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Form 6-K BCE INC For: Nov 01

November 1, 2018 2:23 PM

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934

For the month of: November 2018 Commission File Number: 1-8481

BCE Inc.
(Translation of Registrant’s name into English)

1, Carrefour Alexander-Graham-Bell, Verdun, Québec, Canada H3E 3B3,
(514) 870-8777
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F _________ Form 40-F ____X____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): _____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): _____

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes _________ No ____X____

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _____.

 

 

Only the BCE Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the quarter ended September 30, 2018 and the BCE Inc. unaudited consolidated interim financial statements for the quarter ended September 30, 2018, included in the BCE Inc. 2018 Third Quarter Shareholder Report furnished with this Form 6-K as Exhibit 99.1, the Bell Canada Unaudited Selected Summary Financial Information for the quarter ended September 30, 2018 furnished with this Form 6-K as Exhibit 99.5, and the Exhibit to 2018 Third Quarter Financial Statements – Earnings Coverage furnished with this Form 6-K as Exhibit 99.6 are incorporated by reference in the registration statements filed by BCE Inc. with the Securities and Exchange Commission on Form F-3 (Registration Statement No. 333-12130), Form S-8 (Registration Statement No. 333-12780), Form S-8 (Registration Statement No. 333-12802) and Form F-10 (Registration Statement No. 333-223660). Except for the foregoing, no other document or portion of document furnished with this Form 6-K is incorporated by reference in BCE Inc.’s registration statements. Notwithstanding any reference to BCE Inc.’s Web site on the World Wide Web in the documents attached hereto, the information contained in BCE Inc.’s site or any other site on the World Wide Web referred to in BCE Inc.’s site is not a part of this Form 6-K and, therefore, is not furnished to the Securities and Exchange Commission.

 

Page 1

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BCE Inc.

 

(signed) Glen LeBlanc
Glen LeBlanc
Executive Vice-President and Chief Financial Officer

 

November 1, 2018

 

 

Page 2

 

EXHIBIT INDEX

99.1   BCE Inc. 2018 Third Quarter Shareholder Report
99.2   Supplementary Financial Information – Third Quarter 2018
99.3   CEO/CFO Certifications
99.4   News Release
99.5   Bell Canada Unaudited Selected Summary Financial Information
99.6   Exhibit to 2018 Third Quarter Financial Statements – Earnings Coverage

 

Page 3

 

Exhibit 99.1

 

 

 

Table of contents

 

Management’s discussion and analysis 1
1 Overview 2
  1.1 Financial highlights 2
  1.2 Key corporate and business developments 3
  1.3 Assumptions 4
2 Consolidated financial analysis 5
  2.1 BCE consolidated income statements 5
  2.2 Customer connections 5
  2.3 Operating revenues 6
  2.4 Operating costs 7
  2.5 Net earnings 8
  2.6 Adjusted EBITDA 9
  2.7 Severance, acquisition and other costs 9
  2.8 Depreciation and amortization 10
  2.9 Finance costs 10
  2.10 Other expense 10
  2.11 Income taxes 10
  2.12 Net earnings attributable to common shareholders and EPS 11
3 Business segment analysis 12
  3.1 Bell Wireless 12
  3.2 Bell Wireline 16
  3.3 Bell Media 20
4 Financial and capital management 22
  4.1 Net debt 22
  4.2 Outstanding share data 22
  4.3 Cash flows 23
  4.4 Post-employment benefit plans 25
  4.5 Financial risk management 25
  4.6 Credit ratings 27
  4.7 Liquidity 27
5 Quarterly financial information 28
6 Regulatory environment 29
7 Business risks 30
8 Accounting policies, financial measures and controls 32
  8.1 Our accounting policies 32
  8.2 Non-GAAP financial measures and key performance indicators (KPIs) 34
  8.3 Controls and procedures 37

 

Consolidated financial statements

 38
  Consolidated income statements 38
  Consolidated statements of comprehensive income 39
  Consolidated statements of financial position 40
  Consolidated statements of changes in equity 41
  Consolidated statements of cash flows 42

 

Notes to consolidated financial statements

 43
  Note 1 Corporate information 43
  Note 2 Basis of presentation and significant accounting policies 43
  Note 3 Business acquisitions and dispositions 44
  Note 4 Segmented information 46
  Note 5 Operating costs 48
  Note 6 Severance, acquisition and other costs 48
  Note 7 Other expense 49
  Note 8 Earnings per share 49
  Note 9 Income taxes 50
  Note 10 Debt 50
  Note 11 Post-employment benefit plans 50
  Note 12 Financial assets and liabilities 51
  Note 13 Share capital 52
  Note 14 Share-based payments 53
  Note 15 Adoption of IFRS 15 54

 

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

MD&A

  

 

Management’s discussion and analysis

In this management’s discussion and analysis of financial condition and results of operations (MD&A), we, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates. Bell means, as the context may require, either Bell Canada or, collectively, Bell Canada, its subsidiaries, joint arrangements and associates. MTS means, as the context may require, until March 17, 2017, either Manitoba Telecom Services Inc. or, collectively, Manitoba Telecom Services Inc. and its subsidiaries; and Bell MTS means, from March 17, 2017, the combined operations of MTS and Bell Canada in Manitoba.

All amounts in this MD&A are in millions of Canadian dollars, except where noted. Please refer to section 8.2, Non-GAAP financial measures and key performance indicators (KPIs) on pages 34 to 36 for a list of defined non-GAAP financial measures and KPIs.

Please refer to BCE’s unaudited consolidated financial statements for the third quarter of 2018 (Q3 2018 Financial Statements) when reading this MD&A. We also encourage you to read BCE’s MD&A for the year ended December 31, 2017 dated March 8, 2018 (BCE 2017 Annual MD&A) as updated in BCE’s MD&A for the first quarter of 2018 dated May 2, 2018 (BCE 2018 First Quarter MD&A) and BCE’s MD&A for the second quarter of 2018 dated August 1, 2018 (BCE 2018 Second Quarter MD&A). In preparing this MD&A, we have taken into account information available to us up to October 31, 2018, the date of this MD&A, unless otherwise stated.

As required by International Financial Reporting Standards (IFRS), effective January 1, 2018, we have adopted IFRS 15, Revenue from Contracts with Customers, as described in section 8.1, Our accounting policies, retrospectively to each period in 2017 previously reported. We have also reclassified some amounts from previous periods to make them consistent with the presentation for the current period. As a result of the adoption of IFRS 15, we have also updated certain of our assumptions set out in the BCE 2017 Annual MD&A.

You will find more information about us, including BCE’s annual information form for the year ended December 31, 2017 dated March 8, 2018 (BCE 2017 AIF) and recent financial reports, including the BCE 2017 Annual MD&A, the BCE 2018 First Quarter MD&A and the BCE 2018 Second Quarter MD&A, on BCE’s website at BCE.ca, on SEDAR at sedar.com and on EDGAR at sec.gov.

This MD&A comments on our business operations, performance, financial position and other matters for the three months (Q3) and nine months (YTD) ended September 30, 2018 and 2017.

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This MD&A, and in particular, but without limitation, the section and sub-sections entitled Assumptions, section 3.1, Bell Wireless – Key business developments, section 3.2, Bell Wireline – Key business developments, section 3.3, Bell Media – Key business developments, and section 6, Regulatory environment, contain forward-looking statements. These forward-looking statements include, without limitation, statements relating to our network deployment plans and related capital investments, BCE’s business outlook, objectives, plans and strategic priorities, and other statements that do not refer to historical facts. A statement we make is forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, project, strategy, target, and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. All such forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities laws and of the United States (U.S.) Private Securities Litigation Reform Act of 1995.

Unless otherwise indicated by us, forward-looking statements in this MD&A describe our expectations as at October 31, 2018 and, accordingly, are subject to change after that date. Except as may be required by applicable securities laws, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in, or implied by, such forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. Forward-looking statements are presented in this MD&A for the purpose of assisting investors and others in understanding our objectives, strategic priorities and business outlook as well as our anticipated operating environment. Readers are cautioned, however, that such information may not be appropriate for other purposes.

We have made certain economic, market and operational assumptions in preparing the forward-looking statements contained in this MD&A and, in particular, but without limitation, the forward-looking statements contained in the previously mentioned sections of this MD&A. These assumptions include, without limitation, the assumptions described in the various sections and sub-sections of this MD&A entitled Assumptions, which section and sub-sections are incorporated by reference in this cautionary statement. We believe that our assumptions were reasonable at October 31, 2018. If our assumptions turn out to be inaccurate, our actual results could be materially different from what we expect. Unless otherwise indicated in this MD&A, in the BCE 2018 First Quarter MD&A or in the BCE 2018 Second Quarter MD&A, the strategic priorities, business outlook and assumptions described in the BCE 2017 Annual MD&A remain substantially unchanged.

Important risk factors including, without limitation, competitive, regulatory, economic, financial, operational, technological and other risks that could cause actual results or events to differ materially from those expressed in, or implied by, the previously-mentioned forward looking statements and other forward-looking statements contained in this MD&A, include, but are not limited to, the risks described or referred to in section 6, Regulatory environment, and section 7, Business risks, which sections are incorporated by reference in this cautionary statement.

We caution readers that the risks described in the previously mentioned sections and in other sections of this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation. Except as otherwise indicated by us, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after October 31, 2018. The financial impact of these transactions and special items can be complex and depends on facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way, or in the same way we present known risks affecting our business.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   1
       

1

 MD&A Overview  

 

1 Overview

As required by IFRS, effective January 1, 2018, we have adopted IFRS 15, Revenue from Contracts with Customers, as described in section 8.1, Our accounting policies, retrospectively to each period in 2017 previously reported. We have also reclassified some amounts from previous periods to make them consistent with the presentation for the current period.

 

1.1 Financial highlights

BCE Q3 2018 SELECTED QUARTERLY INFORMATION

BCE CUSTOMER CONNECTIONS

 

BCE INCOME STATEMENTS – SELECTED INFORMATION

 

  Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Operating revenues

                                

Service

 5,117   5,054   63   1.2 % 15,210   14,943   267   1.8 %

Product

 760   643   117   18.2 % 2,043   1,778   265   14.9 %

Total operating revenues

 5,877   5,697   180   3.2 % 17,253   16,721   532   3.2 %

Operating costs

 (3,420 ) (3,292 ) (128 ) (3.9 %) (10,112 ) (9,768 ) (344 ) (3.5 %)

Adjusted EBITDA

 2,457   2,405   52   2.2 % 7,141   6,953   188   2.7 %

Adjusted EBITDA margin(1)

 41.8 % 42.2 %     (0.4 ) pts 41.4 % 41.6 %     (0.2 ) pts

Net earnings attributable to:

                                

Common shareholders

 814   803   11   1.4 % 2,179   2,210   (31 ) (1.4 %)

Preferred shareholders

 36   31   5   16.1 % 107   94   13   13.8 %

Non-controlling interest

 17   16   1   6.3 % 45   48   (3 ) (6.3 %)

Net earnings

 867   850   17   2.0 % 2,331   2,352   (21 ) (0.9 %)

Adjusted net earnings

 861   824   37   4.5 % 2,357   2,322   35   1.5 %

Net earnings per common share (EPS)

 0.90   0.90   —   — %  2.42   2.48   (0.06 ) (2.4 %)

Adjusted EPS(1)

 0.96   0.91   0.05   5.5 % 2.62   2.60   0.02   0.8 %

 

(1) Adjusted EBITDA, adjusted EBITDA margin, adjusted net earnings, adjusted EPS and free cash flow are non-GAAP financial measures and do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 8.2, Non-GAAP financial measures and key performance indicators (KPIs) – Adjusted EBITDA and adjusted EBITDA margin, Adjusted net earnings and adjusted EPS and Free cash flow and dividend payout ratio in this MD&A for more details, including reconciliations to the most comparable IFRS financial measure.
(2) At the beginning of Q1 2018, we adjusted our postpaid wireless subscriber base to remove 16,116 subscribers with a corresponding increase to our high-speed Internet subscribers to reflect the transfer of fixed wireless Internet subscribers.
(3) At the beginning of Q1 2018, our high-speed Internet subscriber base was increased by 19,835, our Internet protocol television (IPTV) by 14,599 and our residential NAS by 23,441, mainly as a result of a small acquisition made in Q1 2018.
(4) As of January 1, 2018, business NAS was removed from our NAS subscriber base due to its declining relevance as a KPI given migrations from voice to Internet protocol (IP) result in NAS losses without a corresponding decline in revenues. Previously reported periods were retroactively adjusted.

 

2   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

1

MD&A Overview

 

BCE STATEMENTS OF CASH FLOWS – SELECTED INFORMATION

 

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Cash flows from operating activities

 2,043   2,233   (190 ) (8.5 %) 5,596   5,700   (104 ) (1.8 %)

Capital expenditures

 (1,010 ) (1,040 ) 30   2.9 % (2,997 ) (2,934 ) (63 ) (2.1 %)

Free cash flow

 1,014   1,183   (169 ) (14.3 %) 2,545   2,766   (221 ) (8.0 %)

 

Q3 2018 FINANCIAL HIGHLIGHTS

BCE delivered revenue growth of 3.2% in Q3 2018, compared to last year, driven by higher service revenues of 1.2% reflecting a favourable contribution from all three of our segments. Product revenues grew by 18.2%, compared to last year, due to greater sales of premium wireless devices and higher equipment sales to large business customers. Wireless service revenues benefited from a continued subscriber base expansion, which was moderated by lower average revenue per user (ARPU). The growth in our wireline service revenues was driven by higher Internet and IPTV revenues, and reflected improved business markets performance from greater IP-based and business solutions services revenue, which more than offset the ongoing erosion in our legacy voice and data services. Bell Media grew both advertising and subscriber revenues in the quarter.

Net earnings increased by 2.0% in the third quarter of 2018, compared to the same period last year, due to higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower income taxes and lower other expense, partly offset by higher severance, acquisition and other costs, higher depreciation and amortization expense and higher finance costs.

Q3 2018 adjusted EBITDA grew by 2.2%, compared to last year, mainly driven by the service revenue flow-through, along with continued disciplined cost containment, offset in part by escalating content and programming costs.

BCE’s EPS of $0.90 in Q3 2018 remained stable compared to the same period last year.

Excluding the impact of severance, acquisition and other costs, net mark-to-market (losses) gains on derivatives used to economically hedge equity settled share-based compensation plans, net (losses) gains on investments, early debt redemption costs and impairment charges, adjusted net earnings in the third quarter of 2018 was $861 million, or $0.96 per common share, compared to $824 million, or $0.91 per common share, for the same period last year.

Cash flows from operating activities in the third quarter of 2018 decreased by $190 million, compared to Q3 2017, due mainly to a decrease in cash from working capital and higher income taxes paid, partly offset by higher adjusted EBITDA.

Free cash flow in Q3 2018 decreased by $169 million, compared to the same period last year, mainly due to lower cash flows from operating activities excluding acquisition and other costs paid, partly offset by lower capital expenditures.

 

1.2 Key corporate and business developments

MIRKO BIBIC APPOINTED AS CHIEF OPERATING OFFICER

On October 4, 2018, BCE appointed Mirko Bibic as Chief Operating Officer (COO) for BCE and Bell Canada. As Chief Operating Officer, Mr. Bibic will leverage his deep knowledge of Bell’s business and his experience in executing major corporate initiatives to lead the company’s largest customer-facing business units. Rizwan Jamal, President of Bell Residential and Small Business; Blaik Kirby, President of Bell Mobility; and Tom Little, President of Bell Business Markets report to Mr. Bibic in his role as COO. Mr. Bibic also continues to lead legal and regulatory strategy for BCE and the Bell group of companies. Mr. Bibic has been a key driver in the success of Bell’s broadband investment and innovation strategy as Executive Vice President of Corporate Development. This includes his oversight of strategic mergers and acquisitions transactions such as the acquisitions of Astral Media Inc. and MTS, Bell’s participation in multiple wireless spectrum auctions, and a wide range of other investment and partnership initiatives.

Bell also appointed Wade Oosterman as Vice Chair of BCE and Bell Canada. A highly respected leader in the Canadian communications industry, including 12 years at Bell in increasingly expansive executive roles, Mr. Oosterman assumes a senior advisory and oversight role on the Bell executive team, in addition to his existing leadership of Bell Media as Group President and his role as Bell’s Chief Brand Officer. Bell Media President Randy Lennox continues to report to Mr. Oosterman.

ACQUISITION OF AXIA NETMEDIA COMPLETED

On August 31, 2018, Bell completed its acquisition of Axia NetMedia Corporation (Axia), the Calgary-based operator of SuperNet, the Alberta broadband network connecting thousands of provincial and municipal offices, Indigenous communities, schools, libraries, healthcare institutions, businesses and Internet service providers throughout the province, which will add approximately 10,000 kilometres of fibre capacity to our footprint.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   3
       

1

 MD&A Overview  

 

PUBLIC DEBT OFFERINGS AND REDEMPTIONS

On August 21, 2018, Bell Canada completed a public offering of $1 billion of medium term notes (MTN) debentures pursuant to its MTN program. The $1 billion Series M-48 MTN debentures will mature on August 21, 2028 and carry an annual interest rate of 3.80%. The MTN debentures are fully and unconditionally guaranteed by BCE Inc. The net proceeds of the offering were used to fund the early redemption in September 2018 of Bell Canada’s $1 billion principal amount of 3.35% Series M-25 debentures due June 18, 2019.

On September 14, 2018, Bell Canada completed a public offering of US $400 million of Series US-1 Notes (Notes). The Notes represent a re-opening of, and form a single series with, Bell Canada’s outstanding 4.464% Series US-1 Notes due 2048 in the principal amount of US $750 million that were issued on March 29, 2018. The Notes will mature on April 1, 2048 and carry an annual interest rate of 4.464%. The Notes are fully and unconditionally guaranteed by BCE Inc. The net proceeds of the offering were used to fund the early redemption in October 2018 of Bell Canada’s $200 million principal amount of 5.625% Series 8 notes due December 16, 2019, for the repayment of short-term debt and for general corporate purposes.

 

1.3 Assumptions

As at the date of this MD&A, our forward-looking statements set out in the BCE 2017 Annual MD&A, as updated or supplemented in the BCE 2018 First Quarter MD&A, in the BCE 2018 Second Quarter MD&A and in this MD&A, are based on certain assumptions including, without limitation, the following economic and market assumptions as well as the various assumptions referred to under the sub-sections entitled Assumptions set out in section 3, Business segment analysis of this MD&A.

ASSUMPTIONS ABOUT THE CANADIAN ECONOMY

MARKET ASSUMPTIONS

 

4   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

2

MD&A Consolidated financial analysis

 

2 Consolidated financial analysis

This section provides detailed information and analysis about BCE’s performance in Q3 and YTD 2018 compared with Q3 and YTD 2017. 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 3, Business segment analysis.

As required by IFRS, effective January 1, 2018, we have adopted IFRS 15, Revenue from Contracts with Customers, as described in section 8.1, Our accounting policies, retrospectively to each period in 2017 previously reported. We have also reclassified some amounts from previous periods to make them consistent with the presentation for the current period.

2.1 BCE consolidated income statements

 

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Operating revenues

                                

Service

 5,117   5,054   63   1.2 % 15,210   14,943   267   1.8 %

Product

 760   643   117   18.2 % 2,043   1,778   265   14.9 %

Total operating revenues

 5,877   5,697   180   3.2 % 17,253   16,721   532   3.2 %

Operating costs

 (3,420 ) (3,292 ) (128 ) (3.9 %) (10,112 ) (9,768 ) (344 ) (3.5 %)

Adjusted EBITDA

 2,457   2,405   52   2.2 % 7,141   6,953   188   2.7 %

Adjusted EBITDA margin

 41.8 % 42.2 %     (0.4 ) pts 41.4 % 41.6 %     (0.2 ) pts

Severance, acquisition and other costs

 (54 ) (23 ) (31 ) n.m.   (78 ) (143 ) 65   45.5 %

Depreciation

 (779 ) (760 ) (19 ) (2.5 %) (2,346 ) (2,251 ) (95 ) (4.2 %)

Amortization

 (220 ) (207 ) (13 ) (6.3 %) (653 ) (602 ) (51 ) (8.5 %)

Finance costs

                                

Interest expense

 (255 ) (242 ) (13 ) (5.4 %) (741 ) (714 ) (27 ) (3.8 %)

Interest on post-employment benefit obligations

 (17 ) (18 ) 1   5.6 % (51 ) (54 ) 3   5.6 %

Other expense

 (41 ) (56 ) 15   26.8 % (190 ) (40 ) (150 ) n.m.  

Income taxes

 (224 ) (249 ) 25   10.0 % (751 ) (797 ) 46   5.8 %

Net earnings

 867   850   17   2.0 % 2,331   2,352   (21 ) (0.9 %)

Net earnings attributable to:

                                

Common shareholders

 814   803   11   1.4 % 2,179   2,210   (31 ) (1.4 %)

Preferred shareholders

 36   31   5   16.1 % 107   94   13   13.8 %

Non-controlling interest

 17   16   1   6.3 % 45   48   (3 ) (6.3 %)

Net earnings

 867   850   17   2.0 % 2,331   2,352   (21 ) (0.9 %)

Adjusted net earnings

 861   824   37   4.5 % 2,357   2,322   35   1.5 %

EPS

 0.90   0.90   —   —   2.42   2.48   (0.06 ) (2.4 %)

Adjusted EPS

 0.96   0.91   0.05   5.5 % 2.62   2.60   0.02   0.8 %

n.m.: not meaningful

 

2.2 Customer connections

TOTAL BCE CONNECTIONS

 

Q3 2018   Q3 2017  

% CHANGE

  

Wireless subscribers(1)

 9,487,368   9,008,273   5.3 %

Postpaid(1)

 8,728,436   8,243,446   5.9 %

Prepaid

 758,932   764,827   (0.8 %)

High-speed Internet subscribers(1)(2)

 3,904,304   3,763,101   3.8 %

TV (Satellite and IPTV subscribers)(2)

 2,843,828   2,825,754   0.6 %

IPTV(2)

 1,639,233   1,517,833   8.0 %

Total growth services

 16,235,500   15,597,128   4.1 %

Wireline residential NAS lines(2)

 3,051,630   3,275,589   (6.8 %)

Total services(3)

 19,287,130   18,872,717   2.2 %

 

(1) At the beginning of Q1 2018, we adjusted our postpaid wireless subscriber base to remove 16,116 subscribers with a corresponding increase to our high-speed Internet subscribers to reflect the transfer of fixed wireless Internet subscribers.
(2) At the beginning of Q1 2018, our high-speed Internet subscriber base was increased by 19,835, our IPTV by 14,599 and our residential NAS by 23,441, mainly as a result of a small acquisition made in Q1 2018.
(3) As of January 1, 2018, business NAS was removed from our NAS subscriber base due to its declining relevance as a KPI given migrations from voice to IP result in NAS losses without a corresponding decline in revenues. Previously reported periods were retroactively adjusted.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   5
       

2

 MD&A Consolidated financial analysis  

 

BCE NET ACTIVATIONS (LOSSES)

 

Q3 2018   Q3 2017  

% CHANGE

   YTD 2018   YTD 2017  

% CHANGE

  

Wireless subscribers

 177,834   106,982   66.2 % 336,697   174,570   92.9 %

Postpaid

 135,323   117,182   15.5 % 325,902   241,575   34.9 %

Prepaid

 42,511   (10,200 )  516.8 % 10,795   (67,005 )  116.1 %

High-speed Internet subscribers

 47,749   44,424   7.5 % 78,212   60,820   28.6 %

TV (Satellite and IPTV subscribers)

 8,601   1,738   394.9 % (3,071 ) (27,262 ) 88.7 %

IPTV

 40,091   36,399   10.1 % 74,317   75,228   (1.2 %)

Total growth services

 234,184   153,144   52.9 % 411,838   208,128   97.9 %

Wireline residential NAS lines

 (74,921 ) (57,387 ) (30.6 %) (203,119 ) (197,813 ) (2.7 %)

Total services

 159,263   95,757   66.3 % 208,719   10,315   n.m.  

n.m.: not meaningful

BCE added 234,184 net new customer connections to its growth services in Q3 2018, a 52.9% increase over the 153,144 net new customer connections achieved in Q3 2017. This was comprised of:

In the first nine months of the year, BCE added 411,838 net new customer connections to its growth services, a 97.9% increase over the 208,128 net new customer connections achieved last year. This consisted of:

Residential NAS net losses were 74,921 in Q3 2018, and 203,119 in the first nine months of the year, increasing by 30.6% and 2.7%, respectively, over the same periods in 2017.

Total BCE customer connections across all services increased by 2.2% in Q3 2018 compared to last year, driven by an increase in our growth services customer base, moderated by ongoing erosion in residential NAS lines.

At September 30, 2018, BCE customer connections totaled 19,287,130 and consisted of the following:

 

2.3 Operating revenues

 

 

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Bell Wireless

 2,182   2,061   121   5.9 % 6,174   5,777   397   6.9 %

Bell Wireline

 3,147   3,088   59   1.9 % 9,366   9,182   184   2.0 %

Bell Media

 731   723   8   1.1 % 2,271   2,270   1   —  

Inter-segment eliminations

 (183 ) (175 ) (8 ) (4.6 %) (558 ) (508 ) (50 ) (9.8 %)

Total BCE operating revenues

 5,877   5,697   180   3.2 % 17,253   16,721   532   3.2 %

 

 

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2

MD&A Consolidated financial analysis

 

BCE

Total operating revenues at BCE increased by 3.2% in both Q3 2018 and in the first nine months of the year, compared to the same periods in 2017. Q3 2018 growth resulted from increases across all three of our segments. The first nine months of the year were favourably impacted by growth in both our Bell Wireless and Bell Wireline segments, while our Bell Media segment remained stable year-over-year. Service revenues of $5,117 million in Q3 2018 and $15,210 million in the first nine months of the year, grew by 1.2% and 1.8%, respectively, over the same periods last year. Product revenues of $760 million in Q3 2018 and $2,043 million in the first nine months of 2018, increased by 18.2% and 14.9%, respectively, over the same periods last year.

BELL WIRELESS

Bell Wireless operating revenues increased by 5.9% in Q3 2018 and by 6.9% for the first nine months of the year, compared to the same periods in 2017, driven by growth in both service and product revenues. Service revenues grew by 2.5% in the current quarter and by 4.0% year to date, compared to the same periods last year, due to the continued expansion of our postpaid subscriber base moderated by lower blended ARPU. The decrease in blended ARPU was driven by a decline in voice and data overages due to greater customer adoption of plans with higher usage thresholds, lower ARPU generated from the long-term mobile services contract with Shared Services Canada and the dilutive impact on blended ARPU from the continued ramp-up in prepaid customers from Lucky Mobile. The growth in year-to-date service revenues also benefited from the acquisition of MTS in March 2017, offset in part by the unfavourable retroactive impact of the Canadian Radio-television and Telecommunications Commission (CRTC) decision on wholesale wireless domestic roaming rates of $14 million. Product revenues increased by 17.2% in this quarter and by 17.3% for the first nine months of the year, compared to the same periods last year, due to increased sales of premium devices with higher retail handset prices, combined with higher sales volumes due to greater gross activations and upgrades.

BELL WIRELINE

Bell Wireline operating revenues increased by 1.9% in the third quarter of 2018 and by 2.0% in the first nine months of the year, compared to the same periods last year, attributable to service revenue growth of 0.8% and 1.6%, respectively, as well as product revenue growth of 20.1% and 9.3%, respectively. The increase in service revenues was driven by the ongoing growth in Internet and IPTV revenues, as well as greater IP-based and business solutions services revenues. This was moderated by continued erosion in our voice, satellite TV and legacy data services, combined with higher residential customer acquisition, retention and bundle discounts to match aggressive offers from cable competitors. The increase in product revenues was driven by greater demand by large business customers for telecommunications equipment, which resulted in overall revenue growth for our business markets. Year-to-date revenues were also favourably impacted by the acquisition of MTS.

BELL MEDIA

Bell Media operating revenues increased by 1.1%, in Q3 2018 and remained essentially unchanged in the first nine months of the year, compared to the same periods in 2017. This reflected higher year-over-year advertising revenues in Q3 2018, mainly from specialty TV led by the broadcast of the 2018 Fédération Internationale de Football Association (FIFA) World Cup. This more than offset the impact of overall viewership declines and the ongoing shift in customer spending to over-the-top (OTT) and digital platforms, which unfavourably impacted conventional TV and radio. The increase in subscriber revenues also favourably impacted operating revenues, mainly due to continued growth in our CraveTV and TV Everywhere GO products as well as the contribution from TSN and RDS Direct, our direct-to-consumer sports streaming services that launched in June 2018, along with rate increases to certain broadcasting distribution undertakings (BDUs), offset in part by lower subscriber levels. In the first nine months of the year, advertising revenues declined, as compared to the same period in 2017, reflecting the shift in advertising dollars in Q1 2018 to the main broadcaster of the PyeongChang 2018 Winter Olympics, moderated by higher out-of-home (OOH) advertising revenues from increased demand on digital faces.

 

2.4 Operating costs

 

 

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Bell Wireless

 (1,231 ) (1,151 ) (80 ) (7.0 %) (3,497 ) (3,247 ) (250 ) (7.7 %)

Bell Wireline

 (1,823 ) (1,780 ) (43 ) (2.4 %) (5,419 ) (5,304 ) (115 ) (2.2 %)

Bell Media

 (549 ) (536 ) (13 ) (2.4 %) (1,754 ) (1,725 ) (29 ) (1.7 %)

Inter-segment eliminations

 183   175   8   4.6 % 558   508   50   9.8 %

Total BCE operating costs

 (3,420 ) (3,292 ) (128 ) (3.9 %) (10,112 ) (9,768 ) (344 ) (3.5 %)

 

(1) Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers.
(2) Labour costs (net of capitalized costs) include wages, salaries and related taxes and benefits, post-employment benefit plans service cost, and other labour costs, including contractor and outsourcing costs.
(3) Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, information technology (IT) costs, professional service fees and rent.

 

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2

 MD&A Consolidated financial analysis  

 

BCE

Total BCE operating costs increased by 3.9% in Q3 2018 and by 3.5% in the first nine months of the year, compared to the same periods in 2017, attributable to higher costs across all three of our segments.

BELL WIRELESS

Bell Wireless operating costs increased by 7.0% in Q3 2018 and by 7.7% year to date, compared to the same periods in 2017, as a result of:

These factors were partially offset by lower advertising spend.

Year-to-date operating costs also reflected higher costs related to the acquisition of MTS.

