MONTREAL — BCE Inc. released its second quarter 2015 results Thursday morning, reporting $759 million in net earnings attributable to shareholders, a very healthy 25.2% increase over the $606 million BCE earned in Q2 2014.
The significant jump in BCE’s Q2 2015 net earnings attributable to shareholders was partly due to higher adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), reduced non-controlling interest as a result of Bell Aliant’s privatization in Q4 2014, as well as a $94-million gain on investments related to BCE’s sale of its 50% stake in Glentel Inc. to Rogers Communications (completed in May), BCE explained in a press release. This was partly offset by a $54-million loss on investment, representing BCE’s share of an obligation to repurchase at fair value the minority interest in one of BCE’s joint ventures, the company said.
Taking all of this into account, BCE said its adjusted net earnings were $735 million in the second quarter, up 14.8% from $640 million in the same period last year. Net earnings per share (EPS) were $0.90, a 15.4% increase from $0.78 last year. Adjusted EPS grew 6.1% to $0.87 in Q2 2015 from $0.82 in Q2 2014. BCE also saw strong 14.2% growth in free cash flow to $931 million in the second quarter, compared to $815 million in the same quarter last year.
BCE reported a modest 2% increase in operating revenue to $5.33 billion in the second quarter, up from $5.22 billion in Q2 2014. This reflected a 2% increase in service revenue and 2.3% growth in product revenue, led by strong wireless and wireline residential revenue growth, BCE said.
BCE’s adjusted EBITDA in Q2 2015 grew 2.5% to $2.2 billion from $2.14 billion in Q2 2014, driven by adjusted EBITDA increases of 5.3% at Bell Wireless, 1% at Bell Wireline, and 2.4% at Bell Media.
“With strong increases in subscribers, revenue and operating profitability, Bell enters the second half of 2015 with clear momentum in the growth services of Canadian communications: Wireless, TV, Internet and Media. The Bell team’s success in executing our strategy of network investment, service innovation and content leadership is delivering the consistent financial and operating performance necessary to support our dividend growth model going forward,” said George Cope, president and CEO of BCE and Bell, in the company’s press release.
Breaking down BCE’s financial results by business segment, Bell Wireless operating revenues increased 10% to $1.7 billion in the second quarter, from $1.54 billion in Q2 of last year, the result of a higher postpaid subscriber mix, strong data revenue growth of 24.2% and increased product revenues, BCE said. Wireless service revenues grew 7.7% to $1.54 billion, while product revenues were up 41.9% to $149 million, as a result of more mobile device sales and customer upgrades.
Bell Wireless postpaid subscriber gross additions totalled 317,809 in Q2 2015, up 6.9% over the same period last year. However, Bell’s Q2 postpaid net addition of 61,033 subscribers was actually down from its 67,951 postpaid net additions in Q2 of 2014, due to higher customer churn reflecting a heightened level of promotional activity, BCE said. Postpaid customer churn in Q2 2015 increased 0.08 percentage points over last year to 1.23%. At the end of Q2 2015, Bell Wireless postpaid customers totalled 7.2 million, a 4.4% increase over last year. Total Bell Wireless customers grew 2.2% to 8.12 million at the end of the second quarter, BCE said.
Bell Wireless reported its blended ARPU (average revenue per user) increased 5.3% in the second quarter to $62.48, driven by a greater mix of postpaid customers in its total subscriber base, a higher percentage of customers on two-year contracts, and increased date usage on its LTE network. At the same time, Bell Wireless customer retention spending increased to 12.9% of wireless service revenues from 10.1% last year, reflecting a greater number of customer upgrades driven by an increased number of customer contract expirations attributable to the start of the doubt cohort at the beginning of June, Bell said.
Turning to BCE’s wireline business, Bell Wireline reported service revenue growth of 1.1% in Q2 2015, which represents stronger growth compared to its 0.7% increase in Q1 2015 service revenues. In comparison, last year Bell Wireline reported a 0.6% decline in service revenues in Q2 2014. The growth in Bell Wireline’s service revenues in Q2 2015 was offset by a 12.1% decline in lower-margin product revenues, resulting in a 0.2% year-over-year decline in total Bell Wireline operating revenues of $3.04 billion, BCE said.
Bell Wireline’s high-speed Internet subscriber net additions increased 6.1% in the second quarter of 2015 to 18,606 subscribers, as higher Bell Fibe and FibreOP service speeds and the pull-through of IPTV customer activations drove stronger subscriber growth and lower residential customer churn, Bell said. BCE’s total number of high-speed Internet subscribers reached 3.3 million at the end of Q2 2015, up 4.3% compared to Q2 2014.
During a conference call with analysts to discuss BCE’s financial results on Thursday, CEO George Cope took the opportunity to announce Bell will launch Gigabit Fibe service to 1.3 million homes in Ontario and Quebec on Monday, August 10. (Back in June, Cartt.ca reported Bell’s intention to launch Gigabit Fibe this summer.) Then, Gigabit Fibe will be launched in the Atlantic region by the end of September and will be available to 2.2 million homes by the end of 2015, Cope said.
