Slide 1: 2011 Analyst Guidance Call
2011 Analyst Guidance Call February 10, 2011
Slide 2: Safe harbour notice
Safe harbour notice C Certain i statements maded iin the h attached h d presentation, i iincluding, l di b but not lilimited i d to, statements relating l i to our 2011 fifinancial i l guidance id (including revenues, EBITDA, capital intensity, Adjusted EPS and free cash flow), our business outlook,
Slide 3: Safe harbour notice (cont'd)
Safe harbour notice (cont’d) O Operational ti l Assumptions A ti Our forward-looking statements for 2011 are also based on certain internal operational assumptions concerning Bell (excluding Bell Aliant), including, but not limited to: (i) residential and business network access services (NAS) losse
Slide 4: Safe harbour notice (cont'd)
Safe harbour notice (cont’d) Material Risks Important risk factors that could cause our assumptions and estimates to be inaccurate and actual results or events to differ materially from those expressed in or implied by our forward-looking statements, including our 2011 financial guidance, are listed
Slide 5: Siim Vanaselja, Chief Financial Officer
Siim Vanaselja Chief Financial Officer
Slide 6: Financial review
Financial review 1 Q4 & FY 2010 results 2 Capital structure 3 2011 financial outlook
Slide 7: Q4 & FY 2010 results
@ Q4 & FY 2010 results Bell
Slide 8: 2010 financial review
2010 financial review Bell ($M) Q4 ’10 Y/Y 2010 Y/Y Q4 Revenue 4,017 0.9% 15,425 2.7% • Total revenues up 0.9% y/y on service revenue growth of 1.3% – Strong wireless, TV and Internet revenue growth EBITDA 1,411 1.1% 5,857 2.4% – Offset by softer Business Markets performance EBITDA margin 35.1% 0.1
Slide 9: Wireline highlights Q4'10
Wireline highlights Q4’10 Key metrics Q4’10 Y/Y • Higher y/y TV, Internet and Home Phone ARPUs Revenue $2,769M (2.5%) • Increased y/y business spending in ICT moderated Wireline volume and pricing pressures in connectivity EBITDA $1,026M 6.9% • EBITDA growth underpinned by cost reductions EBITDA mar
Slide 10: Improved wireline operating performance in 2010
Improved wireline operating performance in 2010 ($M) 2010 Y/Y • Solid residential results delivered – Enhanced competitive position across all product lines Revenues 10,695 0.3% – Strong TV and Internet revenue growth Local & access 3,012 (4.7%) Long g distance 932 ((13.5%)) – Improved y/y local voi
Slide 11: Accelerated postpaid subscriber acquisition
Accelerated postpaid subscriber acquisition Metrics* Q4’10 Y/Y 2010 Y/Y Total gross additions 553k 5.5% 1,999k 11.4% Postpaid 399k 32.9% 1,332k 26.1% Total net additions 117k (28.3%) (28 3%) 409k 9.7% 9 7% Postpaid 157k 42.6% 500k 51.2% Blended ARPU $52.34 2.5% $52.03 2.3% Postpaid $63.47 1.6% $63.4
Slide 12: Wireless financials
Wireless financials • Service revenue growth of over 9% driven by strong postpaid subscriber and ARPU growth – Accelerated smartphone penetration and usage resulting in data revenue growth of 41% for FY2010 • Product revenues higher y/y – Higher sales and upgrade volumes offset largely by impact of
Slide 13: Capital structure
C2 | Capital structure Bell
Slide 14: Strong liquidity position and credit profile
Strong liquidity position and credit profile Bell liquidity position ($M) • Healthy liquidity position BOP cash balance (Jan. 1, 2010) 660 – $752M in cash at YE’10 Free cash flow(1) 2,124 – Access to $1.4B of credit facilities with capacity Special pension contribution (750) increasing to $2B in 201
Slide 15: Solid capital structure
Solid capital structure Net debt ($M) • Capital structure and financial flexibility underpinned by strong investment grade Bell debentures 6,625 ratings Capital leases & other 2,249 • $1B debt issuance in Nov’10 Nov 10 Preferred shares (@ 50%) 1,385 – Raised at attractive 3.6% interest rate A/R secu
Slide 16: Delivering on dividend growth model strategy
Delivering on dividend growth model strategy Annualized common dividend per share • Establishing a strong track record as a dividend growth company – 35% increase since Q4’08 35% • 2011 dividend increased by 7.7% to $1.97 $1.97 – Payout ratio(1) conservatively at low end of $1.83 65%-75% policy rang
Slide 17: 2011 financial outlook
3 | 2011 financial outlook Bell
Slide 18: Changeover from Canadian GAAP to IFRS