BELL WIRELINE

Bell Wireline operating costs increased by 2.4% in Q3 2018 and by 2.2% in the first nine months of the year, compared to the same periods in 2017, mainly driven by higher cost of goods sold resulting from increased product sales and greater payments to other carriers in the quarter, driven by higher sales of international long distance minutes. In the first nine months of the year, operating costs were further pressured by the acquisition of MTS, higher pension expense due to a gain in Q1 2017 on post-employment benefit expense related to an alignment of certain Bell Aliant defined benefit (DB) pension plans with those of Bell Canada, contractual programming rate increases in our TV business and increased advertising spend in Q1 2018 during the PyeongChang 2018 Winter Olympics.

BELL MEDIA

Bell Media operating costs increased by 2.4% in Q3 2018 and by 1.7% in the first nine months of the year, compared to the corresponding periods last year, due to the continued escalation of programming and content costs for sports broadcast rights, primarily relating to the 2018 FIFA World Cup, ongoing content expansion for CraveTV, as well as deal renewals for specialty TV programming.

 

2.5 Net earnings

Net earnings increased by 2.0% in the third quarter of 2018, compared to the same period last year, due to higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower income taxes and lower other expense, partly offset by higher severance, acquisition and other costs, higher depreciation and amortization expense and higher finance costs.

Year to date, net earnings of $2,331 million decreased by 0.9%, compared to the same period last year, due to higher other expense, higher depreciation and amortization expense and higher finance costs, partly offset by higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower severance, acquisition and other costs and lower income taxes.

 

8   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

2

MD&A Consolidated financial analysis

 

2.6 Adjusted EBITDA

 

 

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Bell Wireless

 951   910   41   4.5 % 2,677   2,530   147   5.8 %

Bell Wireline

 1,324   1,308   16   1.2 % 3,947   3,878   69   1.8 %

Bell Media

 182   187   (5 ) (2.7 %) 517   545   (28 ) (5.1 %)

Total BCE adjusted EBITDA

 2,457   2,405   52   2.2 % 7,141   6,953   188   2.7 %

BCE

BCE’s adjusted EBITDA grew by 2.2% in Q3 2018 and by 2.7% in the first nine months of the year, compared to the same periods last year, driven by growth in both our Bell Wireless and Bell Wireline segments, offset in part by a decline in our Bell Media segment. Adjusted EBITDA margin declined by 0.4 pts to 41.8% in Q3 2018 and by 0.2 pts to 41.4% in the first nine months of the year, over the same periods last year, driven by a higher proportion of low-margin product sales in our total revenue base.

The year-over-year increase in adjusted EBITDA was driven by growth across wireless, Internet, IPTV, IP-based and business solutions services and media revenues, coupled with ongoing disciplined cost management. This was moderated by the continued erosion in our voice, satellite TV and legacy data revenues, increased cost of goods sold and escalating programming and content costs. Additionally, the first nine months of the year were favourably impacted by the contribution from the acquisition of MTS, offset in part by higher pension expense due to a gain realized in Q1 2017 and lower Bell Media advertising revenues.

BELL WIRELESS

Bell Wireless adjusted EBITDA increased by 4.5% in Q3 2018 and by 5.8% year to date, compared to the same periods in 2017, due to the flow-through of the revenue growth, offset in part by higher operating expenses. The first nine months of the year also benefited from the acquisition of MTS, moderated by the unfavourable retroactive impact of the CRTC decision on wholesale wireless domestic roaming rates of $14 million.

BELL WIRELINE

Bell Wireline adjusted EBITDA grew by 1.2% in Q3 2018 and by 1.8% during the first nine months of the year, compared to the same periods last year, driven by increased revenues, moderated by higher operating expenses. Additionally, the first nine months of the year were favourably impacted by the acquisition of MTS, offset in part by higher pension expense as a result of a gain realized in Q1 2017.

BELL MEDIA

Bell Media adjusted EBITDA decreased by 2.7% in Q3 2018 and by 5.1% in the first nine months of the year, compared to the same periods in 2017, as the increase in operating revenues was more than offset by higher operating expenses.

 

2.7 Severance, acquisition and other costs

2018

Severance, acquisition and other costs of $54 million in the third quarter of 2018 and $78 million on a year-to-date basis included:

2017

Severance, acquisition and other costs of $23 million in the third quarter of 2017 and $143 million on a year-to-date basis included:

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   9
       

2

 MD&A Consolidated financial analysis  

 

 

2.8 Depreciation and amortization

DEPRECIATION

Depreciation in the third quarter and on a year-to-date basis in 2018 increased by $19 million and $95 million, respectively, compared to the same periods in 2017, mainly due to a higher asset base as we continued to invest in our broadband and wireless networks as well as our IPTV service. The year-to-date increase in depreciation also reflects the acquisition of MTS.

AMORTIZATION

Amortization in the third quarter and on a year-to-date basis in 2018 increased by $13 million and $51 million, respectively, compared to the same periods in 2017, mainly due to a higher asset base. The year-to-date increase in amortization also reflects the acquisition of MTS.

 

2.9 Finance costs

INTEREST EXPENSE

Interest expense in the third quarter of 2018 and on a year-to-date basis in 2018 increased by $13 million and $27 million, respectively, compared to the same periods last year, mainly as a result of higher average debt levels and higher interest rates. The year-to-date increase in interest expense also reflects the acquisition of MTS.

INTEREST ON POST-EMPLOYMENT BENEFIT OBLIGATIONS

Interest on our post-employment benefit obligations is based on market conditions that existed at the beginning of the year. On January 1, 2018, the discount rate was 3.6% compared to 4.0% on January 1, 2017.

In the third quarter of 2018 and on a year-to-date basis in 2018, interest expense on post-employment benefit obligations decreased by $1 million and $3 million, respectively, compared to the same periods last year, due to a lower discount rate, partly offset by a higher post-employment benefit obligation at the beginning of the year.

The impacts of changes in market conditions during the year are recognized in other comprehensive income (loss) (OCI).

 

2.10 Other expense

2018

Other expense of $41 million in the third quarter of 2018 included losses from our equity investments and net mark-to-market losses on derivatives used to economically hedge equity settled share-based compensation plans.

Other expense of $190 million on a year-to-date basis in 2018 included net mark-to-market losses on derivatives used to economically hedge equity settled share-based compensation plans, losses from our equity investments, which included BCE’s share of an obligation to repurchase at fair value the minority interest in one of BCE’s joint ventures, and early debt redemption costs.

2017

Other expense of $56 million in the third quarter of 2017 included losses from our equity investments and early debt redemption costs.

Other expense of $40 million on a year-to-date basis in 2017 included losses on retirements and disposals of property, plant and equipment and intangible assets, early debt redemption costs, losses on investments and losses from our equity investments, partly offset by net mark-to-market gains on derivatives used to economically hedge equity settled share-based compensation plans.

 

2.11 Income taxes

Income taxes in the third quarter and on a year-to-date basis in 2018 decreased by $25 million and $46 million, respectively, compared to the same periods last year, due to lower taxable income and a higher value of uncertain tax positions favourably resolved in 2018 compared to 2017.

 

10   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

2

MD&A Consolidated financial analysis

 

2.12 Net earnings attributable to common shareholders and EPS

Net earnings attributable to common shareholders of $814 million in the third quarter of 2018 increased by $11 million, compared to the same period last year, due to higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower income taxes and lower other expense, partly offset by higher severance, acquisition and other costs, higher depreciation and amortization expense and higher finance costs.

Year to date, net earnings attributable to common shareholders of $2,179 million decreased by $31 million, compared to the same period last year, due to higher other expense, higher depreciation and amortization expense and higher finance costs, partly offset by higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower severance, acquisition and other costs and lower income taxes.

BCE’s EPS of $0.90 in Q3 2018 remained stable compared to the same period last year and decreased by $0.06 on a year-to-date basis in 2018 to $2.42.

Excluding the impact of severance, acquisition and other costs, net mark-to-market (losses) gains on derivatives used to economically hedge equity settled share-based compensation plans, net (losses) gains on investments, early debt redemption costs and impairment charges, adjusted net earnings in the third quarter of 2018 was $861 million, or $0.96 per common share, compared to $824 million, or $0.91 per common share, for the same period last year. Adjusted net earnings in the first nine months of 2018 was $2,357 million, or $2.62 per common share, compared to $2,322 million, or $2.60 per common share, for the first nine months of 2017.

 

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3

 MD&A Business segment analysis
Bell Wireless		  

 

3 Business segment analysis

 

3.1 Bell Wireless

KEY BUSINESS DEVELOPMENTS

LTE ADVANCED WIRELESS COVERAGE EXTENDED IN SOUTHEASTERN MANITOBA

Bell MTS announced the latest expansion of its leading long-term evolution (LTE) Advanced (LTE-A) wireless coverage in Manitoba, extending wireless service to the Southeastern communities of Stuartburn, Woodridge and Zhoda. Part of the $1 billion Bell MTS infrastructure investment plan for the province, this service expansion offers residents and businesses in Southeastern Manitoba access to the latest evolution of broadband wireless technology. LTE-A wireless service became available in Woodridge in September 2018, and will launch in Stuartburn and Zhoda in 2019.

MOBILE DEVICE LINEUP EXPANDED

Bell Mobility’s extensive device lineup continued to expand in Q3 2018 with the addition of a number of new Fourth Generation (4G) LTE and LTE-A devices from leading handset manufacturers, including the Samsung Galaxy Note 9 smartphone, the LG Q Stylo+ smartphone, Apple’s iPhone Xs and Xs Max and the Apple Watch Series 4. Additionally, Apple’s iPhone XR was available to pre-order on October 19.

PARTNERSHIP WITH FORD IN NEW CONNECTED CAR INITIATIVE

Bell is the first Canadian wireless service provider to enable built-in wireless fidelity (Wi-Fi) hotspots in supported Ford and Lincoln vehicles with Bell’s Connected Car – Built In service. Available vehicle diagnostics services will also be supported on Bell’s national LTE network. Ideal for mobile workers, commuters and long family trips, Connected Car enables passengers to browse, stream and share on Bell’s broadband LTE wireless network when they are on the road or nearby the vehicle when it is parked. The Wi-Fi hotspot features a dedicated external antenna, supports up to 10 devices at a time, and is powered by the vehicle’s electrical system rather than the device battery. Connected Car is the next evolution in the smart vehicle experience and part of Bell’s Internet of Things leadership to enable the connected vehicles, homes, businesses and smart cities of the future.

 

FINANCIAL PERFORMANCE ANALYSIS

Q3 2018 PERFORMANCE HIGHLIGHTS

 

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MD&A Business segment analysis
Bell Wireless

 

(1) At the beginning of Q1 2018, we adjusted our postpaid wireless subscriber base to remove 16,116 subscribers with a corresponding increase to our high-speed Internet subscribers to reflect the transfer of fixed wireless Internet subscribers.

BELL WIRELESS RESULTS

REVENUES

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

External service revenues

 1,618   1,580   38   2.4 % 4,680   4,503   177   3.9 %

Inter-segment service revenues

 12   10   2   20.0 % 36   31   5   16.1 %

Total operating service revenues

 1,630   1,590   40   2.5 % 4,716   4,534   182   4.0 %

External product revenues

 552   469   83   17.7 % 1,456   1,240   216   17.4 %

Inter-segment product revenues

 —   2   (2 ) (100.0 %) 2   3   (1 ) (33.3 %)

Total operating product revenues

 552   471   81   17.2 % 1,458   1,243   215   17.3 %

Total Bell Wireless revenues

 2,182   2,061   121   5.9 % 6,174   5,777   397   6.9 %

Bell Wireless operating revenues grew by 5.9% in Q3 2018 and 6.9% in the first nine months of the year, compared to the same periods in 2017, driven by both higher service and product revenues.

OPERATING COSTS AND ADJUSTED EBITDA

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Operating costs

 (1,231 ) (1,151 ) (80 ) (7.0 %) (3,497 ) (3,247 ) (250 ) (7.7 %)

Adjusted EBITDA

 951   910   41   4.5 % 2,677   2,530   147   5.8 %

Total adjusted EBITDA margin

 43.6 % 44.2 %     (0.6 ) pts 43.4 % 43.8 %     (0.4 ) pts

Bell Wireless operating costs increased by 7.0% in Q3 2018 and by 7.7% year to date, compared to the same periods in 2017, as a result of:

These factors were partially offset by lower advertising spend.

Year-to-date operating costs also reflected higher costs related to the acquisition of MTS.

Bell Wireless adjusted EBITDA increased by 4.5% in Q3 2018 and by 5.8% year to date, compared to the same periods in 2017, due to the flow-through of the revenue growth, offset in part by higher operating expenses. The first nine months of the year also benefited from the acquisition of MTS, moderated by the unfavourable retroactive impact of the CRTC decision on wholesale wireless domestic roaming rates of $14 million. Adjusted EBITDA margin, based on wireless operating revenues, declined by 0.6 pts in Q3 2018 and by 0.4 pts year-to-date, compared to the same periods in 2017, driven by the greater proportion of low-margin product sales in our total revenue base.

 

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3

 MD&A Business segment analysis
Bell Wireless		  

 

BELL WIRELESS OPERATING METRICS

 

Q3 2018   Q3 2017   CHANGE   % CHANGE   YTD 2018   YTD 2017   CHANGE  

% CHANGE

  

Blended ARPU ($/month)

 56.67   57.77   (1.10 ) (1.9 %) 55.50   55.92   (0.42 ) (0.8 %)

Blended average billing per user (ABPU) ($/month)

 69.28   69.78   (0.50 ) (0.7 %) 67.86   67.60   0.26   0.4 %

Gross activations

 535,647   460,053   75,594   16.4 % 1,408,589   1,211,923   196,666   16.2 %

Postpaid

 426,719   390,985   35,734   9.1 % 1,168,174   1,026,993   141,181   13.7 %

Prepaid

 108,928   69,068   39,860   57.7 % 240,415   184,930   55,485   30.0 %

Net activations (losses)

 177,834   106,982   70,852   66.2 % 336,697   174,570   162,127   92.9 %

Postpaid

 135,323   117,182   18,141   15.5 % 325,902   241,575   84,327   34.9 %

Prepaid

 42,511   (10,200 ) 52,711   516.8 % 10,795   (67,005 ) 77,800   116.1 %

Blended churn % (average per month)

 1.27 % 1.32 %     0.05  pts 1.29 % 1.31 %     0.02  pts

Postpaid

 1.14 % 1.16 %     0.02  pts 1.13 % 1.14 %     0.01  pts

Prepaid

 2.76 % 2.95 %     0.19  pts 3.17 % 3.15 %     (0.02 ) pts

Subscribers(1)

 9,487,368   9,008,273   479,095   5.3 % 9,487,368   9,008,273   479,095   5.3 %

Postpaid(1)

 8,728,436   8,243,446   484,990   5.9 % 8,728,436   8,243,446   484,990   5.9 %

Prepaid

 758,932   764,827   (5,895 ) (0.8 %) 758,932   764,827   (5,895 ) (0.8 %)

 

(1) At the beginning of Q1 2018, we adjusted our postpaid wireless subscriber base to remove 16,116 subscribers with a corresponding increase to our high-speed Internet subscribers to reflect the transfer of fixed wireless Internet subscribers.

Blended ARPU of $56.67 decreased by 1.9 % in Q3 2018 and by 0.8% year to date, compared to the same periods in 2017, driven by a decline in voice and data overages due to greater customer adoption of plans with higher usage thresholds, lower ARPU generated from the contract with Shared Services Canada and the dilutive impact on blended ARPU from the continued ramp-up in prepaid customers from Lucky Mobile. A larger proportion of premium smartphone devices in our sales mix combined with higher retail handset prices resulted in a greater allocation of revenues to product revenues, thereby unfavourably impacting blended ARPU. This decline was moderated by a higher postpaid subscriber mix, the flow-through of 2017 and 2018 pricing changes, and more customers moving to higher-value monthly plans with greater data allotments.

Blended ABPU approximates the average amount billed to customers on a monthly basis and is the same as blended ARPU prior to the adoption of IFRS 15. Blended ABPU of $69.28 decreased by 0.7% in Q3 2018, compared to the same period last year and was similarly impacted by the items affecting ARPU. However, since ABPU is based on average billing, it is not impacted by the greater allocation to product revenues. Year to date blended ABPU of $67.86 increased by 0.4%, compared to the same period last year, as the higher postpaid subscriber mix, the flow-through of 2017 and 2018 pricing changes and more customers moving to higher-value monthly plans with larger data allotments more than offset the pressures described above.

Total gross wireless activations increased by 16.4% in the third quarter of 2018 and by 16.2% year to date, compared to the same periods in 2017, due to both higher postpaid and prepaid gross activations.

Blended wireless churn of 1.27% improved by 0.05 pts in Q3 2018 reflecting both lower postpaid and prepaid churn. In the first nine months of the year, blended churn improved by 0.02 pts to 1.29%, driven by lower postpaid churn.

Postpaid net activations increased by 15.5% in the third quarter of 2018 and by 34.9% year to date, compared to the same periods in 2017, due to an increase in gross activations, partially offset by higher customer deactivations.

Prepaid net activations improved significantly in Q3 2018 and year to date, compared to the same periods in 2017, due to higher gross activations and less customer deactivations.

Wireless subscribers at September 30, 2018 totaled 9,487,368, up 5.3% from 9,008,273 subscribers reported at the end of Q3 2017. The proportion of Bell Wireless customers subscribing to postpaid services increased by 0.5 pts to 92.0% in Q3 2018, compared to 91.5% in the prior year.

 

14   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

3

MD&A Business segment analysis
Bell Wireless

 

ASSUMPTIONS

As at the date of this MD&A, our forward-looking statements set out in the BCE 2017 Annual MD&A, as updated or supplemented in the BCE 2018 First Quarter MD&A, in the BCE 2018 Second Quarter MD&A and in this MD&A, are based on certain assumptions including, without limitation, the following assumptions and the assumptions referred to in each of the other business segment discussions set out in this section 3, Business segment analysis, as well as the economic and market assumptions referred to in section 1.3, Assumptions, of this MD&A.

 

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3

 MD&A Business segment analysis
Bell Wireline		  

 

3.2 Bell Wireline

KEY BUSINESS DEVELOPMENTS

FIBE INTERNET TOP SPEED INCREASED TO INDUSTRY-LEADING 1.5 GIGABITS PER SECOND

Bell increased Fibe Internet access speeds to 1.5 Gigabits per second (Gbps), the fastest access speed to the home available in Canada. Unlimited Gigabit Fibe 1.5 service is now available in Ontario and Québec and is expected to be launched in the Atlantic provinces in November. Delivered over Bell’s fibre-to-the-premises (FTTP) network and leveraging the powerful Home Hub 3000 modem/router already used by most Bell FTTP customers, the enhanced Internet service offers total download speeds of up to 1.5 Gbps and uploads of up to 940 Megabits per second (Mbps).

Bell’s rapidly expanding broadband fibre network is Canada’s most extensive, covering a total of more than 9.5 million homes and businesses in 7 provinces, including approximately 4.4 million locations served by direct FTTP connections at the end of Q3 2018, up from approximately 3.7 million at the end of 2017.

ROLL OUT OF HIGH-SPEED BROADBAND INTERNET SERVICE IN RURAL COMMUNITIES

Following successful wireless-to-the-home (WTTH) trials in the 3.5 Gigahertz (GHz) and 28 GHz spectrum bands utilizing Fifth Generation (5G)-oriented Massive Multiple Input Multiple Output and 8T8R technology earlier this year, Bell began the buildout of WTTH to rural locations in the second quarter of 2018 with plans to rollout service to 30 rural communities by the end of 2018. Bell’s WTTH solution is expected to deliver broadband speeds of 25 to 50 Mbps, or up to 10 times faster than average speeds currently available in these areas. At the end of the third quarter of 2018, Bell’s WTTH footprint encompassed 16 communities covering approximately 12,000 homes. Innovation in WTTH complements Bell’s extensive broadband fibre build in urban markets, and our deployment of WTTH in rural locations underscores our focus on full utilization of Bell’s assigned wireless spectrum resources.

BELL LAUNCHES CANADA’S FIRST CLOUD-BASED VIRTUAL NETWORK SERVICES PLATFORM

On October 18, 2018, Bell launched its new Virtual Network Services (VNS) platform, which offers enterprise business customers a catalogue of on-demand network functions that reside securely in Bell’s private cloud. The first of its kind in Canada, Bell VNS responds to customers’ on-demand needs by transforming and centralizing hardware-based networks in virtualized, software-driven networks. Bell also announced it will be the first Canadian service provider to offer a managed software-defined wide area network (SD-WAN) solution powered by Cisco Viptela, the first Virtual Network Function offered on the Bell VNS platform. Bell VNS is an end-to-end managed solution for enterprise customers across Canada.

FINANCIAL PERFORMANCE ANALYSIS

Q3 2018 PERFORMANCE HIGHLIGHTS

 

16   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

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MD&A Business segment analysis
Bell Wireline

 

(1) At the beginning of Q1 2018, our high-speed Internet subscriber base was increased by 19,835, our IPTV by 14,599 and our residential NAS by 23,441, mainly as a result of a small acquisition made in Q1 2018.
(2) At the beginning of Q1 2018, we adjusted our high-speed Internet subscriber base to add 16,116 subscribers with a corresponding decrease to our postpaid wireless subscribers to reflect the transfer of fixed wireless Internet subscribers.

BELL WIRELINE RESULTS

REVENUES

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Data

 1,867   1,817   50   2.8 % 5,556   5,348   208   3.9 %

Voice

 950   994   (44 ) (4.4 %) 2,857   2,995   (138 ) (4.6 %)

Other services

 60   52   8   15.4 % 187   151   36   23.8 %

Total external service revenues

 2,877   2,863   14   0.5 % 8,600   8,494   106   1.2 %

Inter-segment service revenues

 61   51   10   19.6 % 177   149   28   18.8 %

Total operating service revenues

 2,938   2,914   24   0.8 % 8,777   8,643   134   1.6 %

Data

 111   79   32   40.5 % 313   273   40   14.7 %

Equipment and other

 97   95   2   2.1 % 274   265   9   3.4 %

Total external product revenues

 208   174   34   19.5 % 587   538   49   9.1 %

Inter-segment product revenues

 1   —   1   n.m.   2   1   1   100.0 %

Total operating product revenues

 209   174   35   20.1 % 589   539   50   9.3 %

Total Bell Wireline revenues

 3,147   3,088   59   1.9 % 9,366   9,182   184   2.0 %

n.m.: not meaningful

Bell Wireline operating revenues increased by 1.9% in Q3 2018 and by 2.0% in the first nine months of 2018, compared to the same periods last year, attributable to growth in data, other services and product revenues, offset in part by the continued erosion of voice revenues.

Bell Wireline operating service revenues grew by 0.8% and by 1.6% in Q3 2018 and the first nine months of the year, respectively, compared to the same periods last year.

Bell Wireline product revenues increased by 20.1% and by 9.3%, in Q3 2018 and year to date, respectively, compared to the same periods in 2017, due to increased demand in the large business market for telecommunication equipment. Year-to-date revenues were also favourably impacted by the acquisition of MTS.

 

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 MD&A Business segment analysis
Bell Wireline		  

 

OPERATING COSTS AND ADJUSTED EBITDA

 

Q3 2018   Q3 2017   $ CHANGE   % CHANGE   YTD 2018   YTD 2017   $ CHANGE   % CHANGE  

Operating costs

 (1,823 ) (1,780 ) (43 ) (2.4 %) (5,419 ) (5,304 ) (115 ) (2.2 %)

Adjusted EBITDA

 1,324   1,308   16   1.2 %  3,947   3,878   69   1.8 % 

Adjusted EBITDA margin

 42.1 %  42.4 %      (0.3 ) pts 42.1 %  42.2 %      (0.1 ) pts

Bell Wireline operating costs grew by 2.4% in Q3 2018 and by 2.2% in the first nine months of the year, compared to the same periods in 2017, mainly driven by higher cost of goods sold resulting from increased product sales and greater payments to other carriers in the quarter, driven by higher sales of international long distance minutes. In the first nine months of the year, operating costs were further pressured by the acquisition of MTS, higher pension expense due to a gain in Q1 2017 on post-employment benefit expense related to an alignment of certain Bell Aliant DB pension plans with those of Bell Canada, contractual programming rate increases in our TV business and increased advertising spend in Q1 2018 during the PyeongChang 2018 Winter Olympics.

Bell Wireline adjusted EBITDA increased by 1.2% in Q3 2018 and by 1.8% during the first nine months of the year, compared to the same periods last year, due to higher revenues, moderated by increased operating expenses. The first nine months of the year were also favourably impacted by the acquisition of MTS, offset in part by increased pension expense as a result of a gain realized in Q1 2017. Adjusted EBITDA margin of 42.1% in Q3 2018 decreased by 0.3 pts and year-to-date adjusted EBITDA margin of 42.1% decreased by 0.1pts, compared to the same periods last year, driven by greater low-margin product sales in our total revenue base.

BELL WIRELINE OPERATING METRICS

DATA

High-speed Internet

 

Q3 2018   Q3 2017   CHANGE  

% CHANGE

   YTD 2018   YTD 2017   CHANGE  

% CHANGE

  

High-speed Internet net activations

 47,749   44,424   3,325   7.5 % 78,212   60,820   17,392   28.6 %

High-speed Internet subscribers(1)(2)

 3,904,304   3,763,101   141,203   3.8 % 3,904,304   3,763,101   141,203   3.8 %

 

(1) At the beginning of Q1 2018, our high-speed Internet subscriber base was increased by 19,835, mainly as a result of a small acquisition made in Q1 2018.
(2) At the beginning of Q1 2018, we adjusted our high-speed Internet subscriber base to add 16,116 subscribers with a corresponding decrease to our postpaid wireless subscribers to reflect the transfer of fixed wireless Internet subscribers.

High-speed Internet subscriber net activations increased by 7.5% in Q3 2018 and by 28.6% in the first nine months of the year, compared to the same periods in 2017, attributable to greater net activations from Home Internet service by Virgin Mobile Canada, higher retail activations in our fibre-to-the-home (FTTH) footprint, greater back to school activations, increased pull-through from our application-based live TV services Alt TV and higher activations in our small business market. The growth was offset in part by aggressive offers from cable competitors in both our retail and wholesale markets, along with a greater number of residential customers coming off promotional offers.

High-speed Internet subscribers at September 30, 2018 totaled 3,904,304 up 3.8% from the end of Q3 of last year.

TV

 

Q3 2018   Q3 2017   CHANGE  

% CHANGE

   YTD 2018   YTD 2017   CHANGE  

% CHANGE

  

Net subscriber activations (losses)

 8,601   1,738   6,863   394.9 % (3,071 ) (27,262 ) 24,191   88.7 %

IPTV

 40,091   36,399   3,692   10.1 % 74,317   75,228   (911 ) (1.2 %)

Total subscribers(1)

 2,843,828   2,825,754   18,074   0.6 % 2,843,828   2,825,754   18,074   0.6 %

IPTV(1)

 1,639,233   1,517,833   121,400   8.0 % 1,639,233   1,517,833   121,400   8.0 %

 

(1) At the beginning of Q1 2018, our IPTV subscriber base was increased by 14,599 as a result of a small acquisition made in Q1 2018.

IPTV net subscriber activations increased by 10.1% in Q3 2018, compared to the same period last year, driven by the continued growth in activations from Alt TV, higher gross activations in our FTTH footprint and greater footprint expansion in 2018. This was moderated by increased deactivations driven by aggressive service bundle offers from cable competitors, a greater number of customers coming off promotional offers, higher substitution of traditional TV services with OTT services, the impact of maturing Fibe TV markets, as well as lower customer migrations from satellite TV. Year-to-date IPTV net additions decreased by 1.2% as higher deactivations, driven by the factors described above, were only partially offset by greater activations.

Satellite TV net subscriber losses improved by 9.1% in Q3 2018 and by 24.5% in the first nine months of the year, compared to the same periods last year, attributable to fewer retail deactivations and lower migrations to IPTV reflecting a more mature subscriber base geographically better-suited for satellite TV service, coupled with reduced promotional offers from cable competitors in rural markets. Year-to-date results were also favourably impacted by a lower number of customers coming off of promotional offers.

Total TV net subscriber activations (IPTV and satellite TV combined) improved by 6,863 in Q3 2018, compared to last year, resulting from higher IPTV net activations, along with reduced satellite TV net losses. Net subscriber losses improved by 24,191 in the first nine months of the year, compared to last year, due to fewer satellite TV net losses, offset in part by lower IPTV net activations.

IPTV subscribers at September 30, 2018 totaled 1,639,233, up 8.0% from 1,517,833 subscribers reported at the end of Q3 2017.

Satellite TV subscribers at September 30, 2018 totaled 1,204,595, down 7.9% from 1,307,921 subscribers at the end of Q3 2017.

Total TV subscribers (IPTV and satellite TV combined) at September 30, 2018 were 2,843,828, representing a 0.6% increase since the end of Q3 2017.

 

18   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

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MD&A Business segment analysis
Bell Wireline

 

VOICE

 

Q3 2018   Q3 2017   CHANGE   % CHANGE   YTD 2018   YTD 2017   CHANGE   % CHANGE  

Residential NAS lines(1)

 3,051,630   3,275,589   (223,959 ) (6.8 %) 3,051,630   3,275,589   (223,959 ) (6.8 %)

Residential NAS net losses

 (74,921 ) (57,387 ) (17,534 ) (30.6 %) (203,119 ) (197,813 ) (5,306 ) (2.7 %)

 

(1) At the beginning of Q1 2018, our residential NAS subscriber base was increased by 23,441 as a result of a small acquisition made in Q1 2018.

Residential NAS net losses increased by 30.6% in Q3 2018 and by 2.7% during the first nine months of the year, compared to the same periods last year, driven by fewer activations resulting from aggressive competitive offers from cable TV providers, ongoing wireless and Internet-based technology substitution, reduced pull-through from our IPTV service bundle offers and lower acquisition of three-product households.

Residential NAS subscribers at September 30, 2018 totaled 3,051,630, down 6.8% from 3,275,589 subscribers reported at the end of Q3 2017. This represented an increase in the rate of erosion compared to the 1.3% decline experienced in the third quarter of 2017, driven by the year-over-year increase in subscribers from the acquisition of MTS which benefited Q3 2017.

