BCE Reports 2012 2Q Results
Aug 13, 2012 (Close-Up Media via COMTEX) --
BCE, a communications company in Canada, reported BCE and Bell results for the second quarter of 2012, announcing both a $0.10 per share increase in its annual common share dividend and increased earnings guidance for 2012.
In a release dated Aug. 8, the Company said that BCE reported net earnings attributable to common shareholders of $773 million, up 31.0 percent, compared to $590 million last year, and adjusted net earnings attributable to common shareholders of $788 million, an increase of 18.9 percent compared to $663 million in Q2 2011. Earnings per share of $1.00 per share and Adjusted EPS of $1.02 per share were up 31.6 percent and 18.6 percent, respectively, compared to $0.76 and $0.86 per share in the second quarter of 2011.
Revenue grew 6.7 percent at Bell Wireless and 0.9 percent at Bell Media this quarter, and decreased 3.9 percent at Bell Wireline, resulting in a 0.5 percent decline in total Bell revenues. Bell EBITDA was up 3.7 percent in the quarter on growth of 20.9 percent at Bell Wireless and 23.6 percent at Bell Media alongside a 3.1 percent reduction in total operating costs. Bell's strong overall operating performance in the quarter generated $1.9 billion of cash flows from operating activities (up 37.7 percent) and substantially higher free cash flow of $804 million (up 88.3 percent).
"The Bell team continues to execute our customer-focused growth strategy across all services, leveraging our multi-billion-dollar investments in the latest broadband networks to deliver next-generation mobile, TV and Internet services and the best content across every screen. Bell is bringing broadband innovation, expanded choice and enhanced competition to Canadian communications, and these strong results - including exceptional wireless performance, continued fast growth in Bell Fibe TV and industry-leading performance at Bell Media - show it's clearly a strategy with momentum," said George Cope, President and CEO of BCE and Bell Canada.
"Bell's strong year-to-date operating and financial performance, and the positive outlook for the balance of the year, enables the dividend increase and increased 2012 financial guidance announced. Also providing support for the early dividend increase is our pending acquisition of Astral, which we expect to be accretive to overall earnings and free cash flow in 2013."
"Bell enjoyed a robust quarter of financial results, highlighted by exceptional wireless and media EBITDA growth, margin expansion, and significant increases in earnings and cash flow," said Siim Vanaselja, Chief Financial Officer of BCE and Bell Canada. "We accelerated strategic capital investment to extend our broadband wireless and wireline footprint in support of Bell's future operating performance, while remaining committed to a strong balance sheet position to underpin our dividend growth objective. Our operating performance through the first half of the year, strong free cash flow trajectory through 2012, and confidence in our business outlook going forward all provide us with the financial flexibility to execute our strategy and achieve our 2012 financial guidance targets."
Common share dividend increase
The dividend announcement represents BCE's eighth increase to the annual common share dividend, representing a 55 percent overall increase, since the fourth quarter of 2008. The BCE annual common share dividend will increase from $2.17 to $2.27 per share effective with BCE's Q3 2012 dividend payable on Oct. 15, to shareholders of record at the close of business on Sept. 14. The increase announced positions BCE's dividend payout ratio based on 2012 Adjusted EPS guidance at approximately the mid-point of its policy of 65 percent to 75 percent of Adjusted EPS. Similarly, BCE's dividend coverage using the mid-point of 2012 free cash flow guidance range yields a comparable dividend payout ratio. The higher dividend is supported by the increased Adjusted EPS guidance for 2012 and is readily funded from free cash flow.
Bell and Desjardins expand Bell Business Markets relationship Bell and Desjardins Group renewed their broad-ranging strategic business relationship in the quarter. Under a new 8-year, $800-million agreement, Bell Business Markets will provide Desjardins with all its communications network management services. This includes fully managed broadband fibre network services to the Desjardins caisse network, and new voice and data infrastructure to support Desjardins enhanced online and mobile banking, videoconferencing service, e-learning and more.
Bell and London 2012 Bell is delivering the broadest range of live and on-demand content from the London 2012 Games across its broadband networks to smartphones, tablets, TVs and computer screens, getting Canadians closer to the Games than ever before. During the London 2012 Olympic Games, Bell Media is offering more than 5,500 hours of TV and digital coverage.
Astral acquisition to boost Canadian broadcasting In March, BCE announced that it would acquire Montreal-based Astral Media Inc. and its leading specialty and pay television channels, radio stations, digital media properties, and national out-of-home advertising platforms. On July 10, BCE announced its proposal to the Canadian Radio-television and Telecommunications Commission to contribute tangible benefits valued at $200 million in support of Canada's broadcasting industry as part of the Astral acquisition. BCE is also proposing to sell ten radio stations in various markets to meet the CRTC's Radio Common Ownership Policy. The transaction is expected to close in the fourth quarter of 2012, subject to regulatory approvals.
