Q4 2023 BCE Inc Earnings Call
You are in listen only mode. If you wish to ask a question dial star one.
Conference call I would now like to turn the meeting over to Mr. Faithfull populace. Please go ahead. Mr. Fotopoulos. Thank you Matthew and good morning, everyone and thank you for joining our call with me here today are miracle, Beberg, Bce's, President and CEO and our CFO Curtis smell them you can find all of our Q4 disclosure documents, including our safe Harbor notice concerning forward looking statements for <unk>.
24 on the Investor Relations page of the D. C C. A website, which we posted earlier. This morning, we have a lot of material to get through on the call. However, before we begin I want to draw your attention to our safe Harbor statement on slide to remind you that today's slide presentation and remarks made during the call will include forward looking information and therefore are subject to risks.
Uncertainty results could differ materially we disclaim any obligation to update forward looking statements, except as required by law. Please refer to our publicly filed documents for more details on assumptions and risks with that mark over to you. Thank you. Thanks and good morning, everyone.
Speaker Change: Our quarterly and full year financial performance demonstrate the stability of our business and our proven ability to execute under any circumstances.
Speaker Change: The Bell team takes pride in delivering what we promise taking the necessary near term actions, including driving costs out of the business and balancing growth with profitability to meet our commitments our commitments to our customers onto our investors while at the same time, putting in place the technology product customer service and cultural Foundation.
We know will drive growth in the medium to long term our results for 2023 validate. This fact as we achieved all our financial guidance targets and maintained a stable EBITDA margin, even while facing significant media advertising headwinds unsupportive government and regulatory decisions and the macroeconomic environment.
Marked by higher interest rates and sustained inflation.
We also made tangible progress on our key strategic imperatives in 2023, showing that the investments we've been making across every part of our business since the onset of Covid are working and these priorities remain the foundation for <unk> future success.
We met our broadband fiber buildout target and we surpassed our mobile five G and five G plus coverage objectives. In fact, we now offer multi gig symmetrical internet speeds of three gigabytes and $6 5 million locations. That's a big competitive advantage that our cable competitors cannot match across their entire footprints and.
Our performance in quality gap over cable is reflected in our internet subscriber metrics.
Speaker Change: We also secured new five G plus spectrum licenses in the recently completed 3800 megahertz auction. We now have the most five G plus spectrum in Canada acquired at a total cost that was the lowest among national wireless carriers.
In wireless we delivered a great result, and an increasingly competitive environment, we delivered a healthy step up in sales strong net ads focused on high quality premium brand customer loadings positive organic <unk> growth in Q4 and throughout the year and importantly, we managed our promotional offers in a disciplined way.
To balance growth with profitability with a sizable improvement in product margin in Q4.
Speaker Change: Fueled by our fiber footprint. We also grew broadband internet market share contributing to strong residential internet revenue growth of seven 1% in 2023 in particular, we stepped up share gains and our competitiveness in the province of Quebec, given our fiber advantage in bundling capabilities.
Speaker Change: Turning to media digital revenue was up 19% and represented 35% of total media revenue versus 29% last year and that's a notable result, given current challenging advertising market conditions. This is also notable given our strategic shift to digital.
And investments to sustain this strategy are continuing with long term access to premier content from Corre partners, including Warner Brothers Discovery on the NFL. The recent introduction of AD supported subscription tiers on crave and upcoming distribution on Amazon and Amazon Prime video, which we announced this week as well as the <unk>.
Launch of addressable advertising that will enable advertisers to target ads to specific households, or devices were well positioned to capture an even higher share of industry digital AD market revenue going forward.
On the customer experience front, our invest our investments in building the best broadband networks, which are consistently recognized by third parties as being the fastest.
Together with online digital support tools and innovative apps continued to deliver better customer experiences.
These efforts are a big reason why we've increased our share of digital online service transactions through self service tools to nearly 70% of all digital transactions and wide bell customer satisfaction scores continue to improve as reflected in the latest report from the Cts.
Which showed as you know a 6% drop in bell share of overall complaints again.
Speaker Change: Best performance among national service providers for an eighth consecutive year.
Now on slide five of our presentation.
It's clear from all of the data points I just provided that we made good progress against our strategic imperatives in 2023.
And we fully appreciate that our shareholders look to bell for the safety and growth of our cash flows. However, we must address a number of factors in our operating environment and that includes Unsupportive federal government policies higher interest rates and inflation changing consumer preferences regarding service experience and delivery and Madden.