 

ASSUMPTIONS

As at the date of this MD&A, our forward-looking statements set out in the BCE 2017 Annual MD&A, as updated or supplemented in the BCE 2018 First Quarter MD&A, in the BCE 2018 Second Quarter MD&A and in this MD&A, are based on certain assumptions including, without limitation, the following assumptions and the assumptions referred to in each of the other business segment discussions set out in this section 3, Business segment analysis, as well as the economic and market assumptions referred to in section 1.3, Assumptions, of this MD&A.

 

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3

 MD&A Business segment analysis
Bell Media		  

 

3.3 Bell Media

KEY BUSINESS DEVELOPMENTS

INNOVATIVE NEW PARTNERSHIP WITH VICE MEDIA

On August 16, 2018, Bell Media entered into a long-term agreement with VICE Media (VICE) that will see Bell Media become the exclusive Canadian broadcaster of new original programming from VICE’s U.S. linear network, VICELAND, along with hundreds of hours of library VICE programming, all debuting on multiple Bell Media platforms, including CraveTV, in the fall of 2018. Both companies will also explore co-production opportunities for Bell Media platforms in Canada and VICE platforms around the world. In addition, the two companies will utilize their respective expertise by forming an advertising sales relationship that will see VICE and Bell Media combine their capabilities to bring innovative, multi-platform solutions to clients.

IHEARTRADIO CANADA PODCAST NETWORK EXPANDS DISTRIBUTION

Bell Media’s iHeartRadio Canada Podcast Network is now available to listeners on Spotify, expanding the reach of Bell Media’s original podcasts in sports, entertainment, lifestyle, and news categories originating from TSN, Much Studios, RDS, CTV News, iHeartRadio Canada, and Bell Media Studios across every major audio platform in the country. The iHeartRadio Canada Podcast Network offers a robust and popular library boasting more than 11,000 unique programs, with hundreds of thousands of hours of new content produced every month. In addition to Spotify, the iHeartRadio Canada Podcast Network reaches podcast listeners through distribution partners including Apple, Audible, Stitcher and Google Play Music.

OUT-OF-HOME PARTNERSHIP WITH CAMPSITE

On September 10, 2018, Bell Media’s OOH advertising division, Astral, entered into a new partnership with Campsite, a Montréal based leader in programmatic OOH campaigns. This agreement is set to add 240 Astral Digital large format and street furniture faces across Canada through Campsite’s programmatic platform. Launched in 2016, Campsite is a leader in innovative solutions for advertisers who want to expand their digital reach, optimize their strategies with data, and maximize their time by reaching several suppliers through only one platform.

 

FINANCIAL PERFORMANCE ANALYSIS

Q3 2018 PERFORMANCE HIGHLIGHTS

BELL MEDIA RESULTS

REVENUES

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Total external revenues

 622   611   11   1.8 % 1,930   1,946   (16 ) (0.8 %)

Inter-segment revenues

 109   112   (3 ) (2.7 %) 341   324   17   5.2 %

Total Bell Media revenues

 731   723   8   1.1 % 2,271   2,270   1   —  

 

20   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

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MD&A Business segment analysis
Bell Media

 

Bell Media operating revenues increased by 1.1%, in Q3 2018 and remained essentially unchanged in the first nine months of the year, compared to the same periods in 2017.

OPERATING COSTS AND ADJUSTED EBITDA

 

Q3 2018   Q3 2017   $ CHANGE  

% CHANGE

   YTD 2018   YTD 2017   $ CHANGE  

% CHANGE

  

Operating costs

 (549 ) (536 ) (13 ) (2.4 %) (1,754 ) (1,725 ) (29 ) (1.7 %)

Adjusted EBITDA

 182   187   (5 ) (2.7 %) 517   545   (28 ) (5.1 %)

Adjusted EBITDA margin

 24.9 %  25.9 %      (1.0 ) pts 22.8 %  24.0 %      (1.2 ) pts

Bell Media operating costs increased by 2.4% in Q3 2018 and by 1.7% in the first nine months of the year, compared to the corresponding periods last year, mainly due to the continued escalation of programming and content costs for sports broadcast rights, primarily relating to the 2018 FIFA World Cup, ongoing content expansion for CraveTV, as well as deal renewals for specialty TV programming.

Bell Media adjusted EBITDA decreased by 2.7% in Q3 2018 and by 5.1% in the first nine months of the year, compared to the same periods in 2017, as the growth in operating revenues was more than offset by higher operating expenses.

BELL MEDIA OPERATING METRICS

 

ASSUMPTIONS

As at the date of this MD&A, our forward-looking statements set out in the BCE 2017 Annual MD&A, as updated or supplemented in the BCE 2018 First Quarter MD&A, in the BCE 2018 Second Quarter MD&A and in this MD&A, are based on certain assumptions including, without limitation, the following assumptions and the assumptions referred to in each of the other business segment discussions set out in this section 3, Business segment analysis, as well as the economic and market assumptions referred to in section 1.3, Assumptions, of this MD&A.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   21
       

4

 MD&A Financial and capital management  

 

4 Financial and capital management

This section tells you how we manage our cash and capital resources to carry out our strategy and deliver financial results. It provides an analysis of our financial condition, cash flows and liquidity on a consolidated basis.

4.1 Net debt (1)

 

 

SEPTEMBER 30, 2018   DECEMBER 31, 2017   $ CHANGE  

% CHANGE

  

Debt due within one year

 4,877   5,178   (301 ) (5.8 %)

Long-term debt

 19,584   18,215   1,369   7.5 %

Preferred shares(2)

 2,002   2,002   —   —  

Cash and cash equivalents

 (826 ) (625 ) (201 ) (32.2 %)

Net debt

 25,637   24,770   867   3.5 %

 

(1) Net debt is a non-GAAP financial measure and does not have a standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 8.2, Non-GAAP financial measures and key performance indicators (KPIs) – Net debt in this MD&A for more details including a reconciliation to the most comparable IFRS financial measure.
(2) 50% of outstanding preferred shares of $4,004 million in 2018 and 2017 are classified as debt consistent with the treatment by some credit rating agencies.

The increase of $1,068 million in total debt comprised of debt due within one year and long-term debt was due to:

Partly offset by:

The increase in cash and cash equivalents of $201 million was due mainly to:

Partly offset by:

 

4.2 Outstanding share data

 

COMMON SHARES OUTSTANDING

 NUMBER OF SHARES  

Outstanding, January 1, 2018

 900,996,640  

Shares issued for the acquisition of AlarmForce

 22,531  

Shares issued under employee stock option plan

 90,222  

Repurchase of common shares

 (3,085,697 )

Outstanding, September 30, 2018

 898,023,696  

 

 

22   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

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MD&A Financial and capital management

 

STOCK OPTIONS OUTSTANDING NUMBER OF
OPTIONS		   WEIGHTED AVERAGE
EXERCISE PRICE ($)		  

Outstanding, January 1, 2018

 10,490,249   55  

Granted

 3,656,169   57  

Exercised(1)

 (90,222 ) 42  

Forfeited

 (39,669 ) 58  

Outstanding, September 30, 2018

 14,016,527   56  

Exercisable, September 30, 2018

 4,576,307   52  

 

(1) The weighted average share price for options exercised during the nine months ended September 30, 2018 was $55.

 

4.3 Cash flows

 

  Q3 2018   Q3 2017   $ CHANGE   % CHANGE   YTD 2018   YTD 2017   $ CHANGE   % CHANGE  

Cash flows from operating activities

 2,043   2,233   (190 ) (8.5 %) 5,596   5,700   (104 ) (1.8 %)

Capital expenditures

 (1,010 ) (1,040 ) 30   2.9 % (2,997 ) (2,934 ) (63 ) (2.1 %)

Cash dividends paid on preferred shares

 (35 ) (21 ) (14 ) (66.7 %) (103 ) (94 ) (9 ) (9.6 %)

Cash dividends paid by subsidiaries to non-controlling interest

 (3 ) (13 ) 10   76.9 % (16 ) (34 ) 18   52.9 %

Acquisition and other costs paid

 19   24   (5 ) (20.8 %) 65   128   (63 ) (49.2 %)

Free cash flow

 1,014   1,183   (169 ) (14.3 %) 2,545   2,766   (221 ) (8.0 %)

Business acquisitions

 (151 ) —   (151 ) n.m.   (395 ) (1,635 ) 1,240   75.8 %

Acquisition and other costs paid

 (19 ) (24 ) 5   20.8 % (65 ) (128 ) 63   49.2 %

Acquisition of spectrum licences

 (19 ) —   (19 ) n.m.   (55 ) —   (55 ) n.m.  

Disposition of intangibles and other assets

 —   —   —   —   68   323   (255 ) (78.9 %)

Other investing activities

 (9 ) (37 ) 28   75.7 % (64 ) (51 ) (13 ) (25.5 %)

Net issuance of debt instruments

 366   994   (628 ) (63.2 %) 629   1,839   (1,210 ) (65.8 %)

Issue of common shares

 1   4   (3 ) (75.0 %) 3   93   (90 ) (96.8 %)

Repurchase of common shares

 —   —   —   —   (175 ) —   (175 ) n.m.  

Repurchase of shares for settlement of share-based payments

 (39 ) (38 ) (1 ) (2.6 %) (176 ) (179 ) 3   1.7 %

Cash dividends paid on common shares

 (678 ) (646 ) (32 ) (5.0 %) (2,002 ) (1,866 ) (136 ) (7.3 %)

Return of capital to non-controlling interest

 (10 ) —   (10 ) n.m.   (51 ) —   (51 ) n.m.  

Other financing activities

 (20 ) (14 ) (6 ) (42.9 %) (61 ) (36 ) (25 ) (69.4 %)

Net increase in cash and cash equivalents

 436   1,422   (986 ) (69.3 %) 201   1,126   (925 ) (82.1 %)

n.m.: not meaningful

 

CASH FLOWS FROM OPERATING ACTIVITIES AND FREE CASH FLOW

Cash flows from operating activities in the third quarter of 2018 decreased by $190 million, compared to Q3 2017, due mainly to a decrease in cash from working capital and higher income taxes paid, partly offset by higher adjusted EBITDA.

Cash flows from operating activities for the first nine months of 2018 decreased by $104 million, compared to the same period last year, due mainly to a decrease in cash from working capital and higher income taxes paid, partly offset by higher adjusted EBITDA and lower acquisition and other costs paid.

Free cash flow in the third quarter of 2018 decreased by $169 million compared to the same period last year, mainly due to lower cash flows from operating activities excluding acquisition and other costs paid, partly offset by lower capital expenditures.

Free cash flow on a year-to-year basis in 2018 decreased by $221 million compared to the same period last year, mainly due to lower cash flows from operating activities excluding acquisition and other costs paid and higher capital expenditures.

 

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4

 MD&A Financial and capital management  

 

CAPITAL EXPENDITURES

 

 

Q3 2018   Q3 2017   $ CHANGE   % CHANGE   YTD 2018   YTD 2017   $ CHANGE   % CHANGE  

Bell Wireless

 181   186   5   2.7 %  524   513   (11 ) (2.1 %)

Capital intensity ratio

 8.3 % 9.0 %     0.7  pts 8.5 % 8.9 %     0.4  pts

Bell Wireline

 799   820   21   2.6 %  2,391   2,329   (62 ) (2.7 %)

Capital intensity ratio

 25.4 % 26.6 %     1.2  pts 25.5 % 25.4 %     (0.1 ) pts

Bell Media

 30   34   4   11.8 %  82   92   10   10.9 % 

Capital intensity ratio

 4.1 % 4.7 %     0.6  pts 3.6 % 4.1 %     0.5  pts

BCE

 1,010   1,040   30   2.9 %  2,997   2,934   (63 ) (2.1 %)

Capital intensity ratio

 17.2 % 18.3 %     1.1  pts 17.4 % 17.5 %     0.1  pts

BCE capital expenditures of $1,010 million in Q3 2018 declined by $30 million compared to last year, whereas year-to-date capital spend of $2,997 million increased by $63 million, compared to last year. Capital expenditures as a percentage of revenue (capital intensity ratio) of 17.2% in Q3 2018 and 17.4% year to date, decreased by 1.1 pts and 0.1 pts, respectively, compared to the same periods last year. The year-over-year variances reflected:

 

BUSINESS ACQUISITIONS

On August 31, 2018, BCE completed the acquisition of all of the issued and outstanding common shares of Axia for a total cash consideration of $155 million.

On January 5, 2018, BCE acquired all of the issued and outstanding shares of AlarmForce for a total consideration of $182 million, of which $181 million was paid in cash and the remaining $1 million through the issuance of 22,531 BCE common shares.

On March 17, 2017, BCE acquired all of the issued and outstanding common shares of MTS for a total consideration of $2,933 million, of which $1,339 million was paid in cash and the remaining $1,594 million through the issuance of approximately 27.6 million BCE common shares.

On January 3, 2017, BCE acquired all of the issued and outstanding common shares of Cieslok Media Ltd. for a total cash consideration of $161 million.

 

DISPOSITION OF INTANGIBLE AND OTHER ASSETS

During Q1 2018, BCE sold AlarmForce’s approximate 39,000 customer accounts in British Columbia, Alberta and Saskatchewan to Telus for total proceeds of approximately $68 million.

During Q2 2017, BCE completed the divestiture of approximately one-quarter of postpaid wireless subscribers and 15 retail locations previously held by MTS, as well as certain Manitoba network assets, to Telus for total proceeds of $323 million.

 

DEBT INSTRUMENTS

2018

In the third quarter of 2018, we issued $366 million of debt, net of repayments. This included the issuances of Series M-48 MTN debentures and Series US-1 Notes at Bell Canada with total principal amounts of $1 billion and US $400 million (CAD $526 million), respectively. These issuances were partly offset by the early redemption of Series M-25 MTN debentures in the principal amount of $1 billion, payments of finance leases and other debt of $130 million and the repayments (net of issuances) of $30 million of notes payable.

In the first nine months of 2018, we issued $629 million of debt, net of repayments. This included the issuances at Bell Canada of Series M-47 and M-48 MTN debentures with total principal amounts of $500 million and $1 billion, respectively, the issuances of Series US-1 Notes with total principal amounts of US $750 million (CAD $967 million) and US $400 million (CAD $526 million), respectively, and the issuances (net of repayments) of $10 million of notes payable. These issuances were partly offset by the early redemption of Series M-25 and M-28 MTN debentures, Series M-33 debentures and Series 9 notes in the principal amounts of $1 billion, $400 million, $300 million and $200 million, respectively, and payments of finance leases and other debt of $474 million.

 

24   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

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MD&A Financial and capital management

 

2017

In the third quarter of 2017, we issued $994 million of debt, net of repayments. This included the issuances of Series M-40 and M-46 MTN debentures at Bell Canada with principal amounts of $700 million and $800 million, respectively, partly offset by the repayment (net of issuances) of $379 million of notes payable and payments of finance leases and other debt of $127 million.

In the first nine months of 2017, we issued $1,839 million of debt, net of repayments. This included the issuances of Series M-40, M-44, M-45 and M-46 MTN debentures at Bell Canada with principal amounts of $700 million, $1 billion, $500 million and $800 million, respectively, and the issuance (net of repayments) of $56 million of notes payable. These issuances were partly offset by the repayment of borrowings under our unsecured committed term credit facility of $480 million, payments of finance leases and other debt of $387 million and the early redemption of Series M-35 debentures with a principal amount of $350 million.

 

REPURCHASE OF COMMON SHARES

In Q1 2018, BCE repurchased and cancelled 3,085,697 common shares for a total cost of $175 million. Of the total cost, $69 million represents stated capital and $3 million represents the reduction of the contributed surplus attributable to these common shares. The remaining $103 million was charged to the deficit.

 

CASH DIVIDENDS PAID ON COMMON SHARES

In the third quarter of 2018, cash dividends paid on common shares increased by $32 million compared to Q3 2017 due to a higher dividend paid in Q3 2018 of $0.7550 per common share compared to $0.7175 per common share in Q3 2017.

In the first nine months of 2018, cash dividends paid on common shares increased by $136 million compared to 2017, due to a higher dividend paid in the first nine months of 2018 of $2.2275 per common share compared to $2.1175 per common share for the same period last year, and a higher average number of outstanding common shares in Q1 2018 principally as a result of shares issued for the acquisition of MTS.

 

4.4 Post-employment benefit plans

For the three and nine months ended September 30, 2018, we recorded a decrease in our post-employment benefit obligations and a gain, before taxes, in OCI of $409 million and $757 million, respectively. This was due to a higher actual discount rate of 3.9% at September 30, 2018, as compared to 3.7% at June 30, 2018 and 3.6% at December 31, 2017, partly offset by a lower-than-expected return on plan assets in 2018.

For the three months ended September 30, 2017, we recorded a decrease in our post-employment benefit obligations and a gain, before taxes, in OCI of $643 million. This was due to a higher actual discount rate of 3.9% at September 30, 2017, as compared to 3.6% at June 30, 2017. The gain was partly offset by a lower-than-expected return on plan assets.

For the nine months ended September 30, 2017, we recorded an increase in our post-employment benefit obligations and a loss, before taxes, in OCI of $150 million. This was due to a lower actual discount rate of 3.9% at September 30, 2017, as compared to 4.0% at December 31, 2016. The loss was partly offset by a higher-than-expected return on plan assets.

 

4.5 Financial risk management

FAIR VALUE

The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.

 

     SEPTEMBER 30, 2018 DECEMBER 31, 2017
      CARRYING   FAIR   CARRYING   FAIR  
 

CLASSIFICATION

FAIR VALUE METHODOLOGY

 VALUE   VALUE   VALUE   VALUE  

CRTC tangible benefits obligation

Trade payables and other liabilities and non-current liabilities

Present value of estimated future cash flows discounted using observable market interest rates

68

 

68

 

111

 

110

 

CRTC deferral account obligation

Trade payables and other liabilities and non-current liabilities

Present value of estimated future cash flows discounted using observable market interest rates

113

 

116

 

124

 

128

 

Debt securities, finance leases and other debt

Debt due within one year and long-term debt

Quoted market price of debt or present value of future cash flows discounted using observable market interest rates

20,338

  

21,687

  

19,321

  

21,298

  

 

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   25
       

4

 MD&A Financial and capital management  

 

The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.

  CLASSIFICATION CARRYING VALUE OF
ASSET (LIABILITY)		  

FAIR VALUE
QUOTED PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS (LEVEL 1)		   OBSERVABLE
MARKET DATA
(LEVEL 2)(1)		   NON-OBSERVABLE
MARKET INPUTS
(LEVEL 3)(2)		  
September 30, 2018                  

Publicly-traded and privately-held investments(3)

Other non-current assets

104

 

1

 

—

 

103

  

Derivative financial instruments

Other current assets, trade payables and other liabilities, other non-current assets and liabilities

(162

)

—

 

(162

)

—

  

Maple Leaf Sports & Entertainment Ltd. (MLSE) financial liability(4)

Trade payables and other liabilities

(135

)

—

  

—

 

(135

 )

Other

Other non-current assets and liabilities

69

 

—

 

115

 

(46

)

December 31, 2017

 

               

Publicly-traded and privately-held investments(3)

Other non-current assets

103

 

1

 

—

 

102

 

Derivative financial instruments

Other current assets, trade payables and other liabilities, other non-current assets and liabilities

(48

)

—

 

(48

)

—

 

MLSE financial liability(4)

Trade payables and other liabilities

(135

)

—

 

—

 

(135

)

Other

Other non-current assets and liabilities

60

 

—

 

106

 

(46

)

 

(1) Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates.
(2) Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease) to our level 3 financial instruments.
(3) Unrealized gains and losses are recorded in OCI and impairment charges are recorded in Other expense in the income statements.
(4) Represents BCE’s obligation to repurchase the BCE Master Trust Fund’s (Master Trust) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other expense in the income statements.

 

CURRENCY EXPOSURES

We use forward contracts, options and cross currency interest rate swaps to manage foreign currency risk related to anticipated purchases and sales and certain foreign currency denominated debt.

A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the U.S. dollar would result in a gain (loss) of $1 million ($4 million) recognized in net earnings at September 30, 2018 and a gain (loss) of $125 million ($133 million) recognized in Other comprehensive income (loss) at September 30, 2018, with all other variables held constant.

In Q3 2018, we entered into additional cross currency interest rate swaps with a notional amount of $400 million in U.S. dollars ($526 million in Canadian dollars). In Q1 2018, we entered into cross currency interest rate swaps with a notional amount of $750 million in U.S. dollars ($967 million in Canadian dollars). These cross currency interest rate swaps are used to hedge the U.S. currency exposure of our Series US-1 Notes maturing in 2048. See Note 10, Debt, in BCE’s Q3 2018 Financial Statements.

The following table provides further details on our outstanding foreign currency forward contracts and options as at September 30, 2018.

TYPE OF HEDGE

BUY CURRENCY

AMOUNT TO RECEIVE

SELL CURRENCY

AMOUNT TO PAY

MATURITY

HEDGED ITEM

Cash flow

USD

2,458

CAD

3,214

2018-2019

Commercial paper

Cash flow

USD

226

CAD

292

2018

Anticipated transactions

Cash flow

PHP

343

CAD

8

2018

Anticipated transactions

Cash flow

CAD

31

USD

24

2018-2019

Anticipated transactions

Cash flow

USD

775

CAD

968

2019

Anticipated transactions

Cash flow

USD

76

CAD

96

2020-2021

Anticipated transactions

Economic

USD

8

CAD

11

2018

Anticipated transactions

Economic – call options

USD

17

CAD

20

2018

Anticipated transactions

Economic – put options

USD

83

CAD

100

2018

Anticipated transactions

 

 

26   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

4

MD&A Financial and capital management

 

INTEREST RATE EXPOSURES

A 1% increase (decrease) in interest rates would result in a decrease (increase) of $30 million in net earnings at September 30, 2018.

 

EQUITY PRICE EXPOSURES

We use equity forward contracts on BCE’s common shares to economically hedge the cash flow exposure related to the settlement of equity settled share-based compensation plans and the equity price risk related to a cash-settled share-based payment plan. The fair value of our equity forward contracts at September 30, 2018 was a liability of $101 million.

A 5% increase (decrease) in the market price of BCE’s common shares at September 30, 2018 would result in a gain (loss) of $33 million recognized in net earnings, with all other variables held constant.

 

4.6 Credit ratings

BCE’s and Bell Canada’s key credit ratings remain unchanged from those described in the BCE 2017 Annual MD&A.

 

4.7 Liquidity

On October 17, 2018, subsequent to quarter end, Bell Canada increased the total amount of its committed revolving and expansion credit facilities from $3.5 billion to $4.0 billion by adding a new $500 million revolving facility expiring in November 2019. Bell Canada has the option, subject to certain conditions, to convert advances outstanding under the new $500 million revolving facility into a one-year term loan. In addition, Bell Canada extended the term of its existing $2.5 billion committed revolving credit facility by one year to November 2023 and the term of its existing $1.0 billion committed expansion credit facility by one year to November 2021.

Our cash requirements remain substantially unchanged from those described in the BCE 2017 Annual MD&A.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   27
       

5

 MD&A Quarterly financial information  

 

5 Quarterly financial information

BCE’s Q3 2018 Financial Statements were prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB), under International Accounting Standard (IAS) 34, Interim Financial Reporting and were approved by BCE’s board of directors on October 31, 2018.

The following table, which was also prepared in accordance with IFRS, shows selected consolidated financial data of BCE for the eight most recent completed quarters.

 

 2018 2017 2016 PRIOR TO THE ADOPTION OF IFRS 15  

 

Q3   Q2   Q1   Q4   Q3   Q2   Q1   Q4  

Operating revenues

                                

Service

 5,117   5,129   4,964   5,152   5,054   5,078   4,811   5,169  

Product

 760   657   626   884   643   610   525   533  

Total operating revenues

 5,877   5,786   5,590   6,036   5,697   5,688   5,336   5,702  

Adjusted EBITDA

 2,457   2,430   2,254   2,329   2,405   2,382   2,166   2,121  

Severance, acquisition and other costs

 (54 ) (24 ) —   (47 ) (23 ) (36 ) (84 ) (11 )

Depreciation

 (779 ) (787 ) (780 ) (783 ) (760 ) (767 ) (724 ) (719 )

Amortization

 (220 ) (221 ) (212 ) (208 ) (207 ) (210 ) (185 ) (165 )

Net earnings

 867   755   709   698   850   814   688   699  

Net earnings attributable to common shareholders

 814   704   661   656   803   765   642   657  

Net earnings per common share

                                

Basic

 0.90   0.79   0.73   0.72   0.90   0.85   0.73   0.75  

Diluted

 0.90   0.79   0.73   0.72   0.90   0.85   0.73   0.75  

Average number of common shares outstanding – basic (millions)

 898.0   898.0   900.2   900.6   900.4   900.1   875.7   870.5  

 

 

28   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

6

MD&A Regulatory environment

 

6 Regulatory environment

The following is an update to the regulatory initiatives and proceedings described in the BCE 2017 Annual MD&A under section 3.3, Principal business risks and section 8, Regulatory environment, as subsequently updated in the BCE 2018 First Quarter MD&A and the BCE 2018 Second Quarter MD&A.

 

TELECOMMUNICATIONS ACT

REVIEW OF BASIC TELECOMMUNICATIONS SERVICES

On September 27, 2018, the CRTC issued Telecom Regulatory Policy CRTC 2018-377 in which it clarified matters related to the new fund created to complement government investments in expanding access to broadband Internet across Canada (Broadband Fund). Specifically, the CRTC determined that the Broadband Fund would cover four areas: (i) network transport; (ii) fixed broadband Internet access; (iii) mobile wireless and (iv) broadband in satellite-served communities. The CRTC stated that it would prefer network transport projects with the potential to benefit several communities over individual access projects, and would prefer fixed access projects over mobile wireless projects. Up to 10% of the Broadband Fund will be reserved for satellite-served communities as had been previously determined. The CRTC did not provide any guidance on when it would start collecting funds for the Broadband Fund or when it could start issuing requests for bids.

 

BROADCASTING ACT

CHANGES TO SIMULTANEOUS SUBSTITUTION

Pursuant to the recently negotiated United States-Mexico-Canada Agreement (USMCA), the government of Canada is required to rescind Broadcasting Regulatory Policy CRTC 2016-334 and Broadcasting Order CRTC 2016-335 pursuant to which the CRTC eliminated simultaneous substitution for the Super Bowl. This would allow Bell Media to implement simultaneous substitution for the Super Bowl. It is uncertain when Broadcasting Regulatory Policy CRTC 2016-334 and Broadcasting Order CRTC 2016-335 will be rescinded.

WHOLESALE CODE

In Broadcasting Regulatory Policy CRTC 2015-438, the CRTC announced it would implement a new Wholesale Code to govern the commercial arrangements between BDUs, programming services and digital media services, including imposing additional restrictions on the sale of TV channels at wholesale and the carriage of TV channels by BDUs pursuant to Broadcasting Order CRTC 2015-439. Bell Canada and Bell Media appealed Broadcasting Order CRTC 2015-439 to the Federal Court of Appeal, arguing that the CRTC’s implementation of the Wholesale Code conflicts with the Copyright Act and is outside the CRTC’s jurisdiction under the Broadcasting Act. On October 1, 2018, the Federal Court of Appeal allowed the appeal and set aside Broadcasting Order 2015-439. While the court ruling is positive for Bell Media and Bell Canada, the extent of its impact on our business is not known at this time. Other parties have until November 30, 2018 to seek leave to appeal the court ruling to the Supreme Court of Canada.

LICENCE RENEWALS

On August 30, 2018, the CRTC released Broadcasting Decision CRTC 2018-334 and Broadcasting Decision CRTC 2018-335 relating to the reconsideration of TV licence renewals it issued for the major broadcast French-language and English-language ownership groups. The Federal Cabinet had directed the CRTC to reconsider certain elements of these licence renewal decisions related to support for English-language programs of national interest, as well as for original French-language programming, music programming, short films and documentaries.

In its decisions, the CRTC altered the spending requirement for English-language groups related to programs of national interest, increasing the baseline requirements for most ownership groups, including for Bell Media. With respect to French-language programming, the CRTC will now require all French-language services to devote 75% of their spending on Canadian programming to the production of original French-language programming. Finally, while the CRTC did not prescribe specific requirements relating to short form or music video programming, a new requirement was imposed for all French and English language services to devote 0.17% of revenues to Musicaction (French) or Factor (English) to support musicians. These decisions took effect on September 1, 2018, and run until August 31, 2022. The CRTC’s determinations do not have a material impact on Bell Media.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   29
       

7

 MD&A Business risks  

 

7 Business risks

A risk is the possibility that an event might happen in the future that could have a negative effect on our financial position, financial performance, cash flows, business or reputation. Part of managing our business is to understand what these potential risks could be and to mitigate them where we can.

The actual effect of any event could be materially different from what we currently anticipate. The risks described in this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our financial position, financial performance, cash flows, business or reputation.

In the BCE 2017 Annual MD&A, we provided a detailed review of risks that could affect our financial position, financial performance, cash flows, business or reputation and that could cause actual results or events to differ materially from our expectations expressed in or implied by our forward-looking statements. This detailed description of risks is updated in the BCE 2018 First Quarter MD&A, in the BCE 2018 Second Quarter MD&A and in this MD&A. The risks described in the BCE 2017 Annual MD&A, as updated in the BCE 2018 First Quarter MD&A, in the BCE 2018 Second Quarter MD&A and in this MD&A, include, without limitation, risks associated with:

 

30   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

7

MD&A Business risks

 

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results.

Please see section 9, Business risks, of the BCE 2017 Annual MD&A for a more complete description of the above-mentioned and other risks, which section, and the other sections of the BCE 2017 Annual MD&A referred to therein, are incorporated by reference in this section 7.

In addition, please also see section 4.7, Liquidity – Litigation in the BCE 2018 Second Quarter MD&A for an update to the legal proceedings described in the BCE 2017 AIF, which section 4.7 is incorporated by reference in this section 7. Please also see section 6, Regulatory environment in the BCE 2018 First Quarter MD&A, in the BCE 2018 Second Quarter MD&A and in this MD&A for an update to the regulatory initiatives and proceedings described in the BCE 2017 Annual MD&A, which sections 6 are incorporated by reference in this section 7.

