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Press release from CNW Group

Bell Aliant reports second quarter 2011 results

Wednesday, July 27, 2011

Bell Aliant reports second quarter 2011 results11:43 EDT Wednesday, July 27, 2011Revenue trajectory continues on improved trackInternet and TV revenue growth increasingly offsets legacy declinesFibre-to-the-home (FTTH) network passes 294,000 homes and businessesResidential high-speed average revenue per customer reaches new high2011 revenue guidance increased  HALIFAX, July 27, 2011 /CNW/ - Bell Aliant Inc. (TSX: BA) today reported financial results for the second quarter of 2011 for Bell Aliant Inc. (Bell Aliant) and Bell Aliant Regional Communications Inc. (Bell Aliant GP)."Focused execution of our strategic priorities has resulted in our revenue trajectory continuing on an improved track," said Karen Sheriff, president and chief executive officer, Bell Aliant.  "The growth rates of our Internet and TV revenues have increased while the rates of decline in our traditional voice and data services have slowed. Our significant investment in a world-class fibre-to-the-home network is contributing to this improvement and gives us confidence that we are on the right path to returning to overall revenue growth.""We made major progress on our FTTH expansion plan in the second quarter," continued Ms. Sheriff. "We added more premises to our FTTH coverage area in the second quarter of 2011 than we did in all of 2010 to now pass 294,000 homes and businesses in Atlantic Canada with this leading edge technology.  With the launch of FibreOPTM 2.0 in April, we are now providing the fastest Internet and best-in-market TV product available to customers in these markets.""Customer take-up of our FibreOP services continues to be strong as we expand the service into new areas.  Considering that we still have over one-half of our announced FTTH expansion to come, I am optimistic about our prospects for Internet and TV revenue growth going forward."For the second consecutive quarter, Bell Aliant GP's operating revenue decline was held to approximately 1 per cent compared to the same quarter a year earlier."Our revenue performance for the first half of 2011 has exceeded our expectations in a number of areas," said Glen LeBlanc, executive vice president and chief financial officer. "We expect many of these positive trends to continue for the balance of the year, which has led us to revise our 2011 revenue guidance upward. Our FTTH expansion will be further accelerated, and with strong FibreOP customer additions and a high take-rate of FibreOP TV, we expect capital expenditures will be at the high end of our 2011 guidance range.  We expect to be firmly within our original guidance ranges for EBITDA, free cash flow and adjusted earnings per share."Second quarter 2011 highlights1Bell Aliant Inc. reported net earnings of $83 million for the second quarter of 2011 with earnings per share and adjusted earnings per share in the quarter of $0.36 and $0.43, respectively.2Second quarter financial highlights of Bell Aliant GP are summarized as follows:(In millions of dollars)(unaudited)Q22011Q22010Percentage ChangeYTD 2011YTD2010Percentage ChangeOperating Revenue$693$700(1.1%)$1,374$1,389(1.1%)EBITDA before pension current service costs349356(2.0%)694708(2.0%)EBITDA334343(2.8%)663682(2.8%)Capital Expenditures15412423.9%27421925.1%Free Cash Flow1911815.6%279*23717.5%* excludes $200 million lump sum pension contributionOperating revenues in the second quarter of 2011 declined $7 million (1.1 per cent) compared to the same quarter of 2010, primarily as a result of lower local and long distance revenues from lower network access services (NAS), which were partially offset by increases in Internet and TV revenues.Non-pension operating expenses in the second quarter of 2011 were flat compared to the same quarter of 2010, with the flow through effects of continued productivity gains offset by increased sales and marketing costs associated with the FibreOP rollout, other revenue driven expense growth and increases to incentive costs arising from mark to market adjustments for share-based compensation plans.EBITDA declined $9 million (2.8 per cent) in the second quarter of 2011 compared to the same quarter in 2010, as a result of lower revenues and a $2 million increase in pension current service costs. EBITDA before pension current service costs declined $7 million (2.0 per cent) in the second quarter of 2011 from the same quarter a year ago. EBITDA margin in the second quarter of 2011 was 48.2 per cent, down from 49.0 per cent in the same quarter of 2010, in line with the annual decline expected for 2011.Capital expenditures in the second quarter of 2011 increased $30 million (23.9 per cent) from the same quarter a year earlier, driven by the expansion of the FTTH network.  