Speaker Change: <unk> through a fundamental technology transformation.
Competition and customer expectations are also putting downward pressure on our booze, requiring a more agile and scale down our cost structure.
Media companies are facing increasing competition from global Tech players and ongoing advertising recession in a declining legacy distribution business.
And the Canadian regulatory environment is marked by policies on fiber resell that are negative specifically target Bell and broadcasting framework that curiously still does very little to assist Canadian media companies.
Because of the CRT six 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 a $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.
And an unwillingness or inability to level the playing field between domestic competitors in 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 investments such as cloud and security services advanced advertising and digital transformation Justin.
I'm a few <unk>.
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 is being reshaped its 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 4800 positions, including 750 contractors or 9% of all BCE employees.
This restructuring initiative will yield in year cost savings in the range of $150 million to $200 million for 2024.
Or $250 million on an annualized basis.
Now the 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're leveraging vacant positions in natural attrition in order to minimize the impact on our team will remove overlaps and consolidate certain functions across <unk>.
<unk> 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 opex savings in the medium to long term than those being realized as a result of today's announcement.
Now moving to slide six.
Speaker Change: 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 to rebrand excuse me 165 source stores to best buy Express.
Al 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.
Fortunately 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 service now the global leader in digital workflow solutions, our collaboration with service now creates unique value for the Canadian business market.
And we 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 is Canadian.
And 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 monitor 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 footprint.
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.
We've launched fiber migration now to 105 central offices transitioning 110000 residential customers in 2023 and in 2020 for copper customers in Manitoba in Atlantic, Canada, who need to repair will be transitioned over to fiber, where we have fiber as we already do it.
<unk> and Quebec.
We introduced a new next generation five TV service powered by bells in house software on an Android TV set top box and that importantly.
Speaker Change: That's the stage for a move to a single IP TV 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.
This has now been launched at scale to $1 3 million customers in Ontario, and Quebec, and we 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.
Speaker Change: <unk>, they will support a stronger EBITDA growth trajectory margin accretion in 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 seven and our dividend announcement for this morning.
Speaker Change: We're increasing the BCE common share dividend by three 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 will continue to prioritize it in our capital allocation.
And it's apparent from our dividend yield that at this time BCE share price is not being rewarded for the higher 5% dividend growth profile.
We appreciate that our shareholders want a stable and growing dividend and we're delivering on that expectation.
The three 1% increase for this year 2024 will allow us to better balanced 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.
Speaker Change: We're undertaking and the acceleration of our tech co transformation I will serve as the future catalyst to growth and deliver the financial results.
Speaker Change: 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 Marco and good morning, everyone I'll begin on slide nine with Bce's consolidated financial results.
We had a strong quarter to end the year with $5, 3% higher adjusted EBITDA drove a $1 nine 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 moderated service revenue growth this quarter.
Speaker Change: 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.
Speaker Change: As Marshall pointed out we reduced planned capital investment by an additional $105 million in Q4 as a direct result of the CRT vies fiber resale decision.
Speaker Change: Our strong EBITDA growth substantial capex reduction lower cash taxes, and the auditor of 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.
Speaker Change: Starting with a high level summary of Q4 subscriber metrics overall.
Speaker Change: Overall, I would say that we're doing a very good job in wireless striking a healthy balance between volume growth acquisition cost and <unk>.
We delivered a record quarter for postpaid mobile phone gross activations drove a 128715, new net subscribers.
This result, which comprises our second highest Q4 for consumer postpaid net adds after last year was achieved even with a higher number of switchers, reflecting aggressive offers from our competitors that we chose to match selectively.
Speaker Change: Disciplined approach was reflected in our promotional offers our handset subsidies were on average 32% lower than they were in 2002, driving a significant improvement in wireless product margin.
Speaker Change: Wireless <unk> was up <unk>, 4% this quarter driven by our focus on premium <unk> 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 alliance on network quality and distribution strength rather than.
Speaker Change: Promotional discounting to drive profitable subscriber growth.
Switching to our industry, leading broadband segment.
El Internet added 55591 total new net retail subscribers. Our second best Q4 result in nearly two decades.
And on the TV side of things, we added 23537, net IP TV subs, which was approximately 17000 lower versus Q4 of 2022.
