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Bell Canada Enterprises reports second quarter results
MONTREAL, Aug. 3 /PRNewswire-FirstCall/ -- For the second quarter of 2005, BCE Inc. (TSX, NYSE: BCE) reported revenues of $5.0 billion, up 4.2% from the same period last year. Operating income for the quarter was $1.1 billion, unchanged from the previous year, and earnings per share (EPS) were $0.61 cents, up $0.01 from the previous year. EBITDA(1) was $2 billion, up 2.5% from the same period last year. EPS before restructuring and other items and net gains on investments(2) were up $0.03 at $0.58 compared to $0.55 the previous year. Cash from operating activities was $1.5 billion in the quarter, up from $1.1 billion for the second quarter of 2004, while free cash flow(3) was $138 million, up from $64 million for the same period last year.
"Bell Canada saw double-digit growth in wireless, high-speed Internet and video combined with continued positive results in the Business segment this quarter," said Michael Sabia, President and Chief Executive Officer of BCE. "These results show very good progress in meeting our objective of cost- effectively ramping-up growth of our new services to more than offset the decline of our legacy business."
Both Consumer and Business segments achieved their results while managing operating costs effectively and preserving BCE's overall 40% EBITDA margin. The company's cost reduction plans remain on track and a number of Galileo initiatives will start rolling out in the third quarter to further increase the level of savings.
In the Consumer segment, subscriber growth is providing Bell Canada with an expanding base of high-value multi-product customer relationships. These relationships can be further leveraged as the reach and appeal of the company's product mix and value-added services (VAS) continues to expand.
In the Business segment, the company continued to expand its VAS offering, positioning the company for further progress in the delivery of new growth services to business customers. 47% of Business segment revenues in the second quarter were generated by new services, evidence of the company's growing position as a technology partner to its customers.
Within Bell Canada overall, 44% of total revenues came from growth services compared to 40% six months ago; important progress in Bell's planned shift in revenue mix away from legacy services. The company is moving towards its target of 55% of revenues from growth services by the end of 2006.
In July, new collective agreements were ratified with Bell Canada's clerical and associated employees as well as with employees at Entourage Technology Solutions, a wholly-owned Bell Canada subsidiary. These agreements, combined with the August 2004 agreement reached with Bell Canada technicians, provide the company and its subsidiaries with a stable and competitive labour environment for the coming years.
"The company's objective was to reach significantly more competitive labour agreements. We achieved that goal," said Mr. Sabia. "The new collective agreements give the company the flexibility it needs to meet the challenges of a highly competitive marketplace while providing employees with attractive working conditions. This stable labour environment allows Bell to continue its determined focus on strengthening customer service and advancing the strategic development of the company."
Key operational achievements
Wireless
Wireless growth accelerated with the addition of 146,000 new subscribers to Bell's customer base during the second quarter, up 54% over the second quarter of 2004. This is the company's strongest second quarter of net additions on record. Total subscribers reached the 5.1 million mark, an increase of 11% when compared to June 30, 2004.
The increase in net additions is attributable to the success of new rate plans, the introduction of Bell's Push-to-Talk service, known as 10-4, new RIM customers, the launch of the Virgin Mobile service, and strong growth in the West.
The company gained 117,000 postpaid net new customers in the second quarter, an increase of 50% over the second quarter of 2004. Postpaid customers also generally represent higher Average Revenue per User (ARPU) than prepaid customers. This contributed to an overall ARPU in the quarter of $50, up $4 from the first quarter of 2005, an increase that returns the company to the levels reached in the second quarter of 2004. Blended churn was at 1.6 per cent per month, with improvements in postpaid churn from last quarter.
Wireless revenues for the second quarter reached $771 million, an improvement of $73 million, or 10%, over the second quarter of 2004. Due to effective cost containment, wireless EBITDA margin was above 42% in the second quarter of 2005, despite the costs associated with a very large number of new customer acquisitions.
With relatively low wireless penetration in Canada, the company has introduced offers that will tap underserved segments of the market. On July 25, Bell launched Solo Mobile, a wireless service designed specifically for the youth market. Solo is based on Push-to-Talk technology and provides Bell's innovative 10-4 service for $1 per day on top of the basic rate plan. The company estimates that this represents a potential market of 5 million in its serving territory with a penetration rate of only 50%.
Video
ExpressVu posted its strongest second quarter on record as net additions jumped 163% over the same quarter in 2004 to 63,000. By June 30, 2005, total subscribers reached the 1.6 million mark, up 12% compared to June 30, 2004. Churn remained low at 0.9%, and slightly improved over the previous year. The company also completed its "Smart Card" replacement program to its entire customer base, making its satellite platform free from piracy.
Video revenues increased by 12% year-over-year driven by the higher customer base and an improvement in ARPU of $1. EBITDA remained positive despite a marked increase in new additions. EBITDA performance was driven by a reduction of nearly 20% in the average unit cost of acquiring new customers.
Bell recently purchased the residential assets of Cable VDN, a local cable company selling residential TV and high-speed Internet services in Montreal. This acquisition allows Bell to cost-effectively deliver a quadruple play (video, high-speed Internet, wireless and long-distance) to the multi- dwelling-unit (MDU) market in Montreal.
High-speed Internet
High-speed Internet additions were 92,000 in the second quarter of 2005, an increase of 42% over the same period in 2004. The total high-speed subscriber base exceeded the 2 million mark, up by 24% over the second quarter of last year. The popularity of Bell's 128 kbps DSL service, which is both attracting new customers and converting dial-up customers to DSL, contributed to the growth this quarter.
VAS subscriber growth, such as MSN Premium, Security Services and Home Networking, grew by 99,000 in the second quarter of 2005, to reach a total of 865,000 - double the number a year ago.
Sympatico.MSN continued to be the country's most popular online destination with 15.8 million unique visitors to the site monthly. Portal revenues increased by 131% and VAS revenues increased by 61%, year over year.
During the quarter Bell launched a series of service innovations to further simplify the customer experience. The new "Grab 'n Go" offer simplifies the installation process by allowing customers to pick up their DSL kit and modem directly in Bell retail outlets. The company also implemented improvements to its on-line Net Assistant service to provide additional functionality including a "Customer Chat" capability for billing related issues. These improvements also give customers greater control over their service with better automation capabilities and "quick fix" solutions.
Consumer segment highlights
Consumer segment revenues grew by 1.7% over the same quarter of 2004, to $1.9 billion, driven by the solid increases in net subscriber additions for growth products over this period, offsetting declines in Bell's legacy business. Year to date, Consumer revenues were $3.7 billion, up 1.7% from the same period last year.
Operating income was down 1.4% for the quarter, mainly due to the higher costs associated with accelerated growth during the period and higher pension and amortization expense.
In the second quarter, Bell sharpened its focus and advanced its strategy of increasing valuable multi-product households in its territory. As of June 30, 2005, 57% of Bell households in Quebec and Ontario subscribed to at least two services from Bell, with 1.27 million of those having three or more services. Going forward the company will continue to grow the number of multi- product households with the introduction of highly targeted and customized offers.
Business segment highlights
Business segment revenues were $1.5 billion in the second quarter or 4% higher compared to the second quarter of 2004, demonstrating continued growth in this segment. Year to date revenues were approximately $3 billion compared to $2.9 billion for the same period in 2004, an increase of 3.5%.
Bell continued to make steady progress in the second quarter in its stated objective of becoming a technology partner to business customers through the delivery of advanced, IP-enabled solutions. In the small and medium-sized business unit (SMB), performance was driven by growth in wireless and data revenues and from steady progress in our Virtual Chief Information Officer (VCIO) strategy and in Enterprise by the strong demand for IP solutions, such as IP VPN and other VAS. Business VAS grew by over 59% in the quarter over the same quarter in 2004.
Small and Medium Business
The SMB group continues to see strong growth in key strategic areas, with VCIO product revenues more than doubling during the second quarter. This growth was driven primarily by the launch of the PC Care and Network Care solutions. These solutions offer remote or on-site assistance for small and medium businesses, replacing any need for full-time IT support.
In the quarter, the SMB group acquired CSB Systems, an established Enterprise Resource Planning systems integrator in Western Canada. To fully leverage the power of recent acquisitions and further deliver on Bell's promise of being a trusted technology advisor to small and medium businesses, the SMB group has created Bell Business Solutions (BBS) which houses the resources of CSB Systems, Nexxlink Technologies and Charon Systems. These acquisitions are helping to bolster growth in data product revenues which grew 41% in the quarter.
Sales teams in the SMB group and within BBS are working very successfully to drive cross-selling revenue opportunities. For example, the rate of growth in Charon Systems has essentially doubled since it was acquired by Bell, which also attests to its strategic fit within the company.
Enterprise
The Enterprise Group continues to gain momentum in its conversion to an IP and VAS provider, including managing the strong demand for its IP VPN service and its growing ability to provide new services from standardized platforms. Enterprise added 27,000 IP-enabled voice lines on customer premises equipment during the quarter for a total of 185,000. At the end of the second quarter 73% of traffic on Bell's core network was IP.
The group has also been successful in supporting Canadian businesses internationally with the launch of its Global VoIP solution for Canadian multi- national companies in partnership with BT Infonet. With this new service, Bell can manage the total voice and data traffic for customers doing business internationally over a single, integrated IP network anywhere in the world.
Sales of VAS services in the second quarter increased by 47% year over year. Through partnerships with both suppliers and customers, Enterprise is delivering an increasingly broad and sophisticated suite of value-added solutions, including security, systems and storage, contact centre, outsourcing and wireless data for our customers.