Capital expenditures are expected to continue to be higher than 2010 in the coming quarters of 2011 as Bell Aliant executes its plan to pass over 600,000 homes and businesses with FibreOP services by the end of 2012.Free cash flow was $191 million in the second quarter of 2011, up $10 million from the same quarter a year earlier.  Lower regular pension deficit funding and improvements in non-cash working capital offset reductions in cash flow from higher capital expenditures and lower EBITDA.Revenue DetailsLocal service and long distance revenues declined $13 million (4.0 per cent) and $3 million (2.7 per cent), respectively, in the second quarter of 2011 compared to the same quarter in 2010, primarily as a result of 5.0 per cent lower NAS than a year earlier.  The carryover effects of pricing actions from earlier quarters slightly offset the revenue effects of NAS declines.Net NAS declines were 32,000 in the second quarter of 2011, up from 24,000 in the second quarter of 2010.  The increase was driven by sharp growth in the cable telephony competitive footprint in the second quarter of 2011 following four quarters of minimal competitive household growth, and competitive activity.Bell Aliant passed an incremental 116,000 homes and businesses with FTTH in the second quarter of 2011, bringing total premises passed with FibreOP services at the end of June 2011 to 294,000.Internet revenue grew by $8 million (7.2 per cent) in the second quarter of 2011 compared to the same period in 2010.  Growth in residential high-speed average revenue per customer (ARPC) continued to drive the increase in Internet revenues. Customer demand for more bandwidth and premium services, along with selected pricing action, pushed ARPC in the second quarter of 2011 up 5.2 per cent from the same quarter a year earlier, to a new high.High-speed Internet customers reached 855,000 at the end of June 2011, up 3.3 per cent from a year earlier. Overall net high-speed Internet customer additions of 4,000 in the second quarter of 2011 were down from 8,000 in the second quarter of 2010, reflecting lower growth in high-speed Internet footprint (DSL) and continued competitive activity.  As marketing focus continued to shift to fibre markets, FibreOP Internet customers grew by 8,000 in the quarter to reach 22,000 at the end of June 2011.  The majority of the FibreOP net adds were customers migrating from DSL and fibre-to-the-node networks, which would not have contributed to overall high-speed customer growth, but increasingly contribute to growth in ARPC.IPTV revenue reached $10 million in the second quarter of 2011 with total IPTV customers of 59,000 at the end of June 2011. Overall net IPTV customer additions were 5,000 in the second quarter of 2011. FibreOP TV customers grew by 6,500 in the quarter to reach 20,000 at the end of June 2011.Other data revenue declined $4 million (4.1 per cent) in the second quarter of 2011 from the same quarter a year earlier as a result of competitive pressures and migration to alternate technologies. The decline in data revenues this year has improved from trends experienced in 2010 as a result of data demand growth in Atlantic Canada.Wireless revenues increased $2 million (9.1 per cent) in the second quarter of 2011 from the same quarter in 2010, driven by subscriber growth of 10.2 per cent compared to the end of June 2010.Other revenues decreased $3 million (7.0 per cent) in the second quarter of 2011 compared to the same quarter in 2010 which included a large one-time service contract that did not recur in 2011.Revised GuidanceBased on the strength of year-to-date results and the latest expectations for the balance of the year, Bell Aliant has increased its financial guidance for 2011 for revenues and maintained its guidance for EBITDA, free cash flow and adjusted earnings per share.  