Maple Leaf Sports and Entertainment transaction The acquisition by Bell of a portion of Ontario Teachers' Pension Plan Board's ownership interest in MLSE, announced in December 2011, is expected to be completed in the third quarter of 2012 subject to CRTC approval. Bell's financial commitment of $398 million, post the completion of a leveraged capitalization of MLSE, represents a 28 percent equity interest in MLSE. Through a co-investment arrangement with Bell, the BCE Master Trust Fund, an independent trust that holds and manages pension fund investments serving the pension obligations of BCE Group pension plans, will contribute $135 million toward the MLSE acquisition. Post-closing, Bell and the BCE Master Trust Fund will own an aggregate 37.5 percent interest in MLSE, equal to that of Rogers Communications Inc. The remaining 25 percent interest in MLSE will be owned by Kilmer Sports Inc. The acquisition secures on a long-term basis access to TV, mobile, digital online and radio broadcast rights for both Bell and Rogers to MLSE's sports teams.
Investment in Q9 Networks On June 2, an investor group comprised of BCE, Ontario Teachers' Pension Plan Board, Providence Equity Partners and Madison Dearborn Partners announced a planned $1.1 billion acquisition of Q9 Networks, Canada's leading provider of outsourced data centre solutions. BCE will contribute 30 percent, or $180 million, of the equity funding while Teachers', Providence and Madison Dearborn will contribute the remaining 70 percent, or $420 million. New debt financing by Q9 will fund the balance of the acquisition. Bell looks forward to offering its national business customer base access to Q9's hosting and co-location services while delivering Bell's broadband network solutions to Q9's extensive client roster. The transaction is expected to close before the end of 2012 subject to regulatory approval.
$3 billion Medium Term Notes program
Bell announced on June 13, the reinstatement of its MTN program, enabling it to offer up to $3 billion of MTN Debentures from time to time until September 2013. Following this, Bell proceeded with a public offering of $1 billion Series M-25 MTN Debentures carrying an annual interest rate coupon of 3.35 percent, Bell's lowest financing rate in 65 years. The net proceeds of the offering are to be used for general corporate purposes, including the repayment of outstanding commercial paper, and funding a portion of the cost of BCE's acquisition of Astral.
Wi-Fi network footprint expansion In July, Tim Hortons announced a partnership with Bell Mobility to provide free wireless network access in more than 2,000 of its locations across Canada. The largest quick service restaurant chain in Canada, Tim Hortons chose Bell after a rigorous six-month testing process with multiple service providers. With national partners including Indigo, McDonalds and Tim Hortons, Bell operates a Wi-Fi network in Canada.
Bell Q2 operational performance Bell's operating revenues were $4,340 million in Q2 2012 compared to $4,362 million or 0.5 percent lower than in Q2 2011, as increased revenues from Bell Wireless and Bell Media were offset by declines in local and access, long distance and equipment and other revenues. Bell's EBITDA grew 3.7 percent this quarter to $1,716 million on robust performance by Bell Wireless and Bell Media.
Bell Wireless EBITDA in Q2 2012 grew 20.9 percent to $556 million - our best result since the first quarter of 2007 - and service margin expanded to 44.6 percent from 39.2 percent last year even as we continued to spend considerably on postpaid customer acquisition and customer upgrades to higher-end smartphones, reflecting solid wireless revenue growth of 6.7 percent to $1,361 million. Postpaid net activations increased 8.2 percent to 102,067, while postpaid customer churn rate improved to 1.3 percent. Smartphone users represented 55 percent of postpaid subscribers up from 38 percent a year earlier. This drove significantly higher wireless data usage year over year with services like Bell Mobile TV, which contributed to strong mobile data revenue growth of 31.1 percent and blended ARPU growth of 4.5 percent. Blended ARPU was $55.37 per month in Q2 2012, up from $52.99 per month in Q2 2011.
Bell Wireline revenue totalled $2,528 million in the quarter, down 3.9 percent from Q2 2011, as a result of the continued decline in traditional voice and data services and ongoing promotional discounting and aggressive competitive pricing on residential service bundles. TV revenue growth driven by steadily increasing Fibe TV penetration, higher IP broadband connectivity revenues, and increased data product sales to business customers moderated this decline. Bell Fibe TV added 38,477 net new subscribers, up from 14,367 in Q2 2011, representing a 168 percent increase in total TV net activations year over year. At the end of Q2 2012, Bell's IPTV footprint encompassed more than 2.4 million households, up from approximately 1.2 million households at the end of Q2 2011. Although Bell Wireline EBITDA decreased 5.9 percent this quarter to $1,008 million due to lower revenues, margins remained relatively stable at 39.9 percent compared to 40.7 percent in Q2 2011, reflecting a 2.5 percent improvement in operating costs.
