BCE Inc.

ongoing advertising recession and a declining legacy distribution business. And the Canadian regulatory environment is marked by policies on fibre resale that are negative, specifically Target Bell, and a broadcasting framework that curiously still does very little to assist Canadian media companies. Because of the CRTC's targeted actions, we are halting the elevated capex spending program that we've been operating under since 2021. As a result, we are notably slowing the pace of our fiber footprint expansion and we're capping fiber speeds at three gigabits per second. This also led to $105 million less capital being invested than planned for in Q4 of 2023, and we intend to reduce CapEx by at least an additional $1 billion over the next two years, including a minimum $500 million year-over-year decrease in 2024 alone. Given the lack of government and regulatory support for the historic capital investments Bell has made since the onset of COVID in 2020, and an unwillingness or inability to level the playing field between domestic competitors and global tech giants, we're also shifting our focus away from overly regulated parts of our business towards key growth areas where we plan to accelerate investment, such as cloud and security services, advanced advertising and digital transformation, just to name a few. And consistent with this refocusing, we're today announcing the sale of 45 radio stations and the closure of 107 source stores. To succeed in a landscape that's being reshaped, it's more important than ever to continue to align our operating model and cost structure to customer expectations and the revenue profile of our business segments. And for these reasons, we're undertaking a significant workforce restructuring initiative, our largest in nearly 30 years, that will eliminate approximately 4,800 positions, including 750 contractors, or 9% of all BCE employees. This restructuring initiative will yield in-year cost savings in the range of $150 to $200 million for 2024 or $250 million on an annualized basis. Now, restructuring the business is never an easy decision. but it's what we need to do to simplify our organization and accelerate our transformation. Where possible, we are leveraging vacant positions and natural attrition in order to minimize the impact on our team. We'll remove overlaps and consolidate certain functions across different teams, reducing corporate functions by 20% and over-indexing reductions in non-customer facing roles. While we're eliminating positions in areas where demand and revenue are declining, we are continuing to hire in growth areas. And this restructuring program is enabled in part by our accelerated investments in automation, digitization and AI, strategic acquisitions, new partnerships and service launches to improve our competitiveness and innovation agenda. Given the transformation investments we've made since 2020, we're in a better position now to drive costs out of the business. These transformation investments will continue in 2024 and beyond, and they'll drive more OPEC savings in the medium to long term than those being realized as a result of today's announcement. Now moving to slide six. I want to provide some color for you on how we're driving our operational transformation from a traditional telco to a tech services and digital media leader with a number of examples of investments, partnerships, and initiatives we've been undertaking. In wireless, as we've already announced, we've entered into a long-term strategic partnership with Best Buy Canada to rebrand 165 source stores to Best Buy Express. Bell will remain responsible for store operations, while Best Buy assumes responsibility for consumer electronics merchandising, procurement, marketing, inventory ownership and management, logistics and supply chain, as well as other support functions. Importantly, Bell will continue to control all mobility and internet sales. At Bell Business Markets, we've advanced our capabilities in cloud computing solutions and digital workflow automation with the acquisition of FX Innovation last year and our partnership with ServiceNow, the global leader in digital workflow solutions. Our collaboration with ServiceNow creates unique value for the Canadian business market and will elevate the end-to-end experience for our customers. And on the media side, it's about reducing our dependence on overly regulated businesses like radio and pushing even more aggressively into digital targeted ad platforms through scaling ad-supported subscription tiers on Crave, expanding addressable advertising across more media properties, and acquiring out-front media as Canadian out-of-home business. And as I've mentioned, we'll distribute Crave on Amazon Prime Video channels, which will enable even better Crave growth looking forward. Against the backdrop of accelerating investments in key growth areas, we're also laser focused on transforming our existing core business. And we're looking at things like how to build better and more resilient networks, providing better service through enhanced distribution