Except for the updates set out in section 6, Regulatory environment in the BCE 2018 First Quarter MD&A; in section 4.7, Liquidity – Litigation, in section 6, Regulatory environment and in section 7, Business risks in the BCE 2018 Second Quarter MD&A; as well as in section 6, Regulatory environment in this MD&A, the risks described in the BCE 2017 Annual MD&A remain substantially unchanged.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   31
       

8

 MD&A Accounting policies, financial measures and controls  

 

8 Accounting policies, financial measures and controls

 

8.1 Our accounting policies

BCE’s Q3 2018 Financial Statements were prepared in accordance with IFRS, as issued by the IASB, under IAS 34 – Interim Financial Reporting and were approved by BCE’s board of directors on October 31, 2018. These financial statements were prepared using the same basis of presentation, accounting policies and methods of computations as outlined in Note 2, Significant accounting policies in BCE’s consolidated financial statements for the year ended December 31, 2017, except as noted below. BCE’s Q3 2018 Financial Statements do not include all of the notes required in the annual financial statements.

 

ADOPTION OF NEW ACCOUNTING STANDARDS

As required, effective January 1, 2018, we adopted the following new accounting standards.

IFRS 15

We applied IFRS 15, Revenue from Contracts with Customers, retrospectively to each prior reporting period presented. IFRS 15 establishes principles to record revenues from contracts for the sale of products or services, unless the contracts are in the scope of other IFRSs.

IFRS 15 principally affects the timing of revenue recognition and how we classify revenues between product and service in our Bell Wireless segment. IFRS 15 also affects how we account for costs to obtain a contract.

Under IFRS 15, we apply the following practical expedients:

IFRS 9

We applied IFRS 9, Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRSs retrospectively, except for the changes to hedge accounting described below which are applied prospectively. In accordance with the transition requirements, comparative periods have not been restated. The adoption of IFRS 9 did not have a significant impact on the carrying amounts of our financial instruments as at January 1, 2018. As a result of the adoption of IFRS 9, our January 1, 2018 deficit increased by $4 million.

IFRS 9 replaces the classification and measurement models in IAS 39, Financial Instruments: Recognition and Measurement, with a single model under which financial assets are classified and measured at amortized cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). This classification is based on the business model in which a financial asset is managed and its contractual cash flow characteristics and eliminates the IAS 39 categories of held-to-maturity, loans and receivables and available-for-sale. The adoption of IFRS 9 did not, however, change the measurement bases of our financial assets.

The impairment of financial assets under IFRS 9 is based on an expected credit loss (ECL) model, as opposed to the incurred loss model in IAS 39. IFRS 9 applies to financial assets measured at amortized cost and contract assets and requires that we consider factors that include historical, current and forward-looking information when measuring the ECL. We use the simplified approach for measuring losses based on the lifetime ECL for trade receivables and contract assets. Amounts considered uncollectible are written off and recognized in Operating costs in the income statement.

 

32   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

8

MD&A Accounting policies, financial measures and controls

 

We have adopted the general hedge accounting model in IFRS 9 which requires that we ensure hedge accounting relationships are consistent with our risk management objectives and strategies. We also apply a more qualitative and forward-looking approach in assessing hedge effectiveness as a retrospective assessment is no longer required.

 

FUTURE CHANGES TO ACCOUNTING STANDARDS

As outlined in Note 2, Significant accounting policies in our consolidated financial statements for the year ended December 31, 2017, the IASB issued IFRS 16 – Leases with an effective date of January 1, 2019.

We continue to make progress towards adoption of IFRS 16 according to our detailed implementation plan. We expect to continue our testing and data validation process through the end of 2018 and to be in a position to disclose the preliminary estimate of the impact of IFRS 16 in our 2018 annual MD&A. Accordingly, it is not yet possible to make a reliable estimate of the impact of the new standard on our financial statements. We will adopt IFRS 16 on January 1, 2019, using a modified retrospective approach.

 

ADOPTION OF IFRS 15

As a result of adopting IFRS 15, we have changed the comparative figures for the three and nine months ended September 30, 2017 and the year ended December 31, 2017. The impacts of adopting IFRS 15 on our previously reported results for the three and nine months ended September 30, 2017 are provided below. The impacts of adopting IFRS 15 on our statement of financial position as at January 1, 2017 and December 31, 2017, our consolidated income statement and consolidated statement of cash flows for the year ended December 31, 2017, along with updated 2017 annual disclosures are included in Note 3, Adoption of IFRS 15, of our unaudited consolidated financial statements for the period ended March 31, 2018.

CONSOLIDATED INCOME STATEMENTS

The table below shows the impacts of adopting IFRS 15 on our previously reported consolidated income statements for the three and nine months ended September 30, 2017.

  THREE MONTHS ENDED SEPTEMBER 30, 2017 NINE MONTHS ENDED SEPTEMBER 30, 2017
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT SHARE AMOUNTS) 2017 AS
PREVIOUSLY
REPORTED		   IFRS 15 IMPACTS   2017 UPON
ADOPTION
OF IFRS 15		   2017 AS
PREVIOUSLY
REPORTED		   IFRS 15 IMPACTS   2017 UPON
ADOPTION
OF IFRS 15		  

Operating revenues

 5,678   19   5,697   16,761   (40 ) 16,721  

Operating costs

 (3,312 ) 20   (3,292 ) (9,800 ) 32   (9,768 )

Severance, acquisition and other costs

 (23 ) —   (23 ) (143 ) —   (143 )

Depreciation

 (765 ) 5   (760 ) (2,256 ) 5   (2,251 )

Amortization

 (208 ) 1   (207 ) (604 ) 2   (602 )

Finance costs

                        

Interest expense

 (242 ) —   (242 ) (714 ) —   (714 )

Interest on post-employment benefit obligations

 (18 ) —   (18 ) (54 ) —   (54 )

Other expense

 (56 ) —   (56 ) (40 ) —   (40 )

Income taxes

 (237 ) (12 ) (249 ) (797 ) —   (797 )

Net earnings

 817   33   850   2,353   (1 ) 2,352  

Net earnings attributable to:

                        

Common shareholders

 770   33   803   2,211   (1 ) 2,210  

Preferred shareholders

 31   —   31   94   —   94  

Non-controlling interest

 16   —   16   48   —   48  

Net earnings

 817   33   850   2,353   (1 ) 2,352  

Net earnings per common share – basic and diluted

 0.86   0.04   0.90   2.48   —   2.48  

Average number of common shares outstanding – basic (millions)

 900.4   —   900.4   892.2   —   892.2  

 

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   33
       

8

 MD&A Accounting policies, financial measures and controls  

 

CONSOLIDATED STATEMENT OF CASH FLOWS

The table below shows the impacts of adopting IFRS 15 on select line items of our previously reported 2017 statement of cash flows for the three and nine months ended September 30, 2017.

 

THREE MONTHS ENDED SEPTEMBER 30, 2017 NINE MONTHS ENDED SEPTEMBER 30, 2017

 

 2017 AS
PREVIOUSLY
REPORTED		  

IFRS 15 IMPACTS

   2017 UPON
ADOPTION
OF IFRS 15		   2017 AS
PREVIOUSLY
REPORTED		  

IFRS 15 IMPACTS

   2017 UPON
ADOPTION
OF IFRS 15		  

Cash flows from operating activities

                        

Net earnings

 817   33   850   2,353   (1 ) 2,352  

Depreciation and amortization

 973   (6 ) 967   2,860   (7 ) 2,853  

Income taxes

 237   12   249   797   —   797  

Net change in operating assets and liabilities

 308   (39 ) 269   316   8   324  

Cash flows from operating activities

 2,233   —   2,233   5,700   —   5,700  

 

8.2 Non-GAAP financial measures and key performance indicators (KPIs)

This section describes the non-GAAP financial measures and KPIs we use in this MD&A to explain our financial results. It also provides reconciliations of the non-GAAP financial measures to the most comparable IFRS financial measures.

In Q1 2018, we updated our definition of adjusted net earnings and adjusted EPS to exclude net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans as they may affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Adjusted net earnings and adjusted EPS for 2017 have also been updated for comparability purposes.

 

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

The terms adjusted EBITDA and adjusted EBITDA margin do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define adjusted EBITDA as operating revenues less operating costs, as shown in BCE’s consolidated income statements. Adjusted EBITDA for BCE’s segments is the same as segment profit as reported in Note 4, Segmented information, in BCE’s Q3 2018 Financial Statements. We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues.

We use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses as they reflect their ongoing profitability. We believe that certain investors and analysts use adjusted EBITDA to measure a company’s ability to service debt and to meet other payment obligations or as a common measurement to value companies in the telecommunications industry. We believe that certain investors and analysts also use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses. Adjusted EBITDA is also one component in the determination of short-term incentive compensation for all management employees.

Adjusted EBITDA and adjusted EBITDA margin have no directly comparable IFRS financial measure. Alternatively, the following table provides a reconciliation of net earnings to adjusted EBITDA.

  Q3 2018   Q3 2017   YTD 2018   YTD 2017  

Net earnings

 867   850   2,331   2,352  

Severance, acquisition and other costs

 54   23   78   143  

Depreciation

 779   760   2,346   2,251  

Amortization

 220   207   653   602  

Finance costs

                

Interest expense

 255   242   741   714  

Interest on post-employment benefit obligations

 17   18   51   54  

Other expense

 41   56   190   40  

Income taxes

 224   249   751   797  

Adjusted EBITDA

 2,457   2,405   7,141   6,953  

BCE operating revenues

 5,877   5,697   17,253   16,721  

Adjusted EBITDA margin

 41.8 % 42.2 % 41.4 % 41.6 %

 

 

34   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

8

MD&A Accounting policies, financial measures and controls

 

ADJUSTED NET EARNINGS AND ADJUSTED EPS

The terms adjusted net earnings and adjusted EPS do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define adjusted net earnings as net earnings attributable to common shareholders before severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges. We define adjusted EPS as adjusted net earnings per BCE common share.

We use adjusted net earnings and adjusted EPS, and we believe that certain investors and analysts use these measures, among other ones, to assess the performance of our businesses without the effects of severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges, net of tax and non-controlling (NCI). We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.

The most comparable IFRS financial measures are net earnings attributable to common shareholders and EPS. The following table is a reconciliation of net earnings attributable to common shareholders and EPS to adjusted net earnings on a consolidated basis and per BCE common share (adjusted EPS), respectively.

 

Q3 2018 Q3 2017 YTD 2018 YTD 2017

 

TOTAL   PER SHARE   TOTAL   PER SHARE   TOTAL   PER SHARE   TOTAL   PER SHARE  

Net earnings attributable to common shareholders

 814   0.90   803   0.90   2,179   2.42   2,210   2.48  

Severance, acquisition and other costs

 39   0.04   17   0.01   56   0.06   109   0.12  

Net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans

 5   0.01   (8 ) (0.01 ) 83   0.10   (26 ) (0.03 )

Net losses on investments

 —   —   —   —   20   0.02   14   0.01  

Early debt redemption costs

 2   0.01   12   0.01   15   0.02   15   0.02  

Impairment charges

 1   —   —   —   4   —   —   —  

Adjusted net earnings

 861   0.96   824   0.91   2,357   2.62   2,322   2.60  

 

FREE CASH FLOW AND DIVIDEND PAYOUT RATIO

The terms free cash flow and dividend payout ratio do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI. We exclude acquisition and other costs paid and voluntary pension funding because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.

We consider free cash flow to be an important indicator of the financial strength and performance of our businesses because it shows how much cash is available to pay dividends, repay debt and reinvest in our company. We believe that certain investors and analysts use free cash flow to value a business and its underlying assets and to evaluate the financial strength and performance of our businesses. The most comparable IFRS financial measure is cash flows from operating activities.

We define dividend payout ratio as dividends paid on common shares divided by free cash flow. We consider dividend payout ratio to be an important indicator of the financial strength and performance of our businesses because it shows the sustainability of the company’s dividend payments.

The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.

 

Q3 2018   Q3 2017   YTD 2018   YTD 2017  

Cash flows from operating activities

 2,043   2,233   5,596   5,700  

Capital expenditures

 (1,010 ) (1,040 ) (2,997 ) (2,934 )

Cash dividends paid on preferred shares

 (35 ) (21 ) (103 ) (94 )

Cash dividends paid by subsidiaries to NCI

 (3 ) (13 ) (16 ) (34 )

Acquisition and other costs paid

 19   24   65   128  

Free cash flow

 1,014   1,183   2,545   2,766  

 

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   35
       

8

 MD&A Accounting policies, financial measures and controls  

 

NET DEBT

The term net debt does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers.

We define net debt as debt due within one year plus long-term debt and 50% of preferred shares, less cash and cash equivalents, as shown in BCE’s consolidated statements of financial position. We include 50% of outstanding preferred shares in our net debt as it is consistent with the treatment by certain credit rating agencies.

We consider net debt to be an important indicator of the company’s financial leverage because it represents the amount of debt that is not covered by available cash and cash equivalents. We believe that certain investors and analysts use net debt to determine a company’s financial leverage.

Net debt has no directly comparable IFRS financial measure, but rather is calculated using several asset and liability categories from the statements of financial position, as shown in the following table.

 

SEPTEMBER 30, 2018   DECEMBER 31, 2017  

Debt due within one year

 4,877   5,178  

Long-term debt

 19,584   18,215  

50% of outstanding preferred shares

 2,002   2,002  

Cash and cash equivalents

 (826 ) (625 )

Net debt

 25,637   24,770  

 

NET DEBT LEVERAGE RATIO

The net debt leverage ratio does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the net debt leverage ratio as a measure of financial leverage.

The net debt leverage ratio represents net debt divided by adjusted EBITDA. For the purposes of calculating our net debt leverage ratio, adjusted EBITDA is twelve-month trailing adjusted EBITDA.

 

ADJUSTED EBITDA TO NET INTEREST EXPENSE RATIO

The ratio of adjusted EBITDA to net interest expense does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the adjusted EBITDA to net interest expense ratio as a measure of financial health of the company.

The adjusted EBITDA to net interest expense ratio represents adjusted EBITDA divided by net interest expense. For the purposes of calculating our adjusted EBITDA to net interest expense ratio, adjusted EBITDA is twelve-month trailing adjusted EBITDA. Net interest expense is twelve-month trailing net interest expense as shown in our statements of cash flows, plus 50% of declared preferred share dividends as shown in our income statements.

 

KPIs

In addition to the non-GAAP financial measures described previously, we use a number of KPIs to measure the success of our strategic imperatives. These KPIs are not accounting measures and may not be comparable to similar measures presented by other issuers.

KPI DEFINITION
ARPU

 

 Average revenue per user (ARPU) or subscriber is a measure used to track our recurring revenue streams, which has been updated to reflect the adoption of IFRS 15. Wireless blended ARPU is calculated by dividing certain service revenues by the average subscriber base for the specified period and is expressed as a dollar unit per month.
ABPU

 

 Average billing per user (ABPU) or subscriber approximates the average amount billed to customers on a monthly basis, which is used to track our recurring billing streams. This measure is the same as blended ARPU prior to the adoption of IFRS 15. Wireless blended ABPU is calculated by dividing certain customer billings by the average subscriber base for the specified period and is expressed as a dollar unit per month.
Capital intensity

 

 Capital expenditures divided by operating revenues.
Churn

 

 Churn is the rate at which existing subscribers cancel their services. It is a measure of our ability to retain our customers. Wireless churn is calculated by dividing the number of deactivations during a given period by the average number of subscribers in the base for the specified period and is expressed as a percentage per month.
Subscriber unit

 

 Wireless subscriber unit is comprised of an active revenue-generating unit (e.g. mobile device, tablet or wireless Internet products), with a unique identifier (typically International Mobile Equipment Identity (IMEI) number), that has access to our wireless networks. We report wireless subscriber units in two categories: postpaid and prepaid. Prepaid subscriber units are considered active for a period of 120 days following the expiry of the subscriber’s prepaid balance.

Wireline subscriber unit consists of an active revenue-generating unit with access to our services, including Internet, satellite TV, IPTV, and/or NAS. A subscriber is included in our subscriber base when the service has been installed and is operational at the customer premise and a billing relationship has been established.

  • Internet, IPTV and satellite TV subscribers have access to stand-alone services, and are primarily represented by a dwelling unit
  • NAS subscribers are based on a line count and are represented by a unique telephone number

 

 

 

36   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
       
 

8

MD&A Accounting policies, financial measures and controls

 

8.3 Controls and procedures

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No changes were made in our internal control over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   37
   
Consolidated financial statements  

 

Consolidated financial statements

 

Consolidated income statements

 

FOR THE PERIOD ENDED SEPTEMBER 30
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT SHARE AMOUNTS) (UNAUDITED)

     THREE MONTHS NINE MONTHS
NOTE   2018   2017   2018   2017  

Operating revenues

 4   5,877   5,697   17,253   16,721  

Operating costs

 4, 5   (3,420 ) (3,292 ) (10,112 ) (9,768 )

Severance, acquisition and other costs

 4, 6   (54 ) (23 ) (78 ) (143 )

Depreciation

 4   (779 ) (760 ) (2,346 ) (2,251 )

Amortization

 4   (220 ) (207 ) (653 ) (602 )

Finance costs

                    

Interest expense

     (255 ) (242 ) (741 ) (714 )

Interest on post-employment benefit obligations

 11   (17 ) (18 ) (51 ) (54 )

Other expense

 7   (41 ) (56 ) (190 ) (40 )

Income taxes

 9   (224 ) (249 ) (751 ) (797 )

Net earnings

     867   850   2,331   2,352  

Net earnings attributable to:

                    

Common shareholders

     814   803   2,179   2,210  

Preferred shareholders

     36   31   107   94  

Non-controlling interest

     17   16   45   48  

Net earnings

     867   850   2,331   2,352  

Net earnings per common share – basic and diluted

 8   0.90   0.90   2.42   2.48  

Average number of common shares outstanding – basic (millions)

     898.0   900.4   898.7   892.2  

 

 

38   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Consolidated financial statements

 

Consolidated statements of comprehensive income

 

FOR THE PERIOD ENDED SEPTEMBER 30
(IN MILLIONS OF CANADIAN DOLLARS) (UNAUDITED)		 THREE MONTHS NINE MONTHS
2018   2017   2018   2017  

Net earnings

 867   850   2,331   2,352  

Other comprehensive income (loss), net of income taxes

                

Items that will be subsequently reclassified to net earnings

                

Net change in value of derivatives designated as cash flow hedges, net of income taxes of $7 million and $15 million for the three months ended September 30, 2018 and 2017, respectively, and $2 million and $27 million for the nine months ended September 30, 2018 and 2017, respectively(1)

 (20 ) (44 ) (6 ) (83 )

Items that will not be reclassified to net earnings

                

Actuarial gains (losses) on post-employment benefit plans, net of income taxes of ($111) million and ($173) million for the three months ended September 30, 2018 and 2017, respectively, and ($205) million and $41 million for the nine months ended September 30, 2018 and 2017, respectively(2)

 298   470   552   (109 )

Net change in value of derivatives designated as cash flow hedges, net of income taxes of $4 million and nil for the three months ended September 30, 2018 and 2017, respectively, and ($9) million and nil for the nine months ended September 30, 2018 and 2017, respectively(1)

 (10 ) —   25   —  

Other comprehensive income (loss)

 268   426   571   (192 )

Total comprehensive income

 1,135   1,276   2,902   2,160  

Total comprehensive income attributable to:

                

Common shareholders

 1,083   1,231   2,748   2,020  

Preferred shareholders

 36   31   107   94  

Non-controlling interest

 16   14   47   46  

Total comprehensive income

 1,135   1,276   2,902   2,160  

 

(1) Amounts relating to the net change in value of derivatives for the three and nine month periods ended September 30, 2017 have not been restated, in accordance with the transition requirements upon adoption of IFRS 9 – Financial Instruments on January 1, 2018. See Note 2, Basis of presentation and significant accounting policies for further details.
(2) The discount rate used to value our post-employment benefit obligations at September 30, 2018 was 3.9% compared to 3.7% at June 30, 2018 and 3.6% at December 31, 2017. The discount rate used to value our post-employment benefit obligations at September 30, 2017 was 3.9% compared to 3.6% at June 30, 2017 and 4.0% at December 31, 2016.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   39
   
Consolidated financial statements  

 

Consolidated statements of financial position

 

(IN MILLIONS OF CANADIAN DOLLARS) (UNAUDITED) NOTE   SEPTEMBER 30, 2018   DECEMBER 31, 2017  

ASSETS

            

Current assets

            

Cash

     496   442  

Cash equivalents

     330   183  

Trade and other receivables

     2,948   3,129  

Inventory

     491   380  

Contract assets

     906   832  

Contract costs

     355   350  

Prepaid expenses

     312   217  

Other current assets

     164   122  

Total current assets

     6,002   5,655  

Non-current assets

            

Contract assets

     440   431  

Contract costs

     318   286  

Property, plant and equipment

     24,726   24,029  

Intangible assets

     13,357   13,258  

Deferred tax assets

     122   144  

Investments in associates and joint ventures

     770   814  

Other non-current assets

     1,262   757  

Goodwill

 3   10,657   10,428  

Total non-current assets

     51,652   50,147  

Total assets

     57,654   55,802  

LIABILITIES

            

Current liabilities

            

Trade payables and other liabilities

     3,778   3,875  

Contract liabilities

     701   693  

Interest payable

     230   168  

Dividends payable

     701   678  

Current tax liabilities

     159   140  

Debt due within one year

 10   4,877   5,178  

Total current liabilities

     10,446   10,732  

Non-current liabilities

            

Contract liabilities

     201   201  

Long-term debt

 10   19,584   18,215  

Deferred tax liabilities

     3,230   2,870  

Post-employment benefit obligations

 11   1,890   2,108  

Other non-current liabilities

     1,160   1,051  

Total non-current liabilities

     26,065   24,445  

Total liabilities

     36,511   35,177  

EQUITY

            

Equity attributable to BCE shareholders

            

Preferred shares

 13   4,004   4,004  

Common shares

 13   20,028   20,091  

Contributed surplus

     1,161   1,162  

Accumulated other comprehensive income (loss)

     4   (17 )

Deficit

     (4,378 ) (4,938 )

Total equity attributable to BCE shareholders

     20,819   20,302  

Non-controlling interest

     324   323  

Total equity

     21,143   20,625  

Total liabilities and equity

     57,654   55,802  

 

 

40   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Consolidated financial statements

 

Consolidated statements of changes in equity

 

     

ATTRIBUTABLE TO BCE SHAREHOLDERS

        
FOR THE PERIOD ENDED SEPTEMBER 30, 2018
(IN MILLIONS OF CANADIAN DOLLARS) (UNAUDITED)		 NOTE   PREFERRED
SHARES		   COMMON
SHARES		   CONTRI-
BUTED
SURPLUS		   ACCUMU-
LATED
OTHER
COMPRE-
HENSIVE
(LOSS)
INCOME		   DEFICIT   TOTAL   NON-
CONTROL-
LING
INTEREST		   TOTAL
EQUITY		  

Balance at December 31, 2017

     4,004   20,091   1,162   (17 ) (4,938 ) 20,302   323   20,625  

Adoption of IFRS 9

 2   —   —   —   —   (4 ) (4 ) —   (4 )

Balance at January 1, 2018

     4,004   20,091   1,162   (17 ) (4,942 ) 20,298   323   20,621  

Net earnings

     —   —   —   —   2,286   2,286   45   2,331  

Other comprehensive income

     —   —   —   17   552   569   2   571  

Total comprehensive income

     —   —   —   17   2,838   2,855   47   2,902  

Common shares issued under employee stock option plan

     —   5   —   —   —   5   —   5  

Other share-based compensation

     —   —   2   —   (23 ) (21 ) —   (21 )

Repurchase of common shares

 13   —   (69 ) (3 ) —   (103 ) (175 ) —   (175 )

Common shares issued for the acquisition of AlarmForce Industries Inc. (AlarmForce)

 3   —   1   —   —   —   1   —   1  

Dividends declared on BCE common and preferred shares

     —   —   —   —   (2,141 ) (2,141 ) —   (2,141 )

Dividends declared by subsidiaries to non-controlling interest

     —   —   —   —   —   —   (5 ) (5 )

Settlement of cash flow hedges transferred to the cost basis of hedged items

     —   —   —   4   —   4   —   4  

Return of capital to non-controlling interest

     —   —   —   —   (7 ) (7 ) (44 ) (51 )

Other

     —   —   —   —   —   —   3   3  

Balance at September 30, 2018

     4,004   20,028   1,161   4   (4,378 ) 20,819   324   21,143  

 

     

ATTRIBUTABLE TO BCE SHAREHOLDERS

        
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(IN MILLIONS OF CANADIAN DOLLARS) (UNAUDITED)		 NOTE   PREFERRED
SHARES		   COMMON
SHARES		   CONTRI-
BUTED
SURPLUS		   ACCUMU-
LATED
OTHER
COMPRE-
HENSIVE
INCOME
(LOSS)		   DEFICIT   TOTAL   NON-
CONTROL-
LING
INTEREST		   TOTAL
EQUITY		  

Balance at January 1, 2017

     4,004   18,370   1,160   46   (4,978 ) 18,602   314   18,916  

Net earnings

     —   —   —   —   2,304   2,304   48   2,352  

Other comprehensive loss

     —   —   —   (81 ) (109 ) (190 ) (2 ) (192 )

Total comprehensive (loss) income

     —   —   —   (81 ) 2,195   2,114   46   2,160  

Common shares issued under employee stock option plan

     —   97   (5 ) —   —   92   —   92  

Common shares issued under employee savings plan

     —   5   —   —   —   5   —   5  

Other share-based compensation

     —   —   1   —   (18 ) (17 ) —   (17 )

Common shares issued for the acquisition of Manitoba Telecom Services Inc. (MTS)

 3   —   1,594   —   —   —   1,594   —   1,594  

Dividends declared on BCE common and preferred shares

     —   —   —   —   (2,011 ) (2,011 ) —   (2,011 )

Dividends declared by subsidiaries to non-controlling interest

     —   —   —   —   —   —   (35 ) (35 )

Balance at September 30, 2017

     4,004   20,066   1,156   (35 ) (4,812 ) 20,379   325   20,704  

 

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   41
   
Consolidated financial statements  

 

Consolidated statements of cash flows

 

FOR THE PERIOD ENDED SEPTEMBER 30
(IN MILLIONS OF CANADIAN DOLLARS) (UNAUDITED)		     THREE MONTHS NINE MONTHS
NOTE   2018   2017   2018   2017  

Cash flows from operating activities

                    

Net earnings

     867   850   2,331   2,352  

Adjustments to reconcile net earnings to cash flows from operating activities

                    

Severance, acquisition and other costs

 6   54   23   78   143  

Depreciation and amortization

     999   967   2,999   2,853  

Post-employment benefit plans cost

 11   82   82   252   232  

Net interest expense

     251   239   732   704  

Losses on investments

 7   —   —   —   12  

Income taxes

     224   249   751   797  

Contributions to post-employment benefit plans

     (69 ) (64 ) (230 ) (238 )

Payments under other post-employment benefit plans

     (20 ) (20 ) (58 ) (58 )

Severance and other costs paid

     (27 ) (30 ) (95 ) (111 )

Interest paid

     (207 ) (242 ) (695 ) (714 )

Income taxes paid (net of refunds)

     (161 ) (66 ) (558 ) (468 )

Acquisition and other costs paid

     (19 ) (24 ) (65 ) (128 )

Net change in operating assets and liabilities

     69   269   154   324  

Cash flows from operating activities

     2,043   2,233   5,596   5,700  

Cash flows used in investing activities

                    

Capital expenditures

     (1,010 ) (1,040 ) (2,997 ) (2,934 )

Business acquisitions

 3   (151 ) —   (395 ) (1,635 )

Disposition of intangibles and other assets

 3   —   —   68   323  

Acquisition of spectrum licences

     (19 ) —   (55 ) —  

Other investing activities

     (9 ) (37 ) (64 ) (51 )

Cash flows used in investing activities

     (1,189 ) (1,077 ) (3,443 ) (4,297 )

Cash flows used in financing activities

                    

(Decrease) increase in notes payable

     (30 ) (379 ) 10   56  

Decrease in securitized trade receivables

     —   —   (2 ) (10 )

Issue of long-term debt

 10   1,530   1,515   2,996   3,011  

Repayment of long-term debt

 10   (1,134 ) (142 ) (2,375 ) (1,218 )

Issue of common shares

     1   4   3   93  

Repurchase of shares for settlement of share-based payments

     (39 ) (38 ) (176 ) (179 )

Repurchase of common shares

 13   —   —   (175 ) —  

Cash dividends paid on common shares

     (678 ) (646 ) (2,002 ) (1,866 )

Cash dividends paid on preferred shares

     (35 ) (21 ) (103 ) (94 )

Cash dividends paid by subsidiaries to non-controlling interest

     (3 ) (13 ) (16 ) (34 )

Return of capital to non-controlling interest

     (10 ) —   (51 ) —  

Other financing activities

     (20 ) (14 ) (61 ) (36 )

Cash flows (used in) from financing activities

     (418 ) 266   (1,952 ) (277 )

Net increase in cash

     242   1,040   54   857  

Cash at beginning of period

     254   420   442   603  

Cash at end of period

     496   1,460   496   1,460  

Net increase in cash equivalents

     194   382   147   269  

Cash equivalents at beginning of period

     136   137   183   250  

Cash equivalents at end of period

     330   519   330   519  

 

 

42   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Notes to consolidated financial statements

 

Notes to consolidated financial statements

These consolidated interim financial statements (financial statements) should be read in conjunction with BCE’s 2017 annual consolidated financial statements, approved by BCE’s board of directors on March 8, 2018.

These notes are unaudited.

We, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates. MTS means, as the context may require, until March 17, 2017, either Manitoba Telecom Services Inc. or, collectively, Manitoba Telecom Services Inc. and its subsidiaries; and Bell MTS means, from March 17, 2017, the combined operations of MTS and Bell Canada in Manitoba.

 

Note 1 Corporate information

BCE is incorporated and domiciled in Canada. BCE’s head office is located at 1, Carrefour Alexander-Graham-Bell, Verdun, Québec, Canada. BCE is a telecommunications and media company providing wireless, wireline, Internet and television (TV) services to residential, business and wholesale customers nationally across Canada. Our Bell Media segment provides conventional, specialty and pay TV, digital media, radio broadcasting services and out-of-home (OOH) advertising services to customers nationally across Canada.

 

Note 2 Basis of presentation and significant accounting policies

These financial statements were prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), under International Accounting Standard (IAS) 34 – Interim Financial Reporting and were approved by BCE’s board of directors on October 31, 2018. These financial statements were prepared using the same basis of presentation, accounting policies and methods of computation as outlined in Note 2, Significant accounting policies in our consolidated financial statements for the year ended December 31, 2017, except as noted below. The impacts of adopting IFRS 15 on our previously reported results for the three and nine months ended September 30, 2017 are provided in Note 15, Adoption of IFRS 15. The impacts of adopting IFRS 15 on our statement of financial position as at January 1, 2017 and December 31, 2017, our consolidated income statement and consolidated statement of cash flows for the year ended December 31, 2017, along with updated 2017 annual disclosures are included in Note 3, Adoption of IFRS 15, of our unaudited consolidated financial statements for the period ended March 31, 2018.