In addition, Bell Aliant has indicated that it now expects its 2011 capital expenditures to be at the high end of its original guidance range.Bell Aliant's revised 2011 financial guidance is as follows: 2011 GuidanceIssued February 20112011 Revised  GuidanceIssued July 2011Operating Revenues$2,650 million -  $2,750 million$2,720 million -  $2,780 millionEBITDA before pension expense$1,360 million-  $1,400 millionunchangedEBITDA$1,300 million -  $1,340 millionunchangedCapital Expenditures$520 million -  $560 millionunchangedFree Cash Flow$525 million -  $575 million*unchangedAdjusted earnings per share$1.60 - $1.80unchanged*Excludes $200 million lump sum pension contributionDeclared DividendsBell Aliant's Board of Directors today declared a quarterly dividend of $0.4750 per common share, payable on September 30, 2011 to shareholders of record at the close of business on September 15, 2011.Bell Aliant Preferred Equity Inc. also today declared the second dividend on its Series A Preferred Shares of $0.303125 per share to be paid on September 30, 2011 to shareholders of record as of September 15, 2011.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.Supplementary Financial InformationMore information on Bell Aliant's and Bell Aliant GP's second quarter 2011  results can be found in Bell Aliant's second quarter 2011 supplementary information package and Bell Aliant's and Bell Aliant  GP's second quarter 2011 Management's Discussion and Analysis (MD&A), available at www.bellaliant.ca/investors.Analyst conference call A conference call with the financial community is scheduled for July 27, 2011 at 3:00 p.m. (Eastern). The dial-in numbers are 866-223-7781 and 416-340-8018 for Toronto area participants. Media are invited to attend in listen-only mode.  A replay of the session can be heard until August 24, 2011. To access the replay, dial 800-408-3053 or 905-694-9451 and enter the passcode 6872111#.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.NotesThe 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 (Bell Aliant LP), Télébec, Limited Partnership (Télébec), NorthernTel, Limited Partnership (NorthernTel), and Bell Aliant Preferred Equity Inc (Prefco).(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 and Bell Aliant GP's MD&As for the second quarter of 2011.  Dollar values quoted in this release are rounded to the nearest million unless otherwise stated.(3) Definitions of non-IFRS measures: a. EBITDA: Bell Aliant defines EBITDA as operating revenue less expenses (earnings) before interest, income taxes, depreciation and amortization expense, severance and other charges. b. EBITDA margin: Bell Aliant defines EBITDA margin as EBITDA as a percentage of operating revenue. c.Free Cash Flow: Bell Aliant defines free cash flow as cash generated from operating activities less capital expenditures.  Free cash flow includes the operations of Bell Aliant and Bell Aliant GP on a combined basis. d. Adjusted earnings per share: Bell Aliant defines adjusted earnings per share as fully diluted earnings per share adjusted for the after-tax per share impact of amortizing purchase price allocations (PPA) amounts, which represent the adjustments to historical cost of tangible and intangible assets acquired in business combinations.For a reconciliation of these non-IFRS measures to the most closely comparable IFRS measures, please refer to Bell Aliant GP's MD&A for the second quarter of 2011.Forward-looking InformationThis news release contains forward-looking statements concerning anticipated future events, results, circumstances or expectations, in particular statements concerning the revenue outlook for 2011 fibre-to-the-home expansion plans and dividend payments. Unless otherwise indicated, such forward-looking statements describe management's expectations at July 27, 2011. 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.Key AssumptionsSeveral assumptions were made in the preparation of Bell Aliant's revised 2011 financial guidance and in making forward-looking statements in this news release.  For 2011, Bell Aliant expects:Market Assumptionsa)Year over year operating revenue changes across most major revenue categories will be better than those experienced in 2010 primarily due to customer migration to higher-value services and pricing actions;b)The revenue effects of CRTC decisions in late 2010 and early 2011 related to contribution revenues and pole attachment fees will contribute to a lower rate of revenue decline in 2011 than originally anticipated;c)Competition in both business and consumer markets will continue to be intense with the cable telephony competitive footprint growing from its current level of 71 per cent to reach a peak of 75 - 80 per cent over the next several years;d)Wireless substitution for voice services will increase in Bell Aliant territories but will continue to lag other regions of Canada;Operational Assumptionse)Net NAS declines will be similar to those experienced in 2010;f)High-speed Internet subscriber net additions will be slightly lower than those experienced