During the quarter, the group further broadened its solutions portfolio through the acquisition of CDG Inc., a leading Canadian provider of anti-virus and anti-spam solutions. As well, the acquisition of PopWare Inc. will provide new systems integration wireless applications in the areas of Inventory and Asset Management. These two acquisitions bring important niche capabilities to the VAS portfolio within Enterprise.
Bell in the West
In the West, Bell continues to grow its Enterprise and SMB customer base leading to revenue increases in most areas of its business.
The company continues to expand its on-net capabilities and the revenue opportunities provided by the purchase of the western Canadian assets of 360Networks. As well, with the construction phase of the Alberta SuperNet essentially complete, Bell is turning its attention to developing the products, services and applications that will exploit the network's virtually unlimited potential.
Bell has reached new contractual arrangements with the Government of Alberta and Axia NetMedia Corporation that will further enable the development of commercial services on the network and best serves the interests of the three parties involved.
Telesat Canada
Telesat's second quarter revenues grew by approximately 61% to $137 million largely as a result of higher revenues from network services for Interactive Distance Learning Services, its acquisition of The SpaceConnection Inc. and Ka-band revenues from Anik F2. Operating income increased by 27% in the second quarter. During the quarter, the company launched its two-way high- speed Internet service now available through multiple dealers across the country.
The launch of Anik F1R is scheduled for late summer. The satellite is expected to be ready for service in the fourth quarter of 2005.
Bell Globemedia
Bell Globemedia's revenues for the second quarter increased by 8% over the same period last year to reach $399 million. Improved profitability both at CTV and The Globe and Mail delivered a 28% increase in operating income over the same period last year.
CTV's strong schedule once again made it the most watched network in the country. During the summer season, for example, CTV has nine of the top 10 programs in Canada. The network's ever-popular Canadian Idol series continues to perform well in all markets. CTV's marathon 18-hour broadcast of "Live 8" was one of the biggest events in the network's history, reaching 10.5 million viewers, or approximately one in every three Canadians. The strength of its line-up allowed the network to post double-digit growth in its conventional television advertising.
Stronger subscriber and advertising revenues on specialty channels such as Discovery and the Comedy Network helped mitigate revenue challenges at TSN and RDS - sports specialty networks affected by the loss of NHL programming.
According to the latest NADBank audience measurement statistics, The Globe and Mail continues to lead its national competitor in readership by 60% on weekdays and 78% on Saturdays. As well The Globe and Mail has had considerable success with its suite of on-line properties that is helping compensate for softer revenues in its print operations.
BCE Financial Performance
Year to date revenues at BCE totaled $9.8 billion, a 4.5% increase over the same period last year. Operating income year to date was $2.2 billion, an increase of 2.4% over the same period in 2004. Year to date EBITDA was $3.9 billion, an increase of 3.7% over the previous year. BCE's EBITDA margin for both the second quarter and for the year to date was 40%.
Net earnings applicable to common shares for Q2 2005 were $563 million ($0.61 per common share), up slightly from net earnings of $554 million ($0.60 per common share) for the second quarter of 2004. Included in 2005 second quarter earnings were $25 million of net gains on investments and restructuring and other items composed primarily of a dilution gain recorded from the investment in TerreStar, a mobile satellite services company. In the second quarter of 2004 there were $47 million in net gains on investments and restructuring. Excluding the impact of these special items, net earnings were $538 million ($0.58 per common share) up by $31 million ($0.03 per common share). This increase is attributable to a number of factors, including the net income tax savings resulting from the loss monetization program between Bell Canada and its subsidiaries.
Cash from operating activities was $1.5 billion in the quarter and $2.4 billion year to date, compared to $1.1 billion and $2.4 billion for the comparable periods in 2004. Free cash flow was $138 million in the quarter and $(24) million for the first six months. In the first quarter of 2005 cash flow was negatively affected by cash taxes paid and a number of specific payments, including pension plan top-ups and restructuring payments. With these items having a significantly lesser impact in the second half of the year, ongoing EBITDA contributions from its business units, and a balanced pace of capital expenditure spend, BCE expects to achieve its free cash flow target of $700-$900 million for 2005.
Cost savings within the company reached $122 million in the quarter and are at $242 million on a year to date basis.
Bell Canada Statutory Results
Bell Canada "statutory" includes Bell Canada, and Bell Canada's
interests in Aliant, Bell ExpressVu (at 52%), and other Canadian telcos.
In the second quarter of 2005, Bell Canada's reported statutory revenue was $4.3 billion, up 2.1% compared to the same period last year. Net earnings applicable to common shares were $580 million in the second quarter of 2005, compared to net earnings applicable to common shares of $567 million for the same period last year, an increase of 2.3%.
In the first six months of 2005, Bell Canada's reported statutory revenue was $8.5 billion, up 2.3% compared to the same period last year. Net earnings applicable to common shares were $1,108 million in the first six months of 2005, compared to net earnings applicable to common shares of $1,115 million for the same period last year, a decrease of 0.6%.
Outlook
BCE Inc. confirmed its annual full year 2005 guidance, as previously
issued:
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Guidance
2005E
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Revenue Growth (greater or equal) GDP
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Galileo Savings $500-$600M
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EPS(a) Single digit growth
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Free Cash Flow(b) $700 - $900M
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Bell Canada Capital Intensity(c) 18% - 19%
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Cellular and PCS Subscriber Growth 10%-15%
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High Speed Internet Subscriber Growth 15%-20%
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Video Subscriber Growth 10%-15%
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(a) Before net investment gains/losses, or impairment or restructuring
charges (please see note 2 for additional details).
(b) Cash from operating activities less capital expenditures, total
dividends and other investing activities (please see note 3 for
additional details).
(c) Capital expenditures as a percentage of revenues.
About BCE
BCE is Canada's largest communications company. Through its 27 million customer connections, BCE provides the most comprehensive and innovative suite of communication services to residential and business customers in Canada. Under the Bell brand, the company's services include local, long distance and wireless phone services, high-speed and wireless Internet access, IP-broadband services, value-added business solutions and direct-to-home satellite and VDSL television services. Other BCE businesses include Canada's premier media company, Bell Globemedia, and Telesat Canada, a pioneer and world leader in satellite operations and systems management. BCE shares are listed in Canada, the United States and Europe.
Notes
(1) The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). Please refer to the section of BCE Inc.'s 2005 Second Quarter MD&A, dated August 2, 2005, entitled "Non- GAAP Financial Measures" included in this news release for more details on EBITDA including a reconciliation of EBITDA to operating income.
(2) Net earnings and EPS before restructuring and other items and net gains on investments do not have any standardized meaning prescribed by GAAP. Please refer to the section of BCE Inc.'s 2005 Second Quarter MD&A, dated August 2, 2005, entitled "Non-GAAP Financial Measures" included in this news release for more details on net earnings and EPS before restructuring and other items and net gains on investments including a reconciliation to net earnings applicable to common shares on a total and per share basis.
(3) We define free cash flow as cash from operating activities after capital expenditures, total dividends and other investing activities. Free cash flow does not have any standardized meaning prescribed by GAAP. Please refer to the section of BCE Inc.'s 2005 Second Quarter MD&A, dated August 2, 2005, entitled "Non-GAAP Financial Measures" included in this news release for more details on free cash flow including a reconciliation of free cash flow to cash from operating activities. For 2005, we expect to generate approximately $700 million to $900 million in free cash flow. This amount reflects expected cash from operating activities of approximately $5.9 billion to $6.1 billion less capital expenditures, total dividends and other investing activities.
BCE 2005 Second Quarter Financial Information
BCE's 2005 Second Quarter Shareholder Report (which contains BCE's 2005 second quarter MD&A and unaudited consolidated financial statements) and other relevant financial materials are posted at http://www.bce.ca/en/investors, under "Investor Briefcase". BCE's 2005 Second Quarter Shareholder Report is also available on the Web site maintained by the Canadian securities regulators at http://www.sedar.com/ . It can also be ordered from BCE's Investor Relations Department (email: investor.relations@bce.ca, tel.: 1 800 339-6353; fax: (514) 786-3970).
BCE's 2005 Second Quarter Shareholder Report will be sent to BCE's shareholders who have requested to receive it, on or about August 8, 2005.
Call with Financial Analysts
BCE will hold a teleconference for financial analysts to discuss its second quarter results on Wednesday, August 3, 2005 at 8:00 a.m. (Eastern). Media are welcome to participate on a listen only basis. Michael Sabia, President and CEO, Siim Vanaselja, Chief Financial Officer, and other executives will participate in the teleconference.
To participate, please dial 416-340-8010 or 1-866-540-8136 shortly before the start of the call. This teleconference will also be Webcast live and archived for 90 days on BCE's website at http://www.bce.ca/ .
Call with the Media
BCE will hold a teleconference for media to discuss its second quarter results on Wednesday, August 3, 2005 at 2:30 p.m. (Eastern). Michael Sabia, President and CEO will participate in the teleconference.
To participate, please dial 416-405-9328 or 1-800-387-6216 shortly before the start of the call. This teleconference will also be Webcast live and archived for 90 days on BCE's website at http://www.bce.ca/ .
Caution Concerning Forward-Looking Statements
Certain statements made in this news release, including, but not limited to, the statements appearing under the "Outlook" section, and other statements that are not historical facts, are forward-looking and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. For a description of risks that could cause actual results or events to differ materially from current expectations please refer to the sections entitled "Risks That Could Affect Our Business" contained in BCE Inc.'s Annual Information Form for the year ended December 31, 2004, and in BCE Inc.'s 2005 First Quarter MD&A dated May 3, 2005, both filed by BCE Inc. with the Canadian securities commissions (available at http://www.bce.ca/ and on SEDAR at http://www.sedar.com/), and with the U.S. Securities and Exchange Commission under Form 40-F and Form 6-K, respectively, (available on EDGAR at http://www.sec.gov/), as updated in BCE Inc.'s 2005 Second Quarter MD&A dated August 2, 2005, included in this news release, under the section entitled "Risks That Could Affect Our Business". The forward-looking statements contained in this news release represent our expectations as of August 3, 2005 and, accordingly, are subject to change after such date. However, we disclaim any intention or obligation to update any forward-looking statements, whether as a result of new information or otherwise.
