Bell Aliant reports 2013 fourth quarter and full-year results, announces 2014 financial guidance
- Q4 2013 highlights
- Bell Aliant Inc. net income up $3 million from Q4 2012
- Residential net NAS declines improve 16.3 per cent from Q4 2012
- High-speed Internet net additions of 7,200, up 49.8 per cent from Q4 2012
- FibreOPTM Internet adds 18,000 net new customers
- FibreOP TV adds 16,000 net new customers
Excess free cash flow used to make $80 million advanced income tax
- 2013 full-year highlights
- Best year-over-year revenue performance since 2008
- Best high-speed Internet net additions since 2010
- Highest IPTV net additions to date
- Fibre-to-the-home (FTTH) passes 806,000 premises at December 31
- FibreOP Internet customers reach 184,000
- FibreOP TV customers reach 158,000
Free cash flow before advanced tax payment of $544 million
- 2014 guidance
- Intense competitive activity expected to continue
- FTTH to pass 1 million premises by end of 2014
- Cash income taxes expected to be $160 million to $190 million, including $65 million one-time catch-up payment
Dividend declared expected to continue at $1.90 per share
This news release contains forward-looking statements. For a description of the related risk factors and assumptions, please see the section entitled "Forward-looking Information" later in this release.
HALIFAX, Feb. 4, 2014 /CNW/ - Bell Aliant Inc. (TSX: BA) today reported financial results for the fourth quarter of 2013 for Bell Aliant Inc. (Bell Aliant) and Bell Aliant Regional Communications Inc. (Bell Aliant GP), and announced its 2014 financial guidance.
"Solid execution of our strategy over the last five years has positioned us well to succeed in an intensely competitive industry," said Karen Sheriff, president and chief executive officer, Bell Aliant. "In 2013, we continued to progress on the road to revenue growth, by investing in the best broadband technology available to offer the most value to customers. We challenged deeply discounted competitor pricing in our markets during the latter quarters of 2013 with our own promotions, which pressured our revenue and EBITDA results in the fourth quarter of 2013 but helped us gain and retain customers, which is the key to our future success.
"In 2013, we expanded our FTTH network to pass 806,000 premises, achieved our highest level of high-speed Internet customer net additions since 2010, and the most IPTV customer net additions in our history. We also advanced our next generation network coverage for businesses, and, through partnerships with governments and other parties, upgraded our network capabilities in several territories, increasing our service offerings and revenue opportunities. Growth in these areas helped to offset the effects of continued declines in our traditional voice business. As a result, in 2013 we had our best year-over-year revenue performance since 2008.
"I continue to be very proud of our on-going achievements in managing costs, which enabled us to largely contain expense increases in 2013 driven by our growing TV customer base, despite the intense competitive pressures.
"Our significant out-performance in our fibre markets versus non-fibre markets has made the case for expanding our FTTH coverage as quickly as possible even more compelling. With the successful execution of our FTTH builds over the last several years, we are confident that we have the operational capability to hit the 1 million FTTH premises passed milestone by the end of 2014.
"Looking forward, we expect the aggressive competitive activity of 2013 to carry over into 2014, pressuring revenue and EBITDA, and presenting us with a bit of a bump in the road returning to growth. We plan to stay toe-to-toe with the competition and believe our competitive offerings, coupled with our world-class FTTH network, give us the opportunity to ultimately be the whole-home provider of choice in many markets. Continuing to build a strong customer base, along with pervasive cost management, will help return us to profitable growth in the future. I have never been more confident that our FTTH strategy is the right way for us to get there," concluded Sheriff.
Bell Aliant used its excess free cash flow after dividends in 2013 to make an $80-million advanced payment on income taxes that would otherwise have been payable in early 2014. Increases in interest rates and strong asset return performance in Bell Aliant's pension plans reduced Bell Aliant's estimated defined benefit pension solvency deficit to approximately $350 million at the end of 2013, down by approximately $500 million from the end of 2012, reinforcing Bell Aliant's expectation that requirements for additional cash contributions will be reduced going forward.
"The actions we have taken over the last several years to increase our financial flexibility, along with strong operational execution of our FTTH and cost management objectives, have been critical to putting us in position to effectively manage Bell Aliant's introduction to paying cash income taxes as a corporation," said Glen LeBlanc, executive vice-president and chief financial officer. "The company is making important fibre investments to make it even stronger for the future while maintaining its current dividend distribution."