in 2010;g)Bell Aliant will invest $350 million in fibre-to-the-home between 2011 and 2012 to pass over 600,000 homes and businesses by the end of 2012, which should result in higher total residential ARPC and significant TV subscriber and revenue growth;h)Cost reductions will continue in 2011 but at a lower rate than that achieved in recent years;Financial Assumptionsi)Net benefit plans cost included in operating costs (pension expense) using IFRS in 2011 will be  $60-65 million based on a discount rate of 5.3 per cent and a long-term rate of return on plan assets of 6.1 per cent, up from a comparable 2010 IFRS restated pension expense  of $53 million;j)Pension current service cost funding will be $65-$75 million, compared to $69 million in 2010.  Required pension deficit funding will be $105-$110 million, compared to $86 million in 2010.  In addition to the $200 million lump sum pension contribution, Bell Aliant will contribute $25-$50 million of regular cash pension deficit funding, which approximates expected going concern funding requirements for 2011;k)Taxable income is expected to be subject to blended federal and provincial corporate income tax rates of 29 per cent in 2011, dropping to 27 per cent by 2013 with a 2011 income tax provision of approximately $135 - $145 million. The utilization of accumulated tax-loss carryforwards will result in minimal cash taxes being paid in 2011 and 2012;l)Bell Aliant's depreciation and amortization expense for 2011 will be $625-$640 million, including approximately $145-$150 million of amortization of intangibles;m)Dividends paid by Bell Aliant are expected to qualify as eligible dividends entitling Canadian resident individuals who receive them to the enhanced dividend gross-up and tax credit mechanism that will reduce the income tax otherwise payable.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.Risk FactorsThere are many factors that could cause results or events to differ materially from current expectations. The most significant factors that Bell Aliant has identified that may affect Bell Aliant's results or events in 2011 include but are not limited to: increasing competition; management's ability to achieve strategies and plans, including expansion of fibre-to-the-home and managing the cost structure; general economic conditions; pension valuation and investment risk; reliance on systems; changing technology; required operating and capital expenditures; demand for our services; the business relationship with BCE and Bell Canada and the allocation of business opportunities; changing regulations; dependence on key suppliers; maintenance of credit rating; leverage and restrictive covenants; BCE's governance rights; reliance on key personnel and labour relations, including the requirement for effective business continuity planning; legal contingencies and changes in laws, including laws pertaining to privacy and security of customer information; success of acquisitions and dispositions, and related tax risks. For a detailed discussion of these risk factors and how they could impact our results, please refer to the "Risk management" sections of Bell Aliant Regional Communications Income Fund's and Bell Aliant Regional Communications Holdings Limited Partnership's 2010 annual MD&A, as well as the "Risk Factors" sections of Bell Aliant Inc's and Bell Aliant Regional Communication Inc's 2010 Annual Information Forms. These documents are available at www.bellaliant.ca and www.sedar.com.Should any factor impact 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. All of the forward-looking statements made in this press release are qualified by these cautionary statements, and 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 statement 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 statements. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to fiscal 2011. Readers are cautioned that such information may not be appropriate for other purposes.About Bell AliantBell 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._____________________________1 See Notes section at the end of this release for definitions of the non-International Financial Reporting Standard (IFRS) financial metrics.2 Bell Aliant converted from an income trust to a corporate structure on January 1, 2011. Prior year net earnings and earnings per share metrics of the trust structure are not meaningful or comparable to 2011 results.  For further information: Media Relations: Sarah Levy (855) 487-5026 sarah.levy@bellaliant.ca Investor Relations: Zeda Redden (877) 487-5726 zeda.redden@bellaliant.ca