Slide 1: Q4 2013 Results and 2014 Analyst Guidance Call
Q4 2013 Results and 2014 Analyst Guidance Call February 6, 2014
Slide 2: Safe harbour notice
Safe harbour notice Certain statements made in the attached presentations, including, but not limited to, our 2014 financial guidance (including revenues, EBITDA, Capital Intensity, Adjusted EPS and Free Cash Flow), our business outlook, objectives, plans and strategic priorities, BCE’s 2014 annuali
Slide 3: Q4 Results Review
Q4 Results Review George Cope President & Chief Executive Officer
Slide 4: Q4 overview
Q4 overview Bell EBITDA up 7.0% in Q4 driving y/y margin increase to 35.2% Wireless EBITDA growth of 10.4% with 2.4-pt y/y service margin gain Astral integration progressing on plan Positive Wireline EBITDA growth achieved Fibe TV momentum continues with 60k net additions, supporting conti
Slide 5: Wireless operating metrics
Wireless operating metrics Metrics Q4’13 Y/Y 2013 Y/Y • Healthy postpaid net adds of 120k in Q4’13 – Strong holiday period activations despite greater Postpaid gross additions 368k (6.7%) 1,332k (4.0%) competitive pricing compared to Q3 – Wireless Code in effect as of Dec. 2, 2013 Postpaid net addit
Slide 6: Wireline subscriber metrics
Wireline subscriber metrics Q4’13 Y/Y 2013 Y/Y Residential net loss 63k 24k 288k 48k NAS Business net loss 32k 4k 115k 6k Fibe TV net adds 60k 12k 231k 68k TV Total net adds 36k 17k 122k 53k Internet Net adds 16k 9k 58k 21k Bell Total net loss 12k 41k 100k 107k Residential Voice TV • Residential NAS
Slide 7: Bell Media
Bell Media Bell Media sports broadcast rights • Astral synergies ramping up as integration progresses on plan Hockey • Maintaining strong audience levels and ratings across all Bell Media TV and radio properties − 12 of 20 top programs nationally in Q4 Fall season Football − TSN viewership up 31% y/
Slide 8: Executing on strategy to transform Bell's operating mix
Executing on strategy to transform Bell’s operating mix Bell revenue mix (2013) $18.1B Wireline • Growth Services revenue up $710M, Product or 5.1% y/y in 2013 Wireline 6% Broadband • Wireless, TV, Internet and Media now 20% account for ~2/3 of total Bell revenue TV Wireline Business 11% 82% Voice 1
Slide 9: Raising common dividend 6% to $2.47 per share
Raising common dividend 6% to $2.47 per share Annualized common dividend per share 69% increase • Enabled by strong 2013 results and $2.47 financial outlook for 2014 $2.33 • Maintaining FCF payout for 2014 at ~70% — the mid-point of 65%-75% policy range $1.46 • Effective with Q1 2014 dividend paymen
Slide 10: Q4 & 2013 Results Review
Q4 & 2013 Results Review Siim Vanaselja EVP & Chief Financial Officer
Slide 11: Q4 financial review
Q4 financial review Bell Q4’13 Y/Y • Service revenue up 6.1% in Q4 on Astral contribution, postpaid Wireless growth and Revenue $4,813M 5.2% positive Wireline Residential Services growth Service $4,325M 6.1% Product $488M (2.5%) • 7.0% EBITDA growth in Q4’13 with 0.6 point margin improvement to 35.2
Slide 12: Wireless financials
Wireless financials ($M) Q4’13 Y/Y 2013 Y/Y Revenue 1,505 3.2% 5,849 4.7% Service 1,359 3.7% 5,362 5.4% Product 134 1.5% 432 (1.4%) Operating costs 976 0.3% 3,509 (1.1%) EBITDA 529 10.4% 2,340 10.6% Margin (service revenue) 38.9% 2.4 pts 43.6% 2.0 pts Capex 226 (27.7%) 639 (0.3%) Capital intensity 1
Slide 13: Wireline financials
Wireline financials ($M) Q4’13 Y/Y 2013 Y/Y Revenues 2,601 (0.3%) 10,097 (1.2%) Data 1,513 4.1% 5,828 2.9% Voice 777 (7.5%) 3,219 (7.7%) Equipment & other 222 (6.3%) 707 (5.7%) Operating costs 1,667 0.6% 6,303 0.0% EBITDA 934 0.3% 3,794 (3.2%) Margin 35.9% 0.2 pts 37.6% (0.8 pts) Capex 702 (25.1%) 2
Slide 14: Bell Media financials
Bell Media financials ($M) Q4’13 Y/Y 2013 Y/Y Revenue 821 38.9% 2,557 17.1% Operating costs 591 (41.1%) 1,874 (15.5%) EBITDA (reported) 230 33.7% 683 21.7% Margin 28.0% (1.1 pts) 26.7% 1.0 pts PPA (19) 29.6% (55) (12.2%) EBITDA (excl. PPA) 249 25.1% 738 21.0% Margin 30.3% (3.4 pts) 28.9% 1.0 pts Cap