channels and sales coverage, speeding up innovation and time to market, modernizing and rationalizing our suite of products, and embracing digital solutions and automation. And a key piece of our product modernization program is leveraging our existing all-fiber network to provide better service to customers, saving money on maintenance costs, and of course, reducing our environmental footprints. We've made progress migrating customers and equipment to our fiber network, as well as consolidating and removing copper cables and equipment no longer required in the field. We've launched fiber migration now to 105 central offices, transitioning 110,000 residential customers in 2023. And in 2024, copper customers in Manitoba and Atlantic Canada who need a repair will be transitioned over to fiber where we have fiber, as we already do in Ontario and Quebec. We introduced a new next generation 5TV service powered by Bell's in-house software on an Android TV set-top box, and that importantly sets the stage for a move to a single IPTV platform and addressable TV capabilities at scale everywhere we operate. This new service is currently available to residential customers in Atlantic Canada, and that will be rolled out, as I said, to other regions across our footprint in the coming quarters. We're also consolidating real estate, reducing the number of vendors we deal with, and very importantly, simplifying our ordering and billing technology platforms by moving all core consumer products to a single billing architecture. This has now been launched at scale to 1.3 million customers in Ontario and Quebec, and will continue to migrate more customers on the new billing platform as the year progresses. Each of these programs, and I've given you several examples, each of them will drive growth, better serve customers, and take costs out of the business. Importantly, they'll support a stronger EBITDA growth trajectory, margin accretion, and free cash flow expansion in the years ahead, and that's going to help support our dividend growth objective. And that brings me to slide 7 in our dividend announcement for this morning. We're increasing the BCE common share dividend by 3.1% for 2024. It's our 16th year of uninterrupted growth, demonstrating our unwavering commitment to dividend growth. Dividend growth remains central to our value proposition and we'll continue to prioritize it in our capital allocation. And it's apparent from our dividend yield that at this time, BC's share price is not being rewarded for the higher 5% dividend growth profile. We appreciate that our shareholders want a stable and a growing dividend, and we're delivering on that expectation. The 3.1% increase for this year 2024 will allow us to better balance capital allocation priorities with the ultimate objective of getting our payout ratio below 100%, and that provides us additional financial flexibility at the same time, given the higher interest rate environment, significant workforce restructuring we're undertaking, and the acceleration of our techco transformation that will serve as the future catalyst to growth and deliver the financial results that we continue to deliver for our investors and that you can continue to expect from us. And on that, I'll turn it over to Curtis.

Thank you, Mirko, and good morning, everyone. I'll begin on slide nine with BC's consolidated financial results. We had a strong quarter to end the year with 5.3% higher adjusted EBITDA that drove a 1.9 point increase in margin to 39.7% and 7% adjusted EPS growth. This EBITDA result was achieved despite ongoing media advertising headwinds and a step up in consumer promotional offer intensity and moderated service revenue growth this quarter. Regarding CapEx, due to the deceleration of our fiber network build-out in the back half of the year, CapEx was down $609 million in full year 2023. As Mirko pointed out, we reduced planned capital investment by an additional $105 million in Q4 as a direct result of the CRTC's fiber resale decisions. Our strong EBITDA growth, substantial capex reduction, lower cash taxes, and the positive change in working capital that we had signaled to the street throughout the year drove a $913 million year-over-year positive swing in Q4 free cash flow. Turning to Bell CTS on slide 10, starting with a high-level summary of Q4 subscriber metrics. Overall, I would say they were doing a very good job in wireless, striking a healthy balance between volume growth, acquisition cost, and ARPU. We delivered a record quarter for postpaid mobile phone growth activations that drove 128,715 new net subscribers. This result, which comprises our second highest Q4 for consumer postpaid net ads after last year, was achieved even with a higher number of switchers, reflecting aggressive offers from our competitors that we chose to match selectively. This disciplined approach was reflected in our promotional offers, where handset subsidies were, on average, 32% lower than they were in 22, driving a significant improvement in wireless product margins. Wireless ARPU is up .4% this quarter, driven by