Speaker Change: This was expected.
Our result, as a result last year benefited from a significant number of customer activations driven by the World Cup.
Speaker Change: Moving to Bell Cts financials is a very good set of results to end the year topline revenue grew a respectable one 7% in Q4. This was achieved despite ongoing legacy declines a tough year over year comp for business product sales and a richer residential service bundle discounts, reflecting a more intense promotions.
Speaker Change: Market compared to last year.
Speaker Change: Total consumer wireless revenue increased five 5% profiting from a higher sales mix of premium mobile phones on the product side and positive <unk> growth on the service side.
Residential Internet revenue was up five 4%.
Speaker Change: 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 engine.
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 drove strong EBITDA growth of four 8%.
Speaker Change: Clearly there is a financial highlights for Q4.
Onto slide 11.
Bell Media continued 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 television sales tool, which saw a 70% increase in sales in Q4.
Speaker Change: Despite strong digital AD growth in the quarter total AD revenue was down $13, 7% as advertiser spending, particularly for TV 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.
Speaker Change: Normalizing for the World Cup AD revenue net of displacements was down 9%.
Speaker Change: 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 unfavorable revenue backdrop, EBITDA increased $14, 7% in Q4.
Speaker Change: This result was supported by the favorable impact of various restructuring initiatives undertaken in 2003 to help rightsize, our cost structure and asset portfolio, along with lower television programming costs due to the Hollywood strikes and last year's World Cup broadcasts.
Speaker Change: I'll now turn to our 2024 financial outlook, starting with revenue and EBITDA on slide 13.
Based on the latest economic forecasts on industry outlook, our revenue and adjusted EBITDA growth ranges for 24 takes 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 revenues from our consolidated results in 2024.
Impacts on EBITDA will not be material, given relatively low margins for consumer electronics.
Speaker Change: As a result, we're setting our guidance growth ranges for 2024 zero to 4% for total revenue and $1 five to $4 five for adjusted EBITDA.
Given this outlook and benefiting from the cost savings, we expect to realize from the transformation initiatives that <unk> outlined earlier, including a 9% reduction in our workforce, we predict Dcs margin for 2024 to remain at a minimum stable year over year.
Notably if you exclude the financial impact of the best <unk> transaction, our target guidance 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.
Speaker Change: Underpinning this steady growth because of our continued focus on premium mobile phone subs with increased emphasis on market growth as we capitalize on our wireless network leadership.
Speaker Change: Ongoing <unk> 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 sell penetration of higher value mobility and internet households.
In our <unk> 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 and SMB.
Speaker Change: At Bell media, although the timing of an advertising recovery remains uncertain. We will continue to drive advanced advertising digital products like frame as well as new distribution initiatives, such as Crazy partnership with Amazon to further grow our market share of digital assets.
Speaker Change: These digital opportunities together with the financial contribution from our pending acquisition of upfront media and restructuring cost savings should drive improved media financial performance in 2024.
Moving to slide 14.
Despite growth in EBITDA, we project adjusted EPS to be in the range of $2 98 to $3 <unk> three per share in 2024, our 2% to 7% lower versus last year. This year over year decline can be attributed largely to.
Speaker Change: Approximately $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 costs 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 <unk> <unk> per share.
Turning to slide 15, we.
We expect to generate $2 <unk> to $3 <unk> 5 billion of free cash flow in 2024.
This is 3% to 11% lower compared to 2023 and reflects around $400 million.
And one time severance payments related to the 4800 employee reductions that mark will detail.
Normalizing for the severance payments associated with our announced workforce restructuring initiatives in 2023, and 2020 for free cash flow growth is in the range of zero to 7% this year, providing support from the $3, 1% dividend increase we declared this morning.
Speaker Change: This underlying growth in free cash flow as a result of higher year over year, EBITDA and a $5 $500 million decrease in Capex that will drive our 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 investments.
Speaker Change: 2020 for free cash flow also reflects higher interest paid stable to higher cash taxes at 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 'twenty, three which normalized following substantial colbert and supply chain impacts in 2022 as.
Speaker Change: As well as potential recessionary impacts on customer collections that may materialize with a harder economic landings.
Moving to slide 16, as we begin the year, we were in a very strong financial position we.
Which provide good overall financial flexibility to execute on our business plan and strategic priorities for 2024.
