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Press release from CNW Group

Bell Aliant reports third quarter 2011 results

Tuesday, November 01, 2011

Bell Aliant reports third quarter 2011 results08:19 EDT Tuesday, November 01, 2011Year over year revenue trajectory continues to improveFibreOPTM expansion boosts Internet and TV revenue growth, largely offsetting legacy revenue declines Fibre-to-the-home (FTTH) network now passes 398,000 homes and businessesStrong FibreOP demand drives acceleration of FTTH rollout pace; 2011 capital expenditure guidance increased  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, Nov. 1, 2011 /CNW/ - Bell Aliant Inc. (TSX: BA) today reported financial results for the third quarter of 2011 for Bell Aliant Inc. (Bell Aliant) and Bell Aliant Regional Communications Inc. (Bell Aliant GP)."Our investment in FibreOP continues to exceed our expectations," said Karen Sheriff, president and chief executive officer, Bell Aliant. "Our revenue performance in the quarter was solid, with growth in Internet and TV revenues largely offsetting declines in our legacy voice business. We are seeing overall revenue growth and customer retention benefits in our FibreOP territories as we build scale in our TV business and provide a better Internet service.""We continued to steadily expand our FTTH footprint this quarter, adding on average over 1,000 homes per day to our coverage area to total 104,000 new homes passed," continued Ms. Sheriff. "Demand for the service is very strong, with take-rates on both FibreOP Internet and TV higher than we earlier anticipated.  We are going to take advantage of this positive momentum to further accelerate our FTTH rollout for 2011 to meet the strong customer demand.  All of this bodes well for our future outlook."Bell Aliant now expects to pass approximately 450,000 homes and businesses with FTTH by the end of 2011, up from the previous estimate of 430,000.  Accordingly, Bell Aliant has increased its 2011 capital expenditure guidance to $560 - $575 million, up from its earlier guidance of $520 - $560 million."By passing more premises with FTTH and connecting more FibreOP customers this year than previously expected, our capital expenditures for the year are now expected to be slightly higher than the top end of our earlier announced guidance range," said Glen LeBlanc, executive vice president and chief financial officer. "The strength of our revenue and EBITDA performance allows us to invest more in FTTH while continuing to be confident that we will finish the year within our guidance range for free cash flow.""We expect to finish 2011 with solid financial results and as a year of significant accomplishment.  However, we continue to expect that our fourth quarter results will be softer compared to prior year than the previous quarters of 2011.  This is largely the result of one-time revenue in the fourth quarter of 2010 due to regulatory decisions and unusually strong product sales that we do not expect to repeat this year," concluded Mr. LeBlanc.Third quarter 2011 highlights1Bell Aliant Inc. reported net earnings of $76 million for the third quarter of 2011 with earnings per share and adjusted earnings per share in the quarter of $0.33 and $0.41, respectively.2  Third quarter 2011 financial results included a $27 million restructuring charge associated with a voluntary retirement offer to unionized employees. Approximately 500 employees have accepted the offer with departure dates occuring over the 2011 - 2014 period.Third quarter and year-to-date financial highlights of Bell Aliant GP are summarized as follows:(In millions of dollars)(unaudited)Q32011Q32010PercentageChangeYTD2011YTD2010PercentageChangeOperating Revenue$700$704(0.5%)$2,074$2,093(0.9%)EBITDA before pension current service costs355362(1.9%)1,0491,070(2.0%)EBITDA340349(2.7%)1,0031,031(2.8%)Capital Expenditures16211343.0%43633231.2%Free Cash Flow110144(23.5%)389*3812.0%* Excludes $200 million lump sum pension contribution made in Q1 2011Operating revenues in the third quarter of 2011 were $700 million, down $4 million (0.5 per cent) compared to the same quarter of 2010. Growth in Internet and TV revenues largely offset declines in local and long distance revenues from lower network access services (NAS).Non-pension operating expenses in the third quarter of 2011 increased $3 million (1.0 per cent) compared to the same quarter of 2010.  Cost reductions from productivity gains mitigated the expense effects of increased sales and marketing costs associated with the FibreOP rollout and other revenue driven expense growth.Lower revenues and higher non-pension operating expenses resulted in an EBITDA before pension current service costs decline of $7 million (1.9 per cent) in the third quarter of 2011 from the same quarter a year ago. An increase in pension current service costs of $3 million lead to an EBITDA decline of 2.7 per cent in the third quarter of 2011 compared to the same quarter in 2010.Capital expenditures in the third quarter of 2011 increased $49 million (43.0 per cent) from the same quarter a year earlier, driven by the expansion of the FTTH network.  In the third quarter of 2011, Bell Aliant passed an additional 104,000 homes and businesses with FTTH, bringing its total FTTH coverage to 398,000 at the end of September 2011.Free cash flow was $110 million in the third quarter of 2011, down $34 million (23.5 per cent) from the same quarter a year earlier.  Higher capital expenditures and lower EBITDA in the third quarter of 2011 compared to the same quarter in 2010, which were slightly offset by lower pension deficit funding, drove the decrease in free cash flow.Revenue DetailsLocal service and long distance revenues declined $13 million (3.9 per cent) and $5 million (4.6 per cent), respectively, in the third quarter of 2011 compared to the same quarter in 2010, primarily as a result of 5.2 per cent lower NAS than a year earlier.  The carryover effects of pricing actions from earlier quarters mitigated the revenue effects of NAS declines.  Net NAS declines were 38,000 in the third quarter of 2011, up from 35,000 in the third quarter of 2010.  The higher declines were driven by continued competitive activity.Internet revenue grew by $8 million (6.7 per cent) in the third quarter of 2011 compared to the same period in 2010.  Growth in residential high-speed average revenue per customer (ARPC) continued as customer demand for more bandwidth and premium services, along with the carry-over effects of pricing actions earlier in the year, pushed ARPC in the third quarter of 2011 up 5.9 percent from the same quarter a year earlier, reaching a new high.High-speed Internet customers reached 860,000 at the end of September 2011, up 2.7 percent from a year earlier. FibreOP Internet customers grew by 12,000 in the quarter to reach 34,000 at the end of September 2011.  