Shareholder Report - BCE Inc. Third Quarter 2000
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October 25, 2000
BCE announces 8% revenue growth in third quarter
Cash baseline earnings up 13% - Data revenue up 32% - High Speed Internet subscribers up 62%.
Montréal (Québec), October 25, 2000 - BCE today announced third quarter results reflecting continued revenue growth from its operations particularly in key segments such as data, wireless, and e-business.
Financial Highlights (Q
- Revenue up 8% to $4.5 billion;
- EBITDA up 9% to $1.8 billion;
- Cash baseline earnings up 13% to $0.51 per common share
(cash baseline earnings exclude special items and goodwill expense).
Operational Highlights
- Bell Mobility cellular subscribers grew 28% to reach 2.
2 million (2.6 million including Aliant); - Sympatico total subscribers increased 91% to 705,000 (896,000 including Aliant);
- Sympatico High Speed Edition subscribers grew 62% over last quarter to 177,000 (204,000 including Aliant);
- Bell ExpressVu subscribers grew 95% to 594,000;
- BCE Emergis revenue was up 171% to $
132 million .
"The third quarter results continue to demonstrate BCE's successful transition into a data/Internet communications company," said Jean Monty, Chairman and Chief Executive Officer.
"Bell Canada made significant gains in all of its operations: data revenue was up 32% over last year; Bell Mobility added 118,000 new subscribers in the quarter, 46% more than the same period last year and our share of the High Speed Internet market is now approximately 25% from around 10% at the beginning of the year."
"During the quarter, BCE further developed its content strategy with the announced creation of Canada's premier multi-media company which will combine CTV, The Globe and Mail, Globe Interactive and Sympatico-Lycos, the leading media brands in television, print and the Internet," added Mr. Monty. "We are also on track to complete the acquisition of Teleglobe by early November."
Third quarter results by group
BCE's activities are organized around four business groups: Bell Canada, BCE Emergis and CGI, BCE Media, and Bell Canada International. Bell Canada includes Bell Mobility, Bell Nexxia, Bell ActiMedia, Aliant as well as Bell Canada's interests in Manitoba Telecom Services (MTS), Teleglobe and other Canadian telcos. The BCE Media group is comprised of Bell ExpressVu, Telesat, CTV, which is held in trust pending the decision of the CRTC relative to BCE's application for change of ownership, and other media interests.
Bell Canada
- Operating revenue was up 8% to $4.0 billion due mainly to strong growth in data, including IP/Broadband revenue at Bell Nexxia, increased revenue from a higher number of lines in service, wireless services and SmartTouch features;
- Revenue from local and access services increased by 8% to $1.7 billion;
- Revenue from long distance and network services were essentially flat at $1.1 billion;
- Terminal sales, directory advertising and other revenue grew by 15% to $
808 million , mainly due to increased data revenue; - Bell Mobility revenue was up 16% to $
336 million due primarily to strong growth in new activations and an increase in the average revenue per subscriber to $48 from $45 in the previous quarter; - Cash operating expenses were up 6% to $2.2 billion due mainly to increased expenses associated with increased revenue;
- Earnings before interest, taxes, depreciation and amortization (EBITDA) grew 9.9% to $1.8 billion;
- Cash baseline earnings applicable to common shares were $
428 million in the third quarter of 2000 compared with $360 million for the same period in 1999; - Bell Canada's cash baseline contribution to BCE's earnings was $
342 million in the quarter compared with $287 million for the same period in 1999.
BCE Media
- Revenue for BCE Media reached $
160 million up 32%. The growth was mainly attributable to increased revenue at Bell ExpressVu as a result of a higher subscriber base; - BCE Media recorded a cash baseline loss of $
34 million mainly attributable to the increased expenditures associated with subscriber growth at Bell ExpressVu, partially offset by Telesat's contribution. BCE Media's share of CTV's loss was $4 million . CTV, which is currently held in trust, is equity accounted, pending the decision of the CRTC relative to BCE's application for change of ownership.
BCE Emergis and CGI
- BCE Emergis' cash baseline contribution to BCE was $
3 million in the third quarter of 2000, compared with $1 million for the same period in 1999. The change was mainly attributable to the acquisition, at the end of March 2000, of United Payors and United Providers (UP & UP). EBITDA grew significantly to reach $26 million at the end of the quarter compared with $2 million for the same period in 1999; - CGI's cash baseline contribution to BCE was $
4 million in the third quarter compared with $12 million for the same period in 1999. The lower contribution is due primarily to the continued slowdown in the marketplace relating to new investments in IT and the awarding of large outsourcing contracts.