Our net debt leverage ratio of just under three five times adjusted EBITDA due to several years of generational capex spending in 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 and after tax cost of borrowing that is below prevailing interest rates at around 3%.
At a floating interest rate exposure that is below our historical target range of 20% to 30%.
Speaker Change: 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 pressure.
Speaker Change: Yes.
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 2020.
Speaker Change: 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.
Speaker Change: Within that context, the guidance targets, we are 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.
Speaker Change: I will now turn the call back over to thin 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 site I would please ask that you limit yourself.
One question, so we can get to everybody in the queue.
Speaker Change: With that Matthew we're ready to take our first question.
Matthew: Thank you.
First question is from Mayer Yaghi from Scotiabank. Please go ahead.
Alright, Thank you for taking my question.
Believe it or not that I want to ask you about Q4 or 2024, I think we need to discuss the elephant in the room here.
One can set aside.
<unk> environment, when looking at pricing pressure hitting Canadian telcos.
On both wireless and wireline.
We have seen similar issues in the Canadian broadcasting industry due to slow evolution on regulation.
Matthew: Merkle I wanted to ask.
Thank you.
Is there a telecom service in Canada at risk of seeing similar long term profitability issues if regulation.
<unk> to lag technological advancements.
Matthew: Underlying my question is this question beyond 2024 should we expect.
Future years to see additional material cost reductions to continue to stay ahead of the regulatory pressures. Thank you.
Matthew: Right.
Speaker Change: Thanks Amir.
Speaker Change: Thanks for that question, so a lot there.
Let me start with want to reemphasize, what I started with in my opening remarks, we continue to deliver strong results each quarter.
And that's because we're always planning ahead. So we were making investments in 2000 22021 to get us in a position where we can deliver strong results in 2023, and we're continuing to do that always plan for the environment that surrounds us now and where we expect it to go and that's kind of where your questions going so where that could be technology that could be you won't kind of macroeconomic.
Customer expectations obviously.
Speaker Change: Matter, a lot competitive environment and significantly regulatory so.
If you look at our free cash flow guide sorry, our Capex guidance for 2024, we say less 16, 5% capital intensity ratio or less.
And we say that we're kind of reducing capex by at least 1 billion over the next two years in the or less in the at least.
Speaker Change: It's basically saying if it gets worse on the regulatory front in terms of some of these rules that we know very well fiber access in this particular case, we will do more than that could be cutting investments in these areas without while and then redirecting moneys to growth Capex and transformation capex and it could be more.
Restructuring for sure.
Speaker Change: The 16, 5% capital intensity ratio was about $4 1 billion of Capex planned for this year and Unfortunately, I had actually thought that we'd be at $4 $1 billion in 2026, 19 2020 for 2025.
Speaker Change: When we were kind of anticipating to build to 9 million fiber locations by the end of 2025. So we pulled our spending in earlier than than planned specifically because of the regulatory rules and federal public policies, we got to call those out as well.
Speaker Change: And in the midterm, we can operate this company below that capital intensity mirror given the work we're doing now on our growth and our transformation agenda I won't list them I went a wind at length of time on them.
Speaker Change: Yeah.
Speaker Change: In my opening remarks, so now let's go back on fiber.
Speaker Change: Fundamentally.
Speaker Change: Yeah.
Why the question, we have to ask yourselves as why continue to invest at the pace that we did in 2020 2021 'twenty two 2022 and 2023.
Speaker Change: If we're going to make investments that are going to enrich.
The shareholders of our major incumbent telcos and cable codes I mean, you got to ask yourself at some point why don't we just kind of right on their networks right, but ultimately that would be terrible outcome for.
Resiliency network competition price competition et cetera, so yeah.
Long answer short short answer is there could be more to come depending on where this goes and you didn't focus on.
On media in the in your question too much other than calling out kind of what's been a slow evolution in the broadcasting environment on regulatory but I mean think about it.
Speaker Change: And we have been talking about and the need for same rules for all in broadcasting domestic and international competitors for years, and we still got nowhere, we actually had the renewal of our TV licenses until 2026 without meaningful prior consultation.
Speaker Change: Despite the fact that we're mired in them and then add recession.
Speaker Change: An existential media industry prices, we have the CBC that has greater flexibility on their news obligations. Then we do despite the fact that we've made it very public that we lose $40 million a year on unused like we wanted to deliver news, but we want to find a way to make this.