Fourth quarter 2013 highlights1
Bell Aliant Inc. reported net earnings of $69 million in the fourth quarter of 2013, up $3 million from the same quarter in 2012. The increase was driven by improved earnings in Bell Aliant GP, with adjusted EBITDA declines offset by lower depreciation and income tax expense. Earnings per share and adjusted earnings per share for the quarter were $0.30 and $0.38 respectively, compared to $0.29 and $0.38 a year earlier.
Fourth quarter and full year financial highlights of Bell Aliant GP are summarized as follows:
(In millions of dollars)
|Adjusted EBITDA (1)||307||317||(3.2%)||1,284||1,307||(1.7%)|
|Free Cash Flow (1) (2)||71||89||(20.0%)||464||447||3.7%|
(1) Adjusted EBITDA, free cash flow and adjusted earnings per share are
non-IFRS measures. Refer to the "Non-IFRS financial measures" section
of Bell Aliant GP's Q4 2013 Management's Discussion and Analysis (MD&A)
(2) Bell Aliant GP made a $100-million lump sum contribution to defined benefit pension plans in Q4 2012, and an $80-million advanced income tax payment in December 2013 that was otherwise payable in early 2014. Excluding these payments, free cash flow in 2013 was $544 million compared to $547 million in 2012.
Operating revenues in the fourth quarter of 2013 were $689 million, down $6 million (0.9 per cent) from the same quarter in 2012. Growth in Internet and TV revenues was offset by declines in local, long distance, wireless and other revenues. Operating expenses in the fourth quarter of 2013 were up $4 million from the same quarter in 2012, mainly driven by growth in promotional and TV content costs from a growing FibreOP customer base, which were partially offset by productivity savings. As a result, adjusted EBITDA declined $10 million (3.2 per cent) in the fourth quarter of 2013 compared to the same quarter in 2012.
Capital expenditures in the fourth quarter of 2013 were $147 million, up $13 million (9.3 per cent) from the same quarter a year earlier. The increase was largely driven by higher FTTH footprint expansion costs and more expansion and upgrades of DSL Internet service areas compared to the same quarter in 2012. Capital expenditures for the full year 2013 were $570 million, down $22 million from 2012, reflecting lower FTTH footprint expansion and less FTTH start-up costs than 2012.
Free cash flow in the fourth quarter of 2013 was $71 million, down $18 million (20.0 per cent) from the same quarter in 2012. In 2013, Bell Aliant elected to use available free cash flow to make an $80-million advance payment of income taxes that would otherwise have been paid in early 2014 as part of a cash optimization strategy. Similarly, in Q4 2012, Bell Aliant elected to make a $100 million lump-sum contribution to defined benefit pension plans. Excluding these payments, free cash flow was $151 million in the fourth quarter of 2013, down $38 million (20.0 per cent) from the same quarter a year earlier. The decrease was driven by higher capital expenditures, lower adjusted EBITDA and higher interest and regular income tax payments compared to the fourth quarter of 2012. For the year, free cash flow before these payments was $544 million in 2013, down $3 million (0.6 per cent) from 2012, and in line with the 2013 guidance range of $500 million to $560 million provided in February 2013.
Internet revenue increased $7 million (5.1 per cent) with residential high-speed average revenue per customer (ARPC) growth of 3.6 per cent from the same quarter a year earlier. Selected pricing action, and customer movement to premium services drove the increase in ARPC. FibreOP Internet customers grew by 18,000 during the quarter, bringing total FibreOP Internet customers to 184,000 at the end of December 2013. FibreOP Internet additions include existing Bell Aliant customers migrating from DSL and fibre-to-the-node (FTTN) networks to the upgraded service. These migrations do not contribute to overall high-speed customer growth but increasingly contribute to improved customer retention and growth in overall customer ARPC. Overall high-speed Internet customer net additions were 7,200 in the fourth quarter of 2013, up from 4,800 in the same quarter of 2012, bringing total high-speed Internet customers to 952,100 at the end of December 2013, up 3.7 per cent from a year earlier.
IPTV revenue grew $12 million (50.2 per cent) in the fourth quarter of 2013 compared to the same quarter in 2012, with total IPTV customers of 178,100, up 44.8 per cent from a year earlier. FibreOP TV customers grew by 16,000 in the fourth quarter to reach 158,000, a portion of which were migrations from Bell Aliant's FTTN TV service. Overall net IPTV customer additions were 14,800 in the fourth quarter of 2013, compared to 15,600 a year earlier.