Bell Canada International
- BCI's earnings are not included in BCE's cash baseline earnings. BCI's net earnings contribution to BCE was $
556 million in the third quarter of 2000, compared with a loss of $104 million for the same period in 1999. The increased contribution was mainly attributable to BCE's share of the gain on the sale of Korean PCS provider, Hansol; - BCI's revenue decreased to $
192 million in the quarter from $209 million in the third quarter of 1999 mainly due to BCI's sale of Hansol; - Proportionate number of subscribers totalled 1.
2 million at the end of the quarter.
BCE is Canada's largest communications company. Through its operations in communications services, BCE provides residence and business customers in Canada with wireline and wireless communications products and applications, satellite communications and direct-to-home television services, systems integration expertise, electronic commerce solutions, Internet access and high-speed data services, and directories. BCE has an extensive international presence through Teleglobe, an international telecommunications carrier. Through Bell Canada International, BCE also provides communications services to millions of customers mostly from Latin America. BCE shares are listed in Canada, the United States and Europe.
Note:
Certain statements made in this press release, which describe BCE's intentions, expectations or predictions, are forward-looking and are subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors which could cause results or events to differ from current expectations include, among other things: uncertainty as to whether BCE's strategies and acquisitions will yield the expected benefits, revenue projections, synergies and growth prospects; the impact of rapid technological and market change; increasing competition; general industry and market conditions and growth rates; international growth and global economic conditions, particularly in emerging markets, including interest rate and currency exchange rate fluctuations; the inability to further identify, develop and achieve commercial success for new products, services and technologies; the level of expenditures necessary to maintain quality of service; the availability and cost of capital; the extent of demand for traditional and emerging services; the uncertainties of the Internet including the Internet economy growing at a slower pace than is currently anticipated as well as changes in laws or regulations governing Internet commerce; stock market volatility; the ability of BCE to make acquisitions and/or integrate the operations of acquired businesses in an effective manner; the availability of, and ability to retain, key personnel; and the impact of consolidations in the telecommunications industry. For additional information with respect to certain of these and other factors, see the reports on Forms 6-K and 40-F filed by BCE with the United States Securities and Exchange Commission. BCE disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 1. Significant accounting policies
For a full description of the accounting policies, refer to the 1999 Annual Report of BCE. All amounts are in Canadian dollars unless otherwise indicated. Certain comparative figures have been reclassified to conform with the current presentation.
On January 1, 2000, BCE adopted the recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook section 3465, Income Taxes, which replaces the deferral method with the liability method of tax allocation. BCE applied the new recommendations retroactively without restating prior years. The cumulative effect of adopting the new recommendations as at January 1, 2000, was to increase investments in significantly influenced and other companies by $
On January 1, 2000, BCE adopted the recommendations of the CICA Handbook section 3461, Employee Future Benefits, which changes the accounting for pension and other types of employee future benefits. Previously, the costs of postemployment and postretirement benefits other than pensions were charged to earnings in the period in which they were paid. The new Handbook section requires companies to accrue the costs over the working lives of employees in a manner similar to pension costs. BCE applied the new recommendations retroactively, without restating prior years, by reflecting recognized and unrecognized amounts for all its benefit plans, consistent with United States generally accepted accounting principles. The cumulative effect of adopting the new recommendations as at January 1, 2000, was to decrease deferred charges by $
Note 2. Other income
Sale of Hansol M.com
In July 2000, Bell Canada International Inc. (BCI) recorded a pre-tax gain of approximately $1.1 billion relating to the sale of its 21% indirect interest in Hansol M.com for an aggregate consideration of approximately $1.5 billion in the form of cash, promissory notes and SK Telecom Co., Ltd. shares.
Note 3. Discontinued operations
In May 2000, BCE distributed an approximate 35% interest in Nortel Networks to BCE common shareholders. BCE common shareholders received, for each common share of BCE held, approximately 1.57 post-split common shares of Nortel Networks. Consequently, BCE's results prior to May 2000 reflect its 35% interest in Nortel Networks as a discontinued operation. This transaction was recorded as a distribution (dividend) to shareholders at the pro-rata carrying value of BCE's approximate 37% interest in Nortel Networks prior to the distribution. This resulted in a decrease to investment in Nortel Networks related to the discontinued operations of $
Discontinued operations, for Nortel Networks, mainly reflects BCE's share of Nortel Networks' net earnings applicable to common shareholders, as well as gains on the reduction of BCE's ownership in Nortel Networks, mainly as a result of Nortel Networks' acquisitions, through the issuance of shares, of Qtera Corporation, Clarify Inc. and Promatory Communications, Inc.
In the third quarter of 2000, Teleglobe Inc. (Teleglobe) classified its investment in ORBCOMM Global L.P.