THE QUARTER AT A GLANCE
BCE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE SECOND QUARTER OF
2005
The Quarter at a Glance
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This section reviews the key measures we use to assess our performance
and how our results in Q2 2005 compare to our results in Q2 2004.
In the second quarter, we achieved strong gains in our wireless, video and high-speed Internet subscriber bases, which help lay an important foundation for the future profitable growth of these businesses. In addition, our Business segment continued to make steady progress on its overall Information and Communications Technology (ICT), or value-added services (VAS), strategy by leading the company in the shift towards new growth services. In Q2, growth revenues accounted for 44% of total revenues at Bell Canada, which is in line with our target of 45% by the end of 2005.
Revenue growth reached 4.2% at BCE and 2.1% at Bell Canada in Q2. Despite higher revenues and cost savings from our Galileo Program (Galileo), operating income declined by 0.5% at BCE and by 3.5% at Bell Canada as a result of the upfront cost of acquiring more subscribers, as well as higher amortization expense and net benefit plans cost. EBITDA(1) grew by 2.5% at BCE and by 1.0% at Bell Canada this quarter, as higher revenues and cost savings from Galileo more than offset increased subscriber acquisition costs.
(1) EBITDA, free cash flow and net earnings excluding the impact of
restructuring and other items and net gains on investments do not
have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP) and are therefore unlikely to
be comparable to similar measures presented by other companies. For
more details on these measures, including a reconciliation to the
most comparable GAAP measure, please refer to the section entitled
Non-GAAP Financial Measures contained in BCE Inc.'s 2005 Second
Quarter MD&A dated August 2, 2005.
In our Consumer segment, revenue grew as a result of continued strength in our growth businesses, but was partly offset by accelerated declines in legacy service revenues. This improvement reflected the success of our strategy to significantly enhance subscriber acquisition and stimulate average revenue per user (ARPU) for wireless and video.
In our Business segment, our Internet Protocol (IP) based connectivity and VAS strategies within the small and medium-sized business (SMB) and Enterprise markets continued to gain strength. This positive trend contributed to solid revenue growth during the quarter, despite increased competitive pressures and lower demand for our legacy wireline business services.
In the Aliant segment, strong growth in wireless and Internet services revenue offset declines in other areas of the business that were affected by the impacts of competition, technology substitution and regulatory restrictions.
Within the other Bell Canada segment, revenue growth was driven by the acquisition of the wholesale operations of 360networks, despite ongoing market challenges.
Within the other BCE segment, Bell Globemedia continued to demonstrate very good financial performance. This was driven by higher advertising revenue, reflecting strong television ratings as CTV Television held 18 of the top 20 regularly scheduled programs from September 2004 to July 2005. Telesat also had a good quarter, reflecting very strong revenue growth from its network for Interactive Distance Learning services and growth in Ka-band revenues on its Anik F2 satellite.
<<
Customer Connections
Q2 2005 30-JUN-05
CONNECTIONS NET CONNEC-
(IN THOUSANDS) ACTIVATIONS TIONS
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Wireless 146 5,108
High-Speed Internet 92 2,028
Video 63 1,595
NAS (145) 12,700
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>>
To view BCE chart Growth in EOP Connections please click here.
http://files.newswire.ca/175/01E.jpg
- Wireless - Our wireless business regained its momentum this quarter
with 146,000 net activations, increasing our customer base by 11.1%
compared with last year and surpassing the 5 million customer mark.
Approximately 80% of our net activations this quarter were on postpaid
rate plans. Churn was unchanged from Q1 2005 at 1.6%, but increased
from 1.3% in Q2 2004.
- High-Speed Internet - Our high-speed Internet business added 92,000
customers this quarter, fuelled in part by the growth of our 128 Kbps
Basic Lite product introduced in Ontario during Q1. With these
additions, total subscribers grew by 24.2% over the last twelve months,
pushing our customer base to over 2 million.
- Video - Our video business had its best Q2 ever with 63,000 net
activations, an increase of 163% compared with Q2 2004. Our video
subscriber base grew by 11.8% over the last twelve months. Churn
improved, year-over-year, to 0.9%.
- Network Access Services (NAS) - NAS declined by 145,000 during the
quarter, reflecting the seasonal impact of student and residential
moves in Quebec and Ontario, competitive losses and lower demand for
second lines. End-of-period NAS in service declined by 1.8%, since the
end of Q2 2004, representing a higher rate of decline compared with
previous quarters. This increase in year-over-year NAS reductions
reflects an increasingly competitive environment as a major cable
operator expanded the footprint of its low-priced cable telephony
offering in certain of our Quebec markets.
Operating Revenues
To view BCE chart Revenues please click here.
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Our revenues increased by 4.2% year-over-year to reach $4,980 million in the quarter. This growth reflected improved revenue performance across most of our segments. At Bell Canada, revenues were driven primarily by the Consumer segment due to growth in wireless, video and Internet access services, as well as from continuing solid results within the Business segment attributable to focused execution of our Virtual Chief Information Officer (VCIO), VAS and IP strategies and the contribution from recent acquisitions, all of which have positively impacted data revenue growth. This was offset partially by lower Aliant segment revenues due mainly to lower directory revenues. Overall revenue performance was further enhanced by double-digit growth at Telesat and CGI, and high single-digit growth at Bell Globemedia.
Operating Income and EBITDA(1)
(1) EBITDA, free cash flow and net earnings excluding the impact of
restructuring and other items and net gains on investments do not
have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP) and are therefore unlikely to
be comparable to similar measures presented by other companies. For
more details on these measures, including a reconciliation to the
most comparable GAAP measure, please refer to the section entitled
Non-GAAP Financial Measures contained in BCE Inc.'s 2005 Second
Quarter MD&A dated August 2, 2005.
To view BCE chart Operating Income and EBITDA please click here.
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We achieved operating income of $1,100 million, down 0.5% or $5 million, compared with the same period last year. Despite higher revenues and cost savings from Galileo, the year-over-year decline was the result of an increase in the cost of acquiring a substantially higher number of subscribers in wireless and video, some margin pressure from the continuing transformation of our product mix towards growth services, and by higher net benefit plans cost and amortization expense. Similarly, Bell Canada's operating income in the quarter declined by $36 million, or 3.5%, to $981 million from $1,017 million in Q2 2004.
Our EBITDA for the quarter was $2,001 million, an increase of $48 million or 2.5% compared with last year, reflecting increases in all segments. Bell Canada's EBITDA this quarter was $1,839 million, or 1.0% higher than last year.
EBITDA margin in the second quarter was 40.2% at BCE and 43.2% at Bell Canada, down 0.7 and 0.4 percentage points, respectively, compared with Q2 2004. The year-over-year declines reflected higher acquisition costs as a result of significantly better subscriber growth, continued erosion of high- margin legacy business, and lower local and access and data revenues within our wholesale operations. This was partly offset by margin improvement at Aliant, and by strong revenue growth at Bell Globemedia, CGI and Telesat.
The Quarter at a Glance
Net Earnings / Earnings Per Share
To view BCE chart EPS please click here.
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Net earnings applicable to common shares for Q2 2005 were $563 million, or $0.61 per common share, up 1.6% from net earnings of $554 million, or $0.60 per common share, for the same period last year. Included in second-quarter earnings this year were $25 million of net gains on investments and restructuring and other items, composed primarily of a dilution gain relating to our interest in Terre Star, a mobile satellite services company. This compared with net gains of $47 million in Q2 2004. Excluding the impact of these items, net earnings of $538 million, or $0.58 per common share, were up $31 million, or $0.03 per share, representing an increase of 5.5% per share over last year(1). This improvement can be largely attributed to higher EBITDA and net income tax savings resulting from a loss monetization program based on an agreement entered into by Bell Canada and Bell Canada International Inc. in August 2004, offset partly by a significant increase in net benefit plans cost and higher amortization expense.
Capital Expenditures
To view BCE chart Capital Expenditures please click here.
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Capital expenditures were $914 million this quarter, or 10.7% higher than the same period last year. As a percentage of revenues, capital expenditures increased this quarter to 18.4% from 17.3% last year, reflecting an acceleration in our spending program. This year-over-year increase related to an expansion of our fiber-to-the-node (FTTN) footprint to deliver higher-speed broadband access, information technology (IT) efficiency projects to deliver cost savings, as well as a return to more normal spending levels at Aliant after its labour disruption in 2004.
Cash from operating activities and free cash flow(1)
(1) EBITDA, free cash flow and net earnings excluding the impact of
restructuring and other items and net gains on investments do not
have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP) and are therefore unlikely to
be comparable to similar measures presented by other companies. For
more details on these measures, including a reconciliation to the
most comparable GAAP measure, please refer to the section entitled
Non-GAAP Financial Measures contained in BCE Inc.'s 2005 Second
Quarter MD&A dated August 2, 2005.
To view BCE chart Cash from operating activities please click here.
http://files.newswire.ca/175/06E.jpg
To view BCE chart Free Cash Flow please click here.
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Cash from operating activities in the second quarter was $1,450 million, representing a 29% or $326 million improvement over Q2 2004. This increase was mainly due to:
- an improvement in cash earnings as a result of higher EBITDA and lower
interest costs; and
- an improvement in accounts receivable collections compared with the
second quarter of 2004 that was negatively impacted by the
implementation of a new wireless billing platform.
