for Q1 2007 include Telesat's results for the full quarter.
BCE's operating revenue grew to $4,391 million this quarter, or 0.1%
higher than last year as revenue growth at Bell and Bell Aliant was offset by
the loss of Telesat's contribution to revenue. Similarly, BCE's EBITDA grew
0.4% to $1,750 million as Bell's and Bell Aliant's EBITDA growth this quarter
was offset by the loss of Telesat's contribution to EBITDA. BCE's operating
income decreased by 29.8% to $647 million due to higher restructuring and
other charges at Bell and the loss of Telesat's contribution to operating
income.
BCE's cash from operating activities decreased by 7.6% to $894 million
this quarter due mainly to a decrease of $55 million in the securitization of
accounts receivable at Bell Aliant. BCE's free cash flow improved to negative
$75 million this quarter from negative $157 million in Q1 2007 due primarily
to lower capital spending.
BCE's net earnings per share (EPS) was $0.32 for the quarter compared to
$0.62 for the same period last year. The decrease relates to higher
restructuring and other charges, mainly due to a $236 million charge related
to the CRTC's approval of the use of deferral account funds for the uneconomic
expansion of broadband service to an additional 86 communities, and higher
depreciation and amortization expense.
EPS before restructuring and other and net gains on investments was $0.57
in the quarter, or 9.6% higher than $0.52 in Q1 of 2007 as higher EBITDA and
lower tax and interest expense more than offset higher depreciation and
amortization expense.
Bell Wireline Segment
The Bell Wireline segment had stable revenues and continued to reduce the
number of residential NAS losses this quarter.
- Bell Wireline operating revenues increased by 0.1% to $2,639 million
this quarter as gains in video, data and equipment and other revenues
offset decreases in local and access and long distance revenues. This
is the first quarter in over two years that Bell Wireline operating
revenues have not declined.
- Bell Wireline EBITDA increased by 3.3% to $1,011 million as cost
savings, lower net benefit plans costs and pricing initiatives more
than offset the ongoing erosion of our NAS customer base. Bell Wireline
EBITDA margin improved by 1.2 percentage points to 38.3%.
- Bell Wireline operating income was $178 million this quarter, a
decrease of 58% due to higher restructuring and other charges, related
mainly to the CRTC's approval of deferral accounts funds to be used for
the uneconomic expansion of broadband service, and higher depreciation
and amortization expense.
- Local and access revenues declined by 6.8% to $848 million due to
ongoing NAS erosion.
- After an adjustment of 44,000 lines following a review of historical
records, residential NAS declined by 106,000 this quarter, an
improvement over the decline of 131,000 experienced last year
reflecting the continued growth in customer winbacks and the
effectiveness of The Bell Better Home(TM) marketing campaign.
- Total NAS declined by 10.4% over the last twelve months. However, when
normalized for the loss of a major wholesale customer and the
adjustment to residential NAS, total NAS line losses were 119,000 this
quarter compared with 153,000 in the same period last year,
representing a year-over-year decline of 6.6%.
- Long distance revenues declined by 3.9% to $298 million this quarter
due mainly to ongoing NAS erosion partly offset by pricing initiatives.
This is the ninth consecutive quarter that long distance revenue
erosion rates have improved.
- Data revenues increased 3.1% to $921 million this quarter due to growth
in Internet revenues and higher IP Broadband revenues partly offset by
the further erosion of legacy data services.
- High-speed Internet subscribers grew by 4.2% to 2,014,000 with
10,000 net activations during the quarter.
- Video revenues increased by 13.4% to $356 million this quarter due
largely to an ARPU increase of $8 to $65.
- Video EBITDA increased by 40% to $77 million this quarter due to higher
ARPU and cost containment.
- Total video subscribers increased by 1,000 this quarter to reach
1,823,000, or 0.1% lower than last year.
- Video subscriber churn was stable at 1.1%.
Bell Wireless Segment
The Bell Wireless segment had its best ever Q1 for gross activations.
- Total gross activations were 351,000 this quarter, or 18.6% higher than
last year.
- Total net activations were 34,000 this quarter, a significant
improvement compared to the 13,000 net activations in Q1 last year.