(ORBCOMM) as a discontinued operation. On September 15, 2000, ORBCOMM voluntarily filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Act. Consequently, BCE's results reflect a $
Note 4. Business acquisition
CTV
In April 2000, BCE completed the acquisition of all of the outstanding common shares of CTV, including the CTV common shares held by Electrohome Broadcasting Inc., for a cash consideration of approximately $2.3 billion. CTV, including its subsidiary Netstar Communications Inc. (Netstar), is a conventional and specialty broadcaster with a local presence across Canada. As per the Voting Trust Agreement approved by the Canadian Radio-television and Telecommunications Commission (CRTC), the CTV shares acquired under the BCE offer have been transferred to a trustee until such time as the CRTC and other regulatory approvals required in this transaction are received by BCE. These approvals are expected to be received in the first quarter of 2001. As part of the CRTC approval process, an additional 10% (approximately $
Note 5. Commitments
Creation of a Multi-Media Company by BCE, The Thomson Corporation and The Woodbridge Company Limited
On September 15, 2000, BCE, The Thomson Corporation (Thomson) and The Woodbridge Company Limited (Woodbridge) announced the creation of a $4 billion Canadian multi-media company. BCE will own 70.1% of the new company and its principal contributions to it will be its wholly owned interest in CTV and its 71% interest in Sympatico-Lycos Inc. Thomson will own 20% of the new company and will contribute all of the assets and undertakings of The Globe and Mail (division of Thomson Canada Limited) and of Globe Interactive (division of Thomson Canada Limited), and its 50% interest in Report on Business TV. Woodbridge will own 9.9% of the new company and will contribute $
Sale of Vésper S.A. and Vésper São Paulo S.A.
On September 26, 2000, BCI announced the signing of a definitive agreement to sell its indirect interests in Vésper S.A, Vésper São Paulo S.A. and the internet service provider, Interativa S.A. (collectively, Vésper companies) to VeloCom Inc. (VeloCom). BCI through its affiliates will receive gross proceeds of US $
BCI, Telefonos de Mexico S.A. de C.V. and SBC Partnership
On September 26, 2000, BCI, Telefonos de Mexico S.A. de C.V. (Telmex) and SBC announced revisions to the June 7, 2000 agreement to form a new facilities-based communications company which will be their principal vehicle for expansion in South America. Under the revised agreement, BCI and Telmex will each hold a 44.3% indirect interest in the new company. SBC will acquire an 11.4% interest in the new company by contributing its assets in the region. The parties have also agreed that BCI will contribute the sale proceeds from the disposition of the Vésper companies to the new facilities-based communications company, net of any additional BCI capital invested into the Vésper companies prior to closing, in lieu of its interests in the Vésper companies, as originally contemplated by the June 7, 2000 agreement. The new company's initial capitalization will be US $4 billion and will include the South American assets of BCI (excluding the Vésper companies) and Telmex's and SBC's investments in the Brazilian wireless
company Algar Telecom Leste S.A. In addition, the new company will acquire Telmex's interest in the Argentine broadband company, Techtel Telecomunicaciones S.A. The transaction for the formation of the new facilities-based communications company is expected to be completed in the fourth quarter of 2000, subject to certain regulatory and other approvals.
Sale of KG Telecommunications Co. Ltd.
On August 31, 2000, BCI announced the signing of a definitive share purchase agreement to sell its 20% interest in KG Telecommunications Co. Ltd. for gross proceeds of approximately $
Acquisition of Teleglobe
On June 18, 2000, BCE, Teleglobe and the principal shareholders of Teleglobe reached an agreement to revise certain terms of BCE's initial offer announced on February 15, 2000, to acquire all of the outstanding common shares of Teleglobe it does not already own. Under the revised agreement, BCE provided Teleglobe with immediate financing of US $
Note 6. Hedge of remaining interest in Nortel Networks
During the second quarter of 2000, BCE entered into forward contracts, for up to one year, with several financial institutions to hedge its exposure to fluctuations in the market price of Nortel Networks common shares. As a result of these contracts, approximately 46.
Prior to 2000, BCE had granted, from time to time, stock options with accompanying rights to Special Compensation Payments (SCPs) to officers and key employees of BCE and its subsidiaries. As a result of the distribution (dividend) of Nortel Networks common shares (Note 3), the then outstanding options were divided into options over BCE and over Nortel Networks common shares, and the related SCPs were appropriately adjusted. As a result, SCP right holders now have, for each SCP right held prior to the distribution, SCP rights related to the increase in price of both the BCE and Nortel Networks common shares over the exercise prices of the related options. In addition, BCE has entered into forward contracts to hedge its exposure to outstanding SCP rights related to options over BCE common shares. The remaining