These financial statements do not include all of the notes required in annual financial statements.

All amounts are in millions of Canadian dollars, except where noted.

 

ADOPTION OF NEW ACCOUNTING STANDARDS

As required, effective January 1, 2018, we adopted the following new accounting standards.

IFRS 15

We applied IFRS 15, Revenue from Contracts with Customers, retrospectively to each prior reporting period presented. IFRS 15 establishes principles to record revenues from contracts for the sale of products or services, unless the contracts are in the scope of other IFRSs.

IFRS 15 principally affects the timing of revenue recognition and how we classify revenues between product and service in our Bell Wireless segment. IFRS 15 also affects how we account for costs to obtain a contract.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   43
   
Notes to consolidated financial statements  

 

Under IFRS 15, we apply the following practical expedients:

IFRS 9

We applied IFRS 9, Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRSs retrospectively, except for the changes to hedge accounting described below which are applied prospectively. In accordance with the transition requirements, comparative periods have not been restated. The adoption of IFRS 9 did not have a significant impact on the carrying amounts of our financial instruments as at January 1, 2018. As a result of the adoption of IFRS 9, our January 1, 2018 deficit increased by $4 million.

IFRS 9 replaces the classification and measurement models in IAS 39, Financial Instruments: Recognition and Measurement, with a single model under which financial assets are classified and measured at amortized cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). This classification is based on the business model in which a financial asset is managed and its contractual cash flow characteristics and eliminates the IAS 39 categories of held-to-maturity, loans and receivables and available-for-sale. The adoption of IFRS 9 did not, however, change the measurement bases of our financial assets.

The impairment of financial assets under IFRS 9 is based on an expected credit loss (ECL) model, as opposed to the incurred loss model in IAS 39. IFRS 9 applies to financial assets measured at amortized cost and contract assets and requires that we consider factors that include historical, current and forward-looking information when measuring the ECL. We use the simplified approach for measuring losses based on the lifetime ECL for trade receivables and contract assets. Amounts considered uncollectible are written off and recognized in Operating costs in the income statement.

We have adopted the general hedge accounting model in IFRS 9 which requires that we ensure hedge accounting relationships are consistent with our risk management objectives and strategies. We also apply a more qualitative and forward-looking approach in assessing hedge effectiveness as a retrospective assessment is no longer required.

 

FUTURE CHANGES TO ACCOUNTING STANDARDS

As outlined in Note 2, Significant accounting policies in our consolidated financial statements for the year ended December 31, 2017, the IASB issued IFRS 16 – Leases with an effective date of January 1, 2019.

We continue to make progress towards adoption of IFRS 16 according to our detailed implementation plan. We expect to continue our testing and data validation process through the end of 2018 and to be in a position to disclose the preliminary estimate of the impact of IFRS 16 in our 2018 annual consolidated financial statements. Accordingly, it is not yet possible to make a reliable estimate of the impact of the new standard on our financial statements. We will adopt IFRS 16 on January 1, 2019, using a modified retrospective approach.

 

Note 3 Business acquisitions and dispositions

2018

ACQUISITION OF AXIA NETMEDIA CORPORATION

On August 31, 2018, BCE completed the acquisition of all of the issued and outstanding common shares of Axia NetMedia Corporation (Axia) for a total cash consideration of $155 million.

Axia provides broadband network services to commercial and government accounts throughout the province of Alberta. The acquisition of Axia expands BCE’s broadband operations in Alberta and will add approximately 10,000 kilometres of fibre capacity to our footprint.

Axia is included in our Bell Wireline segment in our consolidated financial statements.

 

44   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Notes to consolidated financial statements

 

The purchase price allocation includes certain provisional estimates, in particular for property, plant and equipment and finite-life intangible assets. The following table summarizes the fair value of the consideration paid and the fair value assigned to each major class of assets and liabilities.

 

TOTAL  

Cash consideration

 155  

Total cost to be allocated

 155  

Trade and other receivables

 6  

Other non-cash working capital

 (9 )

Property, plant and equipment

 64  

Finite-life intangible assets

 19  

Other non-current liabilities

 (8 )

 

72  

Cash and cash equivalents

 3  

Fair value of net assets acquired

 75  

Goodwill(1)

 80  

 

(1) Goodwill arises principally from expected synergies and future growth and is not deductible for tax purposes. Goodwill arising from the transaction was allocated to our Bell Wireline group of cash generating units (CGUs).

The transaction did not have a significant impact on our consolidated operating revenues and net earnings for the nine months ended September 30, 2018.

 

ACQUISITION OF ALARMFORCE

On January 5, 2018, BCE acquired all of the issued and outstanding shares of AlarmForce for a total consideration of $182 million, of which $181 million was paid in cash and the remaining $1 million through the issuance of 22,531 BCE common shares.

Subsequent to the acquisition of AlarmForce, on January 5, 2018, BCE sold AlarmForce’s approximate 39,000 customer accounts in British Columbia, Alberta and Saskatchewan to TELUS Communications Inc. (Telus) for total proceeds of approximately $68 million.

AlarmForce provides security alarm monitoring, personal emergency response monitoring, video surveillance and related services to residential and commercial subscribers. The acquisition of AlarmForce supports our strategic expansion in the Connected Home marketplace.

AlarmForce is included in our Bell Wireline segment in our consolidated financial statements.

The purchase price allocation includes provisional estimates, in particular for finite-life intangible assets. The following table summarizes the fair value of the consideration paid and the fair value assigned to each major class of assets and liabilities.

 

TOTAL  

Cash consideration

 181  

Issuance of 22,531 BCE common shares(1)

 1  

Total cost to be allocated

 182  

Assets held for sale(2)

 68  

Property, plant and equipment

 8  

Finite-life intangible assets(3)

 34  

Indefinite-life intangible assets

 1  

Deferred tax liabilities

 (7 )

Other non-current liabilities

 (1 )

 

103  

Cash and cash equivalents

 4  

Fair value of net assets acquired

 107  

Goodwill(4)

 75  

 

(1) Recorded at fair value based on the market price of BCE common shares on the acquisition date.
(2) Consists mainly of customer relationships recorded at fair value less costs to sell.
(3) Consists mainly of customer relationships.
(4) Goodwill arises principally from expected synergies and future growth and is not deductible for tax purposes. Goodwill arising from the transaction was allocated to our Bell Wireline group of CGUs.

Operating revenues of $35 million and net earnings of $3 million from AlarmForce are included in the consolidated income statements from the date of acquisition. These amounts reflect the amortization of certain elements of the purchase price allocation and related tax adjustments.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   45
   
Notes to consolidated financial statements  

 

TERMINATION OF AGREEMENT TO ACQUIRE SÉRIES+ AND HISTORIA SPECIALTY CHANNELS

On October 17, 2017, BCE entered into an agreement with Corus Entertainment Inc. (Corus) to acquire French-language specialty channels Séries+ and Historia. On May 28, 2018, the Competition Bureau announced that it did not approve the sale of the channels to BCE. As a result, BCE and Corus terminated their agreement.

2017

ACQUISITION OF MTS

On March 17, 2017, BCE acquired all of the issued and outstanding common shares of MTS for a total consideration of $2,933 million, of which $1,339 million was paid in cash and the remaining $1,594 million through the issuance of approximately 27.6 million BCE common shares. BCE funded the cash component of the transaction through debt financing.

Operating revenues of $500 million and net earnings of $72 million from the acquired MTS operations are included in the consolidated income statements from the date of acquisition. BCE’s consolidated operating revenues and net earnings for the nine months ended September 30, 2017 would have been $16,915 million and $2,363 million, respectively, had the acquisition of MTS occurred on January 1, 2017. These amounts reflect the elimination of intercompany transactions, financing costs and the amortization of certain elements of the purchase price allocation and related tax adjustments.

During Q2 2017, BCE completed the divestiture of approximately one-quarter of postpaid wireless subscribers and 15 retail locations previously held by MTS, as well as certain Manitoba network assets, to Telus for total proceeds of $323 million.

 

ACQUISITION OF CIESLOK MEDIA LTD. (CIESLOK MEDIA)

On January 3, 2017, BCE acquired all of the issued and outstanding common shares of Cieslok Media for a total cash consideration of $161 million.

The transaction did not have a significant impact on our consolidated operating revenues and net earnings for the nine months ended September 30, 2017.

 

Note 4 Segmented information

Our results are reported in three segments: Bell Wireless, Bell Wireline and Bell Media. Our segments reflect how we manage our business and how we classify our operations for planning and measuring performance.

On March 17, 2017, BCE acquired all of the issued and outstanding common shares of MTS. The results from the acquired MTS operations are included in our Bell Wireless and Bell Wireline segments from the date of acquisition.

The following tables present financial information by segment for the three month periods ended September 30, 2018 and 2017.

FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2018 NOTE   BELL
WIRELESS		   BELL
WIRELINE		   BELL
MEDIA		   INTERSEGMENT
ELIMINATIONS		   BCE  

Operating revenues

                        

External customers

     2,170   3,085   622   —   5,877  

Inter-segment

     12   62   109   (183 ) —  

Total operating revenues

     2,182   3,147   731   (183 ) 5,877  

Operating costs

 5   (1,231 ) (1,823 ) (549 ) 183   (3,420 )

Segment profit(1)

     951   1,324   182   —   2,457  

Severance, acquisition and other costs

 6   (5 ) (42 ) (7 ) —   (54 )

Depreciation and amortization

     (167 ) (797 ) (35 ) —   (999 )

Finance costs

                        

Interest expense

                     (255 )

Interest on post-employment benefit obligations

 11                   (17 )

Other expense

 7                   (41 )

Income taxes

                     (224 )

Net earnings

                     867  

 

(1) The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.

 

46   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Notes to consolidated financial statements

 

FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2017 NOTE   BELL
WIRELESS		   BELL
WIRELINE		   BELL
MEDIA		   INTERSEGMENT
ELIMINATIONS		   BCE  

Operating revenues

                        

External customers

     2,049   3,037   611   —   5,697  

Inter-segment

     12   51   112   (175 ) —  

Total operating revenues

     2,061   3,088   723   (175 ) 5,697  

Operating costs

 5   (1,151 ) (1,780 ) (536 ) 175   (3,292 )

Segment profit(1)

     910   1,308   187   —   2,405  

Severance, acquisition and other costs

 6   (3 ) (19 ) (1 ) —   (23 )

Depreciation and amortization

     (166 ) (764 ) (37 ) —   (967 )

Finance costs

                        

Interest expense

                     (242 )

Interest on post-employment benefit obligations

 11                   (18 )

Other expense

 7                   (56 )

Income taxes

                     (249 )

Net earnings

                     850  

 

(1) The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.

The following tables present financial information by segment for the nine month periods ended September 30, 2018 and 2017.

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2018 NOTE   BELL
WIRELESS		   BELL
WIRELINE		   BELL
MEDIA		   INTERSEGMENT
ELIMINATIONS		   BCE  

Operating revenues

                        

External customers

     6,136   9,187   1,930   —   17,253  

Inter-segment

     38   179   341   (558 ) —  

Total operating revenues

     6,174   9,366   2,271   (558 ) 17,253  

Operating costs

 5   (3,497 ) (5,419 ) (1,754 ) 558   (10,112 )

Segment profit(1)

     2,677   3,947   517   —   7,141  

Severance, acquisition and other costs

 6   (11 ) (50 ) (17 ) —   (78 )

Depreciation and amortization

     (492 ) (2,395 ) (112 ) —   (2,999 )

Finance costs

                        

Interest expense

                     (741 )

Interest on post-employment benefit obligations

 11                   (51 )

Other expense

 7                   (190 )

Income taxes

                     (751 )

Net earnings

                     2,331  

 

(1) The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.

 

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 NOTE   BELL
WIRELESS		   BELL
WIRELINE		   BELL
MEDIA		   INTERSEGMENT
ELIMINATIONS		   BCE  

Operating revenues

                        

External customers

     5,743   9,032   1,946   —   16,721  

Inter-segment

     34   150   324   (508 ) —  

Total operating revenues

     5,777   9,182   2,270   (508 ) 16,721  

Operating costs

 5   (3,247 ) (5,304 ) (1,725 ) 508   (9,768 )
Segment profit(1)     2,530   3,878   545   —   6,953  

Severance, acquisition and other costs

 6   (8 ) (121 ) (14 ) —   (143 )

Depreciation and amortization

     (447 ) (2,296 ) (110 ) —   (2,853 )

Finance costs

                        

Interest expense

                     (714 )

Interest on post-employment benefit obligations

 11                   (54 )

Other expense

 7                   (40 )

Income taxes

                     (797 )

Net earnings

                     2,352  

 

(1) The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   47
   
Notes to consolidated financial statements  

 

REVENUES BY SERVICES AND PRODUCTS

 

  THREE MONTHS NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30 2018   2017   2018   2017  

Services(1)

                

Wireless

 1,618   1,580   4,680   4,503  

Data

 1,867   1,817   5,556   5,348  

Voice

 950   994   2,857   2,995  

Media

 622   611   1,930   1,946  

Other services

 60   52   187   151  

Total services

 5,117   5,054   15,210   14,943  

Products(2)

                

Wireless

 552   469   1,456   1,240  

Data

 111   79   313   273  

Equipment and other

 97   95   274   265  

Total products

 760   643   2,043   1,778  

Total operating revenues

 5,877   5,697   17,253   16,721  

 

(1) Our service revenues are generally recognized over time.
(2) Our product revenues are generally recognized at a point in time.

 

Note 5 Operating costs

 

      THREE MONTHS NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30 NOTE   2018   2017   2018   2017  

Labour costs

                    

Wages, salaries and related taxes and benefits

     (1,065 ) (1,045 ) (3,213 ) (3,120 )

Post-employment benefit plans service cost (net of capitalized amounts)

 11   (65 ) (64 ) (201 ) (178 )

Other labour costs(1)

     (262 ) (259 ) (772 ) (776 )

Less:

                    

Capitalized labour

     280   270   823   783  

Total labour costs

     (1,112 ) (1,098 ) (3,363 ) (3,291 )

Cost of revenues(2)

     (1,785 ) (1,678 ) (5,215 ) (4,983 )

Other operating costs(3)

     (523 ) (516 ) (1,534 ) (1,494 )

Total operating costs

     (3,420 ) (3,292 ) (10,112 ) (9,768 )

 

(1) Other labour costs include contractor and outsourcing costs.
(2) Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers.
(3) Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, information technology (IT) costs, professional service fees and rent.

 

Note 6 Severance, acquisition and other costs

 

  THREE MONTHS NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30 2018   2017   2018   2017  

Severance

 (52 ) (14 ) (76 ) (61 )

Acquisition and other

 (2 ) (9 ) (2 ) (82 )

Total severance, acquisition and other costs

 (54 ) (23 ) (78 ) (143 )

 

 

48   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Notes to consolidated financial statements

 

SEVERANCE COSTS

Severance costs consist of charges related to workforce reduction initiatives and include a 4% reduction in management workforce across BCE in 2018.

 

ACQUISITION AND OTHER COSTS

Acquisition and other costs consist of transaction costs, such as legal and financial advisory fees, related to completed or potential acquisitions, employee severance costs related to the purchase of a business, the costs to integrate acquired companies into our operations and litigation costs, when they are significant. Acquisition costs also include a loss on transfer of spectrum licences relating to the MTS acquisition in 2017.

 

Note 7 Other expense

 

      THREE MONTHS NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30 NOTE   2018   2017   2018   2017  

Net mark-to-market (losses) gains on derivatives used to economically hedge equity settled share-based compensation plans(1)

     (7 ) 10   (114 ) 35  

Equity losses from investments in associates and joint ventures

                    

Operations

     (26 ) (39 ) (29 ) (8 )

Losses on investments(2)

     —   —   (20 ) (2 )

Early debt redemption costs

 10   (2 ) (16 ) (20 ) (20 )

Impairment of assets

     (1 ) —   (5 ) —  

Losses on retirements and disposals of property, plant and equipment and intangible assets

     (4 ) (8 ) (5 ) (34 )

Losses on investments

     —   —   —   (12 )

Other(1)

     (1 ) (3 ) 3   1  

Total other expense

     (41 ) (56 ) (190 ) (40 )

 

(1) We have reclassified amounts from the previous period to make them consistent with the presentation for the current period.
(2) The $20 million loss in 2018 represents BCE’s share of an obligation to repurchase at fair value the minority interest in one of BCE’s joint ventures. The obligation is marked to market each reporting period and the gain or loss on investment is recorded as equity gains or losses from investments in associates and joint ventures.

 

Note 8 Earnings per share

The following table shows the components used in the calculation of basic and diluted earnings per common share for earnings attributable to common shareholders.

  THREE MONTHS NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30 2018   2017   2018   2017  

Net earnings attributable to common shareholders – basic

 814   803   2,179   2,210  

Dividends declared per common share (in dollars)

 0.7550   0.7175   2.2650   2.1525  

Weighted average number of common shares outstanding (in millions)

                

Weighted average number of common shares outstanding – basic

 898.0   900.4   898.7   892.2  

Assumed exercise of stock options(1)

 0.3   0.7   0.3   0.7  

Weighted average number of common shares outstanding – diluted (in millions)

 898.3   901.1   899.0   892.9  

 

(1) The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive options. It excludes options for which the exercise price is higher than the average market value of a BCE common share. The number of excluded options was 12,020,070 for both the third quarter and first nine months of 2018, compared to 5,808,258 for both the third quarter and the first nine months of 2017.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   49
   
Notes to consolidated financial statements  

 

 

Note 9 Income taxes

During Q3 2018 and 2017, various uncertain tax positions were settled, which resulted in the reversal of deferred tax liabilities.

 

Note 10 Debt

2018

On September 21, 2018, Bell Canada redeemed, prior to maturity, its 3.35% Series M-25 medium term notes (MTN) debentures, having an outstanding principal amount of $1 billion, which were due on June 18, 2019.

On September 14, 2018, Bell Canada issued 4.464% Series US-1 Notes under its 2016 trust indenture, with a principal amount of US $400 million (CAD $526 million), which mature on April 1, 2048. These Series US-1 Notes represent a re-opening of, and form a single series with, Bell Canada’s outstanding 4.464% Series US-1 Notes that were issued on March 29, 2018.

On August 21, 2018, Bell Canada issued 3.80% Series M-48 MTN debentures under its 1997 trust indenture, with a principal amount of $1 billion, which mature on August 21, 2028.

On May 4, 2018, Bell Canada redeemed, prior to maturity, its 3.50% Series M-28 MTN debentures, having an outstanding principal amount of $400 million, which were due on September 10, 2018.

On April 16, 2018, Bell Canada redeemed, prior to maturity, its 4.59% Series 9 notes, having an outstanding principal amount of $200 million, which were due on October 1, 2018. In addition, on the same date, Bell Canada redeemed, prior to maturity, its 5.52% Series M-33 debentures, having an outstanding principal amount of $300 million, which were due on February 26, 2019.

On March 29, 2018, Bell Canada issued 4.464% Series US-1 notes under its 2016 trust indenture, with a principal amount of US $750 million (CAD $967 million), which mature on April 1, 2048.

On March 12, 2018, Bell Canada issued 3.35% Series M-47 MTN debentures under its 1997 trust indenture, with a principal amount of $500 million, which mature on March 12, 2025.

The Series US-1 Notes have been hedged for foreign currency fluctuations through cross currency interest rate swaps. See Note 12, Financial assets and liabilities, for additional details.

For the three and nine months ended September 30, 2018, we incurred early debt redemption charges of $2 million and $20 million, respectively, which were recorded in Other expense in the income statement.

Subsequent to quarter end, on October 15, 2018, Bell Canada redeemed, prior to maturity, its 5.625% Series 8 notes, having an outstanding principal amount of $200 million, which were due on December 16, 2019.

Also subsequent to quarter end, on October 17, 2018, Bell Canada increased the total amount of its committed revolving and expansion credit facilities from $3.5 billion to $4.0 billion by adding a new $500 million revolving facility expiring in November 2019. Bell Canada has the option, subject to certain conditions, to convert advances outstanding under the new $500 million revolving facility into a one-year term loan. In addition, Bell Canada extended the term of its existing $2.5 billion committed revolving credit facility by one year to November 2023 and the term of its existing $1.0 billion committed expansion credit facility by one year to November 2021.

 

Note 11 Post-employment benefit plans

POST-EMPLOYMENT BENEFIT PLANS COST

We provide pension and other benefits for most of our employees. These include defined benefit (DB) pension plans, defined contribution (DC) pension plans and other post-employment benefits (OPEBs).

COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS SERVICE COST

  THREE MONTHS NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30 2018   2017   2018   2017  

DB pension

 (53 ) (54 ) (159 ) (155 )

DC pension

 (25 ) (23 ) (82 ) (78 )

OPEBs

 (1 ) (1 ) (3 ) (4 )

Plan amendment gain on OPEBs

 —   —   —   16  

Less:

                

Capitalized benefit plans cost

 14   14   43   43  

Total post-employment benefit plans service cost included in operating costs

 (65 ) (64 ) (201 ) (178 )

Other costs recognized in severance, acquisition and other costs

 —   —   (4 ) (4 )

Total post-employment benefit plans service cost

 (65 ) (64 ) (205 ) (182 )

 

 

50   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Notes to consolidated financial statements

 

COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS FINANCING COST

  THREE MONTHS NINE MONTHS 
FOR THE PERIOD ENDED SEPTEMBER 30 2018   2017   2018   2017  

DB pension

 (6 ) (5 ) (17 ) (14 )

OPEBs

 (11 ) (13 ) (34 ) (40 )

Total interest on post-employment benefit obligations

 (17 ) (18 ) (51 ) (54 )

 

 

Note 12 Financial assets and liabilities

FAIR VALUE

The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.

 

 

 

SEPTEMBER 30, 2018

DECEMBER 31, 2017

 

CLASSIFICATION

FAIR VALUE METHODOLOGY

 CARRYING
VALUE		   FAIR
VALUE		   CARRYING
VALUE		   FAIR
VALUE		  

CRTC tangible benefits obligation

Trade payables and other liabilities and non-current liabilities

Present value of estimated future cash flows discounted using observable market interest rates

 68   68   111   110  

CRTC deferral account obligation

Trade payables and other liabilities and non-current liabilities

Present value of estimated future cash flows discounted using observable market interest rates

 113   116   124   128  

Debt securities, finance leases and other debt

Debt due within one year and long-term debt

Quoted market price of debt or present value of future cash flows discounted using observable market interest rates

20,338

 

21,687

 

19,321

 

21,298

  

 

The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.

 

 

   

FAIR VALUE

 

CLASSIFICATION

 CARRYING VALUE
OF ASSET
(LIABILITY)		   QUOTED PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS (LEVEL 1)		   OBSERVABLE
MARKET DATA
(LEVEL 2) (1)		   NON-OBSERVABLE
MARKET INPUTS
(LEVEL 3) (2)		  

September 30, 2018

 

 

 

 

 

 

 

 

 

Publicly-traded and privately-held investments

Other non-current assets

 104   1   —   103  

Derivative financial instruments

Other current assets, trade payables and other liabilities, other non-current assets and liabilities

 (162 ) —   (162 ) —  

Maple Leaf Sports & Entertainment Ltd. (MLSE) financial liability(3)

Trade payables and other liabilities

 (135 ) —   —   (135 )

Other

Other non-current assets and liabilities

69

 

—

 

115

 

(46

)

December 31, 2017

 

 

 

 

 

 

 

 

 

Publicly-traded and privately-held investments

Other non-current assets

 103   1   —   102  

Derivative financial instruments

Other current assets, trade payables and other liabilities, other non-current assets and liabilities

 (48 ) —   (48 ) —  

MLSE financial liability(3)

Trade payables and other liabilities

 (135 ) —   —   (135 )

Other

Other non-current assets and liabilities

60

 

—

 

106

 

(46

)

 

(1) Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates.
(2) Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease) to our level 3 financial instruments.
(3) Represents BCE’s obligation to repurchase the BCE Master Trust Fund’s (Master Trust) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other expense in the income statements.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   51
   
Notes to consolidated financial statements  

 

CURRENCY EXPOSURES

We use forward contracts, options and cross currency interest rate swaps to manage foreign currency risk related to anticipated purchases and sales and certain foreign currency denominated debt.

A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the U.S. dollar would result in a gain (loss) of $1 million ($4 million) recognized in net earnings at September 30, 2018 and a gain (loss) of $125 million ($133 million) recognized in Other comprehensive income (loss) at September 30, 2018, with all other variables held constant.

In Q3 2018, we entered into additional cross currency interest rate swaps with a notional amount of $400 million in U.S. dollars ($526 million in Canadian dollars). In Q1 2018, we entered into cross currency interest rate swaps with a notional amount of $750 million in U.S. dollars ($967 million in Canadian dollars). These cross currency interest rate swaps are used to hedge the U.S. currency exposure of our Series US-1 Notes maturing in 2048. See Note 10, Debt, for additional details.

The following table provides further details on our outstanding foreign currency forward contracts and options as at September 30, 2018.

TYPE OF HEDGE BUY CURRENCY   AMOUNT TO RECEIVE   SELL CURRENCY   AMOUNT TO PAY   MATURITY   HEDGED ITEM  

Cash flow

 USD   2,458   CAD   3,214   2018-2019   Commercial paper  

Cash flow

 USD   226   CAD   292   2018   Anticipated transactions  

Cash flow

 PHP   343   CAD   8   2018   Anticipated transactions  

Cash flow

 CAD   31   USD   24   2018-2019   Anticipated transactions  

Cash flow

 USD   775   CAD   968   2019   Anticipated transactions  

Cash flow

 USD   76   CAD   96   2020-2021   Anticipated transactions  

Economic

 USD   8   CAD   11   2018   Anticipated transactions  

Economic – call options

 USD   17   CAD   20   2018   Anticipated transactions  

Economic – put options

 USD   83   CAD   100   2018   Anticipated transactions  

 

 

INTEREST RATE EXPOSURES

A 1% increase (decrease) in interest rates would result in a decrease (increase) of $30 million in net earnings at September 30, 2018.

 

EQUITY PRICE EXPOSURES

We use equity forward contracts on BCE’s common shares to economically hedge the cash flow exposure related to the settlement of equity settled share-based compensation plans and the equity price risk related to a cash-settled share-based payment plan. The fair value of our equity forward contracts at September 30, 2018 was a liability of $101 million.

A 5% increase (decrease) in the market price of BCE’s common shares at September 30, 2018 would result in a gain (loss) of $33 million recognized in net earnings, with all other variables held constant.

 

Note 13 Share capital

NORMAL COURSE ISSUER BID PROGRAM (NCIB)

In Q1 2018, BCE repurchased and canceled 3,085,697 common shares for a total cost of $175 million. Of the total cost, $69 million represents stated capital and $3 million represents the reduction of the contributed surplus attributable to these common shares. The remaining $103 million was charged to the deficit.

 

CONVERSION AND DIVIDEND RATE RESET OF FIRST PREFERRED SHARES

The annual fixed dividend rate on BCE’s Cumulative Redeemable First Preferred Shares, Series AQ, was reset for the next five years, effective September 30, 2018, at 4.812% from 4.25%.

On March 1, 2018, 397,181 of BCE’s 5,069,935 fixed-rate Cumulative Redeemable First Preferred Shares, Series AC (Series AC Preferred Shares) were converted, on a one-for-one basis, into floating rate Cumulative Redeemable First Preferred Shares, Series AD (Series AD Preferred Shares). In addition, on March 1, 2018, 5,356,937 of BCE’s 14,930,065 Series AD Preferred Shares were converted, on a one-for-one basis, into Series AC Preferred Shares.

The annual fixed dividend rate on BCE’s Series AC Preferred Shares was reset for the next five years, effective March 1, 2018, at 4.38% from 3.55%. The Series AD Preferred Shares continue to pay a monthly floating cash dividend.

 

52   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Notes to consolidated financial statements

 

Note 14 Share-based payments

The following share-based payment amounts are included in the income statements as operating costs.

  THREE MONTHS  NINE MONTHS 
FOR THE PERIOD ENDED SEPTEMBER 30 2018   2017   2018   2017  

Employee savings plan (ESP)

 (7 ) (7 ) (21 ) (21 )

Restricted share units (RSUs) and performance share units (PSUs)

 (10 ) (10 ) (40 ) (37 )

Other(1)

 (2 ) (2 ) (8 ) (7 )

Total share-based payments

 (19 ) (19 ) (69 ) (65 )

 

(1) Includes deferred share plan (DSP), deferred share units (DSUs) and stock options.

The following tables summarize the change in outstanding ESP shares, RSUs/PSUs, DSUs and stock options for the period ended September 30, 2018.

ESP

 

NUMBER OF
ESP SHARES		  

Unvested contributions, January 1, 2018

 1,039,030  

Contributions(1)

 516,075  

Dividends credited

 41,160  

Vested

 (388,647 )

Forfeited

 (110,089 )

Unvested contributions, September 30, 2018

 1,097,529  

 

(1) The weighted average fair value of the shares contributed during the nine months ended September 30, 2018 was $55.

 

RSUs/PSUs

 

NUMBER OF
RSUs/PSUs		  

Outstanding, January 1, 2018

 2,740,392  

Granted(1)

 961,966  

Dividends credited

 108,824  

Settled

 (1,014,567 )

Forfeited

 (42,292 )

Outstanding, September 30, 2018

 2,754,323  

 

(1) The weighted average fair value of the RSUs/PSUs granted during the nine months ended September 30, 2018 was $57.

 

DSUs

 

NUMBER OF DSUs  

Outstanding, January 1, 2018

 4,309,528  

Issued(1)

 82,307  

Settlement of RSUs/PSUs

 112,675  

Dividends credited

 175,790  

Settled

 (233,854 )

Outstanding, September 30, 2018

 4,446,446  

 

(1) The weighted average fair value of the DSUs issued during the nine months ended September 30, 2018 was $55.

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   53
   
Notes to consolidated financial statements  

 

STOCK OPTIONS

 

NUMBER OF
OPTIONS		   WEIGHTED AVERAGE
EXERCISE PRICE ($)		  

Outstanding, January 1, 2018

 10,490,249   55  

Granted

 3,656,169   57  

Exercised(1)

 (90,222 ) 42  

Forfeited

 (39,669 ) 58  

Outstanding, September 30, 2018

 14,016,527   56  

Exercisable, September 30, 2018

 4,576,307   52  

 

(1) The weighted average share price for options exercised during the nine months ended September 30, 2018 was $55.