“It's very clear to us as we look out over the next five, 10 years the market is going to demand these types of speeds and so we have to start it now,” Cope said. “So it's not a matter of market-share, I think it's a matter of table stakes from our perspective.”
In addition to Fibe Internet customer additions, Bell TV added 50,466 net new Fibe TV and FibreOP TV customers in the second quarter of 2015, compared to 59,132 net additions in Q2 2014. BCE’s total IPTV subscribers surpassed the 1 million mark in April 2015. In total, BCE had 1.04 million IPTV subscribers at the end of Q2 2015, up 32.9% compared to Q2 2014.
Bell’s satellite TV business suffered net customer losses of 33,776 in Q2 2015, compared to 25,763 net subscriber losses in Q2 last year, which BCE attributed to aggressive cable conversion offers in areas where BCE does not offer IPTV service and the net loss of wholesale subscribers attributable to the rollout of IPTV service by a competing wholesale provider in Western Canada, BCE said. The total number of TV subscribers for all of BCE’s TV services increased 4.4% to 2.67 million at the end of Q2 2015.
Bell Wireline data revenues were up 2.8% to $1.77 billion in the second quarter, driven by combined Internet and TV service revenue growth of 8.4% and higher business service solutions sales, and partly offset by reduced data product sales to business and wholesale customers, BCE said.
Bell’s residential network access service (NAS) net losses improved 13.9% to 75,819 compared to 88,060 net losses in Q2 2014. BCE said this improved customer retention reflects the pull-through impact of its IPTV service bundle offers and greater penetration of three-product households, as well as higher year-over-year activations during the traditional Québec residential move period that occurs at the end of the second quarter.
Bell’s business customer NAS net losses improved 12.1% to 37,690 compared to 42,860 net losses in Q2 last year. The total number of BCE NAS access lines at the end of Q2 2015 totalled 6.9 million, a 5.8% decline compared to Q2 2014.
Bell’s combined local and access revenues were $827 million in the second quarter of 2015, which is 3.8% lower compared to Q2 2014. Bell’s long distance revenues were $207 million in Q2 2015, down 11.2% from Q2 2014, due to fewer minutes of use by residential and business customers and lower sales of international long distance minutes, BCE explained.
Finally, BCE’s Bell Media division saw its operating revenues decline by 2.8% to $740 million in the second quarter of 2015, compared to Q2 2014. BCE said its advertising revenue in the second quarter was impacted by the loss of NHL playoff broadcast rights on specialty sports services TSN and RDS, increased competition from large players in social media, and general softness in the conventional TV market. BCE said this was partly offset by advertising revenue generated from Bell’s broadcast of FIFA Women’s World Cup Soccer, growth in non-sports specialty services Space and Discovery, as well as sold growth at Astral Out of Home.
However, Bell Media’s adjusted EBITDA increased 2.4% to $215 million in Q2 2015, driven by a 4.7% reduction in operating costs from the loss of the NHL playoff broadcast rights, lower U.S. programming costs and lower amortization of fair value of certain programming rights, which BCE said more than offset its investments in programming for its CraveTV on-demand video streaming service.
All told, Bell Media digital properties had total monthly averages of 16.4 million visitors, 3 million viewers, 307 million page views, 127 million visits, and 77 million videos served, BCE said. In addition, Bell’s CraveTV streaming service has gained 727,000 subscribers since its launch seven months ago. In July, Bell Media announced it will be taking CraveTV direct to consumers as a standalone product on January 1, 2016 (at a still-to-be-determined retail price — it won’t be the $4 they charge to cable subscribers now).
“We currently market to about 3.5 million homes through ourselves and some other TV providers, and after seven months we have approximately 730,000 customers. By going over the top we’ll be able to pursue 11 million (Canadians with an Internet subscription),” Cope said during the conference call with analysts.
On the traditional television side, Bell Media’s English specialty and pay TV properties reached 81% of all Canadian English-language specialty and pay TV viewers in the average week during Q2, BCE said. Bell Media also reached 81% of the French-speaking population in Québec’s French-language specialty market in the average week during the second quarter.
Furthermore, BCE said Bell Media’s radio business increased its reach by 300,000 weekly listeners in Q2 2015 compared to the previous quarter, reaching 17.5 million listeners who spent 84 million hours tuned in each week to Bell Media-owned radio properties.
“We delivered another solid set of financial results in Q2, driven by healthy organic adjusted EBITDA growth in all our operating segments, margin expansion supported by ongoing operating cost efficiencies and customer service improvements, as well as strong net earnings and free cash flow generation consistent with our plan,” said Glen LeBlanc, Chief Financial Officer of BCE and Bell, in the company’s press release.
“We have leveraged our business model to produce results consistently within our guidance targets. Our operating performance through the first half of the year, together with the confidence in our business outlook and an accelerating free cash flow trajectory in the second half of the year, provide us with considerable financial flexibility to execute our strategy and achieve our 2015 financial guidance targets, all of which we reconfirm today,” LeBlanc said.