Changeover from Canadian GAAP to IFRS 2010 • No material change in revenues or EBITDA Bell GAAP IFRS(1) – Higher pension expense for Bell’s DB pension plans Revenues $15,425M $15,669M – Minor impact from deconsolidation of joint ventures EBITDA $5,857M $5,812M and revenue recognition of deferred con
Slide 19: Financial guidance
Financial guidance 2011 outlook(1) Revenues 1%-2% EBITDA 2%-4% Capital intensity ~16% $ $2.90-$3.00 $ Adjusted EPS (2) 4%-8% ~$2,200M-$2,300M Free cash flow (3) 2%-6% Annualized common share dividend $1.97 (1) 2011 guidance targets presented on an IFRS basis. Revenue, EBITDA and capital intensity gu
Slide 20: Revenue outlook
Revenue outlook Bell revenue ($M) Continued strong wireless momentum • Benefit from significant 2010 investment in 1%-2% customer acquisition and retention • Maintain one-third market share of incumbent postpaid gross and net additions 15,669 • Accelerating smartphone activations and data g sustain
Slide 21: EBITDA outlook
EBITDA outlook Bell EBITDA ($M) • Wireless driver of EBITDA growth – Significant flow-through, while continuing to increase 37.1% investment in retention and subscriber acquisitions Margin • Cost reductions support modest EBITDA 2%-4% margin expansion – Opex savings from decreased labour costs, stro
Slide 22: Pension expense and funding estimates
Pension expense and funding estimates Bell pension expense 2010 2011 • Total pension expense reduced ~$90M y/y Return on plan assets 11.4% – Below EBITDA expense favourably impacted by lower discount rate and special pension payment Discount rate 6.4% 5.5% – Offset partly by higher current service c
Slide 23: Tax outlook
Tax outlook Bell cash taxes Cash taxes • ~$190M benefit in 2011 due to $750M special contribution to Bell’s DB pension plan ~$200M • Accelerated A l t d utilization tili ti off ITC carry-forwards f d $127M – Over $300M of unused ITCs available at YE’10 • Cash taxes increase to ~$400M in 2012 – CTV t
Slide 24: EBITDA driving earnings growth in 2011
EBITDA driving earnings growth in 2011 Adjusted EPS(1) • Increased EBITDA contribution from growth services – Includes upside from operating cost $2.90-$3.00 $2.90 $3.00 savings and stronger Canadian C dollar • Lower total pension costs contribute ~$0.09 per share in 2011 $2.79 – Includes $0.03 per
Slide 25: Strong, reliable free cash flow generation
Strong, reliable free cash flow generation FCF before common dividends ($M) $ ~$2,200-$2,300 ~$2,550 ~($250) to ~($100) ($100) $750M $2,650 special contribution $1,412 Cash pension EBITDA(1) growth Net interest, Deferral Bell Aliant 2010 Taxes Bell FCF 2011 funding net of capex restructuring & accou
Slide 26: Free cash flow walkdown
Free cash flow walkdown 2011 $M EBITDA(1) less capex ~3,550-3,650 Preferred share dividends ~(120) (120) Net interest ~(600) Cash pension ~(400) Cash taxes ~(200) Restructuring paid & other(2) ~(150) Working capital & other(3) ~175 Sub-total ~2,250-2,350 Deferral account(2) ~(250) Bell Aliant distri
Slide 27: Key market & operational assumptions framing 2011 outlook
Appendix Key market & operational assumptions framing 2011 outlook St d economic Steady i growth th • Bank of Canada estimates Canadian GDP growth of 2.4% in 2011 • Continued cost rationalization and cautious spending by business customers given pace of economic recovery Further slowing of residenti
Slide 28: Key financial assumptions for 2011
Appendix Key financial assumptions for 2011 • Preliminary pension expense estimate of ~$120M, reflects accounting discount rate of 5.5% and expected return on plan assets of 7% – Above EBITDA current service cost of ~$170M Bell – Below EBITDA pension financing costs of ~($50M) • Total cash funding o
Slide 29: George Cope, President & Chief Executive Officer
George Cope President & Chief Executive Officer
Slide 30: Business overview: Strategic Imperatives
Business overview 5 Strategic Imperatives 1 Invest in broadband networks and services 2 Accelerate wireless 3 Leverage wireline momentum 4 Improve customer service 5 Achieve a competitive cost structure
Slide 31: Customer mix shift towards growth services
1. Invest in broadband networks & services Customer mix shift towards growth services Bell RGU growth • Total RGU growth of 78% in 2010 Total Wireless, TV, Internet and NAS net additions • NAS net losses in 2010 improved 13.9% y/y 78% • 500k postpaid net adds in 2010, 2010 up 51% y/y 135k • TV net a
