Acquisitions & Structural Advantages Help BCE in Sustaining Dividend Growth

In recent investor meetings in Toronto and Montreal,  BCE Inc. (TSE:BCE) President and CEO George Cope. Company emphasized that it has established some permanent structural advantages in wireless business and that it will potentially take time and resources for its competitor(s) to catch up. BCE operating revenue was up 2.0% in Q2 to $5,326 million, reflecting a 2.0% increase in service revenue and 2.3% higher product revenue, led by strong Wireless and Wireline residential revenue growth.

BCE’s Q2 Adjusted EBITDA(1) grew 2.5% to $2,197 million, driven by increases of 5.3% at Bell Wireless, 1.0% at Bell Wireline, and 2.4% at Bell Media. Higher Adjusted EBITDA across all Bell operating segments contributed to an increase in BCE’s consolidated Adjusted EBITDA margin(1) to 41.3% from 41.1% in Q2 2014, reflecting the positive flow-through of significantly higher wireless average revenue per user(4) (ARPU), increasing IPTV and Internet scale that is driving steady growth in three-product households, fewer network access service (NAS) line losses, and lower operating costs at Bell Wireline and Bell Media.

BCE reported Q2 2015 net earnings attributable to common shareholders of $759 million, up 25.2% from $606 million last year, due to higher Adjusted EBITDA, reduced non-controlling interest as a result of the privatization of Bell Aliant, as well as a gain on investments of $94 million related to the sale of a 50% ownership interest in Glentel Inc. to Rogers Communications Inc. This was partly offset by a loss on investment of $54 million, representing our share of an obligation to repurchase at fair value the minority interest in one of BCE’s joint ventures. Adjusted net earnings(2) were $735 million, up 14.8% from $640 million last year. Net earnings per share (EPS) was $0.90 compared to $0.78 last year, while Adjusted EPS was $0.87, an increase of 6.1% from $0.82 in Q2 2014.

BCE invested $914 million in new capital in Q2 2015, compared to $937 million last year. Capital spending was focused on connecting more homes and businesses directly to our broadband fibre network, the continued expansion of our 4G LTE wireless network and deployment of 700 MHz spectrum, and increases in network capacity to support higher Internet and mobile data speeds and increased data usage.

“With strong increases in subscribers, revenue and operating profitability, Bell enters the second half of 2015 with clear momentum in the growth services of Canadian communications: Wireless, TV, Internet and Media. The Bell team’s success in executing our strategy of network investment, service innovation and content leadership is delivering the consistent financial and operating performance necessary to support our dividend growth model going forward,” said George Cope, President and Chief Executive Officer of BCE and Bell. “Bell is building advanced Canadian communications networks that rank with the best in the world, highlighted in Q2 by the announcement of our unprecedented broadband fibre deployment across the City of Toronto to enable Bell Gigabit Fibe. Now, with more than 1.3 million homes in communities across Ontario and Québec ready for Gigabit Fibe, including 50,000 locations already linked in Toronto, we look forward to bringing Canada’s fastest Internet service to consumers starting on Monday.”

The Bell team is focused on achieving a clear goal – to be recognized by customers as Canada’s leading communications company – through the execution of 6 Strategic Imperatives: Invest in Broadband Networks & Services, Accelerate Wireless, Leverage Wireline Momentum, Expand Media Leadership, Improve Customer Service, and Achieve a Competitive Cost Structure. This consistent execution of Bell’s strategy has resulted in 39 consecutive quarters of uninterrupted Adjusted EBITDA growth and 11 increases to the BCE common share dividend in the last 6 years, for a total dividend increase of 78%.

“We delivered another solid set of financial results in Q2, driven by healthy organic Adjusted EBITDA growth in all our operating segments, margin expansion supported by ongoing operating cost efficiencies and customer service improvements, as well as strong net earnings and free cash flow generation consistent with our plan,” said Glen LeBlanc, Chief Financial Officer of BCE and Bell. “We have leveraged our business model to produce results consistently within our guidance targets. Our operating performance through the first half of the year, together with the confidence in our business outlook and an accelerating free cash flow trajectory in the second half of the year, provide us with considerable financial flexibility to execute our strategy and achieve our 2015 financial guidance targets, all of which we reconfirm today.”

In June, Bell announced the rollout of broadband fibre directly to more than a million homes and businesses across the City of Toronto to enable its new super high speed Gigabit Fibe Internet service in Canada’s largest city. Creating approximately 2,400 direct jobs, the $1.14 billion project is the single largest infrastructure buildout in Bell’s plan to invest $20 billion in new broadband fibre and wireless networks by the end of 2020. When Gigabit Fibe launches in Ontario and Québec on August 10, service will be initially available in Toronto to approximately 50,000 locations in the neighbourhoods of Regent Park, the Distillery District, Harbourfront and Willowdale.

Bell will launch the revolutionary new Gigabit Fibe service to more than 1.3 million homes across Ontario and Québec this Monday. Service will also launch in communities across Atlantic Canada before the end of Q3, and by the end of 2015, Gigabit Fibe will be available to 2.2 million homes. Bell Gigabit Fibe, like Google Fiber and similar gigabit Internet services in the US, will offer speeds of up to 940 Megabits per second at launch, rising to a full 1000 Megabits (1 Gigabit) per second or faster in 2016 as equipment evolves to support these speeds.

In May, Bell and the Kilmer Group announced their joint acquisition of the Toronto Argonauts Football Club of the Canadian Football League (CFL), as well as the team’s move to the newly renovated BMO Field for the 2016 CFL season. Alongside Bell’s interests in Maple Leaf Sports & Entertainment and the Montreal Canadiens, the Argos acquisition strengthens Bell’s position in live professional sports content, key to the continued leadership of Bell Media’s TSN and RDS sports specialty networks. The transaction is expected to be finalized at the end of 2015.

Also in May, Bell Media announced the extension of its broadcast agreement with the CFL by 3 years through to the end of the 2021 season. TSN and RDS hold exclusive TV rights for CFL football, the second most-watched major sports league in Canada, including pre-season, regular season, playoff and Grey Cup games. In addition to broadcast and digital rights, the agreement features exclusive Grey Cup radio rights for Bell Media stations.


Dan Walker, CFA (from Harvard University, Massachusetts), is Editor & Chief Research Analyst and reports Services, Financial & REIT and Energy & Utilities sectors. Prior joining Market Cash Cow, Dan Walker worked with Wells Fargo. If you have a great story idea for Dan Walker, you can write at [ ].


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