BCE Inc. reported BCE and Bell results for the third quarter of 2009, with a slight increase in operating revenues, due in part to a growth in video income.
Bell reported revenue and EBITDA growth in line with its increased financial guidance; healthy free cash flow; an increase in net earnings applicable to common shares to $558 million, or $0.72 per share, this quarter compared to $248 million, or $0.31 per share, in Q3 2008; and strong wireless and video net subscriber activations.
BCE's operating revenues increased by 0.5% to $4,457 million this quarter as higher revenues at Bell were partly offset by lower revenues at Bell Aliant.
BCE's operating income increased by 17.2% to $782 million this quarter, as higher operating income at Bell was partly offset by lower operating income at Bell Aliant. BCE's EBITDA increased 1.8% to $1,801 million this quarter due to EBITDA growth at Bell and Bell Aliant.
The company says its results demonstrate continued progress in the execution of its five Strategic Imperatives - Improve Customer Service, Accelerate Wireless, Leverage Wireline Momentum, Invest in Broadband Networks and Services, and Achieve a Competitive Cost Structure.
"We have real momentum in both our wireless and wireline businesses,” George Cope, President and CEO of BCE and Bell Canada, said in a release, “with Bell TV leading the industry in net TV activations and Bell Wireless achieving a record number of third-quarter postpaid net activations. Thanks to effective operational management, including increased customer winbacks and better service execution during the busy move season, we also improved residential local line losses 3% and doubled the number of Bell Bundle customers year-over-year."
Bell's momentum is accelerating with the launch this month of the fastest and largest wireless network in Canada, the company reported, which was completed on budget and ahead of schedule; ongoing investment in service operations and in Bell's leading-edge IP networks for business and residential customers; and a continuing and earnest focus on driving out costs across the business.
"Our results this quarter showed good financial discipline throughout the business," said Siim Vanaselja, Chief Financial Officer of BCE and Bell Canada. "In a challenging economic cycle, we have continued to focus on improving the cost structure of our operations by implementing efficiency initiatives to deliver sustained improvement in the profitability of our business. Our work to drive out costs has enabled us to sustain margins, even with incremental pension costs and ongoing pressures from the current economic climate."
"While we continue to make significant capital investment for long-term growth, we have also maintained substantial cash balances and accessed the debt capital markets on attractive terms earlier this year, enabling us to readily fund all of our remaining 2010 debt maturities. With a cash balance of approximately $1.2 billion, consistently healthy free cash flow generation, and access to $1.4 billion in committed credit facilities, we maintain a strong balance sheet and liquidity position that is well aligned to growing our business and delivering shareholder value through our dividend growth model," Vanaselja said.
Bell's operating revenues increased by 1.2% this quarter, to $3,788 million, as higher product revenues from the acquisitions of The Source and the remaining 50% of the equity of Virgin Mobile Canada (Virgin) not already owned by Bell and growth in video revenues more than offset declines in local and access, long distance, and wireline data revenues.
Bell's operating income increased by 25.9% to $583 million due to higher EBITDA and lower restructuring and other costs. Bell's EBITDA grew by 1.5% to $1,448 million as higher revenues and cost reductions more than offset the impact of higher pension expense and a significant increase in wireless subscriber activations. Excluding year-over-year increased pension costs, EBITDA growth would have been 2.9%. Bell's EBITDA margin grew slightly this quarter to 38.2% from 38.1% last year.
The Bell Wireless segment had record Q3 gross activations of 501,000 new subscribers and total net activations of 135,000. Postpaid net activations of 122,000 were a Q3 record. The 15.4% year-over-year increase in total net activations was driven by the success of new handsets, devices, services and applications.
Bell Wireless operating revenues increased by 0.3% this quarter with service revenues declining by 0.6% and product revenues increasing by 1.9%. Bell Wireless operating income and EBITDA grew by 4.7% and 0.2% respectively. Blended ARPU(3) decreased by $2.50 to $52.13 year-over-year but improved sequentially over the previous quarter by $1.67. The year-over-year decline this quarter is representative of the impact of economic pressures on customer usage, competitive moves and lower roaming revenues, which more than offset data revenue growth of 33%.
In the Bell Wireline segment, retail residential NAS losses improved for an eighth consecutive quarter but total Residential NAS declined by 77,000 this quarter, or by 6.9% more than last year, due to higher wholesale customer deactivations. Business NAS declined by 26,000 this quarter compared to no change last year, reflecting business customer disconnections and fewer new installations. Video subscribers increased by 40,000 and high-speed Internet subscribers increased by 22,000 this quarter.
Bell Wireline operating revenues increased by 1.0% as video and equipment and other revenue growth more than offset declines in local and access, long distance and data revenues. Equipment and other revenues increased by 78.5% due to the acquisition of The Source at the start of the quarter. Bell Wireline operating income increased by 83.2% as a result of higher EBITDA and lower restructuring and other costs. Bell Wireline EBITDA increased by 2.1% due to higher revenues and cost reductions.
Bell invested $589 million of capital this quarter, or 4.1% more than in Q3 of last year. Capital expenditures supported Bell's strategic imperatives with focused investment on enhancing its wireless networks, including the recently announced deployment of an HSPA 3G network, and the continuing expansion of the wireline broadband network, including the Fibre-to-the-node (FTTN) program and Fibre to multiple dwelling units (MDUs).
BCE's cash flows from operating activities this quarter was $1,537 million, or 6.8% lower than the same period last year due to higher pension contributions and a decrease in working capital. Free cash flow was $649 million this quarter compared to $86 million in the same period last year despite lower cash flows from operating activities. Free cash flow in Q3 2008 included the non-recurring expenditure of $741 million for Advanced Wireless Services spectrum licences.
BCE's net earnings applicable to common shares this quarter were $558 million, or $0.72 per share, compared to $248 million, or $0.31 per share, for the same period last year. EPS(4) this quarter included the favourable resolution of past tax positions, lower restructuring and other costs, and the impact of fewer outstanding BCE common shares as a result of share purchases made through the normal course issuer bid completed in May. BCE's Adjusted EPS was $0.84 this quarter, or 40.0% higher than last year.
Financial Highlights
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($ millions except per share amounts) Q3 2009 Q3 2008 % change
(unaudited)
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Bell(i) Operating Revenues $3,788 $3,742 1.2%
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Bell EBITDA $1,448 $1,427 1.5%
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Bell Operating Income $583 $463 25.9%
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BCE Operating Revenues $4,457 $4,437 0.5%
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BCE EBITDA $1,801 $1,769 1.8%
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BCE Operating Income $782 $667 17.2%
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BCE Cash Flows From
Operating Activities $1,537 $1,649 (6.8%)
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Free Cash Flow $649 $86 n.m.
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BCE Net Earnings Applicable to
Common Shares $558 $248 n.m.
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BCE EPS $0.72 $0.31 n.m.
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BCE Adjusted EPS $0.84 $0.60 40.0%
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(i) Bell includes the Bell Wireless and Bell Wireline segments.
n.m.: not meaningful
For more information, visit www.bell.ca.