our focus on premium 5G subscriber loadings and further growth in outbound roaming. A great result in light of the more aggressive rate plan offers during the Black Friday and December holiday sales period, demonstrating our reliance on network quality and distribution strength rather than promotional discounting to drive profitable subscriber growth. Switching to our industry-leading broadband segment. Bell Internet added 55,591 total new net retail subscribers, our second best Q4 result in nearly two decades. And on the TV side of things, we added 23,537 net IPTV subs, which is approximately 17,000 lower versus Q4 of 2022. This was an expected result as our result last year benefited from a significant number of customer activations driven by the World Cup. moving to Bell CTS financials. This is a very good set of results to end the year. Top line revenue grew a respectable 1.7% in Q4. This was achieved despite ongoing legacy declines, a tough year over year calm for business product sales, and a richer residential service bundle discounts, reflecting a more intense promotions market compared to last year. Total consumer wireless revenue increased 5.5%, profiting from a higher sales mix of premium mobile phones on the product side. and positive ARPU growth on the service side. Residential internet revenue was up 5.4%. CTS revenue also benefited from higher sales of security and cloud-focused managed and professional service solutions to businesses, as well as the financial contribution from our acquisition of FX Innovation in June. The combined impact of continued consumer strength across our wireless residential home services together with improved business wireline results better wireless promotional offer discipline and lower weather related cost pressures grow strong ebitda growth of 4.8 percent clearly there's a financial highlight for q4 on to slide 11. now media continued its digital revenue growth and in aggregate performed better than we expected during the quarter Digital revenues were up 27% over last year. Underpinning this result was Crave, which grew direct streaming subscribers by 14% on the back of market-leading content, as well as continued strong growth of our SAM TV sales tool, which saw a 70% increase in sales in Q4. Despite strong digital ad growth in the quarter, total ad revenue was down 13.7% as advertiser spending, particularly for TVs, continued to be impacted by the economy and now resolved Hollywood strikes. Furthermore, revenue generated in Q4 2022 from the World Cup contributed to the year over year decline. Normalizing for the World Cup ad revenue net of displacements was down 9%. That performance is better than our peers, which is a testament to Bell Media's programming strength, diversified mix of assets and focused execution of our digital first strategy. Despite the unfavourable revenue backdrop, EBITDA increased 14.7% in Q4. This result was supported by the favourable impact of various restructuring initiatives undertaken in 23 to help right-size our cost structure and asset portfolio, along with lower TV programming costs due to the Hollywood strikes and last year's World Cup broadcasts. I'll now turn to our 2024 financial outlook, starting with revenue and EBITDA on slide 13. Based on the latest economic forecasts and industry outlooks, our revenue and adjusted EBITDA growth ranges for 2024 take into consideration potential recessionary risks, competitive pricing pressures, and business product sales lumpiness. Additionally, our strategic distribution partnership with Best Buy Canada will see the elimination of approximately $300 million in largely consumer electronics revenue from our consolidated results in 2024. The impact on EBITDA will not be material given relatively low margin for consumer electronics. As a result, we're setting our guidance growth ranges for 2024 at 0 to 4% for total revenue and 1.5 to 4.5 for adjusted EBITDA. Given this outlook and benefiting from the cost savings we expect to realize from the transformation initiatives that Mirko outlined earlier, including a 9% reduction in our workforce, we predict BCE's margin for 2024 to remain, at a minimum, stable year over year. And notably, if you exclude the financial impact of the Best Buy transaction, our target guided ranges are consistent with last year, showing the relative stability of our business and the confidence we have in our proven ability to execute under any circumstance. Underpinning the steady growth is our continued focus on premium mobile phone subs with increased emphasis on market growth as we capitalize on our wireless network leadership, ongoing 5G upgrade cycle, and strong integration levels. We also plan to continue winning the home by leveraging our industry-leading symmetrical internet speed advantage over cable, delivering the best customer experience with our products, and driving greater cross-cell penetration of higher value mobility and internet households. In our B2B sector, our objective is to build on our momentum from 2023 by accelerating growth in cloud security and workflow automation