On a year-to-date basis, cash from operating activities was relatively flat at $2,389 million, compared with $2,384 million for the first six months of 2004. This resulted mainly from an improvement in cash earnings and accounts receivable collections, offset substantially by a number of impacts, which more than offset our growth in EBITDA and lower interest payments. These impacts were:
- an increase in income taxes paid, primarily related to the final
instalment for 2004;
- higher pension and other benefit plan payments, stemming primarily from
a voluntary contribution by Aliant; and
- restructuring payments related to employee departure programs announced
last year at Bell Canada and Aliant.
Our free cash flow this quarter was $138 million, up from free cash flow of $64 million in the second quarter of last year. The increase was attributable to higher cash from operating activities, offset partially by a number of anticipated items, including:
- Telesat insurance proceeds that were received in Q2 2004, which did not
recur this year;
- an increase in capital expenditures related to our investment in
next-generation service platforms; and
- higher dividends paid as a result of a $0.12 annual increase in the
dividend per common share. In the first six months of 2005, free cash
flow was negative $24 million down from free cash flow of $320 million
in the same period last year.
------------------------
Management's Discussion and Analysis
In this MD&A, we, us, our and BCE mean BCE Inc., its subsidiaries and
joint ventures.
All amounts in this MD&A are in millions of Canadian dollars, except
where otherwise noted.
Please refer to the unaudited consolidated financial statements for the
second quarter of 2005 when reading this MD&A. We also encourage you to
read BCE Inc.'s MD&A for the year ended December 31, 2004 dated March 2,
2005 (BCE 2004 MD&A).
You will find more information about BCE, including BCE Inc.'s annual
information form for the year ended December 31, 2004 (BCE 2004 AIF), the
BCE 2004 MD&A and recent financial reports, on BCE Inc.'s website at
http://www.bce.ca/, on SEDAR at http://www.sedar.com/ and on EDGAR at http://www.sec.gov/ .
This management's discussion and analysis of financial condition and results of operations (MD&A) comments on BCE's operations, performance and financial condition for the three months (Q2) and six months (YTD) ended June 30, 2005 and 2004.
------------------------
About Forward-Looking Statements
A statement we make is forward-looking when it uses what we know and
expect today to make a statement about the future.
Forward-looking statements may include words such as anticipate, believe,
could, expect, goal, guidance, intend, may, objective, outlook, plan,
seek, should, strive, target and will.
Securities laws encourage companies to disclose forward-looking information so that investors can get a better understanding of the company's future prospects and make informed investment decisions.
Unless otherwise mentioned in this MD&A, the outlooks provided in the BCE 2004 MD&A dated March 2, 2005 remain unchanged.
This MD&A contains forward-looking statements about BCE's objectives, strategies, financial condition, results of operations, cash flows and businesses. These statements are "forward-looking" because they are based on our current expectations, estimates and assumptions about the markets we operate in, the Canadian economic environment and our ability to attract and retain customers and to manage network assets and operating costs. It is important to know that:
- forward-looking statements in this MD&A describe our expectations at
August 2, 2005
- our actual results could be materially different from what we expect if
known or unknown risks affect our business, or if our estimates or
assumptions turn out to be inaccurate. As a result, we cannot guarantee
that any forward-looking statement will materialize and, accordingly,
you are cautioned not to place undue reliance on these forward-looking
statements.
- forward-looking statements do not take into account the effect that
transactions or non-recurring or other special items announced or
occurring after the statements are made may have on our business. For
example, they do not include the effect of dispositions, sales of
assets, monetizations, mergers, acquisitions, other business
combinations or transactions, asset write-downs or other charges
announced or occurring after forward-looking statements are made. The
financial impact of such transactions and non-recurring and other
special items can be complex and necessarily depends on the facts
particular to each of them. Accordingly, the expected impact cannot be
meaningfully described in the abstract or presented in the same manner
as known risks affecting our business.
- we disclaim any intention and assume no obligation to update any
forward-looking statement even if new information becomes available, as
a result of future events or for any other reason.
Risks that could cause our actual results to materially differ from our current expectations are discussed throughout this MD&A and, in particular, in Risks That Could Affect Our Business.
Non-GAAP Financial Measures
------------------------
This section describes the non-GAAP financial measures we used in the
MD&A to explain our financial results. It also provides reconciliations
of the non-GAAP financial measures to the most comparable Canadian GAAP
financial measures.
EBITDA
------------------------
We define EBITDA (earnings before interest, taxes, depreciation and
amortization) as operating revenues less operating expenses, which means
it represents operating income before amortization expense, net benefit
plans cost, and restructuring and other items.
The term EBITDA does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). It is therefore unlikely to be comparable to similar measures presented by other companies. EBITDA is presented on a consistent basis from period to period.
We use EBITDA, among other measures, to assess the operating performance of our ongoing businesses without the effects of amortization expense, net benefit plans cost, and restructuring and other items. We exclude amortization expense and net benefit plans cost because they largely depend on the accounting methods and assumptions a company uses, as well as non-operating factors, such as the historical cost of capital assets and the fund performance of a company's pension plans. We exclude restructuring and other items because they are transitional in nature.
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 valuation measurement in the telecommunications industry.
The most comparable Canadian GAAP financial measure is operating income. The tables below are reconciliations of EBITDA to operating income on a consolidated basis for BCE and Bell Canada.
<<
YTD YTD
BCE Q2 2005 Q2 2004 2005 2004
-------------------------------------------------------------------------
EBITDA 2,001 1,953 3,939 3,797
Amortization expense (792) (769) (1,565) (1,536)
Net benefit plans cost (104) (65) (207) (128)
Restructuring and other items (5) (14) (1) (17)
-------------------------------------------------------------------------
Operating income 1,100 1,105 2,166 2,116
-------------------------------------------------------------------------
-------------------------------------------------------------------------
YTD YTD
BELL CANADA Q2 2005 Q2 2004 2005 2004
-------------------------------------------------------------------------
EBITDA 1,839 1,821 3,654 3,576
Amortization expense (746) (733) (1,478) (1,465)
Net benefit plans cost (107) (58) (213) (118)
Restructuring and other items (5) (13) - (16)
-------------------------------------------------------------------------
Operating income 981 1,017 1,963 1,977
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating Income Before Restructuring and Other Items
The term operating income before restructuring and other items does not have any standardized meaning prescribed by Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies.
We use operating income before restructuring and other items, among other measures, to assess the operating performance of our ongoing businesses without the effects of restructuring and other items. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. The exclusion of these items does not imply they are non-recurring.
The most comparable Canadian GAAP financial measure is operating income. The table below is a reconciliation of operating income to operating income before restructuring and other items on a consolidated basis.
YTD YTD
Q2 2005 Q2 2004 2005 2004
-------------------------------------------------------------------------
Operating income 1,100 1,105 2,166 2,116
Restructuring and
other items 5 14 1 17
-------------------------------------------------------------------------
Operating income before
restructuring and
other items 1,105 1,119 2,167 2,133
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net Earnings Before Restructuring and Other Items and Net Gains on
Investments
The term net earnings before restructuring and other items and net gains on investments does not have any standardized meaning prescribed by Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies.
We use net earnings before restructuring and other items and net gains on investments, among other measures, to assess the operating performance of our ongoing business without the effects of after-tax restructuring and other items and net gains on investments.
We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. The exclusion of these items does not imply they are non-recurring.
The most comparable Canadian GAAP financial measure is net earnings applicable to common shares. The table below is a reconciliation of net earnings applicable to common shares to net earnings before restructuring and other items and net gains on investments on a consolidated basis and per common share.
Q2 2005 Q2 2004 YTD 2005 YTD 2004
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
-------------------------------------------------------------------------
Net earnings
applicable
to common
shares 563 0.61 554 0.60 1,037 1.12 1,024 1.11
Restructu-
ring and
other
items 3 - (16) (0.02) 1 - (15) (0.02)
Net gains
on invest-
ments (28) (0.03) (31) (0.03) (28) (0.03) (38) (0.04)
-------------------------------------------------------------------------
Net earnings
before
restructuring
and other
items and net
gains on
invest-
ments 538 0.58 507 0.55 1,010 1.09 971 1.05
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Free Cash Flow
------------------------
We define free cash flow as cash from operating activities after capital
expenditures, total dividends and other investing activities.
The term free cash flow does not have any standardized meaning prescribed by Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. Free cash flow is presented on a consistent basis from period to period.
We consider free cash flow to be an important indicator of the financial strength and performance of our business because it shows how much cash is available to repay debt and to reinvest in our company. We believe that certain investors and analysts use free cash flow when valuing a business and its underlying assets.
The most comparable Canadian GAAP financial measure is cash from operating activities. The table below is a reconciliation of free cash flow to cash from operating activities on a consolidated basis.
YTD YTD
Q2 2005 Q2 2004 2005 2004
-------------------------------------------------------------------------
Cash from operating
activities 1,450 1,124 2,389 2,384
Capital expenditures (914) (826) (1,651) (1,507)
Total dividends paid (387) (350) (736) (692)
Other investing activities (11) 116 (26) 135
-------------------------------------------------------------------------
Free cash flow 138 64 (24) 320
-------------------------------------------------------------------------
>>
About Our Business
A detailed description of our products and services and our objectives and strategy is provided in the BCE 2004 MD&A.
Strategic Priorities
Our strategy is to deliver unrivalled integrated communication services to customers and to take a leadership position in setting the standard in Internet Protocol (IP). During the quarter, we made significant progress on each of our three key strategic priorities.