Approximately 82% of the net activations this quarter were postpaid.
- The Bell Wireless client base reached 6,250,000, up 7.4% over last
year.
- Blended churn of 1.6% was unchanged from Q1 2007. Postpaid churn
increased by 0.1 percentage points to 1.3% while prepaid churn
decreased by 0.1 percentage points to 2.8%.
- Total Bell Wireless operating revenues grew 8.7% to $1,041 million due
to a larger subscriber base and stronger equipment sales. Wireless
network revenues increased by 7.4% to $955 million and wireless
equipment revenues grew by 29.8% to $74 million due to higher gross
activations and customer upgrades.
- Bell Wireless EBITDA grew by 1.7% to $410 million this quarter as
higher revenues were partly offset by the costs associated with higher
levels of gross activations and customer upgrades.
- EBITDA margins on network revenues this quarter decreased by
2.4 percentage points to 42.9% this quarter.
- Bell Wireless operating income increased by 0.7% to $293 million this
quarter.
- Blended and postpaid ARPU remained relatively stable at $52 and $64
respectively while prepaid ARPU increased $2 to $17.
- Cost of acquisition decreased by 5.7% to $396 per gross activation,
reflecting lower marketing expenses and higher gross activations.
Bell Aliant Regional Communications
Bell Aliant's revenues increased 1.6% this quarter to $865 million due to
growth in Internet, data and IT services offsetting declines in local and
access and long distance services. Operating income was $176 million, or 1.1%
lower than the previous year due to higher depreciation and amortization
expense.
Telesat
With the sale of Telesat on October 31, 2007, BCE's results for Q1 2008 no
longer include Telesat's financial results. In Q1 2007, Telesat had revenues
of $122 million and operating income of $38 million.
Notes
The information contained in this news release is unaudited.
(1) The term EBITDA does not have any standardized meaning according to
Canadian GAAP. It is therefore unlikely to be comparable to similar
measures presented by other companies. We define EBITDA (earnings
before interest, taxes, depreciation and amortization of intangible
assets) as operating revenues less cost of revenue and selling,
general and administrative expenses, meaning it represents operating
income before depreciation and amortization of intangible assets and
restructuring and other.
We use EBITDA, among other measures, to assess the operating
performance of our ongoing businesses without the effects of
depreciation and amortization of intangible assets and restructuring
and other. We exclude these items because they affect the
comparability of our financial results and could potentially distort
the analysis of trends in business performance. We exclude
depreciation and amortization of intangible assets because it largely
depends on the accounting methods and assumptions a company uses, as
well as non-operating factors, such as the historical cost of capital
assets. Excluding restructuring and other does not imply they are
non-recurring.
EBITDA allows us to compare our operating performance on a consistent
basis. We believe that certain investors and analysts use EBITDA to
measure a company's ability to service debt and to meet other payment
obligations, or as a common measurement to value companies in the
telecommunications industry.
The most comparable Canadian GAAP financial measure is operating
income. The following table is a reconciliation of operating income
to EBITDA.
($ millions)
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BCE Q1 2008 Q1 2007
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Operating income 647 921
Depreciation and amortization of intangible assets 820 786
Restructuring and other 283 36
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EBITDA 1,750 1,743
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BELL Q1 2008 Q1 2007
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Operating income 471 714
Depreciation and amortization of intangible assets 667 628
Restructuring and other 283 40
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EBITDA 1,421 1,382
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BELL WIRELINE Q1 2008 Q1 2007
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Operating income 178 423
Depreciation and amortization of intangible assets 553 516
Restructuring and other 280 40
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EBITDA 1,011 979
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BELL WIRELESS Q1 2008 Q1 2007
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Operating income 293 291
Depreciation and amortization of intangible assets 114 112
Restructuring and other 3 -
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EBITDA 410 403
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(2) Consistent with North American industry practices, total wireless
gross activations, net activations and subscribers include 100% of
Virgin Mobile's subscribers. Wireless ARPU, churn, usage per
subscriber and cost of acquisition continue to be computed by
including 50% of Virgin Mobile's results, a level corresponding to
Bell Canada's ownership position.
(3) The term free cash flow does not have any standardized meaning
according to Canadian GAAP. 