The Quarter at a Glance Management's Discussion and Analysis Consolidated Financial Statements Notes to Consolidated Financial Statements The Year in Review


BCE Inc. – 2003 Fourth Quarter Shareholder Report

The Quarter at a Glance

Customer Connections

  • WIRELESS. We grew our wireless subscriber base by 189,000 customers this quarter, with more profitable post-paid rate plan additions accounting for 83% of the additions. Blended churn of 1.4% per month for the fourth quarter represented a year-over-year improvement of 0.3 percentage points, while remaining stable compared to the previous quarter. Our post-paid churn of 1.2% improved by 0.2 percentage points from 1.4% in Q4 2002.

  • HIGH-SPEED INTERNET. Our DSL high-speed Internet business added 91,000 subscribers this quarter. Subscriptions to Sympatico value-added services increased by 68,000 to reach a total of 287,000 at the end of 2003.

  • SATELLITE TV. Our DTH subscriber base increased by 35,000 customers this quarter compared to 83,000 net additions in Q4 2002, reflecting a combination of slower growth in the digital television market generally compared to last year, the impact of price increases introduced earlier this year and the continuing implementation of anti-piracy initiatives.

  • NETWORK ACCESS SERVICES (NAS). Our NAS in service declined by 37,000 this quarter, primarily reflecting losses to competition and substitution effects from both wireless and high-speed Internet services.
Revenues

  • Our revenues for the fourth quarter of 2003 were $4,910 million, compared to 2002 revenues of $5,045 million mainly reflecting the sale of our directories business in late November 2002. Excluding the revenues from our directories business in 2002 results in order to compare the underlying performance of our continuing businesses, our fourth quarter 2003 revenues would have decreased by 0.9%, or $44 million.

  • The decrease of $44 million in revenues from our continuing businesses was driven by lower revenues from Bell Canada partially offset by a 14.1% increase in revenues from CGI. Bell Canada’s revenues from its continuing businesses this quarter were 1.8% lower than Q4 of 2002 as a result of continuing market softness and competitive pressure in the Enterprise and Wholesale business units, as well as a more disciplined focus on yielding higher margins. In particular, the Enterprise unit consciously curtailed the volume of Gateways cabling contracts by not pursuing new contracts with minimal margins and exited the electrical cabling business, resulting in a 46% decline in Q4 revenues for that line of business. In addition, the Wholesale unit also intentionally exited certain contracts for international switched minutes that had minimal margins, resulting in a 34% decline in Q4 revenues for that service. This led to lower long distance, data, and terminal sales and other revenues in these units but an improvement in margins. Lower revenues in our Enterprise and Wholesale units more than offset Consumer unit revenue growth of 16.0% in wireless services, 14.2% in direct-to-home television services, and 17% in Internet access services over Q4 2002.

Operating Income and EBITDA

  • Our operating income this quarter was $971 million, reflecting growth of $324 million, or 50%, over the same period last year. Operating income was higher due to lower restructuring and other charges and higher EBITDA, partly offset by higher amortization expense and the shift from a net benefits plan credit to a cost.

  • Our EBITDA for the fourth quarter of 2003 was $1,854 million compared to Q4 2002 EBITDA of $1,807 million. Our EBITDA margin grew by 2.0 percentage points to 37.8% reflecting higher levels of wireless and DTH revenues, a continued focus on productivity, lower acquisition costs related to lower levels of gross additions, and a greater emphasis on more profitable contracts within the Enterprise and Wholesale business units, partly offset by the loss of EBITDA from the directories business.

  • Excluding the EBITDA from our directories business in 2002 results in order to measure the growth of our continuing businesses, our fourth quarter 2003 EBITDA would have increased by 6.1% and our EBITDA margin would have increased by 2.5 percentage points.

  • We continue to make progress in simplifying our business through the roll-out of productivity initiatives such as our interactive voice-response system “Emily” and specialized call center “Move Queues”. These initiatives contribute to our productivity gains by helping reduce costs while improving customer service.

Net Earnings/EPS

  • Net earnings applicable to common shares for Q4 2003 were $386 million, or $0.41 per common share, compared to net earnings of $1,696 million or $1.88 per common share for the same quarter last year reflecting a decline of $1,310 million or $1.47 per common share.

  • This decline reflects net gains of $1,363 million or $1.49 per share recognized in the fourth quarter of 2002. These included:

    • a net gain of $1,826 million from the sale of the directories business
    • $505 million of tax benefits and adjustments arising from the sale of Teleglobe.

         These were partly offset by:

    • after-tax restructuring and other charges of $251 million primarily from Bell’s streamlining program 
    • a $527 million goodwill impairment charge relating to Bell Globemedia and Aliant’s investment in Xwave
    • a $190 million writedown of various venture and portfolio investments.
  • The fourth quarter of 2003 includes $19 million of net losses, or $0.01 per share, relating to restructuring and other charges of $30 million, partially offset by $11 million of net gains on investments.

  • An earnings improvement of $72 million or $0.03 per share this quarter was driven by operating performance. Even though revenues declined compared to last year, our intensified focus on acquiring more profitable customers and our ongoing productivity efficiencies translated to higher margins.

 
Capital Expenditures

  • Capital expenditures of $1,083 million in the fourth quarter totalled 22.1% of revenues, up from 21.1% in Q4 of last year, reflecting the traditionally higher capital spending that occurs in the fourth quarter.

  • The Bell Canada Segment accounted for $991 million of the total in Q4 2003, of which approximately 50% relates to growth sectors and productivity initiatives, including wireless, IP/broadband, DSL and billing modernization.
 
Cash from Operating Activities and Free Cash Flow

  • Cash from operating activities for Q4 2003 of $1,610 million increased $472 million compared to the same period last year reflecting the positive effects of changes in working capital and cash tax savings.

  • Free cash flow of $192 million for the fourth quarter of 2003 improved significantly from negative free cash flow of $360 million in Q4 2002, reflecting:

    • the $472 million increase in cash from operations
    • lower total dividends of $103 million mainly due to Bell Canada no longer paying dividends to SBC.

  • Before the payment of common dividends, our free cash flow of $451 million compared favourably to the negative free cash flow of $89 million in the same period last year.

  • Our free cash flow improvement contributed to a reduction of our net debt to total capitalization ratio from 44.9% at September 30, 2003 to 43.8% at December 31, 2003.

Detailed Discussion of Results

Please refer to the MD&A starting on page 8 of this report for a more detailed discussion and analysis of the financial condition and the results of operations of BCE for the three months and twelve months ended December 31, 2003 and a description of the risks that could affect our business.


 

Management's Discussion and Analysis ...