The majority of the FibreOP  additions were customers migrating from traditional 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.  Overall net high-speed Internet customer additions of 5,000 in the third quarter of 2011 were down from 10,000 in the third quarter of 2010, reflecting lower growth in high-speed DSL Internet footprint, migration to FibreOP and continued competitive activity.IPTV revenue reached $12 million in the third quarter of 2011 with total IPTV customers of 68,000 at the end of September 2011. Overall net IPTV customer additions were 9,000 in the third quarter of 2011.  FibreOP TV customers grew by 11,000 in the quarter to reach 30,000 at the end of September 2011, including migration from Bell Aliant's FTTN TV service.Other data revenue declined $2 million (1.7 per cent) in the third quarter of 2011 from the same quarter a year earlier as a result of competitive pressures and migration to alternate technologies.  Data revenue declines continued the improved trends of previous quarters as a result of data demand growth in Atlantic Canada.Wireless revenues increased $2 million (6.6 per cent) in the third quarter of 2011 from the same quarter in 2010, driven by subscriber growth of 11.0 per cent from the end of September 2010.Other revenues increased $1 million (2.1 per cent) in the third quarter of 2011 compared to the same quarter in 2010, largely driven by increases in pole attachment fees.Revised GuidanceBell Aliant has increased its guidance for capital expenditures for 2011 based on expected further acceleration of its FTTH rollout.  Other guidance metrics remain unchanged. Bell Aliant's updated 2011 financial guidance is as follows: 2011 GuidanceIssued July 20112011 Revised  GuidanceIssued November 2011Operating Revenues$2,720 million -  $2,780 millionunchangedEBITDA(2) before pension expense$1,360 million-  $1,400 millionunchangedEBITDA(2) after pension expense$1,300 million -  $1,340 millionunchangedCapital Expenditures$520 million -  $560 million$560 million -  $575 millionFree Cash Flow(2)$525 million -  $575 million(1)unchangedAdjusted earnings per share(2) $1.60 - $1.80unchanged(1)Excludes $200 million lump sum pension contribution made in Q1 2011(2)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 Q3 2011 MD&A for details Declared DividendsBell Aliant's Board of Directors today declared a quarterly dividend of $0.4750 per common share, payable on December 30, 2011 to shareholders of record at the close of business on December 15, 2011.Bell Aliant Preferred Equity Inc. also today declared a dividend on its Series A Preferred Shares of $0.303125 per share to be paid on December 30, 2011 to shareholders of record at the close of business on December 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 third quarter 2011 results can be found in Bell Aliant's third quarter 2011 supplementary information package and Bell Aliant's and Bell Aliant  GP's third 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 November 1, 2011 at 12 p.m. (Eastern). The dial-in numbers are 866-226-1792 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 November 29, 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; 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 and Bell Aliant GP's MD&As for the third 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.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.  c.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 third quarter of 2011.Forward-looking InformationThis news release contains forward-looking statements concerning anticipated future events, results, circumstances or expectations, in particular statements concerning fibre-to-the-home expansion plans, 2011 financial guidance and dividend payments. Unless otherwise indicated, such forward-looking statements describe management's expectations at November 1, 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 more favourable than those experienced in 2010 primarily due to customer migration to higher-value services and selective pricing actions;b)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;c)Wireless substitution for voice services will increase in Bell Aliant territories but will continue to lag other regions of Canada;Operational Assumptionsd)Net NAS declines will be similar to those experienced in 2010;e)High-speed Internet subscriber net additions will be slightly lower than those experienced in 2010;f)Homes and businesses passed with FTTH will reach approximately 450,000 by the end of 2011 and over 600,000  by the end of 2012, which should result in higher total residential ARPC and significant TV subscriber and revenue growth;g)Cost reductions will continue in 2011 but at a lower rate than that achieved in recent years;Financial Assumptionsh)Net benefit plans cost included in operating costs (pension expense) 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-based pension expense  of $53 million;i)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;j)Productivity initiatives, announced periodically since 2008, will result in a use of cash for severance, benefits and real estate rationalization costs of approximately $28 to $32 million in 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 the fibre-to-the-home network and managing the cost structure; general economic conditions; pension valuation and investment risk; reliance on systems; changing technology; demand for Bell Aliant's products and services; the business relationship with BCE Inc. and Bell Canada; changing regulations; dependence on key suppliers; maintenance of credit rating; leverage and restrictive covenants; BCE Inc.'s governance rights; reliance on key personnel and labour relations, including the requirement for effective business continuity planning and the ability to attract and retain new employees; legal contingencies and changes in laws, including laws pertaining to privacy and security of customer information; and related tax risks. Some of these risk factors are largely beyond our 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 Regional Communications Income Fund's MD&A for the year ended December 31, 2010, 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 Holdings, Limited Partnership's MD&A for the year ended December 31, 2010, 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 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 2011 or other future periods. 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 structure 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