BCE Inc.

Good morning, ladies and gentlemen. Welcome to the BCE Q4 2020 Results Conference Call. I would now like to turn the meeting over to Mr. Thayne Pothopoulos. Please go ahead, Mr. Pothopoulos.

Thank you, Valerie, and good morning, everybody. On the call with me today are Mirko Bibic, BC's President and CEO, and our CFO, Glenn LeBlanc. We definitely have a lot of material to go through this morning. However, before we begin, let me draw your attention to the Safe Harbour Statement. Reminding all that the slide presentation and remarks made during the call today will include forward-looking information and therefore are subject to risk and uncertainties. Results could differ materially. We disclaim any obligation to update forward-looking statements except as required by law. Please refer to the company's publicly filed documents for more details on assumptions and risks. With that, let me turn the call over to Mirko.

Thanks, Dane. Good morning, everyone. 2020 marked Bell's 140th year and it was unlike any other I could have imagined when I began as CEO last January. Our new goal of advancing how Canadians connect with each other in the world unveiled last January could not have been more appropriate in a year that saw extraordinary change and challenges that have dramatically impacted the economy and of course how we live and work. Throughout it all, Bell has been on the front line delivering the networks to keep Canadians connected, stepping up every day for our customers and communities as we all continue to navigate through the COVID situation. 2021 will be a reset year as we transition towards a return to pre-pandemic levels of financial performance and operating momentum. We can't accurately predict the path and pace of economic recovery, but we know that our business is solid and we expect to see progressive improvement through the year, much as we did after coming out of Q2 2020. As a result, we remain cautiously optimistic about our business outlook as reflected in our financial guidance targets for 2021. Our success in 2021 will continue to be anchored to the priorities we set in 2020. They center on increased investment on core network infrastructure that will lay the foundation for future broadband internet and 5G growth. improving the end-to-end customer experience, the ongoing digital transformation of our operations, and a continued sharp focus on our cost structure. We will accelerate capital spending in 2021 to forge ahead even more aggressively on our successful broadband strategy, expanding our all fiber connections, opening up wireless home internet to even more rural communities, and building our wireless 5G network faster. To that end, I'm very pleased to announce that we are putting in place a capital investment acceleration program totaling 1 to 1.2 billion dollars over the next two years. This is the right strategic move at the right time for our customers and our company, allowing us to realize the substantial operational benefits of state-of-the-art fiber and low latency mobile networks sooner. This will put us in an advantageous competitive position, allowing us to keep growing broadband market share and internet revenue and to begin monetizing 5G services, all of which yields very attractive EBITDA and cash flow margins. And I'm equally pleased to announce this morning that our planned financial performance for 2021 enables us to increase BC's common share dividend by 5.1% for 2021. It's our 13th consecutive year of a 5% or higher dividend increase. This represents an emphatic commitment to our dividend growth approach and to our broadband expansion strategy. Because of the accelerated capital investment we're making this year and ongoing financial impacts during the COVID recovery period, our dividend payout ratio in 2021 will be above our historical free cash flow target range of 65% to 75%. Our strong liquidity position and substantial ongoing cash generation support the execution of this capital expansion program and our higher common share dividend for 2021. So let me unpack the capital acceleration program on slide four. As I said, we plan to invest an extra 1 to 1.2 billion over the next two years, of which approximately 700 million will be spent in 2021 to accelerate fiber, wireless home internet, and 5G. This is the right time for investments of this magnitude. First off, the billion dollars in net cash proceeds from the sale of our data centers in October will fund this two-year incremental capital investment. Secondly, because the federal government's capital cost allowance program is in place for another two years, allowing for the accelerated expensing of capital expenditures, every dollar of network investment that we make will drive significant cash tax savings that can be reinvested into the business and support future free cash flow growth. Normalized for the capital advancement of $700 million in 2021, Our consolidated capital intensity ratio is expected to be in the range of 15 to 17%, consistent with pre-COVID levels. Thirdly, for the moment, we have a stable regulatory environment that makes this type of large-scale investment possible. As COVID has shown us over the past year, this is more important than ever. Now isn't the time for policymakers and regulators to move away from encouraging network investments. Now is the time to collaborate and partner with government to connect more and more Canadians, particularly in rural communities. We're showing that with the right policies in place, we're prepared to make significant investments for the long-term benefit of our customers and the Canadian