Bell Media reported financial results this quarter. Bell Media revenue was up 0.9 percent to $534 million in Q2 2012, even with continued softness in advertising markets across Bell Media's television, radio and digital media properties, due to market-based rates charged to broadcast distributors through renegotiated agreements for certain Bell Media specialty sports and non-sports TV services. Bell Media EBITDA increased 23.6 percent to $152 million, driven by solid overall revenue growth and a 5.9 percent reduction in operating expenses.
Bell invested $776 million in new capital this quarter, a $131 million increase compared to Q2 2011, to support its sustained and rapid broadband network infrastructure development. These investments support the deployment of broadband fibre to residential homes and businesses in Quebec and Ontario and enhancements to Bell's wireline broadband network to support the roll-out of Fibe TV and Fibe Internet. Capital investments also increased speed and capacity in our IP backbone network infrastructure, including increased data hosting capabilities, and expanded Bell's 4G LTE mobile network and the overall wireless capacity needed to support mobile data consumption.
BCE results BCE's operating revenue was $4,923 million in the second quarter of 2012, down 0.6 percent from $4,955 million in the second quarter of 2011, due to slightly lower revenues at both Bell and Bell Aliant. EBITDA grew 2.8 percent this quarter to $2,041 million, reflecting higher EBITDA at Bell driven by the strong contributions of Bell Wireless and Bell Media, moderated by a year-over-year decrease at Bell Aliant.
BCE's cash flows from operating activities were $1,902 million in Q2 2012, compared to $1,381 million in the same period last year due to higher EBITDA and positive changes in working capital due, in part, to the delay in accounts receivable cash collections in Q2 2011 resulting from the Canada Post strike. Free cash flow available to BCE's common shareholders increased 88.3 percent to $804 million in Q2 2012. The year-over-year improvement was attributable primarily to higher cash flows from operating activities of $521 million, partly offset by higher capital expenditures in the quarter as Bell continued the rapid deployment of new broadband network infrastructure.
BCE's net earnings attributable to common shareholders increased 31.0 percent in the second quarter of 2012 to $773 million, or $1.00 per share, compared to $590 million, or $0.76 per share, in the same quarter last year. The year-over-year increase in earnings was due primarily to higher EBITDA, the favourable resolution of various tax matters, and a $164 million non-recurring charge in Q2 2011 for the CRTC tangible benefits obligation incurred on the CTV acquisition.
BCE's Adjusted EPS was $1.02 per common share in Q2 2012, compared to $0.86 per common share in the previous year. The 18.6 percent increase reflected higher EBITDA and higher favourable year-over-year resolution of various tax matters.
Bell Wireless Bell Wireless operating performance continued on a strong upward trajectory in the second quarter of 2012 with solid and profitable postpaid subscriber growth, higher data usage, and higher blended ARPU, which translated into the best wireless EBITDA performance since Q1 2007.
-Bell Wireless operating revenues increased 6.7 percent in the second quarter of 2012 to $1,361 million. Service revenue was up 6.3 percent to $1,248 million as a result of a larger postpaid subscriber base and growth in wireless data usage. Product revenue increased by 7.6 percent in the quarter to $99 million, as a result of higher percentage of smartphones in the sales mix.
-Blended ARPU was $55.37 per month in Q2 2012, up 4.5 percent from $52.99 per month in Q2 2011. Growth in blended ARPU was primarily the result of increasing data usage as the percentage of higher-value postpaid customers using smartphones increased. This was partly offset by declining voice ARPU.
-Smartphones subscribers increased significantly and represented 55 percent of the total postpaid base at the end of Q2 2012, compared to 38 percent one year earlier.
-Bell Wireless EBITDA reached $556 million in the second quarter, up 20.9 percent. The increase is mainly attributable to higher wireless operating revenues and lower wireless operating costs, which improved 1.3 percent over last year.
-EBITDA margin as a percentage of wireless service revenue increased to 44.6 percent in Q2 2012, from 39.2 percent in Q2 2011, on solid service revenue growth.
-Cost of acquisition per gross activation decreased 4.8 percent to $381 from $400 in Q2 2011 - despite a higher proportion of postpaid and smartphone customer activations this quarter compared to Q2 last year - due to disciplined device pricing and lower spending on advertising and sales promotions.