1) Delivering an enhanced customer experience while significantly
lowering costs (our Galileo program)
In our Consumer segment:
- We gained 127,000 subscriptions to the Bell Bundle (a combination of
wireless, Internet and video services in one offer) this quarter.
During the quarter, almost half of bundle activations included the sale
of at least one new service. At the end of the quarter, we had 681,000
subscribers with bundles.
- The $5 long distance bundle introduced in June 2004 added 87,000
customers this quarter, bringing total sales since launch to 406,000.
On July 3, 2005, we stopped offering the $5 long distance bundle option
as part of our refocused consumer market strategy to grow the number of
multi-product households by using more targeted offers.
- At the end of the quarter, we had almost one million customers enjoying
the benefits of a single bill for their wireline, Internet, and video
services.
- We continued to expand the benefits of bundling to include superior
customer care through our 'Privileges Program', a service with extended
hours providing technical and administrative support to high value
customers. At the end of the quarter, we had 650,000 members in the
program.
- We completed the prototype for our new Bell.ca website, which we expect
to be launched in the fourth quarter. We also fortified our current
website by improving login times and the search engine.
- We launched a 'Grab 'n Go' offer in our Bell World stores, enabling
customers to pick up everything they need to install their high-speed
Internet service in a single box. Previously, the high-speed modem
required for the service was shipped separately to customers after the
sale. This launch has now made it simpler for customers to get
high-speed Internet service and simplified the selling task for our
in-store customer representatives.
- We implemented improvements to our on-line Net Assistant service for
Sympatico Internet customers to provide additional functionality,
including a "Customer Chat" capability, for billing related issues.
These improvements also give customers greater control over their
service with better automation capabilities and "quick-fix" solutions.
In our Business segment:
- We continued making progress on moving our core traffic to a pervasive
national IP multi-protocol label-switching (IP-MPLS) network. At the
end of Q2, 73% of the migratable traffic on our core network was
IP-based, which is in line with our objective to reach 75% by the end
of 2005.
- As part of our strategy shift to IP, we continued the process of
discontinuing legacy data services. In Q2, this list was expanded by 11
services, bringing the year-to-date number to 22.
- We officially launched 'Service Promise' to provide customers with a
consistent level of service in the delivery of connectivity services.
Overall, our various Galileo initiatives led to cost reductions this quarter of $122 million, bringing total savings for the first six months of 2005 to approximately $242 million, which keeps us on track to achieve our target run-rate savings of $500-$600 million for 2005. These savings have come primarily from:
- the employee departures that took place in Q4 2004;
- reduced procurement costs resulting in COA savings; and
- improvements in cost of goods sold stemming from optimization of our
network and product simplification.
2) Deliver abundant bandwidth to enable next-generation services
We continued our fiber-to-the-node (FTTN) rollout by deploying another 593 neighbourhood nodes, raising the total number of nodes served to 1,355. Our objective is to deploy 2,000 nodes by the end of 2005.
We made steady progress in the deployment of very-high bit-rate digital subscriber line (VDSL) to large multiple-dwelling units (MDUs). By the end of the quarter, we had signed access agreements with 537 buildings and had provisioned VDSL in 345 buildings.
3) Create next-generation services to drive future growth
Our Consumer segment:
- At the end of Q2, we had 55,000 subscribers on our '10-4' push-to-talk
service, which included a significant number of retail consumers.
- Introduced Solo Mobile, our new wireless youth brand, offering custom-
built services and unique features such as a nationwide pay-per-use
push-to-talk (PTT) service and the choice of postpaid or prepaid
options. We are the first Canadian wireless operator to actively market
PTT to the consumer youth segment.
- Launched 'True Tones', a monthly service that enables customers to
download a recording artist's actual song as their ringtone.
- Launched 'Seek & Find', a wireless location-based system that enables
subscribers to simultaneously locate multiple individuals away from
their homes or offices.
- Commercially introduced a dual tuner high definition personal video
recorder (HD PVR), which allows Bell ExpressVu customers to instantly
pause live television, as well as record, replay, stop, fast forward
and fast rewind HD and standard definition programming on up to two TVs
in the home through a single receiver.
Our small and medium-sized businesses (SMB) unit:
- Launched GoTrax, a new low-cost remote wireless tracking system for SMB
customers. GoTrax is a handset-based technology that allows assets to
be tracked in places where traditional Global Positioning System (GPS)
signals do not work.
- Introduced a new integrated and Bell-hosted audio and web conferencing
solution for SMB customers based on the bilingual version of
Microsoft(R) Office Live Meeting 2005 that allows for control of the
audio conference call directly from the desktop.
- Completed the acquisition of CSB Systems (CSB), an established
enterprise resource planning systems integrator in Western Canada,
which helps expand our range of value-added services (VAS) in the area
of integrated IT solutions.
Our Enterprise unit:
- Has sold 185,000 IP-enabled lines on customer premises equipment (CPE)
to date, representing a more than two-fold increase over the past
twelve months.
- Launched Global Voice over Internet Protocol solution for Canadian
multinationals, a managed IP service delivered by BT Infonet that can
provide unlimited, international intra-company voice services at a flat
rate by virtue of interconnecting geographically dispersed customer
locations over a virtual private IP network.
- Continued to enhance its capabilities through the acquisitions of
CDG, Inc. (CDG), a Canadian provider of anti-virus and anti-spam
solutions, which should provide a strong presence in the West, and
PopWare Inc., a systems integrator providing inventory and asset
management solutions, which expands our wireless solutions portfolio.
Government of Alberta Agreement
In June 2005, Bell Canada and the Government of Alberta (GOA) entered into a new agreement whereby completion of the construction of a next- generation network (SuperNet) and service acceptance by the GOA is scheduled for September 2005. Under the terms of the agreement, Bell Canada assumes ownership of the Extended Area Network (EAN) and provides rights of use to the GOA under indefeasible right-of-use agreements. The SuperNet, which will provide high-speed Internet and broadband capabilities, is comprised of a Base Area Network (BAN), covering 27 of Alberta's largest communities, and the EAN, reaching over 400 communities in rural Alberta. In conjunction with this agreement, Bell Canada also entered into a new revenue sharing agreement with the GOA and Axia NetMedia Corporation, the access manager for SuperNet. The new agreements replace the initial contracts entered into in 2001.
Labour agreements
On July 18, 2005, Bell Canada reached a new four-year agreement with approximately 10,000 clerical and associated employees represented by the Canadian Telecommunications Employees' Association (CTEA).
On July 21, 2005, we were informed that Entourage Technology Solutions Inc.'s (Entourage) 1,400 technicians in Ontario represented by the Communications, Energy and Paperworkers' Union of Canada (CEP) voted in favour of a new four-year collective agreement, ending a labour disruption that began in March. Entourage technicians in Quebec already had accepted a new four-year collective agreement in April.
With these agreements and the major agreements signed by Bell Canada and Aliant with their respective technicians in 2004, Bell Canada now has the labour stability and a more competitive cost structure needed to deliver quality services and value to customers in the years ahead.
Quarterly Financial Information
The table below shows selected consolidated financial data for the eight most recently completed quarters. This information has been prepared on the same basis as the annual consolidated financial statements, but is unaudited.
<<
2005 2004 2003
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
-------------------------------------------------------------------------
Operating
revenues 4,980 4,859 4,986 4,778 4,779 4,638 4,815 4,624
EBITDA 2,001 1,938 1,831 1,936 1,953 1,844 1,847 1,895
Amortization
expense (792) (773) (803) (769) (769) (767) (775) (801)
Net benefit
plans cost (104) (103) (67) (61) (65) (63) (46) (44)
Restructuring
and other items (5) 4 (126) (1,081) (14) (3) (13) (1)
-------------------------------------------------------------------------
Operating
income 1,100 1,066 835 25 1,105 1,011 1,013 1,049
Earnings from
continuing
operations 581 492 367 102 544 485 486 453
Discontinued
operations - (1) (2) (2) 27 3 (86) 11
Extraordinary
gain - - 69 - - - - -
Net earnings 581 491 434 100 571 488 400 464
Net earnings
applicable to
common shares 563 474 417 82 554 470 386 446
Included in
net earnings:
Net gains on
investments
Continuing
operations 28 1 64 325 - - 84 -
Discontinued
operations - (1) (2) (2) 31 7 (94) 8
Restructuring and
other items (3) 2 (62) (725) 16 (1) (9) 6
Net earnings per
common share
Continuing
operations
- basic 0.61 0.51 0.38 0.09 0.57 0.51 0.50 0.48
Continuing
operations
- diluted 0.61 0.51 0.38 0.09 0.57 0.51 0.50 0.47
Net earnings
- basic 0.61 0.51 0.45 0.09 0.60 0.51 0.41 0.49
Net earnings
- diluted 0.61 0.51 0.45 0.09 0.60 0.51 0.41 0.48
Average number
of common shares
outstanding
(millions) 926.6 926.2 925.3 924.6 924.3 924.1 923.4 921.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
------------------------
Financial Results Analysis
This section provides detailed information and analysis about our performance in Q2 2005 and YTD 2005 compared with Q2 2004 and YTD 2004. It focuses on our consolidated operating results and provides financial information for each of our operating segments.