 

ASSUMPTIONS USED IN STOCK OPTION PRICING MODEL

The fair value of options granted was determined using a variation of a binomial option pricing model that takes into account factors specific to the share incentive plans, such as the vesting period. The following table shows the principal assumptions used in the valuation.

 

2018  

Weighted average fair value per option granted

 $ 2.13  

Weighted average share price

 $ 57  

Weighted average exercise price

 $ 57  

Dividend yield

 5 %

Expected volatility

 12 %

Risk-free interest rate

 2 %

Expected life (years)

 4  

Expected volatilities are based on the historical volatility of BCE’s share price. The risk-free rate used is equal to the yield available on Government of Canada bonds at the date of grant with a term equal to the expected life of the options.

 

Note 15 Adoption of IFRS 15

As a result of adopting IFRS 15, we have changed the comparative figures for the three and nine months ended September 30, 2017 and the year ended December 31, 2017. The impacts of adopting IFRS 15 on our previously reported results for the three and nine months ended September 30, 2017 are provided below. The impacts of adopting IFRS 15 on our statement of financial position as at January 1, 2017 and December 31, 2017, our consolidated income statement and consolidated statement of cash flows for the year ended December 31, 2017, along with updated 2017 annual disclosures are included in Note 3, Adoption of IFRS 15, of our unaudited consolidated financial statements for the period ended March 31, 2018.

 

54   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT
   
  Notes to consolidated financial statements

 

CONSOLIDATED INCOME STATEMENTS

The table below shows the impacts of adopting IFRS 15 on our previously reported consolidated income statements for the three and nine months ended September 30, 2017.

  THREE MONTHS ENDED SEPTEMBER 30, 2017 NINE MONTHS ENDED SEPTEMBER 30, 2017
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT SHARE AMOUNTS) 2017 AS
PREVIOUSLY
REPORTED		   IFRS 15
IMPACTS		   2017 UPON
ADOPTION
OF IFRS 15		   2017 AS
PREVIOUSLY
REPORTED		   IFRS 15
IMPACTS		   2017 UPON
ADOPTION
OF IFRS 15		  

Operating revenues

 5,678   19   5,697   16,761   (40 ) 16,721  

Operating costs

 (3,312 ) 20   (3,292 ) (9,800 ) 32   (9,768 )

Severance, acquisition and other costs

 (23 ) —   (23 ) (143 ) —   (143 )

Depreciation

 (765 ) 5   (760 ) (2,256 ) 5   (2,251 )

Amortization

 (208 ) 1   (207 ) (604 ) 2   (602 )

Finance costs

                        

Interest expense

 (242 ) —   (242 ) (714 ) —   (714 )

Interest on post-employment benefit obligations

 (18 ) —   (18 ) (54 ) —   (54 )

Other expense

 (56 ) —   (56 ) (40 ) —   (40 )

Income taxes

 (237 ) (12 ) (249 ) (797 ) —   (797 )

Net earnings

 817   33   850   2,353   (1 ) 2,352  

Net earnings attributable to:

                        

Common shareholders

 770   33   803   2,211   (1 ) 2,210  

Preferred shareholders

 31   —   31   94   —   94  

Non-controlling interest

 16   —   16   48   —   48  

Net earnings

 817   33   850   2,353   (1 ) 2,352  

Net earnings per common share – basic and diluted

 0.86   0.04   0.90   2.48   —   2.48  

Average number of common shares outstanding – basic (millions)

 900.4   —   900.4   892.2   —   892.2  

 

 

DEFICIT

The table below provides a reconciliation of our deficit at September 30, 2017 from amounts previously reported in 2017 to the amounts reported under IFRS 15. All amounts are after tax.

 

 AT SEPTEMBER 30, 2017  

Total deficit as previously reported

 (5,873 )

Timing of revenue recognition

 804  

Cost to obtain a contract

 257  

Total deficit upon adoption of IFRS 15

 (4,812 )

 

 

BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT   55
   
Notes to consolidated financial statements  

 

CONSOLIDATED STATEMENT OF CASH FLOWS

The table below shows the impacts of adopting IFRS 15 on select line items of our previously reported 2017 statement of cash flows for the three and nine months ended September 30, 2017.

 

THREE MONTHS ENDED SEPTEMBER 30, 2017 NINE MONTHS ENDED SEPTEMBER 30, 2017

 

2017 AS
PREVIOUSLY
REPORTED		   IFRS 15 IMPACTS   2017 UPON
ADOPTION
OF IFRS 15		   2017 AS
PREVIOUSLY
REPORTED		   IFRS 15 IMPACTS   2017 UPON
ADOPTION
OF IFRS 15		  

Cash flows from operating activities

                        

Net earnings

 817   33   850   2,353   (1 ) 2,352  

Depreciation and amortization

 973   (6 ) 967   2,860   (7 ) 2,853  

Income taxes

 237   12   249   797   —   797  

Net change in operating assets and liabilities

 308   (39 ) 269   316   8   324  

Cash flows from operating activities

 2,233   —   2,233   5,700   —   5,700  

 

 

56   BCE Inc.   2018 THIRD QUARTER SHAREHOLDER REPORT

 

This document has been filed by BCE Inc. with the Canadian provincial securities regulatory authorities and the U.S. Securities and Exchange Commission. It can be found on BCE Inc.’s website at BCE.ca, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov or is available upon request from:

INVESTOR RELATIONS

Building A, 8th floor
1 Carrefour Alexander-Graham-Bell 
Verdun, Québec H3E 3B3

e-mail: [email protected]
tel: 1-800-339-6353
fax: 514-786-3970

BCE.ca

For additional copies of this document, please contact investor relations.

 

For further information concerning BCE Inc.’s Dividend Reinvestment and Stock Purchase Plan (DRP), direct deposit of dividend payments, the elimination of multiple mailings or the receipt of quarterly reports, please contact:

AST TRUST COMPANY (CANADA)

1 Toronto Street, Suite 1200
Toronto, Ontario M5C 2V6

tel: 416 682-3861 or 1 800 561-0934
fax: 514 985-8843 or 1 888 249-6189
e-mail: [email protected]

 

Pour obtenir un exemplaire de la version française de ce document, contactez les Relations avec les investisseurs.

 

 

Exhibit 99.2

 

 

 

BCE (1) (2) (3)
Consolidated Operational Data

(In millions of Canadian dollars, except share amounts) (unaudited)   Q3
2018		     Q3
2017		      

$ change

   % change       YTD
2018		     YTD
2017		      

$ change

   % change  

Operating revenues

                                                  

Service

   5,117     5,054       63   1.2 %     15,210     14,943       267   1.8 %

Product

   760     643       117   18.2 %     2,043     1,778       265   14.9 %

Total operating revenues

   5,877     5,697       180   3.2 %     17,253     16,721       532   3.2 %

Operating costs (A)

   (3,355 )   (3,228 )     (127 ) (3.9 %)     (9,911 )   (9,590 )     (321 ) (3.3 %)

Post-employment benefit plans service cost

   (65 )   (64 )     (1 ) (1.6 %)     (201 )   (178 )     (23 ) (12.9 %)

Adjusted EBITDA (4)

   2,457     2,405       52   2.2 %     7,141     6,953       188   2.7 %

Adjusted EBITDA margin (4)

   41.8 %   42.2 %         (0.4 ) pts     41.4 %   41.6 %         (0.2 ) pts

Severance, acquisition and other costs

   (54 )   (23 )     (31 ) n.m.       (78 )   (143 )     65   45.5 %

Depreciation

   (779 )   (760 )     (19 ) (2.5 %)     (2,346 )   (2,251 )     (95 ) (4.2 %)

Amortization

   (220 )   (207 )     (13 ) (6.3 %)     (653 )   (602 )     (51 ) (8.5 %)

Finance costs

                                                  

Interest expense

   (255 )   (242 )     (13 ) (5.4 %)     (741 )   (714 )     (27 ) (3.8 %)

Interest on post-employment benefit obligations

   (17 )   (18 )     1   5.6 %     (51 )   (54 )     3   5.6 %

Other expense

   (41 )   (56 )     15   26.8 %     (190 )   (40 )     (150 ) n.m.  

Income taxes

   (224 )   (249 )     25   10.0 %     (751 )   (797 )     46   5.8 %

Net earnings

   867     850       17   2.0 %     2,331     2,352       (21 ) (0.9 %)

Net earnings attributable to:

                                                  

Common shareholders

   814     803       11   1.4 %     2,179     2,210       (31 ) (1.4 %)

Preferred shareholders

   36     31       5   16.1 %     107     94       13   13.8 %

Non-controlling interest

   17     16       1   6.3 %     45     48       (3 ) (6.3 %)

Net earnings

   867     850       17   2.0 %     2,331     2,352       (21 ) (0.9 %)

Net earnings per common share - basic

 $ 0.90   $ 0.90       -   -     $ 2.42   $ 2.48     $ (0.06 ) (2.4 %)

Net earnings per common share - diluted

 $ 0.90   $ 0.90       -   -     $ 2.42   $ 2.48     $ (0.06 ) (2.4 %)

Dividends per common share

 $ 0.7550   $ 0.7175     $ 0.0375   5.2 %   $ 2.2650   $ 2.1525     $ 0.1125   5.2 %

Average number of common shares outstanding - basic (millions)

   898.0     900.4                   898.7     892.2              

Average number of common shares outstanding - diluted (millions)

   898.3     901.1                   899.0     892.9              

Number of common shares outstanding (millions)

   898.0     900.4                   898.0     900.4              

Adjusted net earnings and EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

   814     803       11   1.4 %     2,179     2,210       (31 ) (1.4 %)

Severance, acquisition and other costs

   39     17       22   n.m.       56     109       (53 ) (48.6 %)

Net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans

   5     (8 )     13   n.m.       83     (26 )     109   n.m.  

Net losses on investments

   -     -      

-

   -       20     14       6   42.9 %

Early debt redemption costs

   2     12       (10 ) (83.3 %)     15     15       -   -  

Impairment charges

   1     -       1  

n.m.

       4     -       4   n.m.  

Adjusted net earnings (4)

   861     824       37   4.5 %     2,357     2,322       35   1.5 %

Impact on net earnings per share

 $ 0.06   $ 0.01     $ 0.05   n.m.     $ 0.20   $ 0.12     $ 0.08   66.7 %

Adjusted EPS (4)

$

0.96

 

$

0.91

 

 

$

0.05

 

5.5

%

 

$

2.62

 

$

2.60

 

 

$

0.02

 

0.8

%

 

n.m. : not meaningful
(A) Excludes post-employment benefit plans service cost

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 2

BCE
Consolidated Operational Data - Historical Trend

(In millions of Canadian dollars, except share amounts) (unaudited)   YTD
2018		       Q3 18     Q2 18     Q1 18       TOTAL
2017		       Q4 17     Q3 17     Q2 17     Q1 17  

Operating revenues

                                                            

Service

   15,210       5,117     5,129     4,964       20,095       5,152     5,054     5,078     4,811  

Product

   2,043       760     657     626       2,662       884     643     610     525  

Total operating revenues

   17,253       5,877     5,786     5,590       22,757       6,036     5,697     5,688     5,336  

Operating costs (A)

   (9,911 )     (3,355 )   (3,293 )   (3,263 )     (13,233 )     (3,643 )   (3,228 )   (3,242 )   (3,120 )

Post-employment benefit plans service cost

   (201 )     (65 )   (63 )   (73 )     (242 )     (64 )   (64 )   (64 )   (50 )

Adjusted EBITDA

   7,141       2,457     2,430     2,254       9,282       2,329     2,405     2,382     2,166  

Adjusted EBITDA margin

   41.4 %     41.8 %   42.0 %   40.3 %     40.8 %     38.6 %   42.2 %   41.9 %   40.6 %

Severance, acquisition and other costs

   (78 )     (54 )   (24 )  

-

       (190 )     (47 )   (23 )   (36 )   (84 )

Depreciation

   (2,346 )     (779 )   (787 )   (780 )     (3,034 )     (783 )   (760 )   (767 )   (724 )

Amortization

   (653 )     (220 )   (221 )   (212 )     (810 )     (208 )   (207 )   (210 )   (185 )

Finance costs

                                                            

Interest expense

   (741 )     (255 )   (246 )   (240 )     (955 )     (241 )   (242 )   (238 )   (234 )

Interest on post-employment benefit obligations

   (51 )     (17 )   (17 )   (17 )     (72 )     (18 )   (18 )   (18 )   (18 )

Other (expense) income

   (190 )     (41 )   (88 )   (61 )     (102 )     (62 )   (56 )   (1 )   17  

Income taxes

   (751 )     (224 )   (292 )   (235 )     (1,069 )     (272 )   (249 )   (298 )   (250 )

Net earnings

   2,331       867     755     709       3,050       698     850     814     688  

Net earnings attributable to:

                                                            

Common shareholders

   2,179       814     704     661       2,866       656     803     765     642  

Preferred shareholders

   107       36     35     36       128       34     31     32     31  

Non-controlling interest

   45       17     16     12       56       8     16     17     15  

Net earnings

   2,331       867     755     709       3,050       698     850     814     688  

Net earnings per common share - basic

 $ 2.42     $ 0.90   $ 0.79   $ 0.73     $ 3.20     $ 0.72   $ 0.90   $ 0.85   $ 0.73  

Net earnings per common share - diluted

 $ 2.42     $ 0.90   $ 0.79   $ 0.73     $ 3.20     $ 0.72   $ 0.90   $ 0.85   $ 0.73  

Dividends per common share

 $ 2.2650     $ 0.7550   $ 0.7550   $ 0.7550     $ 2.8700     $ 0.7175   $ 0.7175   $ 0.7175   $ 0.7175  

Average number of common shares outstanding - basic (millions)

   898.7       898.0     898.0     900.2       894.3       900.6     900.4     900.1     875.7  

Average number of common shares outstanding - diluted (millions)

   899.0       898.3     898.3     900.6       894.9       901.4     901.1     901.0     876.6  

Number of common shares outstanding (millions)

   898.0       898.0     898.0     898.0       901.0       901.0     900.4     900.4     899.5  

Adjusted net earnings and EPS

                                                            

Net earnings attributable to common shareholders

   2,179       814     704     661       2,866       656     803     765     642  

Severance, acquisition and other costs

   56       39     18     (1 )     143       34     17     27     65  

Net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans

   83       5     22     56       (55 )     (29 )   (8 )   -     (18 )

Net losses on investments

   20       -     20     -       29       15     -     -     14  

Early debt redemption costs

   15       2     13     -       15       -     12     3     -  

Impairment charges

   4       1     -     3       60       60     -     -     -  

Adjusted net earnings

   2,357       861     777     719       3,058       736     824     795     703  

Impact on net earnings per share

 $ 0.20     $ 0.06   $ 0.07   $ 0.07     $ 0.22     $ 0.10   $ 0.01   $ 0.04   $ 0.07  

Adjusted EPS

 $ 2.62     $ 0.96   $ 0.86   $ 0.80     $ 3.42     $ 0.82   $ 0.91   $ 0.89   $ 0.80  

 

(A) Excludes post-employment benefit plans service cost

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 3

BCE
Segmented Data

(In millions of Canadian dollars, except where otherwise indicated) (unaudited) Q3
2018		   Q3
2017		     $ change  

% change

     YTD
2018		   YTD
2017		     $ change  

% change

  
                                       

Operating revenues

                                      

Bell Wireless

 2,182   2,061     121   5.9 %   6,174   5,777     397   6.9 %

Bell Wireline

 3,147   3,088     59   1.9 %   9,366   9,182     184   2.0 %

Bell Media

 731   723     8   1.1 %   2,271   2,270     1   -  

Inter-segment eliminations

 (183 ) (175 )   (8 ) (4.6 %)   (558 ) (508 )   (50 ) (9.8 %)

Total

 5,877   5,697     180   3.2 %   17,253   16,721     532   3.2 %
                                       

Operating costs

                                      

Bell Wireless

 (1,231 ) (1,151 )   (80 ) (7.0 %)   (3,497 ) (3,247 )   (250 ) (7.7 %)

Bell Wireline

 (1,823 ) (1,780 )   (43 ) (2.4 %)   (5,419 ) (5,304 )   (115 ) (2.2 %)

Bell Media

 (549 ) (536 )   (13 ) (2.4 %)   (1,754 ) (1,725 )   (29 ) (1.7 %)

Inter-segment eliminations

 183   175     8   4.6 %   558   508     50   9.8 %

Total

 (3,420 ) (3,292 )   (128 ) (3.9 %)   (10,112 ) (9,768 )   (344 ) (3.5 %)
                                       

Adjusted EBITDA

                                      

Bell Wireless

 951   910     41   4.5 %   2,677   2,530     147   5.8 %

Margin

 43.6 % 44.2 %       (0.6 ) pts   43.4 % 43.8 %       (0.4 ) pts

Bell Wireline

 1,324   1,308     16   1.2 %   3,947   3,878     69   1.8 %

Margin

 42.1 % 42.4 %       (0.3 ) pts   42.1 % 42.2 %       (0.1 ) pts

Bell Media

 182   187     (5 ) (2.7 %)   517   545     (28 ) (5.1 %)

Margin

 24.9 % 25.9 %       (1.0 ) pts   22.8 % 24.0 %       (1.2 ) pts

Total

 2,457   2,405     52   2.2 %   7,141   6,953     188   2.7 %

Margin

 41.8 % 42.2 %       (0.4 ) pts   41.4 % 41.6 %       (0.2 ) pts
                                       

Capital expenditures

                                      

Bell Wireless

 181   186     5   2.7 %   524   513     (11 ) (2.1 %)

Capital intensity (5)

 8.3 % 9.0 %       0.7  pts   8.5 % 8.9 %       0.4  pts

Bell Wireline

 799   820     21   2.6 %   2,391   2,329     (62 ) (2.7 %)

Capital intensity

 25.4 % 26.6 %       1.2  pts   25.5 % 25.4 %       (0.1 ) pts

Bell Media

 30   34     4   11.8 %   82   92     10   10.9 %

Capital intensity

 4.1 % 4.7 %       0.6  pts   3.6 % 4.1 %       0.5  pts

Total

 1,010   1,040     30   2.9 %   2,997   2,934     (63 ) (2.1 %)

Capital intensity

 17.2 % 18.3 %       1.1  pts   17.4 % 17.5 %       0.1  pts

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 4

 

BCE
Segmented Data - Historical Trend

(In millions of Canadian dollars, except where otherwise indicated) (unaudited) YTD
2018		     Q3 18   Q2 18   Q1 18     TOTAL
2017		     Q4 17   Q3 17   Q2 17   Q1 17  
                                           

Operating revenues

                                          

Bell Wireless

 6,174     2,182   2,046   1,946     7,926     2,149   2,061   1,949   1,767  

Bell Wireline

 9,366     3,147   3,135   3,084     12,400     3,218   3,088   3,117   2,977  

Bell Media

 2,271     731   791   749     3,104     834   723   796   751  

Inter-segment eliminations

 (558 )   (183 ) (186 ) (189 )   (673 )   (165 ) (175 ) (174 ) (159 )

Total

 17,253     5,877   5,786   5,590     22,757     6,036   5,697   5,688   5,336  
                                           

Operating costs

                                          

Bell Wireless

 (3,497 )   (1,231 ) (1,142 ) (1,124 )   (4,550 )   (1,303 ) (1,151 ) (1,098 ) (998 )

Bell Wireline

 (5,419 )   (1,823 ) (1,814 ) (1,782 )   (7,210 )   (1,906 ) (1,780 ) (1,810 ) (1,714 )

Bell Media

 (1,754 )   (549 ) (586 ) (619 )   (2,388 )   (663 ) (536 ) (572 ) (617 )

Inter-segment eliminations

 558     183   186   189     673     165   175   174   159  

Total

 (10,112 )   (3,420 ) (3,356 ) (3,336 )   (13,475 )   (3,707 ) (3,292 ) (3,306 ) (3,170 )
                                           

Adjusted EBITDA

                                          

Bell Wireless

 2,677     951   904   822     3,376     846   910   851   769  

Margin

 43.4 %   43.6 % 44.2 % 42.2 %   42.6 %   39.4 % 44.2 % 43.7 % 43.5 %

Bell Wireline

 3,947     1,324   1,321   1,302     5,190     1,312   1,308   1,307   1,263  

Margin

 42.1 %   42.1 % 42.1 % 42.2 %   41.9 %   40.8 % 42.4 % 41.9 % 42.4 %

Bell Media

 517     182   205   130     716     171   187   224   134  

Margin

 22.8 %   24.9 % 25.9 % 17.4 %   23.1 %   20.5 % 25.9 % 28.1 % 17.8 %

Total

 7,141     2,457   2,430   2,254     9,282     2,329   2,405   2,382   2,166  

Margin

 41.4 %   41.8 % 42.0 % 40.3 %   40.8 %   38.6 % 42.2 % 41.9 % 40.6 %
                                           

Capital expenditures

                                          

Bell Wireless

 524     181   179   164     731     218   186   191   136  

Capital intensity

 8.5 %   8.3 % 8.7 % 8.4 %   9.2 %   10.1 % 9.0 % 9.8 % 7.7 %

Bell Wireline

 2,391     799   845   747     3,174     845   820   818   691  

Capital intensity

 25.5 %   25.4 % 27.0 % 24.2 %   25.6 %   26.3 % 26.6 % 26.2 % 23.2 %

Bell Media

 82     30   32   20     129     37   34   33   25  

Capital intensity

 3.6 %   4.1 % 4.0 % 2.7 %   4.2 %   4.4 % 4.7 % 4.1 % 3.3 %

Total

 2,997     1,010   1,056   931     4,034     1,100   1,040   1,042   852  

Capital intensity

 17.4 %   17.2 % 18.3 % 16.7 %   17.7 %   18.2 % 18.3 % 18.3 % 16.0 %

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 5

 

 

BCE
Segmented Data - IFRS 15 Adoption Impacts (2)

(In millions of Canadian dollars, except where otherwise indicated) (unaudited)   TOTAL 2017   Q4 17   Q3 17   Q2 17   Q1 17
 

As
previously
reported

IFRS 15
impacts

Upon
adoption of
IFRS 15

  

As
previously
reported

IFRS 15
impacts

Upon
adoption of
IFRS 15

  

As
previously
reported

IFRS 15
impacts

Upon
adoption of
IFRS 15

  

As
previously
reported

IFRS 15
impacts

Upon
adoption of
IFRS 15

  

As
previously
reported

IFRS 15
impacts

Upon
 adoption of
IFRS 15
                                         

Operating revenues

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bell Wireless

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

  

7,350

(1,260)

6,090

  

1,894

(338)

1,556

  

1,913

(323)

1,590

  

1,828

(309)

1,519

  

1,715

(290)

1,425

Product

  

533

1,303

1,836

  

176

417

593

  

127

344

471

  

131

299

430

  

99

243

342

Total Bell Wireless

  

7,883

43

7,926

  

2,070

79

2,149

  

2,040

21

2,061

  

1,959

(10)

1,949

  

1,814

(47)

1,767

Bell Wireline

  

12,415

(15)

12,400

  

3,222

(4)

3,218

  

3,092

(4)

3,088

  

3,121

(4)

3,117

  

2,980

(3)

2,977

Bell Media

  

3,104

-

3,104

  

834

-

834

  

723

-

723

  

796

-

796

  

751

-

751

Inter-segment eliminations

  

(683)

10

(673)

  

(168)

3

(165)

  

(177)

2

(175)

  

(177)

3

(174)

  

(161)

2

(159)

Total

  

22,719

38

22,757

  

5,958

78

6,036

  

5,678

19

5,697

  

5,699

(11)

5,688

  

5,384

(48)

5,336
                                         

Operating costs

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bell Wireless

  

(4,607)

57

(4,550)

  

(1,334)

31

(1,303)

  

(1,169)

18

(1,151)

  

(1,108)

10

(1,098)

  

(996)

(2)

(998)

Bell Wireline

  

(7,229)

19

(7,210)

  

(1,912)

6

(1,906)

  

(1,784)

4

(1,780)

  

(1,815)

5

(1,810)

  

(1,718)

4

(1,714)

Bell Media

  

(2,388)

-

(2,388)

  

(663)

-

(663)

  

(536)

-

(536)

  

(572)

-

(572)

  

(617)

-

(617)

Inter-segment eliminations

  

683

(10)

673

  

168

(3)

165

  

177

(2)

175

  

177

(3)

174

  

161

(2)

159

Total

  

(13,541)

66

(13,475)

  

(3,741)

34

(3,707)

  

(3,312)

20

(3,292)

  

(3,318)

12

(3,306)

  

(3,170)

-

(3,170)
                                         

Adjusted EBITDA

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bell Wireless

  

3,276

100

3,376

  

736

110

846

  

871

39

910

  

851

-

851

  

818

(49)

769

Margin

  

41.6%

1.0 pts

42.6%

  

35.6%

3.8 pts

39.4%

  

42.7%

1.5 pts

44.2%

  

43.4%

0.3 pts

43.7%

  

45.1%

(1.6) pts

43.5%

Bell Wireline

  

5,186

4

5,190

  

1,310

2

1,312

  

1,308

-

1,308

  

1,306

1

1,307

  

1,262

1

1,263

Margin

  

41.8%

0.1 pts

41.9%

  

40.7%

0.1 pts

40.8%

  

42.3%

0.1 pts

42.4%

  

41.8%

0.1 pts

41.9%

  

42.3%

0.1 pts

42.4%

Bell Media

  

716

-

716

  

171

-

171

  

187

-

187

  

224

-

224

  

134

-

134

Margin

  

23.1%

-

23.1%

  

20.5%

-

20.5%

  

25.9%

-

25.9%

  

28.1%

-

28.1%

  

17.8%

-

17.8%

Total

  

9,178

104

9,282

  

2,217

112

2,329

  

2,366

39

2,405

  

2,381

1

2,382

  

2,214

(48)

2,166

Margin

  

40.4%

0.4 pts

40.8%

  

37.2%

1.4 pts

38.6%

  

41.7%

0.5 pts

42.2%

  

41.8%

0.1 pts

41.9%

  

41.1%

(0.5) pts

40.6%

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 6

 

 

Bell Wireless (1) (2) (3)

(In millions of Canadian dollars, except where otherwise indicated) (unaudited) Q3
2018		   Q3
2017		    

% change

     YTD
2018		   YTD
2017		    

% change

  

Bell Wireless

                              

Operating revenues

                              

External service revenues

 1,618   1,580     2.4 %   4,680   4,503     3.9 %

Inter-segment service revenues

 12   10     20.0 %   36   31     16.1 %

Total operating service revenues

 1,630   1,590     2.5 %   4,716   4,534     4.0 %

External product revenues

 552   469     17.7 %   1,456   1,240     17.4 %

Inter-segment product revenues

 -   2     (100.0 %)   2   3     (33.3 %)

Total operating product revenues

 552   471     17.2 %   1,458   1,243     17.3 %

Total external revenues

 2,170   2,049     5.9 %   6,136   5,743     6.8 %

Total operating revenues

 2,182   2,061     5.9 %   6,174   5,777     6.9 %

Operating costs

 (1,231 ) (1,151 )   (7.0 %)   (3,497 ) (3,247 )   (7.7 %)

Adjusted EBITDA

 951   910     4.5 %   2,677   2,530     5.8 %

Adjusted EBITDA margin (Total operating revenues)

 43.6 % 44.2 %   (0.6 ) pts   43.4 % 43.8 %   (0.4 ) pts

Capital expenditures

 181   186     2.7 %   524   513     (2.1 %)

Capital intensity

 8.3 % 9.0 %   0.7  pts   8.5 % 8.9 %   0.4  pts

Wireless gross activations

 535,647   460,053     16.4 %   1,408,589   1,211,923     16.2 %

Postpaid

 426,719   390,985     9.1 %   1,168,174   1,026,993     13.7 %

Prepaid

 108,928   69,068     57.7 %   240,415   184,930     30.0 %

Wireless net activations (losses)

 177,834   106,982     66.2 %   336,697   174,570     92.9 %

Postpaid

 135,323   117,182     15.5 %   325,902   241,575     34.9 %

Prepaid

 42,511   (10,200 )   516.8 %   10,795   (67,005 )   116.1 %

Wireless subscribers end of period (EOP)(A)

 9,487,368   9,008,273     5.3 %   9,487,368   9,008,273     5.3 %

Postpaid(A)

 8,728,436   8,243,446     5.9 %   8,728,436   8,243,446     5.9 %

Prepaid

 758,932   764,827     (0.8 %)   758,932   764,827     (0.8 %)

Blended average revenue per user(5) (ARPU)($/month)

 56.67   57.77     (1.9 %)   55.50   55.92     (0.8 %)

Blended average billing per user(5) (ABPU)($/month)

 69.28   69.78     (0.7 %)   67.86   67.60     0.4 %

Churn (%) (5) (average per month)

 1.27 % 1.32 %   0.05  pts   1.29 % 1.31 %   0.02  pts

Postpaid

 1.14 % 1.16 %   0.02  pts   1.13 % 1.14 %   0.01  pts

Prepaid

 2.76 % 2.95 %   0.19  pts   3.17 % 3.15 %   (0.02 ) pts

 

(A) At the beginning of Q1 2018, we adjusted our postpaid wireless subscriber base to remove 16,116 subscribers with a corresponding increase to our high-speed Internet subscribers to reflect the transfer of fixed wireless Internet subscribers.