-Cost of retention increased to 9.8 percent of wireless service revenues from 9.1 percent in Q2 2011, reflecting a higher mix of smartphone customer upgrades.
-Postpaid gross activations totalled 327,335 this quarter compared to 341,645 in the second quarter of 2011, increasing our mix of higher-value customers as we continued to focus on profitable postpaid subscriber growth.
-Prepaid gross activations decreased to 100,930 in Q2 2012 from 133,255 in Q2 2011, due primarily to aggressive acquisition offers from our competitors targeted at lower-ARPU subscribers.
-Blended churn rate improved to 1.7 percent in the quarter compared to 2.0 percent in Q2 2011 due to lower postpaid churn. Postpaid churn decreased to 1.3 percent this quarter from 1.5 percent. Prepaid churn remained stable at 3.7 percent.
-Postpaid net activations increased 8.2 percent this quarter to 102,067 from 94,309 in Q2 2011, due to lower customer churn year over year.
-Prepaid net customer losses decreased to 54,859 in Q2 2012 from 57,802 in Q2 2011, mainly as a result of fewer customer deactivations.
-The Bell Wireless client base reached 7,453,363 at the end of Q2 2012, a 2.3 percent increase over last year.
-Bell now offers the largest next-generation 4G LTE network in Canada, covering more than 49 percent of Canadians across 23 markets in 7 provinces and territories. Bell continued to expand its 4G HSPA+ and enhanced 4G HSPA+ DC (Dual Cell) networks, which now serve more than 97 percent and more than 80 percent of the Canadian population, respectively. Bell introduced these 4G services to markets across Manitoba on Aug. 1, supported by 4 new Bell stores, The Source and other partner retail locations.
-Bell Mobility continues to introduce superphones, including the 4G LTE Samsung Galaxy S III and HTC One S in Q2.
While Bell Residential services experienced customer growth in Fibe TV, Bell Wireline's overall performance in the quarter continued to be impacted by declines in traditional voice and data services, as well as richer upfront promotional discounts and retention credits on residential service bundles driven by aggressive competitive pricing. This contributed to lower wireline revenues and EBITDA this quarter, although margins were maintained around the 40 percent level given continued rigorous cost control in the quarter.
-Bell Wireline revenues totalled $2,528 million in this quarter, down 3.9 percent from Q2 2011. The decline reflects a decrease in local and access, long distance and equipment and other revenues, partly offset by slightly higher year-over-year data revenues.
-Data revenues in Q2 2012 increased 0.1 percent to $1,395 million.
-Local and access revenues declined 8.4 percent in Q2 2012 to $665 million. Total NAS at the end of Q2 was 5,885,581, a 6.8 percent decline year over year. This is attributable to competition and a reduction in access lines and digital circuits, as customers continue to adopt wireless and IP-based technologies.
-Long distance revenues declined 9.3 percent to $206 million this quarter.
-Equipment and other revenue decreased 11.1 percent this quarter to $185 million.
-Bell Wireline EBITDA was $1,008 million, down 5.9 percent from the second quarter of 2011 due to lower operating revenues, partly offset by lower operating costs which improved 2.5 percent in Q2 2012. EBITDA margin was 39.9 percent this quarter, compared to 40.7 percent in Q2 2011.
-TV net activations totalled 16,758 in Q2 2012, up from 6,292 in Q2 2011. Bell Fibe TV added 38,477 net new customers this quarter, reflecting increasing customer demand as we further expand our Fibe TV footprint and enhance our service bundle offers in many urban markets to include Fibe TV, Fibe Internet services and Bell Home Phone. This was moderated by lower satellite TV net activations this quarter, due to roll-outs of IPTV service by other competing service providers, aggressive customer conversion offers from cable competitors, and Bell customer migrations to Fibe TV.
-Bell TV subscribers totalled 2,128,433 at the end of Q2 2012, representing a 3.8 percent increase since the end of the second quarter of 2011.
-The Bell high-speed Internet subscriber base remained essentially unchanged over Q1 2012 with a net customer loss of 664 this quarter. This compared to net activations in Q2 2011 of 1,275.