Consolidated Analysis
Q2 Q2 % YTD YTD %
2005 2004 CHANGE 2005 2004 CHANGE
-------------------------------------------------------------------------
Operating revenues 4,980 4,779 4.2% 9,839 9,417 4.5%
Operating expenses (2,979) (2,826) (5.4%) (5,900) (5,620) (5.0%)
-------------------------------------------------------------------------
EBITDA 2,001 1,953 2.5% 3,939 3,797 3.7%
Amortization expense (792) (769) (3.0%) (1,565) (1,536) (1.9%)
Net benefit
plans cost (104) (65) (60.0%) (207) (128) (61.7%)
Restructuring and
other items (5) (14) 64.3% (1) (17) 94.1%
-------------------------------------------------------------------------
Operating income 1,100 1,105 (0.5%) 2,166 2,116 2.4%
Other income 24 24 0.0% 31 60 (48.3%)
Interest expense (247) (253) 2.4% (494) (505) 2.2%
-------------------------------------------------------------------------
Pre-tax earnings
from continuing
operations 877 876 0.1% 1,703 1,671 1.9%
Income taxes (223) (293) 23.9% (494) (555) 11.0%
Non-controlling
interest (73) (39) (87.2%) (136) (87) (56.3%)
-------------------------------------------------------------------------
Earnings from
continuing operations 581 544 6.8% 1,073 1,029 4.3%
Discontinued
operations - 27 (100.0%) (1) 30 (103.3%)
-------------------------------------------------------------------------
Net earnings 581 571 1.8% 1,072 1,059 1.2%
Dividends on
preferred shares (18) (17) (5.9%) (35) (35) 0.0%
-------------------------------------------------------------------------
Net earnings
applicable to common
shares 563 554 1.6% 1,037 1,024 1.3%
-------------------------------------------------------------------------
EPS 0.61 0.60 1.7% 1.12 1.11 0.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Operating revenues
To view BCE chart Segment Revenues please click here.
http://files.newswire.ca/175/08E.jpg
Our revenues increased by 4.2% in the second quarter to $4,980 million and by 4.5% to $9,839 million on a year-to-date basis. The growth delivered this quarter reflected improved revenue performance across all of our segments except Aliant. At Bell Canada this was driven primarily by higher Consumer revenues attributable to stronger growth in wireless, video and Internet access services, as well as from continuing solid results within the Business segment, due to focused execution of our Virtual Chief Information Officer (VCIO), VAS and IP strategies and recent acquisitions, which has increased data revenues. Although our second quarter revenue growth was tempered slightly by Aliant's performance, due to lower directory revenues, on a year- to-date basis Aliant contributed positively to our overall revenue growth. The Other BCE segment also contributed significantly to higher revenues, with double-digit growth at Telesat Canada (Telesat) and CGI Group Inc. (CGI) and high single-digit growth at Bell Globemedia Inc. (Bell Globemedia).
Operating income
To view BCE chart Consolidated operating income please click here.
http://files.newswire.ca/175/09E.jpg
We achieved operating income of $1,100 million, down 0.5% or $5 million compared with the same period last year. Despite higher revenues and cost savings from our Galileo program and prudent expense management at Aliant, the year-over-year decline was driven mainly by increased acquisition costs brought about by substantially stronger subscriber growth in wireless, video and high-speed Internet services, as well as by higher net benefit plans cost and amortization expense. For the first half of 2005, however, operating income increased 2.4% to $2,166 million, compared with the same six months last year. Stronger revenue growth, particularly at Bell Globemedia, Telesat and CGI, more than offset higher subscriber acquisition costs, higher wireless bad debt expense in Q1 stemming from billing delays associated with our billing system conversion last year, and increases in net benefit plans cost and amortization expense.
At Bell Canada, due mainly to the upfront costs associated with acquiring subscribers, operating income declined 3.5% to $981 million in the second quarter and 0.7% to $1,963 year-to-date, despite solid revenue growth and further Galileo-related cost savings. The various cost-reduction and process improvement initiatives generated $122 million in savings this quarter, bringing total Galileo-related cost savings for the first six months of 2005 to $242 million. These savings resulted mainly from:
- the employee departures that took place in Q4 2004;
- reduced procurement costs resulting in COA savings; and
- improvements in cost of goods sold from optimization of our network and
product simplification.
EBITDA
Our EBITDA for the second quarter and first half of 2005 was $2,001 million and $3,939 million, respectively, corresponding to increases of 2.5% and 3.7%, compared with the same periods last year, reflecting increases in all segments. Similarly, Bell Canada EBITDA increased by 1.0% versus Q2 2004 to reach $1,839 million in the quarter, while on a year-to-date basis EBITDA was up 2.2% to $3,654 million, reflecting revenue improvements in wireless and video, offset by lower local and access and data revenues within our wholesale operations.
Wireless EBITDA increased year-over-year by 5.0%, due to double-digit revenue growth, despite the higher cost of acquisition associated with 41% more gross subscriber additions during the second quarter of this year. As a result of this incremental cost impact, EBITDA margin for the quarter was 2.5 percentage points below the same period last year.
On a year-to-date basis, wireless EBITDA increased by 9.3%, which reflected wireless revenue growth of 10%. This was offset by the costs of acquiring a larger number of customers this quarter and higher bad debt expense in Q1, which resulted in a slight 0.4 percentage-point decline in EBITDA margin.
Video EBITDA was positive and increased both on a quarterly and year-to- date basis, despite a strong increase in activations, reflecting continued focus on cost containment and solid revenue growth driven by the combination of a higher average number of subscribers and higher ARPU.
Wireless cost of acquisition (COA) improved by 2.9% to $401 per gross activation in the second quarter of 2005 and by 10.4% to $389 in the first half of 2005 from $413 and $434 per gross activation for the same respective periods in 2004. Despite an increase in hardware subsidies incurred to acquire higher quality customers, the year-over-year improvements in COA were driven primarily by a greater number of gross activations, reduced promotions and advertising costs, and a slightly higher proportion of prepaid activations.
The COA for video services in the second quarter and first six months of 2005 decreased by 18.9% and 24%, respectively, to $462 and $466 per gross activation from $570 and $610 per gross activation in the same periods last year. The significant improvements can be attributed primarily to lower set- top box (STB) pricing, reflecting the negotiation of a favourable supply contract, our STB rental program and the increased purchasing power of a stronger Canadian dollar, partially offset by a higher number of customers taking additional STBs.
Amortization expense
Amortization expense of $792 million in Q2 2005 and $1,565 million on a year-to-date basis in 2005 represent increases of 3.0% and 1.9%, respectively, compared to the same periods last year. This was a result of an increase in our capital asset base from capital spending that continues to be higher than asset retirements.
Net benefit plans cost
The net benefit plans cost of $104 million in Q2 2005 and $207 million on a year-to-date basis in 2005 represent increases of 60% and 62%, respectively, compared to the same periods last year. The increases resulted mainly from:
- a reduction in the discount rate from 6.5% to 6.2%, which resulted in
an increase in the accrued benefit obligation of our pension plans
- a reduction in plan assets due to the amortization of investment losses
experienced in 2001 and 2002
- fully amortizing in 2004 the savings relating to the transitional asset
that arose upon the adoption of new accounting rules in 1987
- an increase in the pension obligation from the early retirement program
in 2004.
Restructuring and other items
We recorded restructuring and other items of $5 million in Q2 2005 and $1 million on a year-to-date basis in 2005, which consisted of charges of $5 million in Q2 2005 and $26 million on a year-to-date basis in 2005. These charges were mainly for relocating employees and closing real estate facilities that are no longer needed because of the reduction in the workforce from the 2004 employee departure program. This was partly offset by a $25 million credit in Q1 2005 for the reversal of restructuring provisions that were no longer necessary, since the actual payments made to employees were lower than estimated.
We recorded restructuring and other items of $14 million in Q2 2004 and $17 million on a year-to-date basis in 2004, which consisted mainly of:
- a $110 million provision recorded in Q2 2004 for cost overruns on a
contract with the Government of Alberta (GOA)
partly offset by:
- income of $75 million recorded in Q2 2004 relating to an agreement
reached between BCE Inc. and Manitoba Telecom Services Inc. (MTS) to
settle lawsuits
- a $23 million credit in Q2 2004 for the reversal of restructuring
provisions that were no longer necessary, since the actual payments
made to employees were lower than estimated.
Net earnings / Earnings per Share (EPS)
Net earnings applicable to common shares for Q2 2005 were $563 million, or $0.61 per common share, 1.6% higher than net earnings of $554 million, or $0.60 per common share, for the same period last year. Included in the second quarter earnings this year were $25 million of net gains on investments and restructuring and other items, composed primarily of a dilution gain relating to our interest in TerreStar Networks Inc., a mobile satellite services company, compared with $47 million in Q2 2004. Excluding the impact of these items, net earnings of $538 million, or $0.58 per common share, were up $31 million, or $0.03 per share, representing an increase of 5.5% over last year.
On a year-to-date basis, net earnings applicable to common shares were $1,037 million, or $1.12 per common share, 1.3% higher than net earnings of $1,024 million, or $1.11 per common share, for the same period last year. Included in year-to-date earnings this year were $27 million of net gains on investments and restructuring and other items, compared with $53 million for the same period last year. Excluding the impact of these items, net earnings of $1,010 million, or $1.09 per common share, were up $39 million, or $0.04 per share, representing an increase of 3.8% over last year.
Both the quarterly and year-to-date improvements can be attributed directly to higher EBITDA, lower interest expense, as well as the net income tax savings from the loss monetization program between Bell Canada and Bell Canada International Inc. (BCI), which were partly offset by higher net benefit plans cost and amortization expense.