Speaker Change: Work, so I can go on but I'll stop there.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is from David Barden from Bank of America. Please go ahead.
Yeah.
David Barden: Hey, guys. Thanks, so much for taking the question.
David Barden: I guess maybe Curtis.
I think the free cash flow.
David Barden: <unk> was probably the biggest surprise I just wanted to make sure I'm thinking about this correctly, if we do a free cash flow walk from 2023.
<unk> starting at $3 one.
<unk> 4 billion and we add a 500 million capex reduction tailwind, we added $300 million midpoint guidance EBITDA increase than.
Then we subtract the 400 million severance and then we subtract.
David Barden: $300 million of higher interest expense, we get to about three and a quarter billion. So that suggests that there's at least three.
Quarter $1 billion more.
Incremental stuff I guess that would be taxes, and working capital could you kind of addressed the gap there and I apologize.
For asking related question, which is.
David Barden: If youre free cash flows 3 billion and your common dividend is $3 5 billion in your preferred dividends of $200 million, we've got a pretty huge gap there when do we close it.
Great. Thanks for the question David.
Ultimately, we continue to drive free cash flow growth, while we're funding generational investments in our network.
Their growth initiatives that Mark talked about there were funding that as cloud and security services and all of the digital transformation projects.
David Barden: As Marco said, we were looking to spend more than $4 1 billion.
David Barden: But 401 still remains a pretty significant level of investment I would say, it's not a surprise 2024 is a transformational year given the scale of our workforce reduction so that's $400 million of severance.
An exceptional onetime drag on free cash flow.
As you mentioned I mean, there are a couple of one time timing issues here in terms of working cap driving some pressure in 2024. One example, as we're building out broadband and fiber and broadband subsidy reasons. So we incur those costs and then we get refunded by the government, but there is a timing out there again, it's just a matter.
David Barden: Of time, we do get the money back, but but it causes a pressure in 2024, and then again as you noted interest paid.
David Barden: There's quite a step up this year, given interest rates and the bigger balance sheet. So.
David Barden: There are there are a handful of moving pieces, but ultimately we're pretty confident in our ability to drive free cash flow growth.
David Barden: And our dividend at this level is supported by the free cash flow growth, we're going to push forward this year.
David Barden: Thanks.
David Barden: Thank you. The next question is from Stephanie price from CIBC World markets. Please go ahead.
Stephanie Price: Morning, Thank you.
Stephanie Price: Following up on the last question I was hoping you could talk a little bit about the longer term outlook for dividend growth.
Stephanie Price: <unk>, 3% at the new normal here or is it more of a near term impact from the restructuring how should we think about dividend growth going forward.
Stephanie Price: Although we will assess that Stephanie Heights America, we'll assess that year by year of course.
Stephanie Price: Look we're always going to use funds available to us in a balanced manner in line with the priorities I outlined in my opening remarks, so dividend growth.
Stephanie Price: Remains remains number one.
Stephanie Price: This year.
Stephanie Price: Uh huh.
Stephanie Price: For this year, the 3% is absolutely appropriate, particularly given where where our dividend yield sits at right now.
Stephanie Price: And then we will always balance that against the growth Capex that I've talked about the transformation Capex I've talked about there might be some smaller scale M&A opportunities that come up.
Stephanie Price: Often do.
Stephanie Price: So that'll be that'll be how we line up our our priorities and we'll reassess. It again again next year, but I would say, 3% is a is a solid bump in this environment and it is still competitive with our peer group.
Speaker Change: Thank you very much.
Speaker Change: Thank you. The next question is from drew Mcreynolds from RBC capital markets. Please go ahead.
Drew Mcreynolds: Yes, thanks very much good morning.
Speaker Change: So.
Drew Mcreynolds: Marco with respect to some of the top line uncertainty whether.
Drew Mcreynolds: In your control, but a lot of it's not in your control including regulatory.
Drew Mcreynolds: Certainly from our perspective, lowering the cost to serve becomes a pretty big protector and driver of EBITDA and free cash flow growth and I think you've alluded to that certainly in your opening comments can you just speak to.
Drew Mcreynolds: How you are lowering the cost to serve kind of programming.
Drew Mcreynolds: Our program beyond 2024.
Drew Mcreynolds: And in that.
Drew Mcreynolds: Just where do you kind of stand on copper decommissioning for this year and what should we expect over the next few years. Thank you.