-NAS net losses totalled 119,545 in Q2 2012, compared to net losses of 100,497 in Q2 2011. Note that the results for Q2 2011 reflected the favourable impact of wholesale residential and business customer migrations from a cable competitor via a third-party reseller of telecommunications services, which began in Q4 2010 and were completed substantially in Q2 2011. Excluding this impact, total NAS net losses improved 9.7 percent to 113,597 in Q2 2012 from 125,840 in the second quarter of last year. This represented 17.1 percent fewer residential NAS line losses, offset by 17.3 percent more business access line losses year over year. The improvement in residential NAS line losses reflects the positive pull-through effect of service bundle offers that include Fibe TV and Fibe Internet, competitive retention offers and customer winbacks; the increase in business access line losses was attributable to higher wholesale customer deactivations.
Bell Media reported financial results this quarter, highlighted by the highest revenue and EBITDA growth rates, as well as TV audience ratings and viewership levels.
-Bell Media's operating revenues were $534 million this quarter, up 0.9 percent, due to higher subscriber fee revenue driven primarily by market-based rates charged to broadcast distributors through renegotiated agreements for certain Bell Media specialty sports and non-sports TV services. Lower year-over-year advertising revenues, due to continued softness in advertising markets across most industry sectors, largely offset this improvement.
-Bell Media EBITDA increased 23.6 percent to $152 million, reflecting the combined impact of a 5.9 percent reduction in operating expenses and revenue growth.
-Bell Media secured a strong line-up of new programs for its conventional TV fall and mid-season schedules on its CTV and CTV Two networks at the annual Los Angeles programming screenings in May.
-During the quarter, Bell Media maintained high audience levels across its conventional and specialty TV channels. CTV won the Spring season in total viewers and in all key advertising demographics, delivering 12 of the top 20 programs nationally among all viewers.
-TSN and TSN2 viewership increased, year over year, due to larger audiences for the Euro 2012 Football Championships.
-Bell Media websites streamed more than 450 million video views this quarter, supported by the launch of a new CTV.ca homepage in June 2012. The site welcomed 14.9 million visitors on average each month, serving up 22 million hours of video and a total of 1.7 billion page views.
-MuchMusic had its best year ever on social media for the 2012 MMVAs. Twitter mentions roughly doubled over 2011, MMVA trended during the broadcast, and Facebook likes increased by 23 percent
-CTV News including CTV Two, CP24 and W5, along with several Bell Media radio stations, won numerous awards at the recent Radio Television Digital News Association Awards, recognizing Canada's best programs, stations, and electronic newsgathering organizations. Highlights include awards naming CTV National News with Lisa LaFlamme as the Best Network Newscast; CTV Barrie's (CTV Two) CTV News at Six repeat win for Best Newscast, medium market; CP24's prize for Best Spot News; W5's award for In-Depth/Investigative reporting; and CTV Edmonton for its market coverage of the Slave Lake disaster.
-During the London 2012 Olympics Games, Bell Media is offering more than 5,500 hours of coverage on TV and digital.
Bell Aliant Regional Communications
Bell Aliant's revenues decreased 0.7 percent to $687 million in the second quarter of 2012. The continued decline of Bell Aliant's legacy voice business was offset partly by higher revenues from growth in Internet, data, TV and wireless, as well as higher equipment and other sales. Bell Aliant's EBITDA decreased by 2.1 percent to $325 million, due to lower operating revenues and higher operating costs.
Common Share Dividend
Consistent with the announcement of an increase in BCE's annual common share dividend from $2.17 to $2.27 per share effective with the payment for Q3 2012, BCE's Board of Directors declared a quarterly dividend of $0.5675 per common share, payable on Oct. 15, to shareholders of record at the close of business on Sept. 14.
Outlook Based on the higher-than-expected level of tax adjustments realized in the second quarter of 2012 and our latest operating outlook for the balance of the year, BCE has increased its 2012 financial guidance range for Adjusted EPS, while maintaining its guidance targets for Bell revenue and EBITDA growth, capital intensity, and free cash flow generation.
Bell's EBITDA growth is tracking to the higher end of the 2 percent to 4 percent guidance range, driven by strong year-to-date wireless operating metrics, the full flow-through of specialty channel rate increases at Bell Media in the second half of the year following the finalization of rate renewal agreements with all broadcast distributors, and ongoing operating cost reductions. As a result of weaker wireline revenue performance in the first half of the year due to a higher year-over-year voice revenue decline, we expect total Bell revenue growth for full-year 2012 to be at the lower end of the 3 percent to 5 percent guidance range. As a result of a planned increase in capital spending in the second half of 2012 compared to 2011, to accelerate the reach of Bell Fibe TV and broadband fibre, Bell's overall capital intensity is expected to total approximately 16 percent of revenues. Despite higher expected capital expenditures, there is no change to free cash flow guidance for 2012 given our strong year-to-date generation of cash from operations and continued cash flow trajectory projected through to the end of 2012.
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