Local service and long distance revenues declined $15 million (5.1 per cent) and $9 million (11.6 per cent), respectively, in the fourth quarter of 2013 compared to the same quarter in 2012, driven by NAS declines of 5.5 per cent. Residential net NAS declines of 28,300 in the fourth quarter of 2013 improved 5,500 from the same quarter in 2012 with improved retention in both fibre and non-fibre markets. Business net NAS declines of 10,600 were consistent with the same quarter a year earlier.
Wireless revenues were relatively flat in the fourth quarter of 2013 compared to the same quarter in 2012, as the fourth quarter of 2012 included a catch-up revenue accrual that did not recur in 2013. Wireless customers were up 2.0 per cent compared to a year ago.
Other revenues were down $1 million (2.3 per cent) in the fourth quarter of 2013 compared to the same quarter in 2012, as revenues from non-recurring large customer projects were offset by declines in product and rental revenues.
Bell Aliant's 2014 financial guidance is as follows:
|2013 Results||2014 Financial Guidance|
|Operating Revenues||$2,759 million||$2,700 million to $2,780 million|
|Adjusted EBITDA(1)||$1,284 million||$1,235 million to $1,285 million|
|Capital Expenditures||$570 million||$535 million to $585 million|
|Free Cash Flow(1)||$464 million||$300 million to $360 million|
|Adjusted earnings per share(1)||$1.63||$1.45 to $1.75|
(1) Adjusted EBITDA, free cash flow and adjusted earnings per share are non-IFRS financial measures. Refer to the "Non-IFRS financial measures" section of Bell Aliant GP's Q4 2013 Management's Discussion and Analysis (MD&A) for details.
Operating revenues in 2014 are expected to be between $2,700 million and $2,780 million compared to $2,759 million in 2013. Growth in Internet and IPTV revenues as a result of growth in FibreOP customers is expected to somewhat offset decreases in traditional voice revenues arising from competitive activity and technology substitution. Other revenues in 2013 included $12 million from several large one-time projects that are not expected to recur in 2014 and a contact centre subsidiary which ceased operations in late 2013.
Operating expenses in 2014 are expected to remain relatively consistent with 2013 levels, as savings from productivity initiatives and lower pension current service costs are expected to offset cost increases from normal inflationary pressures and increasing TV content costs from a growing TV customer base.
Adjusted EBITDA in 2014 is expected to be between $1,235 million and $1,285 million, compared to 2013 adjusted EBITDA of $1,284 million.
Capital expenditures in 2014 are expected to be between $535 million and $585 million, compared to $570 million in 2013. Higher spending on FTTH footprint expansion and new FibreOP customer connections in 2014 are expected to be offset by less spending on copper network replacement and large customer network projects than in 2013.
Cash income taxes paid in 2014 are expected to be between $160 million and $190 million, including a one-time catch-up payment of $65 million arising from changes in tax laws which eliminated the ability to defer partnership income. Accordingly, cash income taxes paid in years subsequent to 2014 are expected to be lower than 2014, in the range of $110 million to $135 million annually, depending on the level of taxable income and tax rates in those years.
Free cash flow is expected to be between $300 million and $360 million in 2014, compared to $464 million in 2013. Increases in cash income taxes paid, lower adjusted EBITDA, and lower cash from changes in working capital are expected to contribute to lower free cash flow. Free cash flow in 2014 is expected to be lower than normal due to the extra income tax payment of $65 million combined with continued elevated capital expenditures to pass 1 million FTTH premises by the end of 2014. In future years both income taxes paid and capital expenditures are expected to decrease.
Adjusted earnings per share in 2014 is expected to be between $1.45 and $1.75, compared to $1.63 in 2013.
Bell Aliant declared a quarterly dividend of $0.475 per common share, payable on April 4, 2014, to shareholders of record at the close of business on March 14, 2014.
Bell Aliant Preferred Equity Inc. declared a dividend on its Series A Preferred Shares of $0.303125 per share, a dividend on its Series C Preferred Shares of $0.284375 per share, and a dividend on its Series E Preferred Shares of $0.265625 per share, each to be paid on March 31, 2014, to shareholders of record at the close of business on March 14, 2014.
Unless otherwise stated, dividends paid by Bell Aliant and Bell Aliant Preferred Equity Inc. to Canadian residents are "eligible dividends" as defined by the Canadian Income Tax Act and corresponding provincial legislation.
More information on Bell Aliant's and Bell Aliant GP's fourth quarter 2013 results and 2014 financial guidance can be found in Bell Aliant's fourth quarter 2013 supplementary financial information package and Bell Aliant GP's fourth quarter 2013 MD&A, available at www.bellaliant.ca/investors and on SEDAR at www.sedar.com.