Speaker Change: Yeah. Thank you. Thank you for the question so again as we.
Speaker Change: As we as we lined up how we're going to spell spend our capital most efficiently you got kind of dividends on one side then it got network expansion, which unfortunately is at a significantly reduced pace, but that will continue and then it's a question of <unk>.
Speaker Change: Allocating the rest is between kind of what I've been calling this morning, the growth Capex and the transformation Capex and the right mix, there and as we invest more in the transformation.
Speaker Change: Well, we're able to get more efficient with our capex dollars over time and of course drive cost out of the business and drive growth. So some.
Speaker Change: Some examples.
Speaker Change: And repeating a little bit what I said in my opening remarks, but it is important.
Speaker Change: Moving core consumer products to a single ordering and billing architecture architecture is and they have so many benefits.
Speaker Change: A more understandable bill a better customer experience.
Speaker Change: Obviously, you only have one architecture to manage multiple builders to manage fewer manual kick outs, which means fewer people needing to oversee billing and fewer or shorter time to market.
Speaker Change: Do you want to make adjustments. So that's something we were really focused on for the last several years and thankfully mid last year, we were able to start migrating customers.
Speaker Change: We're going to continue to invest in our digital apps, we've been talking about that for several years now and it keeps getting better.
Speaker Change: Customer self install continues to scale, especially where we obviously where we have fiber.
Speaker Change: AI and generated of AI are big opportunities that we're going to harness.
Speaker Change: More meaningfully in 2024, and especially beyond on the copper decommissioning up to 105 central offices as I mentioned and that's going to keep growing over time.
Speaker Change: We've got too many.
Speaker Change: Too many legacy products in especially in the enterprise side, and we're going to rationalize that and that's going to kind of make us leaner and better.
Speaker Change: Highlighted in my opening remarks, the move to a single IP TV platform that has multiple benefits.
Speaker Change: Better products better customer experience, that's one a single five TV architecture across our entire operating territory, we're not going to have three or four or five TV services, which we currently do so big cost savings there and on the growth side of that.
Speaker Change: Is the addressable TV capabilities that are going to drive digital.
Speaker Change: Digital advertising revenue for Bell media, so that that one there has multiple benefits from better customer experience the better digital AD capabilities to lower cost structure real estate always looking at that we're consolidating our vendors managing our supply arrangements very carefully.
Speaker Change: Standardizing contractor rates in sourcing where we can.
Speaker Change: Terminating some long term partnerships that we've had some of which have been public like these are all the things that we're doing to drive cost out of the business and actually enabled better growth.
Speaker Change: Comprehensive list. Thanks, Thanks for that.
Speaker Change: Okay.
Speaker Change: Thank you. The next question is from Simon Flannery from Morgan Stanley. Please go ahead great.
Simon Flannery: Thank you very much good morning, I wanted to just talk about the macro if I could for a minute you talked a few times about potential recession being included in your guidance.
Simon Flannery: Don't want to really see what you are seeing on the ground today, I think you'd talked about higher business disconnects as well as some lengthening of payable cycles and so forth. So to what extent are you being cautious here or are you actually starting to see some signs obviously, you've talked a lot about media, but more on the communications side of the business. Thanks.
Speaker Change: Right. Okay. So look our our guidance on revenue and EBITDAR pretty much in line with previous years, but for the impact of the bestbuy transaction on on product revenue. So that's.
Speaker Change: That's one thing I would say right off the top so we're balancing kind of what we see is in the macro environment, but also.
Speaker Change: The areas, where we've where we've done.
Speaker Change: Quite well, whether or not it be internet or a wireless loadings were seeing on the enterprise side quite strong service revenue growth and kind of what we call the growth verticals you know cloud.
Speaker Change: Loud service solution security automation Digitization that kind of work that we do for our customers actually we saw pretty strong organic solutions revenue growth.
Speaker Change: At Bell business markets and of course, then that's excluding the impact of FX XI, which is also going to going to grow.
Speaker Change: So.
Speaker Change: I think on the enterprise side is a question of continuing to maintain our position in our core business the kind of the legacy business, while while taking costs out of that business continuing to harness the growth that we're seeing on kind of the new solutions and improving the customer experience that would be the what we're trying to do on the enterprise side and the.
Speaker Change: Small business segment.
Speaker Change: Like we're not really seeing too much downsizing and rationalizing.