Slide 15: 2013 financial performance vs. guidance
2013 financial performance vs. guidance Bell 2013 Target Met • Revenue and EBITDA in line with increased full-year guidance Revenue $18,109M Growth 2.6% 2%-4% • Higher y/y EBITDA margin of 37.6% EBITDA $6,817M Growth 3.4% 3%-5% • Adjusted EPS in line with plan Capital Intensity 16.6% 16%-17% •
Slide 16: Financial Outlook
2014 Financial Outlook Siim Vanaselja EVP & Chief Financial Officer
Slide 17: Financial targets for 2014
Financial targets for 2014 2014 guidance(1) Revenue growth 2%-4% EBITDA growth 3%-5% Capital intensity 16%-17% Adjusted EPS(2) $3.10-$3.20 ~4%-7% Free cash flow(3) $2,650M-$2,750M ~3%-7% Annualized common dividend per share(4) $2.47 Dividend payout: – Policy 65%-75% of free cash flow – Target payout
Slide 18: Pension funding
Pension funding Pension funding ($M) 2013 2014 • Improved funded status of Bell’s defined benefit pension plan Defined benefit 213 ~190 – Solvency ratio of 93% at YE2013 vs. 84% at Defined contribution & PRBs 136 ~160 YE2012 Special contribution 0 0 – Solvency discount rate up ~70 bps in 2013 Bell t
Slide 19: Pension expense
Pension expense Pension expense ($M) 2013 2014 • Actual 2013 pension ROA of 6.0% Above EBITDA pension cost 230 ~220 • 2014 accounting discount rate/ROA Below EBITDA: assumption of 4.9% vs. 4.4% in 2013 – Pension interest cost 742 ~790 • Bell pension expense down ~$40M y/y – Reflects lower current se
Slide 20: Tax outlook
Tax outlook Tax adjustments (per share) Income tax expense $0.26 • Statutory rate for 2014 unchanged y/y at 26.6% $0.18 • Effective tax rate of ~26% for 2014 – Favourable tax adjustments of ~$0.04 per share $0.07 projected in 2014 compared to $0.07 in 2013 ~$0.04 2011 2012 2013 2014 Bell cash income
Slide 21: Adjusted EPS
Adjusted EPS Adjusted EPS(1) • EBITDA key driver of y/y EPS growth Tax adjustments • Lower y/y pension expense contributes ~$0.04 per share benefit in 2014 $3.10–$3.20 • Depreciation expense ~$115M higher y/y $2.99 – Reflects increased investment in Fibe TV, ~4%-7% ~$0.04 wireless LTE and full year
Slide 22: Strong capital structure
Strong capital structure Bell credit profile* Target 12/31/13 Investment grade ratings with stable outlook Net debt/Adj. EBITDA 1.5x-2.0x 2.49x • Capital structure aligned to strong BBB+ rating Adj. EBITDA/Net Interest >7.5x 8.4x • Over $2B of additional debt capacity within current ratings category
Slide 23: Free cash flow and dividend payout
Free cash flow and dividend payout Free cash flow(1) and dividend payout • 2014 free cash flow growth of ~3% to 7% – Steady growth in EBITDA Common dividends paid Dividend payout ratio – Capital intensity maintained at 16%-17% (excluding 700 MHz spectrum costs) 69.3% 69.8% ~70%(2) – Over $200M in hi
Slide 24: Key market & operational assumptions framing 2014 outlook
Appendix Key market & operational assumptions framing 2014 outlook Stable to improving economic growth • Bank of Canada estimates Canadian GDP growth of 2.5% for 2014, compared to estimated growth of 1.8% in 2013 • Faster pace of employment growth compared to 2013 and relatively stable advertising m
Slide 25: Key financial assumptions for 2014
Appendix Key financial assumptions for 2014 Bell February 6 Employee benefit plans service cost (above EBITDA) ~$220M Net employee benefit plans financing cost (below EBITDA) ~$90M Cash pension funding ~$350M Cash taxes ~$600M Net interest payments ~$775M Working capital changes, severance and other
Slide 26: Free cash flow walk-down
Appendix Free cash flow walk-down 2014 $M EBITDA(1) less capex 4,200-4,300 Preferred share dividends and NCI paid ~(140) Net interest ~(775) Cash pension ~(350) Cash taxes ~(600) Working capital changes, severance paid and other ~175 Bell Aliant dividend ~140 Free cash flow 2,650-2,750 Common divide