<<
Segmented Analysis
Q2 Q2 % YTD YTD %
2005 2004 CHANGE 2005 2004 CHANGE
-------------------------------------------------------------------------
Operating revenues
Consumer 1,890 1,858 1.7% 3,746 3,683 1.7%
Business 1,499 1,441 4.0% 2,977 2,876 3.5%
Aliant 518 526 (1.5%) 1,042 1,030 1.2%
Other Bell Canada 485 468 3.6% 964 942 2.3%
Inter-segment
eliminations (134) (121) (10.7%) (262) (253) (3.6%)
-------------------------------------------------------------------------
Total Bell Canada 4,258 4,172 2.1% 8,467 8,278 2.3%
Other BCE 835 722 15.7% 1,583 1,373 15.3%
Inter-segment
eliminations (113) (115) 1.7% (211) (234) 9.8%
-------------------------------------------------------------------------
Total operating
revenues 4,980 4,779 4.2% 9,839 9,417 4.5%
-------------------------------------------------------------------------
Operating income
Consumer 552 560 (1.4%) 1,078 1,086 (0.7%)
Business 221 227 (2.6%) 461 468 (1.5%)
Aliant 99 92 7.6% 186 174 6.9%
Other Bell Canada 109 138 (21.0%) 238 249 (4.4%)
-------------------------------------------------------------------------
Total Bell Canada 981 1,017 (3.5%) 1,963 1,977 (0.7%)
Other BCE 119 88 35.2% 203 139 46.0%
-------------------------------------------------------------------------
Total operating
income 1,100 1,105 (0.5%) 2,166 2,116 2.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Consumer revenues
To view BCE chart Consumer Revenues please click here.
http://files.newswire.ca/175/10E.jpg
Consumer revenues grew by 1.7% both this quarter and year-to-date to $1,890 million and $3,746 million, respectively, reflecting continued strength in our growth businesses driven by substantial increases in our wireless, video and high-speed Internet subscriber bases. Growth in these product lines more than offset declines in long distance and local and access revenues.
Wireless
Consumer wireless revenues increased year-over-year both this quarter and year-to-date, mainly as a result of a higher average number of customers compared with last year. Consumer wireless revenue growth regained momentum this quarter fuelled by subscriber growth and new rate plans. In addition, the billing and retention credits issued in Q1 to compensate customers for billing errors and delays that occurred following implementation of the new billing platform have now returned to normal levels.
(For further information about our wireless subscriber base, please see Wireless within our Product Line Analysis.)
Video
To view BCE chart Video Revenues please click here.
http://files.newswire.ca/175/11E.jpg
To view BCE chart Video Subscribers please click here.
http://files.newswire.ca/175/12E.jpg
Our video revenues grew by 11.8% this quarter to $236 million from $211 million last year, as a result of a higher average number of subscribers and slightly higher average revenue per user (ARPU). Similarly, on a year-to- date basis, our video revenues grew by 9.3% to $457 million.
We had our strongest Q2 ever with the addition of 63,000 net new video customers, a 163% increase compared with the 24,000 net activations achieved in Q2 of 2004. These additions contributed to an 11.8% year-over-year increase in our video customer base to 1,595,000. The strong improvement in net activations this quarter and year-to-date was driven by the positive impact of our STB rental program and VDSL growth.
In order to combat DTH signal piracy, a major issue facing the Canadian broadcasting industry, we began the deployment of a new conditional access system in 2004. All new customers since August 2004 have been supplied with the new system and, over the past year, we have been replacing old smart cards for all remaining customers. This process was completed in July.
Our ARPU this quarter increased to $50 per month from $49 per month in Q2 2004 as a result of a price increase implemented in March 2005, offset partly by lower pay-per-view revenues due to the NHL lockout and bundle discounts. On a year-to-date basis, ARPU remained flat at $49 per month as the March price increase and a shift in the product mix towards higher priced programming packages was offset by lower pay-per-view revenues and bundle discounts.
Our video churn rate improved by 0.1 percentage point to 0.9% this quarter and 0.8% year-to-date compared with last year, reflecting the continued success of our bundled services market strategy and the requirement that, as of August 1, 2004, all new video customers have contracts.
Data
Consumer data revenues grew this quarter and year-to-date driven by growth of 24% in our High-Speed Internet subscriber base and an increase in revenues from our Sympatico.MSN.ca web portal and Bell Sympatico value-added services (VAS).
Consumer high-speed Internet net additions were stronger this quarter and year-to-date compared with last year. This was driven by the introduction of our Basic Lite service in the Ontario market, as well as by footprint expansion, focused selling efforts, and improved retention strategies. The introduction of lower priced high-speed services, such as Basic Lite, that are geared towards the very price sensitive segments of the market has expanded the overall high-speed market, stimulating high-speed service growth and accelerating the rate of erosion of dial-up Internet service.
Our Sympatico.MSN.ca portal revenues have increased by 131% over the second quarter of 2004. The portal currently averages 15.8 million unique visitors per month, or 84% of online Canadians.
VAS such as MSN Premium, Desktop Anti-Virus and Desktop Firewall added 99,000 subscriptions this quarter and 241,000 subscriptions year-to-date to reach a total of 865,000 subscriptions, approximately double the number of a year ago.
Wireline
Local and access revenues declined this quarter and year-to-date compared with the same periods last year due mainly to NAS declines (leading to both lower NAS revenues and related SmartTouch feature revenues), partly offset by higher revenues from wireline maintenance plans. NAS decreased both this quarter and year-to-date as a result of losses to competitive local exchange carriers (CLECs), cable telephony offerings, VoIP providers, continued pressure from growth in high-speed Internet access which reduces the need for second telephone lines, and customers substituting wireline with wireless telephone service. The rate of year-over-year NAS losses increased this quarter as a competitor expanded the footprint of its low-priced cable telephony offering in certain of our Quebec markets.
Long distance revenues were lower both this quarter and year-to-date compared with the same periods last year mainly reflecting lower average revenue per minute (ARPM). ARPM declines reflect competition from non- traditional long distance providers, the impact of our $5 Long Distance Bundle, and fewer higher priced overseas minutes. Overall minute volumes this quarter were slightly higher than last year as usage gains stemming from our bundle were largely offset by losses to non-traditional long distance providers. Year-to-date, minute volumes declined as bundle-related minute growth was more than offset by losses to non-traditional voice providers.
On July 3, 2005, we stopped offering the $5 Long Distance Bundle.
Consumer operating income
To view BCE chart Consumer Operating income please click here.
http://files.newswire.ca/175/13E.jpg
The Consumer segment achieved operating income of $552 million this quarter and $1,078 million year-to-date, representing decreases of 1.4% and 0.7%, respectively, compared with the same periods last year. Solid revenue growth and savings from cost-reduction initiatives, which contributed significantly to EBITDA performance in 2005, were more than offset by higher acquisition costs from wireless and video subscriber growth and year-over-year increases in net benefit plans cost and amortization expense. Wireless bad debt expense, which negatively impacted results in Q1, returned to normal levels in Q2.
Business revenues
To view BCE chart Business Revenues please click here.
http://files.newswire.ca/175/14E.jpg
Business segment revenues for the three and six months ended June 30, 2005 were $1,499 million and $2,977 million, respectively, representing increases of 4.0% and 3.5% compared with the same periods one year earlier. Increases in data and wireless revenues were partially offset by declines in local and access, long distance and terminal sales and other revenues.
Enterprise
Revenues from enterprise customers increased this quarter and on a year- to-date basis, as increases in data and wireless more than offset declines in local and access, long distance and terminal sales and other revenues.
Data delivered strong year-over-year improvement, even when excluding the impact of acquisitions, due to continued growth in our IP-based connectivity and VAS revenues. VAS revenues grew by 47% in the second quarter, compared with the same quarter last year, mostly as a result of acquisitions and customer outsourcing.
The trend towards IP continued throughout the quarter with 17 new customers implementing IP Virtual Private Networks (IPVPN), including the Jean Coutu Group, the City of Toronto, PepsiCo Canada, and Gowling Lafleur Henderson LLP. This brought the total number of customers implementing IPVPN networks as of the end of Q2 2005 to 111.
During the quarter, we continued to broaden our VAS solutions portfolio through acquisitions of CDG, a Canadian provider of anti-virus and anti-spam solutions, which should provide a strong presence in the West, and PopWare, a provider of inventory and assessment management solutions, which helps to expand our wireless solutions portfolio.
SMB
Revenues from SMB customers increased this quarter and on a year-to-date basis as increases in data, wireless and terminal sales and other revenues more than compensated for the decreases in long distance and local and access revenues. Data revenue growth was fuelled by acceleration in DSL high-speed Internet access service connections and continued strong VAS sales stemming from the successful execution of our VCIO strategy, despite a highly competitive market environment. Subscriptions to VAS increased by an additional 12,000 subscribers, bringing the total number at the end of the quarter to 106,000. The recent business acquisitions of Nexxlink Technologies Inc. (Nexxlink) and CSB, combined with improved rates of growth from Accutel Conferencing Systems Inc. (Accutel) and Charon Systems Inc. (Charon) acquired in 2004, contributed significantly to this quarter's growth in data, terminal sales and other revenue. Long distance revenues decreased, due mainly to a combination of volume and competitive pricing pressures, and our weakening pay- phone business resulting from wireless and Internet substitution. Similarly, local and access revenues were also lower due to pressure from our declining payphone business and lower wireline access installation fees due to the Entourage labour dispute, which was settled in July.
Bell West
Bell West continued to grow its Enterprise and SMB customer bases, resulting in a larger volume of customer premise equipment (CPE) sales, which translated directly into higher terminal sales and other revenue for both the second quarter and first half of 2005. Local and access and long distance revenues also increased this quarter and year-to-date due to expansion of the customer base. However, data revenues decreased, reflecting lower construction revenue in 2005 compared with last year from a contract to build a next- generation network for the GOA.
Group Telecom
In November 2004, we acquired the Canadian operations of 360networks Corporation, including GT Group Telecom Inc., (collectively 360networks) as well as certain U.S. network assets. This acquisition increased our customer base and gave us an extensive fibre network across major cities in Western Canada. The Business segment now reflects the retail portion of this acquisition, operating in Western Canada as the Group Telecom unit within Bell Canada.