Speaker Change: Or too much of an increase in business closures, but like I said in previous quarters, where we're monitoring that carefully.
Speaker Change: And then on the wireless side.
Speaker Change: I'd say customer.
Speaker Change: Payment patterns are okay, we haven't seen a material change, but again worthy of further monitoring.
Speaker Change: And the environment remains pretty competitive, but I have to say I was quite pleased in Q4 with how we manage the competitiveness.
Speaker Change: We did we.
Speaker Change: We did a really nice job leveraging our premium brand strategy to load customers on the better network at higher <unk> and you can see that in our organic <unk> growth and we've used a flanker for Virgin in particular to better segment, the customer base and serve the value segments. So we're resisting dropping price.
Speaker Change: On the premium brand for the sake of saying that we're loading customers on the premium brand. So.
Speaker Change: There's still some upside there on the wireless side and of course on Internet.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thank you. The next question is from Tim Casey from BMO capital markets. Please go ahead.
Speaker Change: Okay.
Tim Casey: Thanks Curtis can we go back to your walk down on free cash flow.
Tim Casey: And your comment on working capital.
Tim Casey: Are you implying there is.
Tim Casey: Youre talking about those working capital items being onetime in nature, I mean, I just think.
Tim Casey: People are struggling with the.
Tim Casey: The walk down on this and how you end up with free cash flow guiding below 3 billion. Thanks.
Speaker Change: Yes. Thanks for the question Tim I think there are a couple of things and some of these things. Unfortunately, it will take more than one year to normalize out I mean, if you're looking at the one that I mentioned in terms of government subsidy build so we'll be building out over the next couple of years and then two years after that it swings in our favor.
Speaker Change: Another one I'd mentioned so in 'twenty three.
Speaker Change: As as supply chain normalized R. R.
Speaker Change: Our excuse me, so receivables and inventory levels came down quite substantially but that creates a year over year pressure, where there's no incremental or limited incremental improvement year over year. So it was a win in 'twenty three but its already normal in 'twenty three so there's no incremental wind in 'twenty four.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is from Hamzah <unk> from <unk> Securities. Please go ahead.
Hamzah: Hi, Thanks, good morning.
Hamzah: One on the network convergence.
Hamzah: You do have a high level of overlap between your wireless and wireline networks, but you are not 100%, whereas we're seeing competitors, making strides and putting more focus on the fixed wireless.
Hamzah: Even in Europe in areas. So thats something you are increasingly considering or are you happy with your current addressable market and maybe also just possible in the context of network sharing agreement. Thank you.
Speaker Change: Mr, whom we've had a we've had a fixed wireless product in market since 2018.
Speaker Change: And we had a we had a pretty aggressive build target initially, which we had to scale back.
Speaker Change: Does have some regular regulatory outcomes and then and then forged ahead again when the when the regulatory rules got a little bit better in 2019 'twenty by the way another shows how regulatory decisions do matter, but we have a pretty sizeable addressable market with fixed wireless we have been selling our products. Since 2018, we continue to.
Speaker Change: Upgrade it.
Speaker Change: And it works it works in rural where you don't have very well in rural where you don't have.
Speaker Change: Fiber or DOCSIS cable.
Speaker Change: It's my view fixed wireless access will never be competitive where there is.
Speaker Change: Fiber and and.
Speaker Change: And top tier cable and then in rural areas. You also have to depreciate compared to 2018 and Theres now starlink as an option for customers. So a long way to say I'm I'm happy with where we are with our addressable market on fixed wireless access and how that product performed especially at the beginning when we launched.
Speaker Change: Thank you. The next question is from <unk> <unk> from Canaccord Genuity. Please go ahead.
Canaccord Genuity: Good morning, Thanks for taking my question it sounds the adjusted EBITDA Guide for one and a half to four and a half just wanted to understand sort of the lower end. There I mean, obviously the benefit of the acquisition in media and then.
Speaker Change: The 150 to 200 translates to somewhere between 1.5% to 2%.
Speaker Change: Absolutely.
Speaker Change: Is it that perhaps you because of the AD conditions, you are assuming a steep decline in media is that sort of dragging.
Speaker Change: Down that low and I wanted to understand the low end of that range a little bit better.
Speaker Change: Yes, Hi, Irvin thanks for your question.