Analyst conference call
A conference call with the financial community is scheduled for February 4, 2014 at 8 a.m. (Eastern). The dial-in numbers are 866-223-7781 and 416-340-2216 for Toronto area participants. Media are invited to attend in listen-only mode. A replay of the session can be heard until March 7, 2014. To access the replay, dial 800-408-3053 or 905-694-9451 and enter the passcode 3670003#.
A live audio webcast of the conference call can be accessed on www.bellaliant.ca under the Investor Relations section. A replay of the conference call will be available on the website for one year.
The information contained in this news release is unaudited.
|(1)||Bell Aliant derives virtually all of its income from its ownership in Bell Aliant GP. Bell Aliant GP's results consolidate the results of Bell Aliant Regional Communications, Limited Partnership; Télébec, Limited Partnership; NorthernTel, Limited Partnership; and Bell Aliant Preferred Equity Inc.|
|(2)||Percentage changes quoted in this release related to dollar values are based on amounts rounded to the nearest hundred-thousand, consistent with disclosure in Bell Aliant's supplementary information package and Bell Aliant GP's MD&A for the fourth quarter of 2013. Dollar values quoted in this release are rounded to the nearest million unless otherwise stated. Customer metrics are rounded to the nearest hundred unless otherwise stated.|
|(3)||Definitions of non-IFRS measures:|
|a.||Adjusted EBITDA: Bell Aliant defines adjusted EBITDA as operating revenue less operating expenses, which means it represents operating income before depreciation and amortization expense, and severance and other charges. Operating income is calculated before net finance costs, other expense and income taxes are deducted.|
|b.||Free cash flow: Bell Aliant defines free cash flow as cash from operating activities less capital expenditures. Free cash flow includes the cash performance of Bell Aliant and Bell Aliant GP on a combined basis.|
|c.||Adjusted earnings per share (EPS): Bell Aliant defines adjusted EPS as diluted EPS of Bell Aliant Inc. adjusted for the per share after-tax effect of purchase price allocation amortization, severance and other charges, and debt redemption loss, recorded by Bell Aliant GP.|
|d.||Capital intensity: Bell Aliant defines capital intensity as capital expenditures divided by operating revenues.|
For a reconciliation of these non-IFRS financial measures to the most closely comparable IFRS financial measures, please refer to Bell Aliant GP's MD&A for the fourth quarter of 2013 available at www.bellaliant.ca/investors and www.sedar.com.
This news release contains forward-looking statements concerning anticipated future events, results, circumstances or expectations, in particular statements concerning fibre-to-the-home (FTTH) expansion plans, 2014 financial guidance, future capital expenditure plans and interest, post-employment benefit plan, income tax, dividend payments and other items. Unless otherwise indicated, such forward-looking statements describe management's expectations at February 4, 2014. These statements are based on management's beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond management's control. These statements are not guarantees of future performance and are subject to assumptions which may prove to be inaccurate and numerous risks and uncertainties which are difficult to predict.
Several assumptions were made by Bell Aliant in preparing its 2014 financial guidance and in making forward-looking statements in this news release, including but not limited to the following expectations for 2014:
|a)||Competition in both business and consumer markets will continue to be intense;|
|b)||Wireless substitution for wireline services will increase in Bell Aliant markets but will continue to lag other regions of Canada;|
|c)||Net NAS declines will be similar to those experienced in 2013;|
|d)||High-speed Internet customer net additions will be similar to those experienced in 2013;|
|e)||IPTV customer net additions will be similar to those experienced in 2013;|
|f)||Bell Aliant will pass approximately 190,000 to 200,000 incremental homes and businesses with FTTH, bringing total premises passed with FTTH to approximately 1 million by the end of 2014;|
|g)||Capital intensity will be 20 per cent to 22 per cent for 2014. Capital intensity is expected to decline to 15 per cent to 17 per cent, in the future, following the completion of the FTTH build;|
|h)||Cost reductions achieved through productivity initiatives will continue, offsetting cost increases associated with growth in IPTV customers and associated TV content costs, and normal inflationary pressures;|
|i)||Pension expense included in adjusted EBITDA in 2014 will be $55 million to $65 million, compared to $62 million in 2013. The applicable discount rate for 2014 expense based on year-end 2013 is 4.9 per cent, compared to 4.4 percent for 2013. Net interest expense of post-employment benefit plans, not included in adjusted EBITDA, will be $15 million to $20 million in 2014, using the 4.9 per cent rate applied the net benefit obligation, compared to $32 million in 2013;|
|j)||Substantially all pension deficit funding requirements will be met by drawing down lump sum contributions to defined benefit pension plans made in prior periods or through use of letters of credit, resulting in cash funding for deficit reduction of nil to $10 million for 2014, compared to nil in 2013. Cash funding for current service costs and other benefit plans in 2014 will be $65 million to $75 million, compared to $65 million in 2013;|
