BCE posts modest sales, share profit rise after gains, charges

BCE Inc. posted modest sales and share profit growth in the fourth quarter as the conglomerate booked two large one-time gains and several major asset writedowns and restructuring charges.

The company had sales of $5.17-billion in the three months ended Dec. 31, up 1.2 per cent from $5.11-billion a year earlier. Excluding "non-recurring items," profit rose 14.5 per cent to $395-million from $345-million a year earlier. But share profit advanced far less -- 2.3 per cent to 44 cents from 43 cents -- because BCE issued more than 100 million new shares last year to help buy back a stake in Bell Canada.

"By and large, I don't think there's anything really remarkable in these numbers," said Michael Sabia, BCE's president and chief executive officer.

BCE stock closed at $28.90, up 3 cents, on the Toronto Stock Exchange yesterday.

The Montreal-based company's final profit rose to $1.74-billion or $1.92 a share in the fourth quarter from a loss of $299-million or 37 cents last year, an increase driven by a one-time gain of $1.83-billion from the sale of the company's telephone directories business.

BCE recorded restructuring and other charges of $251-million, in part to cover a work force reduction of about 1,700 employees in the coming months. It took a goodwill impairment charge of $530-million, largely related to Bell Globemedia. The company wrote down assets by $209-million, related to Bell Canada International Inc., which owned communications companies outside Canada and is being wound down, and BCE Capital Inc., a venture capital operation.

BCE also recorded a one-time gain of $505-million, a tax benefit and adjustment from the sale of Teleglobe Inc. to a court-appointed monitor.

Beyond writedowns and charges, BCE continues to concentrate on "blocking and tackling," a conservative strategy instituted in response to failed growth efforts of recent years.

"Our focus continues to be very much on execution, whether it's sales strategy or the management of productivity [and] focus on service," Mr. Sabia said.

Productivity at Bell Canada -- the country's largest phone company and BCE's primary asset -- is key in the face of nominal growth, observers say. About $600-million of costs were cut in 2002 and the company hopes to cut about another $600-million this year.

Bell Canada's sales in the fourth quarter fell 0.1 per cent to $4.53-billion from a year earlier. Earnings before interest, taxes, depreciation and amortization (EBITDA) and non-recurring items rose 4.9 per cent to $1.79-billion.

Bell Canada's traditional businesses -- local and long-distance telephone service -- declined, a continuing trend. The company's newer businesses -- mobile phone company Bell Mobility and satellite television company Bell ExpressVu -- posted double-digit sales growth, which wasn't enough to push Bell Canada's sales higher.

"Over all, it was a good quarter," said Brahm Eiley of Convergence Consulting Group. "But looking at [BCE] going forward, where is the growth coming from?"

Robert Hastings, an analyst at Raymond James Ltd., said the BCE results contained no surprises given the fact that the company presented an in-depth business review in mid-December.

"Nothing has changed very much," Mr. Hastings said, adding that he was impressed by the numbers posted by Bell Mobility.

The mobile phone company, which accounts for about 10 per cent of BCE's sales, added 218,000 net new subscribers in the fourth quarter, bringing its total to 3.9 million and maintaining its No. 1 position in Canada. Of the new subscribers, 196,000 were "post-paid" -- more profitable customers that pay monthly bills rather than prepaying for a set number of minutes. It was Bell Mobility's best quarter ever for post-paid additions.

Regulatory decisions remain an issue for Bell Canada. Last year, the Canadian Radio-television and Telecommunications Commission capped local telephone prices on average and cut the prices competitors pay for access to Bell Canada's network. Those decisions will cost about $1-billion in operating profit in the 2002-06 period, BCE has said.

In the past two months, the CRTC has made several decisions viewed as pro-competitor, moves that BCE said matter but don't change its 2003 outlook.

"They do represent a challenge for us," Mr. Sabia said. "In terms of the pitch or level of the playing field, there's a little bit of change going on."

On an afternoon conference call with reporters, Mr. Sabia declined to comment on BCE's scheduled Feb. 18 appearance before the House of Commons industry committee on the question of foreign ownership of Canadian phone companies. The review began this week.

"There are a host of issues," Mr. Sabia said.

For 2002 as a whole, BCE sales rose 2.2 per cent to $19.77-billion from $19.34-billion in 2001. BCE recorded a profit of $2.42-billion or $2.74 a share, more than five times the profit of $450-million or 56 cents in 2001.

BCE said, excluding non-recurring items, profit in 2002 was $1.5-billion or $1.81 a share, up from $1.4-billion or $1.74 in 2001.

BCE reiterated 2003 guidance it first issued in December. It estimated sales of $19.3-billion to $20-billion and a share profit of $1.85 to $1.95.

"The guidance is very realistic," said Dvai Ghose, an analyst at CIBC World Markets Inc. "It's probably the most realistic BCE call I've been on for a long time."

The sale of Teleglobe to a court-appointed monitor in December realized a capital tax loss of about $10-billion for BCE, chief financial officer Siim Vanaselja said on the morning conference call.

The tax loss offsets the entire capital gain from the sale of the directories business and also some of the gain from the sale of Nortel Networks Corp. shares a couple of years ago.

BCE still has about $4-billion in tax losses to use against future capital gains, Mr. Vanaselja said.