Speaker Change: The simple answer is it's the same guidance as last year, but for the adjustment on the low end, which takes into account the range of.
Irvin: $150 million to $200 million of cost savings, so that $50 million range, there driven by our workforce reduction.
Speaker Change: So in line with last year's guidance range.
Speaker Change: Okay, but.
Speaker Change: But then I mean.
Speaker Change: The acquisition, obviously thats about half a turn isn't that the case.
Speaker Change: Half a percent.
Speaker Change: So youre talking about upfront upfront hasnt closed yet.
Speaker Change: So youre right theres a bit of a balance here between AD market recovery and the potential closing of the acquisition.
Speaker Change: Okay. Okay. Thanks.
Speaker Change: Thank you. The next question is from <unk> Levi from UBS. Please go ahead.
Speaker Change: Good morning. This is Christopher about you just digging into the postpaid phone churn result, any color you can give on the performance youre seeing by geography, and whether the level of competition has been consistent across regions and any early color you might be able to provide <unk> as a level of switching intensity ease so far in January.
Speaker Change: Yeah, so look on churn.
Speaker Change: We're not sitting idly by and like we got to watch this very carefully it has gone up it feels a lot more obviously like pre COVID-19 than it has in the last several years. So we're going to do is.
Speaker Change: We continue to leverage our household bundling strategy, where we've been pretty effective over the last couple of years, including in 2023 focus on the premium loadings and the way I suggested a couple of questions ago continue to improve customer experience I think that common billing platform I've talked about is going to help.
Speaker Change: We're going to use crave quite strategically and these are the things that we're going to do to make sure that churn stays under control, but it has to be looked at quite seriously and.
Speaker Change: And that's we're going to do looking forward now if we look back at Q4.
Speaker Change: Can see how diligent we were right we manage to deliver record sales strong service growth solid nets organic <unk> growth significantly better product margin and basically we didn't have to overspend to deliver the solid results. We did so again, it's always about balancing.
Speaker Change: Yeah.
Speaker Change: Spend on the share you gain while making sure that youre doing all the right things tactically to keep churn in check.
Speaker Change: Okay. Thank you.
Speaker Change: Yes, Matthew we're starting to time out so this will be our last question.
Speaker Change: Perfect. Thank you. The next question is from David <unk> from <unk> Securities. Please go ahead.
Speaker Change: Okay.
David Barden: Thanks for squeezing me in just a question on the Capex.
David Barden: Yeah.
David Barden: Don't the financial metrics, just Lawrence Utica Capex annually, if you wanted to get down.
David Barden: Below a 100% payout ratio and you have to pay 400 million in southern Sudan and.
David Barden: Higher interest expense does that just kind of force your hand to lower the Capex anyways and now with some of our Capex on when do you expect to reach the 9 million loans.
David Barden: Well no we outlined two years ago.
David Barden: In 2021.
David Barden: That our goal was to.
David Barden: Hit 9 million fiber locations, and we signaled quite clearly and consistently to shareholders that as a result, we were going to operate at an elevated payout ratio, but it was the right thing to do at the time given the environment.
David Barden: For the long term strategic benefit of shareholders, but that was done in the context of the regulatory environment. We had in front of US then so we are reducing capex as there is a direct result of the regulatory environment.
David Barden: Because we had clearly signaled that.
David Barden: We were going to operate at the elevated payout ratio because again, we're always managing for kind of in year, but we're also managing for the long term.
David Barden: And we are we can always.
David Barden: At $4 $1 billion of Capex compared to $4 six obviously, it's a reduction, but we get to choose where to spend that $4 one.
David Barden: Alright, and we've chosen to deemphasize fiber and focus on other growth vectors and transformation. So we're even within the reduced.
David Barden: Reduced.
David Barden: Capex budget for 2024, there are allocation decisions that are totally in our control.
Speaker Change: Okay alright, thank you.
Thane Fotopoulos: Thank you there are no further questions at this time I would now like to turn the meeting over to Mr. Fotopoulos. Thank you Matthew So thank you again for your participation. This morning as usual Richard and I will be available throughout the day for follow up questions and clarification on that and have a great day. Thank you.
Fotopoulos: Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Speaker Change: Please standby and enjoyed this music if you wish to queue to ask a question dial star one.
Fotopoulos: Yeah.
Fotopoulos: Okay.
Fotopoulos: Okay.
Fotopoulos: Yes.