|k)||Net interest paid will be $145 million to $155 million in 2014, compared to $160 million in 2013;|
|l)||Taxable income will be subject to a blended federal and provincial corporate income tax rate of 28 per cent in 2014 resulting in income tax expense of $115 million to $135 million, compared to $130 million in 2013;|
|m)||Cash income taxes paid will be $160 million to $190 million in 2014 compared to $104 million in 2013, which included an $80-million payment that would have otherwise been due in early 2014. Cash income taxes in 2014 will include the one-time catch-up payment of approximately $65 million related to the elimination of the ability to defer partnership income. Cash income taxes in subsequent periods are expected to be $110 million to $135 million annually, depending on the level of income and tax rates in those future periods;|
|n)||Depreciation and amortization expense for 2014 will be $600 million to $640 million, compared to $615 million in 2013. Amortization of purchase price allocation adjustments of $78 million in 2014, or approximately $0.25 per share after-tax, will be excluded from adjusted earnings per share calculations, compared to $81 million, or $0.25 per share after-tax, in 2013;|
|o)||The annual common share dividend will continue to be declared at $1.90 per share. The declaration of dividends is subject to approval by the Board of Directors;|
|p)||The quarterly common share dividend payment date will change from being paid on the last business day of each quarter in 2013 to being paid on or about the fourth business day in the month following the end of the quarter in 2014, similar to the practice of most dividend-paying corporations; and|
|q)||No significant external financing will be required in 2014.|
Bell Aliant encourages investors to review the risk factors section below, and related disclosures, for a discussion of the various factors that could cause actual results to differ from what is currently expected.
There are many factors that could cause actual results or events to differ materially from current expectations. The most significant factors that Bell Aliant has identified that may affect Bell Aliant's financial results or events in 2014 include but are not limited to: increasing competition; cost management; financing and free cash flow; network evolution; pension valuation and investment risk; legislative and regulatory factors; outsourcing and vendor relationships; information technology (IT); human capital; as well as the structural subordination of our common shares; limitations on non-resident ownership; dilution, unpredictability and volatility of our share price; and tax related risks. Some of these risk factors are largely beyond Bell Aliant's control. For additional information on material factors and assumptions used to develop forward-looking information and risk factors that could cause actual results to differ materially from forward-looking information, see also the "Risk management" section of Bell Aliant Inc.'s MD&A for the year ended December 31, 2012, and the "Assumptions made in the preparation of forward-looking information" and "Risks that could affect our business and results" sections of Bell Aliant Regional Communications Inc.'s MD&A for the year ended December 31, 2012, as updated by their 2013 quarterly MD&As, as well as the "Risk factors" sections of Bell Aliant Inc.'s and Bell Aliant Regional Communication Inc.'s 2012 Annual Information Forms. These documents are available at www.bellaliant.ca and www.sedar.com.
Should any risk factor affect Bell Aliant in an unexpected manner, or should assumptions underlying the forward-looking statements prove incorrect, the actual results or events may differ materially from the results or events predicted. Unless otherwise indicated, forward-looking information does not take into account the effect that transactions, or non-recurring or other special items, announced or occurring after this information is provided may have on the business. All of the forward-looking information reflected in this press release and the documents referred to within it are qualified by these cautionary statements. There can be no assurance that the results or developments anticipated by Bell Aliant will be realized or, even if substantially realized, that they will have the expected consequences for Bell Aliant.
Except as may be required by Canadian securities laws, Bell Aliant disclaims any intention and assumes no obligation to update or revise any forward-looking information, even if new information becomes available, as a result of future events or for any other reason. Readers should not place undue reliance on any forward-looking information. Forward-looking information is provided for the purpose of providing information about management's current expectations and plans relating to fiscal 2014 or other future periods. Readers are cautioned that such information may not be appropriate for other purposes.
About Bell Aliant
Bell Aliant (TSX: BA) is one of North America's largest regional communications providers and the first company in Canada to cover an entire city with fibre-to-the-home (FTTH) technology with its FibreOP services. Through its operating entities, it serves customers in six Canadian provinces with innovative information, communication and technology services including voice, data, Internet, video and value-added business solutions. Bell Aliant's employees deliver the highest quality of customer service, choice and convenience.
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