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 7

 

Bell Wireless - Historical Trend

(In millions of Canadian dollars, except where otherwise indicated) (unaudited) YTD
2018		     Q3 18   Q2 18   Q1 18     TOTAL
2017		     Q4 17   Q3 17   Q2 17   Q1 17  

Bell Wireless

                                          

Operating revenues

                                          

External service revenues

 4,680     1,618   1,562   1,500     6,048     1,545   1,580   1,508   1,415  

Inter-segment service revenues

 36     12   12   12     42     11   10   11   10  

Total operating service revenues

 4,716     1,630   1,574   1,512     6,090     1,556   1,590   1,519   1,425  

External product revenues

 1,456     552   470   434     1,833     593   469   430   341  

Inter-segment product revenues

 2     -   2   -     3     -   2   -   1  

Total operating product revenues

 1,458     552   472   434     1,836     593   471   430   342  

Total external revenues

 6,136     2,170   2,032   1,934     7,881     2,138   2,049   1,938   1,756  

Total operating revenues

 6,174     2,182   2,046   1,946     7,926     2,149   2,061   1,949   1,767  

Operating costs

 (3,497 )   (1,231 ) (1,142 ) (1,124 )   (4,550 )   (1,303 ) (1,151 ) (1,098 ) (998 )

Adjusted EBITDA

 2,677     951   904   822     3,376     846   910   851   769  

Adjusted EBITDA margin (Total operating revenues)

 43.4 %   43.6 % 44.2 % 42.2 %   42.6 %   39.4 % 44.2 % 43.7 % 43.5 %

Capital expenditures

 524     181   179   164     731     218   186   191   136  

Capital intensity

 8.5 %   8.3 % 8.7 % 8.4 %   9.2 %   10.1 % 9.0 % 9.8 % 7.7 %

Wireless gross activations

 1,408,589     535,647   468,152   404,790     1,780,478     568,555   460,053   403,418   348,452  

Postpaid

 1,168,174     426,719   394,136   347,319     1,532,425     505,432   390,985   339,392   296,616  

Prepaid

 240,415     108,928   74,016   57,471     248,053     63,123   69,068   64,026   51,836  

Wireless net activations (losses)

 336,697     177,834   114,486   44,377     333,084     158,514   106,982   66,916   672  

Postpaid

 325,902     135,323   122,092   68,487     416,779     175,204   117,182   88,611   35,782  

Prepaid

 10,795     42,511   (7,606 ) (24,110 )   (83,695 )   (16,690 ) (10,200 ) (21,695 ) (35,110 )

Wireless subscribers EOP(A)(B)

 9,487,368     9,487,368   9,309,534   9,195,048     9,166,787     9,166,787   9,008,273   8,901,291   8,946,476  

Postpaid(A)(B)

 8,728,436     8,728,436   8,593,113   8,471,021     8,418,650     8,418,650   8,243,446   8,126,264   8,144,936  

Prepaid(B)

 758,932     758,932   716,421   724,027     748,137     748,137   764,827   775,027   801,540  

Blended ARPU(C) ($/month)

 55.50     56.67   55.53   54.28     55.88     55.77   57.77   55.61   54.31  

Blended ABPU(C) ($/month)

 67.86     69.28   67.71   66.56     67.77     68.27   69.78   67.28   65.66  

Churn (%)(average per month)

 1.29 %   1.27 % 1.28 % 1.31 %   1.36 %   1.51 % 1.32 % 1.27 % 1.36 %

Postpaid

 1.13 %   1.14 % 1.10 % 1.13 %   1.19 %   1.35 % 1.16 % 1.08 % 1.17 %

Prepaid

 3.17 %   2.76 % 3.34 % 3.40 %   3.17 %   3.25 % 2.95 % 3.19 % 3.29 %

 

(A) At the beginning of Q1 2018, we adjusted our postpaid wireless subscriber base to remove 16,116 subscribers with a corresponding increase to our high-speed Internet subscribers to reflect the transfer of fixed wireless Internet subscribers.
(B) In Q2 2017, Bell’s wireless subscriber base reflected the divestiture of 104,833 postpaid subscribers to TELUS Communications Inc. related to BCE’s acquisition of Manitoba Telecom Services Inc. Bell’s wireless subscriber base in Q2 2017 also reflected the removal of 7,268 subscribers (2,450 postpaid and 4,818 prepaid), due to the decommissioning of the code division multiple access (CDMA) network in western Canada.
(C) Our Q1 2018 blended ARPU and blended ABPU were adjusted to exclude the unfavourable retroactive impact of the recent CRTC decision on wholesale wireless domestic roaming rates of $14 million.

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 8

 

Bell Wireline (1) (2) (3)

(In millions of Canadian dollars, except where otherwise indicated) (unaudited) Q3
2018		   Q3
2017		    

% change

     YTD
2018		   YTD
2017		    

% change

  

Bell Wireline

                              

Operating revenues

                              

Data

 1,867   1,817     2.8 %   5,556   5,348     3.9 %

Voice

 950   994     (4.4 %)   2,857   2,995     (4.6 %)

Other services

 60   52     15.4 %   187   151     23.8 %

Total external service revenues

 2,877   2,863     0.5 %   8,600   8,494     1.2 %

Inter-segment service revenues

 61   51     19.6 %   177   149     18.8 %

Total operating service revenues

 2,938   2,914     0.8 %   8,777   8,643     1.6 %

Data

 111   79     40.5 %   313   273     14.7 %

Equipment and other

 97   95     2.1 %   274   265     3.4 %

Total external product revenues

 208   174     19.5 %   587   538     9.1 %

Inter-segment product revenues

 1   -     n.m.     2   1     100.0 %

Total operating product revenues

 209   174     20.1 %   589   539     9.3 %

Total external revenues

 3,085   3,037     1.6 %   9,187   9,032     1.7 %

Total operating revenues

 3,147   3,088     1.9 %   9,366   9,182     2.0 %

Operating costs

 (1,823 ) (1,780 )   (2.4 %)   (5,419 ) (5,304 )   (2.2 %)

Adjusted EBITDA

 1,324   1,308     1.2 %   3,947   3,878     1.8 %

Adjusted EBITDA margin

 42.1 % 42.4 %   (0.3 ) pts   42.1 % 42.2 %   (0.1 ) pts

Capital expenditures

799

 

820

 

 

2.6

%

 

2,391

 

2,329

 

 

(2.7

%)

Capital intensity

 25.4 % 26.6 %   1.2  pts   25.5 % 25.4 %   (0.1 ) pts

High-speed Internet

                              

High-speed Internet net activations

 47,749   44,424     7.5 %   78,212   60,820     28.6 %

High-speed Internet subscribers EOP(A)(B)

 3,904,304   3,763,101     3.8 %   3,904,304   3,763,101     3.8 %

TV

                              

Net subscriber activations (losses)

 8,601   1,738     394.9 %   (3,071 ) (27,262 )   88.7 %

Internet protocol television (IPTV)

 40,091   36,399     10.1 %   74,317   75,228     (1.2 %)

Total subscribers EOP(B)

 2,843,828   2,825,754     0.6 %   2,843,828   2,825,754     0.6 %

IPTV(B)

 1,639,233   1,517,833     8.0 %   1,639,233   1,517,833     8.0 %

Network access services (NAS)

                              

Residential NAS(B)

 3,051,630   3,275,589     (6.8 %)   3,051,630   3,275,589     (6.8 %)

Residential NAS net losses

 (74,921 ) (57,387 )   (30.6 %)   (203,119 ) (197,813 )   (2.7 %)

 

n.m. : not meaningful
(A) At the beginning of Q1 2018, we adjusted our high-speed Internet subscriber base to add 16,116 subscribers with a corresponding decrease to our postpaid wireless subscribers to reflect the transfer of fixed wireless Internet subscribers.
(B) At the beginning of Q1 2018, our high-speed Internet subscriber base was increased by 19,835, our IPTV by 14,599 and our residential NAS by 23,441, mainly as a result of a small acquisition made in Q1 2018.

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 9

 

Bell Wireline - Historical Trend

(In millions of Canadian dollars, except where otherwise indicated) (unaudited) YTD
2018		     Q3 18   Q2 18   Q1 18     TOTAL
2017		     Q4 17   Q3 17   Q2 17   Q1 17  

Bell Wireline

                                          

Operating revenues

                                          

Data

 5,556     1,867   1,869   1,820     7,192     1,844   1,817   1,812   1,719  

Voice

 2,857     950   957   950     3,968     973   994   1,020   981  

Other services

 187     60   64   63     211     60   52   55   44  

Total external service revenues

 8,600     2,877   2,890   2,833     11,371     2,877   2,863   2,887   2,744  

Inter-segment service revenues

 177     61   57   59     199     50   51   49   49  

Total operating service revenues

 8,777     2,938   2,947   2,892     11,570     2,927   2,914   2,936   2,793  

Data

 313     111   98   104     410     137   79   95   99  

Equipment and other

 274     97   89   88     419     154   95   85   85  

Total external product revenues

 587     208   187   192     829     291   174   180   184  

Inter-segment product revenues

 2     1   1   -     1     -   -   1   -  

Total operating product revenues

 589     209   188   192     830     291   174   181   184  

Total external revenues

 9,187     3,085   3,077   3,025     12,200     3,168   3,037   3,067   2,928  

Total operating revenues

 9,366     3,147   3,135   3,084     12,400     3,218   3,088   3,117   2,977  

Operating costs

 (5,419 )   (1,823 ) (1,814 ) (1,782 )   (7,210 )   (1,906 ) (1,780 ) (1,810 ) (1,714 )

Adjusted EBITDA

 3,947     1,324   1,321   1,302     5,190     1,312   1,308   1,307   1,263  

Adjusted EBITDA margin

 42.1 %   42.1 % 42.1 % 42.2 %   41.9 %   40.8 % 42.4 % 41.9 % 42.4 %

Capital expenditures

 2,391     799   845   747     3,174     845   820   818   691  

Capital intensity

 25.5 %   25.4 % 27.0 % 24.2 %   25.6 %   26.3 % 26.6 % 26.2 % 23.2 %

High-speed Internet

                                          

High-speed Internet net activations

 78,212     47,749   10,816   19,647     87,860     27,040   44,424   1,407   14,989  

High-speed Internet subscribers EOP(A)(B)

 3,904,304     3,904,304   3,856,555   3,845,739     3,790,141     3,790,141   3,763,101   3,718,677   3,717,270  

TV

                                          

Net subscriber (losses) activations

 (3,071 )   8,601   809   (12,481 )   (20,716 )   6,546   1,738   (13,337 ) (15,663 )

IPTV

 74,317     40,091   20,653   13,573     107,712     32,484   36,399   16,427   22,402  

Total subscribers EOP(B)

 2,843,828     2,843,828   2,835,227   2,834,418     2,832,300     2,832,300   2,825,754   2,824,016   2,837,353  

IPTV(B)

 1,639,233     1,639,233   1,599,142   1,578,489     1,550,317     1,550,317   1,517,833   1,481,434   1,465,007  

Network access services (NAS)

                                          

Residential NAS(B)

 3,051,630     3,051,630   3,126,551   3,197,216     3,231,308     3,231,308   3,275,589   3,332,976   3,399,981  

Residential NAS net losses

 (203,119 )   (74,921 ) (70,665 ) (57,533 )   (242,094 )   (44,281 ) (57,387 ) (67,005 ) (73,421 )

 

(A) At the beginning of Q1 2018, we adjusted our high-speed Internet subscriber base to add 16,116 subscribers with a corresponding decrease to our postpaid wireless subscribers to reflect the transfer of fixed wireless Internet subscribers.
(B) At the beginning of Q1 2018, our high-speed Internet subscriber base was increased by 19,835, our IPTV by 14,599 and our residential NAS by 23,441, mainly as a result of a small acquisition made in Q1 2018.

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 10

 

BCE (2) (3)
Net debt and other information

BCE - Net debt and preferred shares                                        
(In millions of Canadian dollars, except where otherwise indicated) (unaudited)                                        

 

                        September 30   June 30   March 31   December 31  

 

                        2018   2018   2018   2017  

Debt due within one year

                         4,877   5,732   5,520   5,178  

Long-term debt

                         19,584   18,367   19,347   18,215  

Preferred shares - BCE (A)

                         2,002   2,002   2,002   2,002  

Cash and cash equivalents

                         (826 ) (390 ) (1,199 ) (625 )

Net debt (4)

                         25,637   25,711   25,670   24,770  

Net debt leverage ratio (4)

                         2.71   2.73   2.74   2.67  

Adjusted EBITDA /net interest expense ratio (4)

                         9.11   9.18   9.22   9.23  

 

                                        
Cash flow information                                        
(In millions of Canadian dollars, except where otherwise indicated) (unaudited)     Q3
2018		   Q3
2017		   $ change    

% change 

    YTD
2018		   YTD
2017		   $ change   % change  

Free cash flow (FCF) (4)

                                        

Cash flows from operating activities

     2,043   2,233   (190 )   (8.5 %)   5,596   5,700   (104 ) (1.8 %)

Capital expenditures

     (1,010 ) (1,040 ) 30     2.9 %   (2,997 ) (2,934 ) (63 ) (2.1 %)

Dividends paid on preferred shares

     (35 ) (21 ) (14 )   (66.7 %)   (103 ) (94 ) (9 ) (9.6 %)

Dividends paid by subsidiaries to non-controlling interest

     (3 ) (13 ) 10     76.9 %   (16 ) (34 ) 18   52.9 %

Acquisition and other costs paid

     19   24   (5 )   (20.8 %)   65   128   (63 ) (49.2 %)

FCF

     1,014   1,183   (169 )   (14.3 %)   2,545   2,766   (221 ) (8.0 %)

 

                                        
Cash flow information - Historical trend                                        
(In millions of Canadian dollars, except where otherwise indicated) (unaudited)

YTD
2018

   Q3
2018		   Q2
2018		   Q1
2018		    

TOTAL
2017

     Q4
2017		   Q3
2017		   Q2
2017		   Q1
2017		  

FCF

                                        

Cash flows from operating activities

 5,596   2,043   2,057   1,496     7,358     1,658   2,233   2,154   1,313  

Capital expenditures

 (2,997 ) (1,010 ) (1,056 ) (931 )   (4,034 )   (1,100 ) (1,040 ) (1,042 ) (852 )

Dividends paid on preferred shares

 (103 ) (35 ) (35 ) (33 )   (127 )   (33 ) (21 ) (30 ) (43 )

Dividends paid by subsidiaries to non-controlling interest

 (16 ) (3 ) -   (13 )   (34 )   -   (13 ) (9 ) (12 )

Acquisition and other costs paid

 65   19   28   18     155     27   24   21   83  

Voluntary defined benefit pension plan contribution

 -   -   -   -     100     100   -   -   -  

FCF

 2,545   1,014   994   537     3,418     652   1,183   1,094   489  

 

(A) Net debt includes 50% of preferred shares

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 11

 

BCE (2) (3)
Consolidated Statements of Financial Position

 

  September 30    

June 30

     March 31     December 31  

(In millions of Canadian dollars, except where otherwise indicated) (unaudited)

   2018     2018     2018     2017  

ASSETS

                        

Current assets

                        

Cash

   496     254     675     442  

Cash equivalents

   330     136     524     183  

Trade and other receivables

   2,948     2,932     2,938     3,129  

Inventory

   491     436     443     380  

Contract assets

   906     856     836     832  

Contract costs

   355     345     337     350  

Prepaid expenses

   312     376     344     217  

Other current assets

   164     222     169     122  

Total current assets

   6,002     5,557     6,266     5,655  

Non-current assets

                        

Contract assets

   440     414     414     431  

Contract costs

   318     287     280     286  

Property, plant and equipment

   24,726     24,392     24,169     24,029  

Intangible assets

   13,357     13,407     13,410     13,258  

Deferred tax assets

   122     156     153     144  

Investments in associates and joint ventures

   770     803     829     814  

Other non-current assets

   1,262     975     584     757  

Goodwill

   10,657     10,568     10,543     10,428  

Total non-current assets

   51,652     51,002     50,382     50,147  

Total assets

   57,654     56,559     56,648     55,802  

LIABILITIES

                        

Current liabilities

                        

Trade payables and other liabilities

   3,778     3,603     3,534     3,875  

Contract liabilities

   701     687     706     693  

Interest payable

   230     177     176     168  

Dividends payable

   701     701     701     678  

Current tax liabilities

   159     148     49     140  

Debt due within one year

   4,877     5,732     5,520     5,178  

Total current liabilities

   10,446     11,048     10,686     10,732  

Non-current liabilities

                        

Contract liabilities

   201     196     196     201  

Long-term debt

   19,584     18,367     19,347     18,215  

Deferred tax liabilities

   3,230     3,139     2,916     2,870  

Post-employment benefit obligations

   1,890     1,987     2,124     2,108  

Other non-current liabilities

   1,160     1,098     1,083     1,051  

Total non-current liabilities

   26,065     24,787     25,666     24,445  

Total liabilities

   36,511     35,835     36,352     35,177  
                         

EQUITY

                        

Equity attributable to BCE shareholders

                        

Preferred shares

   4,004     4,004     4,004     4,004  

Common shares

   20,028     20,027     20,026     20,091  

Contributed surplus

   1,161     1,151     1,141     1,162  

Accumulated other comprehensive income (loss)

   4     34     9     (17 )

Deficit

   (4,378 )   (4,811 )   (5,192 )   (4,938 )

Total equity attributable to BCE shareholders

   20,819     20,405     19,988     20,302  

Non-controlling interest

   324     319     308     323  

Total equity

   21,143     20,724     20,296     20,625  

Total liabilities and equity

   57,654     56,559     56,648     55,802  

Number of common shares outstanding (millions)

   898.0     898.0     898.0     901.0  

 

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 12

 

 

BCE (2) (3)
Consolidated Cash Flow Data

(In millions of Canadian dollars, except where otherwise indicated) (unaudited) Q3
2018		   Q3
2017		     $ change     YTD
2018		   YTD
2017		     $ change  

Net earnings

 867   850     17     2,331   2,352     (21 )

Adjustments to reconcile net earnings to cash flows from operating activities

                              

Severance, acquisition and other costs

 54   23     31     78   143     (65 )

Depreciation and amortization

 999   967     32     2,999   2,853     146  

Post-employment benefit plans cost

 82   82     -     252   232     20  

Net interest expense

 251   239     12     732   704     28  

Losses on investments

 -   -     -     -   12     (12 )

Income taxes

 224   249     (25 )   751   797     (46 )

Contributions to post-employment benefit plans

 (69 ) (64 )   (5 )   (230 ) (238 )   8  

Payments under other post-employment benefit plans

 (20 ) (20 )   -     (58 ) (58 )   -  

Severance and other costs paid

 (27 ) (30 )   3     (95 ) (111 )   16  

Interest paid

 (207 ) (242 )   35     (695 ) (714 )   19  

Income taxes paid (net of refunds)

 (161 ) (66 )   (95 )   (558 ) (468 )   (90 )

Acquisition and other costs paid

 (19 ) (24 )   5     (65 ) (128 )   63  

Net change in operating assets and liabilities

 69   269     (200 )   154   324     (170 )

Cash flows from operating activities

 2,043   2,233     (190 )   5,596   5,700     (104 )

Capital expenditures

 (1,010 ) (1,040 )   30     (2,997 ) (2,934 )   (63 )

Cash dividends paid on preferred shares

 (35 ) (21 )   (14 )   (103 ) (94 )   (9 )

Cash dividends paid by subsidiaries to non-controlling interest

 (3 ) (13 )   10     (16 ) (34 )   18  

Acquisition and other costs paid

 19   24     (5 )   65   128     (63 )

Free cash flow

 1,014   1,183     (169 )   2,545   2,766     (221 )

Business acquisitions

 (151 ) -     (151 )   (395 ) (1,635 )   1,240  

Acquisition and other costs paid

 (19 ) (24 )   5     (65 ) (128 )   63  

Acquisition of spectrum licences

 (19 ) -     (19 )   (55 ) -     (55 )

Disposition of intangibles and other assets

 -   -     -     68   323     (255 )

Other investing activities

 (9 ) (37 )   28     (64 ) (51 )   (13 )

(Decrease) increase in notes payable

 (30 ) (379 )   349     10   56     (46 )

Decrease in securitized trade receivables

 -   -     -     (2 ) (10 )   8  

Issue of long-term debt

 1,530   1,515     15     2,996   3,011     (15 )

Repayment of long-term debt

 (1,134 ) (142 )   (992 )   (2,375 ) (1,218 )   (1,157 )

Issue of common shares

 1   4     (3 )   3   93     (90 )

Repurchase of common shares

 -   -     -     (175 ) -     (175 )

Repurchase of shares for settlement of share-based payments

 (39 ) (38 )   (1 )   (176 ) (179 )   3  

Cash dividends paid on common shares

 (678 ) (646 )   (32 )   (2,002 ) (1,866 )   (136 )

Return of capital to non-controlling interest

 (10 ) -     (10 )   (51 ) -     (51 )

Other financing activities

 (20 ) (14 )   (6 )   (61 ) (36 )   (25 )

 

(578 ) 239     (817 )   (2,344 ) (1,640 )   (704 )

Net increase in cash and cash equivalents

 436   1,422     (986 )   201   1,126     (925 )

Cash and cash equivalents at beginning of period

 390   557     (167 )   625   853     (228 )

Cash and cash equivalents at end of period

 826   1,979     (1,153 )   826   1,979     (1,153 )

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 13

 

 

BCE
Consolidated Cash Flow Data - Historical Trend

(In millions of Canadian dollars, except where otherwise indicated)
(unaudited)		 YTD
2018		     Q3 18   Q2 18   Q1 18     TOTAL
2017		     Q4 17   Q3 17   Q2 17   Q1 17  

Net earnings

 2,331     867   755   709     3,050     698   850   814   688  

Adjustments to reconcile net earnings to cash flows from operating activities

                                          

Severance, acquisition and other costs

 78     54   24   -     190     47   23   36   84  

Depreciation and amortization

 2,999     999   1,008   992     3,844     991   967   977   909  

Post-employment benefit plans cost

 252     82   80   90     314     82   82   82   68  

Net interest expense

 732     251   243   238     942     238   239   235   230  

Losses (gains) on investments

 -     -   -   -     5     (7 ) -   -   12  

Income taxes

 751     224   292   235     1,069     272   249   298   250  

Contributions to post-employment benefit plans

 (230 )   (69 ) (74 ) (87 )   (413 )   (175 ) (64 ) (86 ) (88 )

Payments under other post-employment benefit plans

 (58 )   (20 ) (19 ) (19 )   (77 )   (19 ) (20 ) (19 ) (19 )

Severance and other costs paid

 (95 )   (27 ) (33 ) (35 )   (147 )   (36 ) (30 ) (40 ) (41 )

Interest paid

 (695 )   (207 ) (252 ) (236 )   (965 )   (251 ) (242 ) (249 ) (223 )

Income taxes paid (net of refunds)

 (558 )   (161 ) (113 ) (284 )   (675 )   (207 ) (66 ) (114 ) (288 )

Acquisition and other costs paid

 (65 )   (19 ) (28 ) (18 )   (155 )   (27 ) (24 ) (21 ) (83 )

Net change in operating assets and liabilities

 154     69   174   (89 )   376     52   269   241   (186 )

Cash flows from operating activities

 5,596     2,043   2,057   1,496     7,358     1,658   2,233   2,154   1,313  

Capital expenditures

 (2,997 )   (1,010 ) (1,056 ) (931 )   (4,034 )   (1,100 ) (1,040 ) (1,042 ) (852 )

Cash dividends paid on preferred shares

 (103 )   (35 ) (35 ) (33 )   (127 )   (33 ) (21 ) (30 ) (43 )

Cash dividends paid by subsidiaries to non-controlling interest

 (16 )   (3 ) -   (13 )   (34 )   -   (13 ) (9 ) (12 )

Acquisition and other costs paid

 65     19   28   18     155     27   24   21   83  

Voluntary defined benefit pension plan contribution

 -     -   -   -     100     100   -   -   -  

Free cash flow

 2,545     1,014   994   537     3,418     652   1,183   1,094   489  

Business acquisitions

 (395 )   (151 ) (21 ) (223 )   (1,649 )   (14 ) -   -   (1,635 )

Acquisition and other costs paid

 (65 )   (19 ) (28 ) (18 )   (155 )   (27 ) (24 ) (21 ) (83 )

Voluntary defined benefit pension plan contribution

 -     -   -   -     (100 )   (100 ) -   -   -  

Acquisition of spectrum licences

 (55 )   (19 ) -   (36 )   -     -   -   -   -  

Disposition of intangibles and other assets

 68     -   -   68     323     -   -   323   -  

Other investing activities

 (64 )   (9 ) (20 ) (35 )   (77 )   (26 ) (37 ) (5 ) (9 )

Increase (decrease) in notes payable

 10     (30 ) 97   (57 )   333     277   (379 ) 127   308  

(Decrease) increase in securitized trade receivables

 (2 )   -   (2 ) -     (10 )   -   -   (360 ) 350  

Issue of long-term debt

 2,996     1,530   -   1,466     3,011     -   1,515   -   1,496  

Repayment of long-term debt

 (2,375 )   (1,134 ) (1,068 ) (173 )   (2,653 )   (1,435 ) (142 ) (472 ) (604 )

Issue of common shares

 3     1   1   1     117     24   4   41   48  

Repurchase of common shares

 (175 )   -   -   (175 )   -     -   -   -   -  

Repurchase of shares for settlement of share-based payments

 (176 )   (39 ) (49 ) (88 )   (224 )   (45 ) (38 ) (45 ) (96 )

Cash dividends paid on common shares

 (2,002 )   (678 ) (678 ) (646 )   (2,512 )   (646 ) (646 ) (626 ) (594 )

Return of capital to non-controlling interest

 (51 )   (10 ) (12 ) (29 )   -     -   -   -   -  

Other financing activities

 (61 )   (20 ) (23 ) (18 )   (50 )   (14 ) (14 ) (9 ) (13 )

 

(2,344 )   (578 ) (1,803 ) 37     (3,646 )   (2,006 ) 239   (1,047 ) (832 )

Net increase (decrease) in cash and cash equivalents

 201     436   (809 ) 574     (228 )   (1,354 ) 1,422   47   (343 )

Cash and cash equivalents at beginning of period

 625     390   1,199   625     853     1,979   557   510   853  

Cash and cash equivalents at end of period

 826     826   390   1,199     625     625   1,979   557   510  

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 14

 

 

(1) We report our results in three segments: Bell Wireless, Bell Wireline and Bell Media. Our reporting structure reflects how we manage our business and how we classify our results for planning and measuring performance.

Throughout this report, we, us, our, the company and BCE mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates. Bell means, as the context may require, either Bell Canada or, collectively, Bell Canada, its subsidiaries, joint arrangements and associates. MTS means, as the context may require, until March 17, 2017, either Manitoba Telecom Services Inc. or, collectively, Manitoba Telecom Services Inc. and its subsidiaries and Bell MTS means, from March 17, 2017, the combined operations of MTS and Bell Canada in Manitoba.
(2) As required by International Financial Reporting Standards (IFRS), effective January 1, 2018, we have adopted IFRS 15, Revenue from Contracts with Customers, retrospectively to each period in 2017 previously reported. For further details, see note 3, note 14 and note 15, Adoption of IFRS 15, respectively, of the Q1 2018, Q2 2018 and Q3 2018 consolidated interim financial statements.
(3) On March 17, 2017, BCE acquired all of the issued and outstanding common shares of MTS. Bell MTS offers wireless, Internet, television (TV), phone services, security systems and information solutions including unified cloud and managed services to residential and business customers in Manitoba. The results from the acquired MTS operations are included in our Bell Wireline and Wireless segments. For further details, see note 3, Business acquisitions and dispositions, of the 2017 annual consolidated financial statements and the Q3 2018 consolidated interim financial statements, respectively.
(4) Non-GAAP Financial Measures

In Q1 2018, we updated our definition of adjusted net earnings and adjusted EPS to exclude net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans as they may affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Adjusted net earnings and adjusted EPS for 2017 have also been updated for comparability purposes.

Adjusted EBITDA and adjusted EBITDA margin

The terms adjusted EBITDA and adjusted EBITDA margin do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define adjusted EBITDA as operating revenues less operating costs (including post-employment benefit plans service cost) as shown in BCE’s consolidated income statements. Adjusted EBITDA for BCE’s segments is the same as segment profit as reported in BCE’s consolidated financial statements. We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues.

We use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses as they reflect their ongoing profitability. We believe that certain investors and analysts use adjusted EBITDA to measure a company’s ability to service debt and to meet other payment obligations or as a common measurement to value companies in the telecommunications industry. We believe that certain investors and analysts also use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses. Adjusted EBITDA also is one component in the determination of short-term incentive compensation for all management employees.

Adjusted EBITDA and adjusted EBITDA margin have no directly comparable IFRS financial measure. Alternatively, adjusted EBITDA may be reconciled to net earnings as shown in this document.

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 15

 

  Adjusted net earnings and adjusted earnings per share (EPS)

The terms adjusted net earnings and adjusted EPS do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define adjusted net earnings as net earnings attributable to common shareholders before severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges. We define adjusted EPS as adjusted net earnings per BCE common share.

We use adjusted net earnings and adjusted EPS, and we believe that certain investors and analysts use these measures, among other ones, to assess the performance of our businesses without the effects of severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges, net of tax and non-controlling interest (NCI). We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.

The most comparable IFRS financial measures are net earnings attributable to common shareholders and EPS, as reconciled in this document.

Free cash flow

The term free cash flow does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers.

We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI. We exclude acquisition and other costs paid and voluntary pension funding because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.

We consider free cash flow to be an important indicator of the financial strength and performance of our businesses because it shows how much cash is available to pay dividends, repay debt and reinvest in our company.

We believe that certain investors and analysts use free cash flow to value a business and its underlying assets and to evaluate the financial strength and performance of our businesses.

The most comparable IFRS financial measure is cash flows from operating activities, as reconciled in this document.

Net debt

The term net debt does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers.

We define net debt as debt due within one year plus long-term debt and 50% of preferred shares, less cash and cash equivalents, as shown in BCE’s consolidated statements of financial position. We include 50% of outstanding preferred shares in our net debt as it is consistent with the treatment by certain credit rating agencies.

We consider net debt to be an important indicator of the company’s financial leverage because it represents the amount of debt that is not covered by available cash and cash equivalents. We believe that certain investors and analysts use net debt to determine a company’s financial leverage.

Net debt has no directly comparable IFRS financial measure, but rather is calculated using several asset and liability categories from the statements of financial position, as shown in this document.

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 16

 

  Net debt leverage ratio

The net debt leverage ratio does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the net debt leverage ratio as a measure of financial leverage.

The net debt leverage ratio represents net debt divided by adjusted EBITDA. For the purposes of calculating our net debt leverage ratio, adjusted EBITDA is twelve-month trailing adjusted EBITDA.

Adjusted EBITDA to net interest expense ratio

The ratio of adjusted EBITDA to net interest expense does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the adjusted EBITDA to net interest expense ratio as a measure of financial health of the company.

The adjusted EBITDA to net interest expense ratio represents adjusted EBITDA divided by net interest expense. For the purposes of calculating our adjusted EBITDA to net interest expense ratio, adjusted EBITDA is twelve-month trailing adjusted EBITDA. Net interest expense is twelve-month trailing net interest expense as shown in our statements of cash flows, plus 50% of declared preferred share dividends as shown in our income statements.
(5) Key performance indicators (KPIs)

In addition to the non-GAAP financial measures described previously, we use a number of KPIs to measure the success of our strategic imperatives. These KPIs are not accounting measures and may not be comparable to similar measures presented by other issuers.

