After years of stock market stagnation and corporate restructuring, BCE Inc. Tuesday marked the start of a new chapter in which it says it will focus on delivering a long-promised turnaround, under a new name.
Montreal-based BCE's ambitions were reflected in its rosy revenue outlook and substantial dividend increase for 2007. George Cope, president of BCE's main Bell Canada unit, will lead the charge to improve the former phone monopoly's performance by accelerating revenue growth and wringing more profit from a competitive market.
“Yes, we're asking the management team to step up to an aggressive execution in terms of our revenue growth,” Mr. Cope told investors at a conference Tuesday in Toronto. “Probably we knew [it was] greater revenue growth than a lot of people expected. It's now up to us to execute on this.”
Shareholders think the company is on the right track. BCE's stock rose 5 per cent to $30.33 Tuesday on the Toronto Stock Exchange.
“They hit all the right buttons this time on what makes the market like a stock,” said Greg Eckel, senior vice-president at Morgan Meighen & Associates in Toronto, which holds BCE shares. “They've definitely turned the beast around,” said Jonathan Popper, a portfolio manager at MFC Global Investment Management, which also holds shares in BCE. “It's got the foundation to head in the right direction.”
The mood hasn't been so upbeat in recent weeks, a trying period for both BCE and investors. As expected, BCE Tuesday shelved its plan to turn the Bell unit into an income trust. That's after the government unveiled a plan on Halloween to tax trusts like corporations, eliminating the incentive for converting to such a structure.
Investors will still receive a higher return; BCE plans to boost its annual dividend by 11 per cent to $1.46 a share in 2007, and renew a program to buy back about 5 per cent of its outstanding stock.
BCE also intends to pursue one idea that came out of the trust project, eliminating the holding company structure and changing its name to Bell Canada Inc. at the next shareholder meeting.
That move will allow it to delay a big increase in cash taxes until 2011, as the consolidation of the Bell operating companies will lead to more flexibility in using research and development tax credits.
As part of the restructuring, Bell investors will vote at a special meeting on Jan. 23 on a plan of arrangement to exchange Bell preferred shares for BCE preferred shares.
At the meeting Tuesday, BCE chief executive officer Michael Sabia reflected on what he calls the different chapters in BCE's transition. When he took over during a turbulent period in 2002, his goal was to stabilize the business. In recent years, the focus has been on transforming the company through asset sales, cost cutting, network upgrades, and hiring new mangers, including Mr. Cope. Now Mr. Sabia must make sure Bell can deliver on its strategy.
“There's a lot of hard work ahead,” Mr. Sabia said. “The plan has to be executed and delivered. That will be a challenge ... In that sense, we're still working away climbing the hill, but we're going to get to the top.”
Bell expects a 3- to 5-per-cent gain in revenue next year, higher than some analysts have forecast. In 2006, revenue is expected to rise 1 to 3 per cent. Increases in subscriptions for wireless, Internet and TV services will fuel growth in 2007, when those businesses are expected to account for 60 per cent of Bell's revenue.
The company also expects to benefit from pricing changes. Bell, for example, wants more customers to sign up for two- or three-year contracts, and has started selling metered Internet services. But one new product that is expected to launch — TV service over land lines — won't generate meaningful revenue next year, Mr. Sabia said
On the local phone side, Bell will continue to face competition from cable companies. Mr. Sabia, however, expects the number of local phone lines it loses will stay around the same level in 2007 as in 2006.
Bell appears set to benefit from a federal proposal to speed up the deregulation of big phone companies in the local phone market. “It will test our flexibility and creativity as we're now able to compete without having both of our hands tied behind our backs,” Mr. Sabia said.
(BCE owns a minority interest in Bell Globemedia, the owner of The Globe and Mail and CTV television network.)
Cost cutting remains on the agenda, although Mr. Sabia said he expects the employee count will remain stable after 9,000 job cuts in recent years. BCE will look for savings from supply-chain improvements and other measures. BCE forecasts per-share profit growth of 4 to 7 per cent in 2007.
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