economy, which will benefit from $2 billion in new activity and 5,300 direct and indirect jobs as a result of this additional investment. Now is also the right time to make these investments because the strategy is undeniably working. we see it in our results. Essentially, what we're doing is advancing the wireline and wireless network build that we have in our long-range plan. However, by making these investments more quickly, not only do we realize the operational benefits sooner, but we also reduce our future capex requirements, supporting future free cash flow growth and dividend increases for BCE shareholders. There is no longer any debate about the power and value of fiber. Once deployed, we begin to see the favorable impact on both subscriber and financial growth as well as on the overall customer experience. Internet penetration grows much faster as we deploy fiber and wireless home internet. We can gain anywhere from 5 to 25 percentage points of penetration in the first 12 months of deploying a market, which has driven steady market share growth and internet revenue acceleration over time. In fact, our internet subscriber base has increased 33% since the start of our fiber build in 2010 and annual internet revenue growth has tripled from 3% to 9% in 2020. Churn is also lower when customers are on a better network. This is key because retention is such an important factor in the customer lifetime value equation. On average, the churn rate for fiber and wireless home internet subscribers is 30 to 35 basis points lower than those on a FTTN or ATM network. This extends the duration of the customer relationship with Bell by approximately two years, leading to an improvement in the overall lifetime value of a direct fiber and wireless home internet customer by approximately 50% and 35% respectively. And of course, our cost to serve a fiber customer is lower. Annual service and support costs per customer are approximately 40% lower on direct fiber links versus copper. Over time, as a greater proportion of our footprint is fiberized, we will see even more meaningful change in our overall cost structure. Let me turn to slide five of our presentation. The accelerated network build-out plan, the one that we have in store for 2021, it gives us 850,000 to 900,000 more homes and businesses across our wireline footprint that are equipped with either direct fiber or fixed wireless technology. This represents an incremental increase of up to 400,000 new locations covered with broadband service than would have been deployed in 2021 without the capital advancement. At the end of this year, more than 62% of our planned broadband build-out program will be completed, representing up to 6.9 million total combined fiber and wireless home internet locations. This is up from approximately 6 million homes and businesses at the end of 2020. And for wireless, Our accelerated capital plan will double the reach of our national 5G network to 50%. I'm also very pleased to announce that Nokia and Ericsson have been selected as the suppliers for our standard loan 5G core. Our fiber and 5G investments are working symbiotically to drive Bell's continued leadership in next-generation communications technology, paving the way for future service innovation. With a wireline infrastructure that includes high-speed fiber already deployed to more than 92% of our cell sites, over 2,700 central offices that are available for mobile edge computing in a 5G world, a wireline footprint encompassing 76% of Canadian households, and the broadest retail and B2B distribution in the country, no one is structurally better positioned than Bell for true wireless wireline convergence in the most capital efficient manner possible. and to capitalize on the revenue growth opportunities that await. I feel very positive about the power of our business and our ability to execute in 2021 and energized by the accelerated capital program. As always, we'll continue to stay true to our long-term strategy and continue to focus on our strengths, which include a vertically integrated business, the best networks, distribution breadth, a deep customer base, a powerful brand, a growing dividend, and the very best people. I'm going to turn now to slide six for some operational highlights. In every successive quarter since the pandemic began, we've seen quarter over quarter improvement across all our segments. Despite the challenges of COVID, we delivered 96% of 2019's EBITDA and maintained our consolidated margin stable at 42%. We generated over $3.3 billion of free cash flow. The ability of BCE to generate this magnitude of free cash flow even during times of extreme uncertainty and economic difficulty is remarkable. We are well on our way to returning to where we were pre-COVID and our results for both Q4 and full year 2020 represent further proof of the continued momentum we're generating from the lows of Q2. Our consistently strong operational execution was in evidence once again in Q4 as we delivered 147,000 total new net wireless retail internet, and IPTV customers. We also grew broadband internet market share faster than any of our peers this past year, with a leading 149,000 retail internet net adds, up 10% over 2019. The broadband footprint advantage that we are building positions us extremely well in both our consumer and business segments over the long term to grow internet revenue, which increased a strong 12% in Q4. As for our mobile 5G network, it's now operational in over 150 centres, covering nearly a quarter of the Canadian population. On the customer experience front, we've made real progress over the past