Average revenue per user (ARPU) or subscriber is a measure used to track our recurring revenue streams, which has been updated to reflect the adoption of IFRS 15. Wireless blended ARPU is calculated by dividing certain service revenues by the average subscriber base for the specified period and is expressed as a dollar unit per month.

Average billing per user (ABPU) or subscriber approximates the average amount billed to customers on a monthly basis, which is used to track our recurring billing streams. This measure is the same as blended ARPU prior to the adoption of IFRS 15. Wireless blended ABPU is calculated by dividing certain customer billings by the average subscriber base for the specified period and is expressed as a dollar unit per month.

Capital intensity is capital expenditures divided by operating revenues.

Churn is the rate at which existing subscribers cancel their services. It is a measure of our ability to retain our customers. Wireless churn is calculated by dividing the number of deactivations during a given period by the average number of subscribers in the base for the specified period and is expressed as a percentage per month.

Wireless subscriber unit is comprised of an active revenue-generating unit (e.g. mobile device, tablet or wireless Internet products), with a unique identifier (typically International Mobile Equipment Identity (IMEI) number), that has access to our wireless networks. We report wireless subscriber units in two categories: postpaid and prepaid. Prepaid subscriber units are considered active for a period of 120 days following the expiry of the subscriber’s prepaid balance.

Wireline subscriber unit consists of an active revenue-generating unit with access to our services, including Internet, satellite TV, IPTV, and/or NAS. A subscriber is included in our subscriber base when the service has been installed and is operational at the customer premise and a billing relationship has been established.

  • Internet, IPTV and satellite TV subscribers have access to stand-alone services, and are primarily represented by a dwelling unit
  • NAS subscribers are based on a line count and are represented by a unique telephone number

 

BCE Supplementary Financial Information - Third Quarter 2018 Page 17

 

Exhibit 99.3

Form 52-109F2 – Certification of Interim Filings - Full Certificate

I, George A. Cope, President and Chief Executive Officer of BCE Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BCE Inc. (the “issuer”) for the interim period ended September 30, 2018.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

A.

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

 

 

I.

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

 

 

II.

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

B.

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

 

 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 N/A

5.3 N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2018 and ended on September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 1, 2018

(signed) George A. Cope
George A. Cope
President and Chief Executive Officer

 

 

 

Form 52-109F2 – Certification of Interim Filings - Full Certificate

I, Glen LeBlanc, Executive Vice-President and Chief Financial Officer of BCE Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BCE Inc. (the “issuer”) for the interim period ended September 30, 2018.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

A.

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

 

 

I.

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

 

 

II.

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

B.

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

 

 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 N/A

5.3 N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2018 and ended on September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 1, 2018

(signed) Glen LeBlanc
Glen LeBlanc
Executive Vice-President and Chief Financial Officer

 

Exhibit 99.4

For Immediate Release

This news release contains forward-looking statements. For a description of the related risk factors and assumptions, please see the section entitled “Caution Concerning Forward-Looking Statements” later in this release.

BCE reports third quarter 2018 results

MONTRÉAL, November 1, 2018 – BCE Inc. (TSX, NYSE: BCE) today reported results for the third quarter (Q3) of 2018.

“Powered by Canada’s most advanced fibre and wireless networks, Bell led the industry in Q3 broadband growth as we welcomed 266,000 wireless, Internet and IPTV customers, 41.5% more than in Q3 2017. Bell’s strategy of broadband network investment, ongoing service improvement and efficient operation is delivering leading results in the marketplace, stronger organic financial performance and service innovation across all of our business segments,” said George Cope, President and CEO of BCE and Bell Canada. “Canada’s best national mobile network delivered Bell’s highest number of wireless net additions ever in a third quarter, including accelerating growth in our Lucky Mobile prepaid brand and our highest number of postpaid net additions since 2012. Market-leading wireline broadband growth of 88,000 Internet and IPTV net subscriber additions and a strong performance by Bell Business Markets reflect the unsurpassed speed and quality of our growing high-speed fibre network for both consumers and business customers. And with continued leadership in conventional, pay and specialty TV, including #1 sports channel TSN, Bell Media delivered positive revenue in a traditionally slow quarter while leading the way in content creation and innovation across new media platforms.”

Bell is focused on achieving a clear goal – to be recognized by customers as Canada’s leading communications company – through the execution of 6 Strategic Imperatives: Invest in Broadband Networks & Services, Accelerate Wireless, Leverage Wireline Momentum, Expand Media Leadership, Improve Customer Service, and Achieve a Competitive Cost Structure.

BUSINESS DEVELOPMENTS

Executive leadership appointments

In October, Bell announced the executive appointments of Mirko Bibic as Chief Operating Officer, responsible for leading Bell Mobility, Bell Residential & Small Business and Bell Business Markets, as well as all BCE and Bell legal and regulatory affairs; and of Wade

 

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Oosterman as Vice Chair, a senior advisory and executive oversight role in addition to his leadership of Bell Media as Group President and his role as Bell’s Chief Brand Officer.

Reduction in management positions

BCE completed a net reduction in its management workforce of 4%, or approximately 700 positions, in the past 120 days that is expected to deliver annualized cash savings of approximately $75 million. These changes reflect the further integration of Bell MTS, Bell Aliant and other acquisitions, productivity improvements and cost efficiencies resulting from the expansion of Bell’s all-fibre network footprint and service innovations enabled by new broadband technologies.

Rural and North broadband expansion

Following successful trials in the 3.5 and 28 GHz spectrum bands, Bell’s Wireless to the Home (WTTH) footprint has rolled out to 19 rural locations in Ontario and Québec with plans to deliver fixed wireless broadband Internet to more than 30 communities by the end of year. WTTH complements Bell’s wireline fibre to the premises (FTTP) network that now encompasses 4.4 million homes and business locations in 7 provinces. Bell’s 1.5 Gigabit service, Canada’s fastest, was launched in Ontario this summer and has now rolled out in Québec and Atlantic Canada. Bell company Northwestel launched its new high-speed broadband satellite network serving Nunavut in Iqaluit, the first of 25 communities in the territory that will access the network; Bell Mobility announced it is trialling LTE wireless in Iqaluit and Rankin Inlet with plans to connect 13 more Nunavut communities this year. Bell MTS is extending LTE Advanced (LTE-A) wireless coverage in rural Southeastern Manitoba, increasing access to the latest wireless technology to 90% of Manitobans. Canada’s first combined vehicle and asset tracking solution is now available on Bell’s IoT-dedicated LTE-M network from Canadian innovation partners BeWhere and Trak-iT.

Bell Media’s all-new Crave streaming service

Bell Media today announced the all-new Crave content platform that combines HBO Canada, The Movie Network (TMN) and other premium programming, available now through participating TV providers and as a breakthrough streaming service available to all Canadians with Internet access beginning this Monday November 5. In Q3, Bell Media introduced CraveTV’s first kids programming through a strategic partnership with WOW! Unlimited Media, announced a new long-term programming agreement with VICE Media and made iHeartRadio Canada’s 11,000 podcasts available on Spotify. In October, the new United States-Mexico-Canada Agreement (USMCA) effectively rescinded a 2015 CRTC ban on simultaneous substitution of U.S. signals during Bell Media’s broadcast of the Super Bowl.

Bell Mobility leadership in smartphones, connected cars

Bell’s leading mobile device lineup continued to expand in Q3 with the addition of Apple iPhone Xs, Xs Max, XR and Apple Watch Series 4 (GPS + Cellular) and new Android smartphones from leading manufacturers including the Samsung Galaxy Note 9, Google Pixel 3 and Pixel 3 XL, LG Q Stylo+ and Huawei P20 Pro. Bell Mobility and Ford announced that Bell is the first Canadian wireless service provider enabling built-in Wi-Fi hotspots in Ford and Lincoln vehicles with Bell’s Connected Car – Built In service.

Bell Business Markets network, service innovation

Bell Business Markets (BBM) welcomed the Axia NetMedia team following the August 31 closing of Bell’s acquisition of the Calgary-based operator of Alberta’s provincial SuperNet broadband network. BBM also launched Canada’s first cloud-based Virtual Network Services (VNS) platform, offering enterprise business customers a catalogue of on-demand network

 

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functions that reside securely in Bell’s private cloud, including the country’s first managed SD-WAN (software-defined wide area network) solution powered by Cisco Viptela.

Bell Let’s Talk in the community

Bell Let’s Talk marked Mental Health Week / World Mental Health Day in October by presenting the annual Faces of Mental Illness, a national anti-stigma campaign highlighting Canadians living in recovery from mental illness. Expanded to $2 million annually starting this year, the Bell Let’s Talk Community Fund provides grants to grassroots mental health programs in every region of the country, a total of 120 groups this year starting with donations to community programs in Greater Montréal and the Québec City region, suicide prevention programs at 20 remote First Nations across Ontario, and trauma therapy for recently arrived refugees through YMCA of Greater Saint John.

BCE RESULTS

FINANCIAL HIGHLIGHTS

($ millions except per share amounts) (unaudited)

 Q3 2018 Q3 2017 % change

BCE

      

Operating revenues

 5,877 5,697 3.2%

Net earnings

 867 850 2.0%

Net earnings attributable to common shareholders

 814 803 1.4%

Adjusted net earnings(1)

 861 824 4.5%

Adjusted EBITDA(2)

 2,457 2,405 2.2%

EPS

 0.90 0.90 -

Adjusted EPS(1)

 0.96 0.91 5.5%

Cash flows from operating activities

 2,043 2,233 (8.5%)

Free cash flow(3)

 1,014 1,183 (14.3%)

 

“We performed well across all Bell operating segments in Q3, posting another solid quarter of financial and operating results with record wireless subscriber results, a stronger wireline revenue growth trajectory, improved media top-line performance and cost discipline driving higher adjusted EBITDA in line with guidance for the year,” said Glen LeBlanc, Chief Financial Officer for BCE and Bell. “We remain competitively well positioned as we move forward in Q4, with strong momentum across our wireless and residential wireline operations and market-leading media assets generating strong and reliable cash flow. Growth opportunities ahead from business performance, continued capital and cost efficiency gains, additional MTS-related tax benefits and a stronger pension solvency position provide a solid foundation for continued execution of our dividend growth objective. With no fundamental changes in outlook, I am pleased to reconfirm all our financial guidance targets for 2018.”

BCE operating revenue growth in Q3 accelerated, increasing 3.2% to $5,877 million, driven by a 1.2% increase in service revenue to $5,117 million that reflected year-over-year increases for all Bell operating segments. Product revenue grew 18.2% to $760 million, the result of increased sales of premium smartphones and a greater number of wireless customer transactions, as well as stronger data equipment sales to large business customers.

Net earnings grew 2.0% to $867 million and net earnings attributable to common shareholders increased 1.4% to $814 million. Net earnings per common share was unchanged compared to Q3 2017 at $0.90 per share. Higher net earnings were the result of operating revenue growth

 

3/16

 

driving higher adjusted EBITDA as well as lower income taxes and lower other expense, partly offset by higher severance, acquisition and other costs, increased depreciation and amortization expense and higher finance costs.

Excluding severance, acquisition and other costs, net gains or losses on investments, net mark-to-market changes on derivatives used to economically hedge equity settled share-based compensation plans, early debt redemption costs and impairment charges, adjusted net earnings were up 4.5% to $861 million, driving a 5.5% increase in adjusted EPS to $0.96 per common share.

Adjusted EBITDA was up 2.2% to $2,457 million on increases of 4.5% at Bell Wireless and 1.2% at Bell Wireline. Bell Media adjusted EBITDA decreased 2.7% due to higher programming costs compared to last year, which included broadcast rights for the 2018 FIFA World Cup.

BCE’s consolidated adjusted EBITDA margin(2) decreased to 41.8% from 42.2% in Q3 2017, due to growth in lower-margin wireline and wireless product revenue, higher media content costs, and the margin impact from the decline in wireline voice services.

BCE capital expenditures totalled $1,010 million, compared to $1,040 million in Q3 last year, representing a capital intensity (4) ratio (capital expenditures as a percentage of total revenue) of 17.2%, down from 18.3% last year. Capital investment continued to focus on expanding our fibre to the premises (FTTP) footprint to more homes and businesses; the deployment of wireless small cells to optimize mobile coverage, signal quality and data backhaul; and ongoing investment in Manitoba to improve broadband network coverage, capacity and speeds.

BCE cash flows from operating activities were $2,043 million, down 8.5% from last year, as higher adjusted EBITDA was more than offset by a decrease in cash from working capital and the timing of income taxes paid. Free cash flow generated in the quarter was $1,014 million, 14.3% lower than Q3 last year, reflecting a decrease in cash flows from operating activities excluding acquisition and other costs paid, which was partly offset by lower capital expenditures.

In Q3, BCE added 177,834 net new wireless subscribers (including 135,323 postpaid and 42,511 prepaid); 47,749 net new high-speed Internet customers; 40,091 net new IPTV customers; a decrease of 31,490 net satellite TV customers; and a net loss of 74,921 residential NAS lines.

BCE customer connections across wireless, Internet, TV and residential NAS totalled 19,287,130 at the end of Q3, up 2.2% from last year. The total included 9,487,368 wireless customers, up 5.3% (including 8,728,436 postpaid customers, an increase of 5.9%); 3,904,304 high-speed Internet subscribers, up 3.8%; 2,843,828 TV subscribers, up 0.6% (including 1,639,233 IPTV customers, an increase of 8.0%); and 3,051,630 residential NAS lines, down 6.8%.

BCE OPERATING RESULTS BY SEGMENT

Bell Wireless

Total wireless revenue grew 5.9% to $2,182 million. Service revenue increased 2.5% over Q3 2017 to $1,630 million, due to continued strong growth in subscribers and a higher proportion of postpaid customers choosing plans with larger data allotments. Product revenue was up 17.2% to $552 million on increased sales of higher-value smartphones reflected in higher gross subscriber additions and more customer upgrades compared to last year.

 

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Wireless adjusted EBITDA increased 4.5% to $951 million on the flow-through of high margin service revenue and strong product sales, partly offset by a 7.0% increase in operating costs due to higher handset sales volumes, increased network operating expenses, and higher customer support costs driven by rapid growth in our wireless subscriber base. With a higher proportion of lower-margin product revenue in our wireless revenue mix compared to last year, together with greater device discounting, revenue margin decreased 0.6 percentage points to 43.6%.

Bell Wireline

Wireline operating revenue increased 1.9% on improved year-over-year organic residential, business and wholesale top-line growth, resulting in 0.8% higher service revenue of $2,938 million and a 20.1% increase in product revenue to $209 million. These increases were driven by industry-leading Internet and IPTV net subscriber gains, higher household ARPU(4), and improved Bell Business Markets performance from IP broadband connectivity revenue growth, stronger sales of data product and business service solutions to large enterprise customers, and increased sales of international wholesale long distance minutes.

Wireline adjusted EBITDA increased 1.2% to $1,324 million, reflecting the flow-through of strong revenue growth as operating costs increased 2.4% to $1,823 million due to increased sales of business wireline data products and wholesale international long distance. Wireline adjusted EBITDA margin declined 0.3 percentage points to 42.1% due to increased NAS erosion, growth in lower-margin product revenue, and the impact of residential service bundle discounts to match competitor promotions.

 

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Bell Media

Media operating revenue increased 1.1% in Q3 to $731 million, the result of higher revenues from both advertising and subscriber fees.

Advertising sales increased over Q3 last year due to revenue generated from the 2018 FIFA World Cup, stronger year-over-year specialty entertainment performance and increases at

 

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specialty TV news service CP24. Increased subscriber revenue reflected continued growth in CraveTV and direct-to-consumer sports streaming services TSN Direct and RDS Direct.

Bell Media adjusted EBITDA decreased 2.7% to $182 million, due to higher operating costs that included sports broadcast rights, primarily for the 2018 FIFA World Cup; the ramp-up in HBO and Showtime content for CraveTV; and deal renewals for specialty TV programming.

COMMON SHARE DIVIDEND

BCE’s Board of Directors has declared a quarterly dividend of $0.755 per common share, payable on January 15, 2019 to shareholders of record at the close of business on December 14, 2018.

OUTLOOK FOR 2018

BCE confirmed its financial guidance targets for 2018, which were updated on May 3, 2018 to reflect the adoption of International Financial Reporting Standard 15 (IFRS 15):

 

7/16

 

 

 May 3
Guidance		 November 1
Guidance

Revenue growth

 2% - 4% On track

Adjusted EBITDA growth

 2% - 4% On track

Capital intensity

 approx. 17% On track

Adjusted EPS

 $3.45 - $3.55 On track

Adjusted EPS growth

 1% - 4% On track

Free cash flow growth

 3% - 7% On track

Annualized common dividend per share

 $3.02 $3.02

Dividend payout policy(3)

 65% - 75% of free cash flow On track

 

CALL WITH FINANCIAL ANALYSTS

BCE will hold a conference call for financial analysts to discuss Q3 2018 results on Thursday, November 1 at 8:00 am (Eastern). Media are welcome to participate on a listen-only basis. Please dial toll-free 1-800-377-0758 or 416-340-2216. A replay will be available until midnight December 6, 2018 by dialing 1-800-408-3053 or 905-694-9451 and entering pass code 7771836#.

A live audio webcast of the conference call will be available on BCE’s website at BCE Q3-2018 conference call. The mp3 file will be available for download on this page later in the day.

NOTES

The information contained in this news release is unaudited.

In Q1 2018, we updated our definition of adjusted net earnings and adjusted EPS to exclude net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans as they may affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Adjusted net earnings and adjusted EPS for 2017 have also been updated for comparability purposes.

(1) The terms adjusted net earnings and adjusted EPS do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We define adjusted net earnings as net earnings attributable to common shareholders before severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges. We define adjusted EPS as adjusted net earnings per BCE common share. We use adjusted net earnings and adjusted EPS, and we believe that certain investors and analysts use these measures, among other ones, to assess the performance of our businesses without the effects of severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges, net of tax and non-controlling interest (NCI). We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. The most comparable IFRS financial measures are net earnings attributable

 

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  to common shareholders and EPS. The following table is a reconciliation of net earnings attributable to common shareholders and EPS to adjusted net earnings on a consolidated basis and per BCE common share (adjusted EPS), respectively.

 

($ millions except per share amounts)        

 

Q3 2018 Q3 2017

 

TOTAL PER SHARE TOTAL PER SHARE

Net earnings attributable to common shareholders

 814 0.90 803 0.90

Severance, acquisition and other costs

 39 0.04 17 0.01

Net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans

 5 0.01 (8) (0.01)

Early debt redemption costs

 2 0.01 12 0.01

Impairment charges

 1 - - -

Adjusted net earnings

 861 0.96 824 0.91

 

(2) The terms adjusted EBITDA and adjusted EBITDA margin do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We define adjusted EBITDA as operating revenues less operating costs, as shown in BCE’s consolidated income statements. Adjusted EBITDA for BCE’s segments is the same as segment profit as reported in Note 4, Segmented information, in BCE’s Q3 2018 Financial Statements. We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues. We use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses as they reflect their ongoing profitability. We believe that certain investors and analysts use adjusted EBITDA to measure a company’s ability to service debt and to meet other payment obligations or as a common measurement to value companies in the telecommunications industry. We believe that certain investors and analysts also use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses. Adjusted EBITDA is also one component in the determination of short-term incentive compensation for all management employees.

Adjusted EBITDA and adjusted EBITDA margin have no directly comparable IFRS financial measure. Alternatively, the following table provides a reconciliation of net earnings to adjusted EBITDA.

 

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($ millions)    

 

Q3 2018 Q3 2017

Net earnings

 867 850

Severance, acquisition and other costs

 54 23

Depreciation

 779 760

Amortization

 220 207

Finance costs

    

Interest expense

 255 242

Interest on post-employment benefit obligations

 17 18

Other expense

 41 56

Income taxes

 224 249

Adjusted EBITDA

 2,457 2,405

BCE operating revenues

 5,877 5,697

Adjusted EBITDA margin

 41.8% 42.2%

 

(3) The terms free cash flow and dividend payout ratio do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI. We exclude acquisition and other costs paid and voluntary pension funding because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are nonrecurring. We consider free cash flow to be an important indicator of the financial strength and performance of our businesses because it shows how much cash is available to pay dividends, repay debt and reinvest in our company. We believe that certain investors and analysts use free cash flow to value a business and its underlying assets and to evaluate the financial strength and performance of our businesses. The most comparable IFRS financial measure is cash flows from operating activities. We define dividend payout ratio as dividends paid on common shares divided by free cash flow. We consider dividend payout ratio to be an important indicator of the financial strength and performance of our businesses because it shows the sustainability of the company’s dividend payments. The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.

 

($ millions)    

 

Q3 2018 Q3 2017

Cash flows from operating activities

 2,043 2,233

Capital expenditures

 (1,010) (1,040)

Cash dividends paid on preferred shares

 (35) (21)

Cash dividends paid by subsidiaries to NCI

 (3) (13)

Acquisition and costs paid

 19 24

Free cash flow

 1,014 1,183

 

(4) We use ABPU, ARPU, churn and capital intensity to measure the success of our strategic imperatives. These key performance indicators are not accounting measures and may not be comparable to similar measures presented by other issuers.

 

10/16

 

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements made in this news release are forward-looking statements. These statements include, without limitation, statements relating to our financial guidance (including revenues, adjusted EBITDA, capital intensity, adjusted EPS and free cash flow), BCE’s common share dividend payout policy, our network deployment plans and related capital investments, annualized cash savings expected to result from management workforce reductions, our business outlook, objectives, plans and strategic priorities, and other statements that are not historical facts. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, project, strategy, target and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. All such forward-looking statements are made pursuant to the 'safe harbour' provisions of applicable Canadian securities laws and of the United States Private Securities Litigation Reform Act of 1995.

Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in or implied by such forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. The forward-looking statements contained in this news release describe our expectations as of November 1, 2018 and, accordingly, are subject to change after such date. Except as may be required by applicable securities laws, we do not undertake any obligation to update or revise any forward-looking statements contained in this news release, whether as a result of new information, future events or otherwise. Except as otherwise indicated by BCE, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after November 1, 2018. The financial impact of these transactions and special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business. Forward-looking statements are presented in this news release for the purpose of assisting investors and others in understanding certain key elements of our expected 2018 financial results, as well as our objectives, strategic priorities and business outlook for 2018, and in obtaining a better understanding of our anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

Material Assumptions

A number of economic, market, operational and financial assumptions were made by BCE in preparing its forward-looking statements contained in this news release, including, but not limited to:

Canadian Economic and Market Assumptions

 

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Assumptions Concerning our Bell Wireless Segment

Assumptions Concerning our Bell Wireline Segment

 

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Assumptions Concerning our Bell Media Segment

Financial Assumptions Concerning BCE

The following constitute BCE’s principal financial assumptions for 2018:

The foregoing assumptions, although considered reasonable by BCE on November 1, 2018, may prove to be inaccurate. Accordingly, our actual results could differ materially from our expectations as set forth in this news release.

 

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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 2018 financial guidance, are listed below. The realization of our forward-looking statements, including our ability to meet our 2018 financial guidance, essentially depends on our business performance which, in turn, is subject to many risks. Accordingly, readers are cautioned that any of the following risks could have a material adverse effect on our forward-looking statements. These risks include, but are not limited to:

 

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We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. We encourage investors to also read BCE’s 2017 Annual MD&A dated March 8, 2018 (included in BCE’s 2017 Annual Report) and BCE’s 2018 First, Second and Third Quarter MD&As dated May 2, 2018, August 1, 2018 and October 31, 2018, respectively, for additional information with respect to certain of these and other assumptions and risks, filed by BCE with the Canadian provincial securities regulatory authorities (available at Sedar.com) and with the U.S. Securities and Exchange Commission (available at SEC.gov). These documents are also available at BCE.ca.

About BCE

BCE is Canada’s largest communications company, providing advanced Bell broadband wireless, TV, Internet and business communications services alongside Canada’s premier content creation and media assets from Bell Media. To learn more, please visit Bell.ca or BCE.ca.

 

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The Bell Let’s Talk initiative promotes Canadian mental health with national awareness and anti-stigma campaigns like Bell Let’s Talk Day and significant Bell funding of community care and access, research and workplace leadership initiatives. To learn more, please visit Bell.ca/LetsTalk.

Media inquiries:

Marie-Eve Francoeur
514 391-5263
[email protected]

Investor inquiries:

Thane Fotopoulos
514-870-4619
[email protected]

 

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Exhibit 99.5

NOTICE OF RELIANCE
SECTION 13.4 OF NATIONAL INSTRUMENT 51-102
CONTINUOUS DISCLOSURE OBLIGATIONS

To:

Alberta Securities Commission

British Columbia Securities Commission

Manitoba Securities Commission

Financial and Consumer Services Commission, New Brunswick

Office of the Superintendent of Securities, Newfoundland and Labrador

Nova Scotia Securities Commission

Ontario Securities Commission

Office of the Superintendent of Securities, Prince Edward Island

Autorité des marchés financiers

Financial and Consumer Affairs Authority of Saskatchewan

Toronto Stock Exchange

Notice is hereby given that Bell Canada relies on the continuous disclosure documents filed by BCE Inc. pursuant to the exemption from the requirements of National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”) provided in Section 13.4 of NI 51-102.

The continuous disclosure documents of BCE Inc. can be found for viewing in electronic format at www.sedar.com.

Attached to this notice and forming part thereof is the consolidating summary financial information for BCE Inc. as required by Section 13.4 of NI 51-102.

Dated: November 1, 2018

BELL CANADA

 

By:

 (signed) Thierry Chaumont

Name:

Thierry Chaumont

Title:

 Senior Vice-President and Controller

 

 

 

 

BELL CANADA

UNAUDITED SELECTED SUMMARY FINANCIAL INFORMATION(1)
For the periods ended September 30, 2018 and 2017
(in millions of Canadian dollars)

BCE Inc. fully and unconditionally guarantees the payment obligations of its 100% owned subsidiary Bell Canada under the public debt issued by Bell Canada. Accordingly, the following summary financial information is provided by Bell Canada in compliance with the requirements of section 13.4 of National Instrument 51-102 (Continuous Disclosure Obligations) providing for an exemption for certain credit support issuers. The tables below contain selected summary financial information for (i) BCE Inc. (as credit supporter), (ii) Bell Canada (as credit support issuer) on a consolidated basis, (iii) BCE Inc.’s subsidiaries, other than Bell Canada, on a combined basis, (iv) consolidating adjustments, and (v) BCE Inc. and all of its subsidiaries on a consolidated basis, in each case for the periods indicated. Such summary financial information for BCE Inc. and Bell Canada and all other subsidiaries is intended to provide investors with meaningful and comparable financial information about BCE Inc. and its subsidiaries. This summary financial information should be read in conjunction with BCE Inc.’s audited consolidated financial statements for the year ended December 31, 2017 and the unaudited consolidated interim financial report for the nine months ended September 30, 2018.

For the periods ended September 30:

 

BCE INC.

(“CREDIT SUPPORTER”)(2)

BELL CANADA CONSOLIDATED

(“CREDIT SUPPORT ISSUER”)

SUBSIDIARIES OF BCE INC.

OTHER THAN BELL CANADA(3)

CONSOLIDATING

ADJUSTMENTS(4)

BCE INC.

CONSOLIDATED

 

 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017

 

Three Three Nine Nine Three Three Nine Nine Three Three Nine Nine Three Three Nine Nine Three Three Nine Nine

 

months months months months months months months months months months months months months months months months months months months months

Operating revenues

 — — — — 5,877 5,697 17,254 16,722 — — — — — — (1) (1) 5,877 5,697 17,253 16,721

Net earnings from continuing operations attributable to owners

 850 834 2,286 2,304 888 864 2,351 2,331 33 38 103 75 (921) (902) (2,454) (2,406) 850 834 2,286 2,304

Net earnings attributable to owners

 850 834 2,286 2,304 888 864 2,351 2,331 33 38 103 75 (921) (902) (2,454) (2,406) 850 834 2,286 2,304

 

As at September 30, 2018 and December 31, 2017, respectively:

 

BCE INC.

(“CREDIT SUPPORTER”)(2)

BELL CANADA CONSOLIDATED

(“CREDIT SUPPORT ISSUER”)

SUBSIDIARIES OF BCE INC.

OTHER THAN BELL CANADA(3)

CONSOLIDATING

ADJUSTMENTS(4)

BCE INC.

CONSOLIDATED

 

Sept. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31,

 

2018 2017 2018 2017 2018 2017 2018

2017

 2018 2017

Total Current Assets

 650 626 7,492 6,280 253 154 (2,393) (1,405) 6,002 5,655

Total Non-current Assets

 22,679 21,359 44,995 43,429 63 80 (16,085) (14,721) 51,652 50,147

Total Current Liabilities

 2,413 1,567 10,379 10,529 47 41 (2,393) (1,405) 10,446 10,732

Total Non-current Liabilities

 97 116 25,337 23,692 81 103 550 534 26,065 24,445

 

(1) The summary financial information is prepared in accordance with International Financial Reporting Standards (IFRS) and is in accordance with generally accepted accounting principles issued by the Canadian Accounting Standards Board for publicly-accountable enterprises. As required by IFRS, effective January 1, 2018, BCE adopted IFRS 15 – Revenue from Contracts with Customers, retrospectively to each period in 2017 previously reported.
(2) This column accounts for investments in all subsidiaries of BCE Inc. under the equity method.
(3) This column accounts for investments in all subsidiaries of BCE Inc. (other than Bell Canada) on a consolidated basis.
(4) This column includes the necessary amounts to eliminate the intercompany balances between BCE Inc., Bell Canada and other subsidiaries and other adjustments to arrive at the information for BCE Inc. on a consolidated basis.

 

 

Exhibit 99.6

 

BCE Inc.
EXHIBIT TO 2018 THIRD QUARTER FINANCIAL STATEMENTS
EARNINGS COVERAGE

The following consolidated financial ratios are calculated for the twelve months ended September 30, 2018 and give effect to the issuance and redemption of all long-term debt since October 1, 2017 as if these transactions occurred on October 1, 2017 and are based on unaudited financial information of BCE Inc.

  September 30, 2018
 
 
Earnings coverage of interest on debt requirements based on net earnings attributable to owners of BCE Inc. before interest expense and income tax: 4.8 times
 
Earnings coverage of interest on debt requirements based on net earnings attributable to owners of BCE Inc. before interest expense, income tax and non-controlling interest: 4.8 times

 

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