solutions in the large enterprise space, while also expanding key channels and leveraging our fiber footprint in SMB. At Bell Media, although the timing of an advertising recovery remains uncertain, we'll continue to drive advanced advertising digital products like Crave, as well as new distribution initiatives, such as Crave's partnership with Amazon, to further grow our market share of digital ad spend. These digital opportunities, together with the financial contribution from our pending acquisition of OutRun Media and restructuring cost savings, should drive improved media financial performance in 2024. Moving to slide 14. Despite growth in EBITDA, we projected adjusted EPS to be in the range of 2.98% to 3.13% per share in 2024, or 2% to 7% lower versus last year. This year-over-year decline can be attributed largely to an approximate $200 million step-up in interest expense due to higher rates and more debt outstanding from investments in our growth strategy, an estimated $100 million increase in depreciation and amortization expense consistent with the growth in our broadband network capital asset base, higher pension financing cost, and gains on the sale of real estate realized in 2023 related to our multi-year consolidation and conversion program that totaled $67 million or 5 cents per share. Turning to slide 15, we expect to generate 2.8 to 3.05 billion of free cash flow in 2024. This is 3 to 11% lower compared to 2023 and reflects around $400 million IN ONE-TIME SEVERANCE PAYMENTS RELATED TO THE 4800 EMPLOYEE REDUCTIONS THAT MERCO DETAILED. NORMALIZING FOR THE SEVERANCE PAYMENTS ASSOCIATED WITH OUR ANNOUNCED WORKFORCE RESTRUCTURING INITIATIVES IN 2023 AND 2024, FREE CASH FLOW GROWTH IS IN THE RANGE OF 0 TO 7% THIS YEAR, PROVIDING SUPPORT FOR THE 3.1% DIVIDEND INCREASE WE DECLARED THIS MORNING. This underlying growth in free cash flow is the result of higher year-over-year EBITDA and a $500 million decrease in capex that will drive a capital intensity ratio of 16.5% or less in 2024. Although we have currently budgeted approximately $4.1 billion in capex spending for 2024, this amount can possibly be even lower depending on government policy decisions during the course of the year that may further disincentivize investment. 2024 free cash flow also reflects higher interest paid, stable to higher cash taxes as the federal government's accelerated CCA program is phasing out beginning this year, and lower projected cash from working capital. working capital drag is attributable mainly to the significant improvements in ar and inventory levels realized in 23 which normalized following substantial covid and supply chain impacts in 2022 as well as potential recessionary impacts on customer collections that may materialize with a harder economic landing moving to slide 16 as we begin the year we are in a very strong financial position We have access to $5.8 billion of liquidity and a balance sheet with a sizable pension solvency surplus totaling $3.6 billion, which provide good overall financial flexibility to execute on our business plan and strategic priorities for 2024. Our net debt leverage ratio at just under 3.5 times adjusted EBITDA due to several years of generational capex spending and critical spectrum investments is projected to remain more or less stable this year. Our debt capital structure also remains very well structured with an average term to maturity of approximately 12 years, an after-tax cost of borrowing that is below prevailing interest rates at around 3% and a floating interest rate exposure that is below our historical target range of 20 to 30%. At these levels, together with no material debt refinancing requirements until Q1 2025, interest rates that are expected to ease and access to lower cost short-term financing options We can be opportunistic in accessing the debt capital markets this year if market conditions are favorable to pre-fund upcoming maturities and mitigate interest rate pressures. Lastly, I wanted to note that capital leases are expected to begin declining this year, having reached a peak in 2023, which will drive lower principal repayments beginning in 2025. To conclude on slide 17, 2024 is an important transformation year for Bell. It's a year where we look to maintain operational momentum while balancing growth with financial performance as we continue our transition to a tech services and digital media leader. Within that context, the guidance targets we're providing today are appropriate given the current economic, competitive, and regulatory backdrops while also reflecting the impacts of our workforce restructuring and other transformation initiatives that will better position the company for future growth and financial success. I will now turn the call back over to Thane and the operator to begin Q&A.

Thanks, Curtis. So given the volume of information presented this morning, I'm sensitive to the time we have left for Q&A, so I would please ask that you limit yourself on questions so that we can get to everybody in the queue. With that, Matthew, we're ready to take our first question.