BCE posts $1.7 billion profit in Q4

1/29/2003

Toronto, - BCE Inc. had a $1.7-billion profit in the fourth quarter as a huge one-time gain from the sale if its directories business, plus tax gains related to its sale of Teleglobe, offset a big writedown of its Bell Globemedia assets.

The Montreal-based communications and media conglomerate reported Wednesday it earned $1.92 a share for the three months ended Dec. 31, compared with a net loss of $299 million or 37 cents a share last year.

Quarterly revenue rose 1.2 per cent to $5.2 billion. The results included several one-time items, both positive and negative.

On the plus side:
-- a $1.8-billion gain on the sale of Bell Canada's directories business;
-- a $505 million gain from tax benefits and adjustments from discontinued operations, as a result of the sale of Teleglobe Inc. last year.

On the negative side:
-- a $530-million writedown of goodwill, including $501 million relating to its Bell Globemedia broadcasting, publishing and Internet division.
-- an $209-million writedown of its stake in Bell Canada International and other investments.
-- and $251 million in restructuring and other charges related to job cuts at Bell Canada, announced in December and to be largely complete by March.

For the full year, BCE earned $2.4 billion in net profit, up from $450 million in 2001. Yearly revenue rose 2.2 per cent to $19.8 billion.

A Merrill Lynch research report released after the results said BCE had done better than expected, in both earnings and revenues.

BCE's 1.2 per cent revenue growth compared favourably with U.S. telecom carriers BellSouth and SBC, which saw their fourth-quarter revenue fall 6.8 per cent and 5.3 per cent respectively, the Merrill report said.

BCE chief executive Michael Sabia said the company remains on track with financial targets outlined Dec. 18, although the economic environment remains difficult.

"The consumer market is pretty good but it feels pretty fragile as well," Sabia told analysts, adding that a lot of external events can affect that part of the market.

"Certainly, external political events can have a meaningful impact on that and clearly that's something we're keeping an eye on," Sabia said.

Despite the $2.4 billion net profit BCE produced for 2002, the company's operations continued to spend more cash than they generated -- primarily because of huge capital spending.

In 2002, BCE had a $670 million cash-flow deficit, an improvement on the $2.8-billion deficit it had in 2001 when it spent heavily to build out its wireless, digital subscriber line and broadband Internet networks.

"Still a deficit and that's not good," Sabia said. "But a big, big, big improvement over where we were in 2001."

BCE's target is to have a $700 million cash flow surplus as spending on infrastructure falls to about 18 per cent of revenues, down from 19 per cent last year and a historically high 26 per cent in 2001.

It was Sabia's first year-end report as CEO after Jean Monty suddenly resigned as chairman and chief executive last spring following BCE's decision to limit financial backing for its Teleglobe international network company.

Teleglobe, which had been taken over by BCE in 2000 under Monty's leadership, subsequently sought court protection from its creditors, laid off more than half its employees and sold most of its assets.

BCE initially took a $7.5-billion writedown of its Teleglobe stake in its the second quarter of 2002 and in December recorded a $10 billion capital loss on the sale of that subsidiary.

However, BCE was able to soften the financial blow it took from the spectacular Teleglobe failure.

It was able to use part of the Teleglobe capital losses in the fourth quarter to offset the capital gain from the directories sale and from a previous capital gain from its sale of Nortel shares in 2001.

"There still remains approximately $4 billion of unutilized capital losses that are available to offset future capital gains within BCE. And those losses are available for an indefinite period into the future," said Siim Vanaselja, BCE's chief financial officer.

The Bell Globemedia writedown also prompted a special fourth-quarter charge of $70 million Wednesday at Thomson Corp., a publicly traded information and publishing company that owns 20 per cent of the subsidiary.

BCE owns 70.1 per cent and the Thomson family's private holding company, Woodbridge Co., owns 9.9 per cent of Bell Globemedia, which includes the Globe and Mail newspaper, CTV television and the Bell Sympatico Internet portal.

The joint venture was launched in September 2000 as a $4-billion attempt to blend broadcasting, publishing and Internet businesses into a unified whole as part of Monty's broader convergence strategy.

However, the company said Wednesday that the cash flow from several "convergence" products has failed to meet expectations.

Sabia repeated his previous assertion that in 2003 the Bell Globemedia management team will "transition the business away from" attempting to work across two or three types of media.

Instead, Bell Globemedia will concentrate "on two relatively independent platforms -- broadcasting and print -- and driving performance in each one of those," Sabia said.

BCE stock (TSX:BCE) traded at $28.70 on the Toronto Stock Exchange, down 17 cents after the announcement.

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