Slide 32: Investing to drive future operational performance
1. Invest in broadband networks & services Investing to drive future operational performance Bell • Capital intensity (CI) of ~16% in 2011 • Spending to support customer growth and improve competitive position • Continue to build on network investments that were made in 2010 Wireless Wireline • Wire
Slide 33: Significant market share gain in 2010
2. Accelerate wireless Significant market share gain in 2010 Incumbent postpaid net additions market share 2007 YTD Q3 2010 50% 29% 18% 33% 38% 32% Met objective of capturing one third of incumbent postpaid net adds in 2010 Inachieved three years, Bell Wireless has dramatically repositioned Bell
Slide 34: Key drivers to maintain postpaid market share
2. Accelerate wireless Key drivers to maintain postpaid market share + Fastest, largest, global • Broadest HSPA+ network in Canada Best choice in devices • Latest devices from leading manufacturers • Leading HSPA/CDMA selection Most distribution points • Leading industry distribution footprint
Slide 35: Wireless data growth accelerating
2. Accelerate wireless Wireless data growth accelerating Wireless data revenue growth • HSPA+ network launch has enabled Y/Y growth significant wireless data growth – Over 1.5M subs in 1st year 41% – Significantly g y higher g usage g than CDMA 27% – Wireless data revenues now exceed total wireline
Slide 36: Increasing our investment in customer upgrades
2. Accelerate wireless Increasing our investment in customer upgrades Bell COM investment Retention spending as % of wireless service revenues 9% 10% 9%-10% 8%-9% 7.5% 5.1% 2009 2010 2011 Peer Average Increased spending on retention/upgrades • Sharper focus on customer churn management • More closel
Slide 37: Further slowing of NAS losses
3. Leverage wireline momentum Further slowing of NAS losses Residential NAS Business NAS Net NAS losses Net NAS losses 8.3% Y/Y erosion rate Y/Y erosion rate 7.9% 3.7% 3.6% 7 1% 7.1% 382k 1.7% 335k 278k 113k 108k 54k 2008 2009 2010 2011 2008 2009 2010 2011 • 17% fewer residential line losses in 2010
Slide 38: TV and Internet key residential revenue drivers
3. Leverage wireline momentum TV and Internet key residential revenue drivers Canada’s largest Changing revenue mix Internet provider 2008 LD Residential 13% Internet Wireline Local voice 15% (Service revenue) 40% TV 47% 32% TV HD leadership TV 2011E Residential LD Internet Wireline ~5% ~15% (Servic
Slide 39: Expanded IPTV roll-out in 2011
3. Leverage wireline momentum Expanded IPTV roll-out in 2011 IPTV ready homes • Opportunity to grow urban market share similar to DTH success in non-urban areas • Drive triple-play urban household penetration ~2 0M ~2.0M – Provides pull-through attach rate for other residential services ~0.5M • IPTV
Slide 40: Bell Business Markets drivers of future growth
3. Leverage wireline momentum Bell Business Markets drivers of future growth Connectivity is still the cash flow engine… Small Business Apps Store …but increasing focus on ICT portfolio and service innovation to expand share of wallet • Hosting / Cloud services • eHealth • Video Solutions / Conferen
Slide 41: Service improving, while reducing costs
4. Improve customer service Service improving, while reducing costs Convenient Same Day Appointment Next Day repair Windows >90% 7 days a week Full Install GPS for Internet 9M fewer customer calls since 2008 >80% Fuel Cost Saving Agent calls handled in Bell residential call centres – y/y change 16%
Slide 42: Cost savings support investment in growth
5. Achieve a competitive cost structure Cost savings support investment in growth Operating cost savings(1) 2011: Cost Rationalization • Support group cost reductions • Consolidation of roles/structures – Bell Mobility / Bell Residential Services ~$200M $ – Network operations – Integration of satell
Slide 43: Summary
Summary Comfortably met all financial guidance for 2010 • Strong financials with continued wireless and wireline momentum Successfully executing on our capital markets strategy • Increased common share dividend twice in 2010, contributing to a 28.7% total shareholder return Key 2011 priorities