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4.0 CONSOLIDATED FINANCIAL ANALYSIS - 4.1 Introduction

4 Consolidated financial analysis

This section provides detailed information and analysis about BCE’s performance in 2016 compared with 2015. It focuses on BCE’s consolidated operating results and provides financial information for our Bell Wireless, Bell Wireline and Bell Media business segments. For further discussion and analysis of our business segments, refer to section 5, Business segment analysis.

 

4.1 Introduction

BCE consolidated income statements

 

2016   2015   $ CHANGE   % CHANGE  

Operating revenues

21,719   21,514   205   1.0 %

Operating costs

(12,931 ) (12,963 ) 32   0.2 %

Adjusted EBITDA

8,788   8,551   237   2.8 %

Adjusted EBITDA margin

40.5 % 39.7 %     0.8 %

Severance, acquisition and other costs

(135 ) (446 ) 311   69.7 %

Depreciation

(2,877 ) (2,890 ) 13   0.4 %

Amortization

(631 ) (530 ) (101 ) (19.1 %)

Finance costs

               

Interest expense

(888 ) (909 ) 21   2.3 %

Interest on post-employment benefit obligations

(81 ) (110 ) 29   26.4 %

Other income (expense)

21   (12 ) 33   n.m.  

Income taxes

(1,110 ) (924 ) (186 ) (20.1 %)

Net earnings

3,087   2,730   357   13.1 %

Net earnings attributable to:

               

Common shareholders

2,894   2,526   368   14.6 %

Preferred shareholders

137   152   (15 ) (9.9 %)

Non-controlling interest

56   52   4   7.7 %

Net earnings

3,087   2,730   357   13.1 %

Adjusted net earnings

3,009   2,845   164   5.8 %

Net earnings per common share (EPS)

3.33   2.98   0.35   11.7 %

Adjusted EPS

3.46   3.36   0.10   3.0 %

BCE delivered solid financial results in 2016 with revenue growth of 1.0%, compared to last year, driven by higher service revenues of 1.7%, resulting from ongoing growth in our Bell Wireless and Bell Media segments, moderated by a decline in our Bell Wireline segment. Net earnings in 2016 increased 13.1% compared to 2015, reflecting higher operating revenues and lower operating costs, which resulted in higher adjusted EBITDA, lower severance, acquisition and other costs, lower finance costs and higher other income, partly offset by higher amortization expense and higher income taxes. Adjusted EBITDA grew by 2.8%, in 2016, resulting from year-over-year increases across all three of our segments. This led to an expansion in BCE adjusted EBITDA margin to 40.5%, up 0.8% compared to 2015.

The year-over-year increase in BCE net earnings and adjusted EBITDA in 2016 reflected strong wireless service revenue flow-through and continued revenue growth from Internet, IPTV and media services, together with ongoing effective cost containment. This was moderated by the ongoing erosion of voice and legacy data revenues, in part reflecting the impact of continued slow economic growth in our business markets resulting in reduced customer spending on core connectivity services and data products, as well as lower contribution from our wholesale market. The higher customer acquisition and subscriber retention spending at Bell Wireless and escalating content costs at Bell Media also moderated the year-over-year growth in BCE adjusted EBITDA.

 

BCE statements of cash flows – selected information

 

 

2016   2015   $ CHANGE  

% CHANGE

 

Cash flows from operating activities

6,643   6,274   369   5.9 %

Capital expenditures

(3,771 ) (3,626 ) (145 ) (4.0 %)

Free cash flow

3,226   2,999   227   7.6 %

In 2016, BCE’s cash flows from operating activities increased $369 million, compared to 2015, due mainly to higher adjusted EBITDA, lower acquisition and other costs paid and lower income taxes paid, partly offset by a higher voluntary DB pension plan contribution made in 2016.

Free cash flow increased $227 million in 2016, compared to 2015, due to higher cash flows from operating activities, partly offset by higher capital expenditures.

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