Business operating income
To view BCE chart Business Operating income please click here.
http://files.newswire.ca/175/15E.jpg
Business segment operating income for the second quarter and first half of 2005 decreased by 2.6% and 1.5%, respectively, to $221 million and $461 million, as a result of higher net benefits plans cost and amortization expense, which more than offset EBITDA improvements stemming from solid revenue growth and the impact of cost savings initiatives.
In the Enterprise unit, operating income increased this quarter and year- to-date, reflecting revenue growth and cost-saving initiatives, which were partially offset by the higher amortization expense and net benefit plans cost.
Our SMB unit had lower operating income in both the second quarter and first half of the year, compared with the same period in 2004, as it incurred higher amortization expense and net benefit plans cost.
Bell West also recorded lower operating income in the second quarter and on a year-to-date basis, due primarily to lower data revenues and higher amortization expense.
Aliant revenues
To view BCE chart Aliant Revenues please click here.
http://files.newswire.ca/175/16E.jpg
Aliant segment revenues of $518 million for the second quarter decreased by 1.5% compared with the same period last year. Continued strong growth in wireless and Internet services partially offset declines in other areas due to regulatory restrictions, the impacts of competition, and lower directory advertising revenues. However, on a year-to-date basis, revenues were $1,042 million, or 1.2% higher than the same period last year, due to stronger product sales in Q1.
Aliant's wireless revenue grew in the second quarter and year-to-date, compared with the same periods last year. The growth was driven by a year-over- year increase of 9.7% in Aliant's wireless customer base. This included a 24% increase in digital customers, reflecting a strong market position that is supported by a comprehensive dealer network and innovative solutions, attractive pricing offers and extensive service area coverage. In addition, ARPU was up in the quarter, reflecting the impacts of a higher percentage of customers subscribing to digital service, higher usage and increased customer adoption of features.
Data revenues for the second quarter and first half of 2005 declined as higher Internet revenues were more than offset by other data revenue declines from the continued rationalization of circuit networks by customers and competitive pricing pressures. The Canadian Radio-television and Telecommunications Commission's (CRTC) decision with respect to Competitor Digital Network Services (CDN decision) also had a negative impact on data revenues. The growth in Internet revenues was attributable to year-over-year subscriber growth of 7.0%, reflecting a 31% growth in Aliant's high-speed Internet customer base. The higher subscriber base reflects the expansion of high-speed Internet service into new areas, attractive introductory offers and an emphasis on bundling with other products and services. The impact of Aliant's aggressive introductory offers that began late last year and ended in the first quarter and its value-package options reduced ARPU.
Intense competition in the long distance market, substitution of long distance calling with Internet and wireless options by customers, and the use of contact centre management tools to reduce minute usage resulted in long distance revenue declines in the second quarter and in the first six months of 2005, compared with the same periods last year.
Local and access revenues in the second quarter and year-to-date decreased over the same periods last year. This reflected a 1.6% decline in the NAS customer base, resulting from competitive losses and technology substitution. Enhanced service feature revenue also declined as more customers received bundling discounts. The CRTC's regulatory restrictions continue to place pressure on Aliant's local and access revenue with respect to bundling and packaging of local services with other non-regulated services, and limitations imposed with respect to customer win-back promotions. In addition, the negative impact from the CDN decision totalled $2.3 million in the second quarter and $4.7 million on a year-to-date basis.
Terminal sales and other revenues decreased for the second quarter due to lower directory advertising revenue. On a year-to-date basis there was an increase as declines in directory advertising revenue were more than offset by higher product sales.
Aliant operating income
Aliant's operating income was $99 million in the second quarter and $186 million year-to-date, reflecting an increase of $7 million, or 7.6%, and $12 million, or 6.9%, respectively, compared with the same periods last year. The full impact of growth and recovery from the 2004 labour disruption was partially offset by the impact of the CDN decision and an increase in pension and other post-employment benefits costs. Operating expense increases required to drive revenue growth are being contained by sound expense management, including the cost savings from Aliant's 2004 voluntary early retirement incentive program.
Other Bell Canada revenues
Other Bell Canada segment revenues of $485 million for Q2 2005 and $964 million for the first two quarters of this year, reflected increases of $17 million, or 3.6%, and $22 million, or 2.3%, respectively, compared with the same periods last year. These improvements were due mainly to higher revenues at our wholesale unit, resulting from the acquisition of the wholesale portion of 360networks in the fourth quarter of last year and a favourable ruling by the CRTC with respect to subsidies for serving high cost areas at Telebec Limited Partnership (Telebec) in Q1. This was partly offset by lower revenues of $15.9 million in Q2 and $25.8 million year-to-date that resulted from the CDN decision, and continued pressure on data revenues due to competitive pricing and customers migrating services to their own network facilities. The increase in the second quarter also reflected the favourable impact on revenues from the early termination of a cross-border facilities contract.
Other Bell Canada operating income
Operating income for the Other Bell Canada segment was $109 million this quarter, down 21% from Q2 2004, while on a year-to-date basis operating income was down 4.4% to $238 million when compared with the same period last year. The declines resulted mainly from incremental salaries and higher cost of goods sold associated with the wholesale operations of 360networks that was acquired in Q4 2004, the impact of the CDN decision, and a slight increase in operating expenses at Telebec and NorthernTel Limited Partnership (NorthernTel). These impacts were partially offset by various cost saving initiatives and improvement in bad debt expense. In addition, the year-to-date decrease was positively impacted in Q1 2005 by a $25 million credit for the reversal of restructuring provisions that were no longer necessary since the actual payments were lower than expected, which offset a $24 million charge for relocating employees and closing real estate facilities following our employee departure program.
Other BCE Revenues
The Other BCE segment revenues grew by 15.7% this quarter to $835 million and by 15.3% to 1,583 million on a year-to-date basis, compared with the same periods in 2004. In each case, the increase reflected higher revenues at Bell Globemedia, Telesat and CGI.
<<
Q2 Q2 % YTD YTD %
2005 2004 CHANGE 2005 2004 CHANGE
-------------------------------------------------------------------------
Bell Globemedia 399 371 7.5% 755 713 5.9%
Telesat 137 85 61.2% 245 169 45.0%
CGI 275 248 10.9% 548 462 18.6%
Other 24 18 33.3% 35 29 20.7%
-------------------------------------------------------------------------
Other BCE revenues 835 722 15.7% 1,583 1,373 15.3%
-------------------------------------------------------------------------
>>
Bell Globemedia's revenues for the quarter were $399 million, up 7.5% from Q2 of last year. On a year-to-date basis, Bell Globemedia's revenues grew 5.9% to $755 million. Television advertising revenues grew by 10.4% this quarter and by 8.2% on a year-to-date basis, reflecting the strength of CTV's schedule, which included 18 of the top 20 regularly scheduled programs from September 2004 to early July 2005. CTV's telecast of the Live8 concert was one of the biggest television events in CTV history, reaching 10.5 million viewers, or approximately one in three Canadians. Strong growth in advertising revenues in conventional and specialty television helped to offset the loss of advertising from hockey broadcasts on our sports specialty channels TSN and RDS.
Bell Globemedia's subscriber revenues grew by 5.4% this quarter and by 4.7% on a year-to-date basis, reflecting specialty channel growth and online subscription growth at The Globe and Mail.
Telesat's revenues increased by 61% to $137 million this quarter and by 45% to $245 million on a year-to-date basis primarily as a result of higher revenues from its network for Interactive Distance Learning services, its acquisition of The SpaceConnection Inc. (SpaceConnection), and Ka-band revenues from Anik F2. SpaceConnection was acquired in January 2005 and is a provider of programming-related satellite transmission services to major U.S. television networks and cable programmers.
Anik F2 began commercial service in October 2004 and was the world's first satellite to commercialize the Ka frequency band, enabling two-way high- speed Internet access services to consumers and businesses in Canada and the U.S.
On May 25, 2005, Telesat announced the launch of its new two-way high- speed Internet access service using the Ka band of Anik F2. This new service is available to consumers through multiple distributors across Canada, including Barrett Xplore Inc. (Barrett), a wireless broadband service provider, Telebec, NorthernTel and Infosat Communications Inc.
Our share of CGI revenues increased this quarter by 10.9% to $275 million and by 18.6% on a year-to-date basis to $548 million, reflecting CGI's acquisition of American Management Systems Inc. (AMS) in May 2004.
Other BCE operating income
Operating income for the Other BCE segment grew by 35% this quarter to $119 million and by 46% to $203 million on a year-to-date basis, reflecting growth in operating income at Bell Globemedia and Telesat. This was partly offset by operating income declines at CGI.
Bell Globemedia's operating income grew by 28% this quarter and by 40% on a year-to-date basis, reflecting revenue gains and cost savings. Telesat's operating income grew by 27% this quarter and by 23% on a year-to-date basis, reflecting strong revenue growth partly offset by SpaceConnection's operating expenses, network equipment costs for Interactive Distance Learning services and higher amortization expense related to Anik F2 and Space-Connection. CGI's operating income declined by 20% this quarter, reflecting higher operating costs and amortization expense associated with the acquisition. On a year-to- date basis, however, CGI's operating income remained unchanged.
FIRST AND FINAL ADD TO FOLLOW
BCE INC.
CONTACT: Pierre Leclerc, Media Relations, (514) 870-2759or 1-877-391-2007; Thane Fotopoulos, Investor Relations, (514) 870-4619;http://www.bce.ca/ ;To request a free copy of this organization's annual report, please go tohttp://www.newswire.ca/ and click on reports@cnw.
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