year and received recognition for the quality of our network and services. Bell's 4G and 5G networks were certified as Canada's fastest by PCMag in its most recent annual study of network performance. Virgin Mobile also topped every wireless carrier in Canada from a J.D. Power ranking perspective as number one in overall customer service in the eyes of consumers for 2020, while its My Account app was named the best telecom mobile app of the year. We boosted our wireless home internet download speeds for more than 350,000 rural homes, bringing enhanced 50 megabit download and 10 megabit upload speeds to Canada's underserved communities, that are two times faster than before. Our strategic focus on customer experience was also reflected in the latest report from the CCTS, which showed a 35% drop in the number of complaints by Bell customers. Again, the best performance among national carriers for a fifth consecutive year. We've also made it even easier for customers in Quebec and Ontario to transfer their residential services when they move, with our new Move Valet Concierge service, This is just one example of initiatives that put customers front and center. Lastly, the strides we're making in digital transformation are evident. Directly because of investments to improve online functionality and the app-based sales experience for consumers, 54% of all customer service transactions now are executed online. Let's turn to slide seven for an overview of some key operating metrics for Q4. I'm going to start with wireless. Despite reduced retail store traffic and transaction volumes due to the second wave of COVID, we experienced sequential improvement in postpaid net ads. Low churn, which improved 17 basis points over last year to 1.11%, and an ABPU decline that continued to moderate. We added 93,000 total new net postpaid subscribers this quarter. Of this total, 87,000 were mobile phone customers, 27% higher than last year. It's an impressive result that speaks to our focus on driving service revenue and EBITDA growth through accretive smartphone transactions. This disciplined approach to subscriber growth was also reflected in our promotional offers, where handset subsidies were on average 14% lower than they were in the previous year. In prepaid, because of lower overall market activity from reduced immigration and fewer visitors to Canada during the pandemic, combined with greater competitive intensity in the discount mobile market, we incurred a net loss of 12,000 customers this quarter. Nevertheless, prepaid service revenue was up an impressive 14% on the back of strong growth over the past year led by Lucky Mobile, which generates higher than average industry APU. A couple of notable developments on the retail distribution front that are worthy of mention. We recently renewed our exclusive national distribution agreement with Dollarama for all Bell prepaid products. Giant Tiger, A new distribution channel for us began carrying Lucky Mobile in its more than 250 locations across Canada late last year. And we renewed our contract with PCMobile, a partnership that has been in place since 2005. So, great prepaid growth potential ahead. To finish up on wireless, our blended APU decreased 3.9%. This results in notable improvement over the 6% decline we saw in Q3, despite persistent headwinds from lower COVID-induced roaming volume and reduced data overage from ongoing customer adoption of unlimited plans. In fact, normalizing for these impacts, ABPU growth was slightly positive in the quarter. Let's turn to Bell Wireline. We saw another strong RGU quarter in Wireline. We added 45,000 new internet customers, 25% higher than last year, reflecting broad-based growth across all brands. We added another 73,000 fiber customers this quarter, bringing the total number to close to 1.7 million, and that's 1.7 million direct fiber customers, and that's up 17% over last year. On the TV side of things, very pleased with 21,000 IPTV net ads, and that's essentially unchanged versus last year, despite the impacts of COVID. Q4 was also the first full quarter that Virgin TV was available in the market, and early results are quite promising, both from a customer demand and ARPU generation perspective. Satellite net customer losses improved for a fifth consecutive quarter, actually down 5% year over year, and we continue to see improvement in home phone customer losses, down 7.5% this quarter. On Bell Media, Advertiser demand picked up in Q4 with the start of the new fall TV season and more live Major League Sports programming, and that drove a meaningful sequential quarterly improvement in TV ad spending. In fact, total TV advertising in Q4 was down only 2%, so that's down 2% compared to last year. Crave also continued to deliver with strong direct-to-consumer growth as total subscribers increased 8% over last year and we're now at 2.8 million. As for TSN and RDS, they were the top English and French language sports channels in Q4, and both are having a very strong start to 2021, particularly with World Junior Hockey and NFL playoffs. Lastly, we continue to see great results from our Quebec media strategy with significant gains in primetime viewership for our conventional French language TV network Nouveau, which led all peers with a 6% increase in audience levels this quarter. So to summarize, and before turning it over to Glenn, great operational execution delivered by the team, not just in Q4, but throughout the year, with consistent, steady improvement that is building momentum back into the business, and that sets us up nicely as we enter into 2021. So over to you now, Glenn.