Good morning, ladies and gentlemen. Welcome to the BCE Q4 2023 Results and 2024 Guidance Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.

Thank you, Matthew, and good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, BCE's President and CEO, and our CFO, Curtis Millen. You can find all of our Q4 disclosure documents including our safe harbor notice concerning forward-looking statements for 2024 on the Investor Relations page of the bce.ca 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 2, reminding you that today's slide presentation and remarks made during the call will include forward-looking information, and therefore are subject to risks and uncertainties. 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, Mirko, over to you.

Thank you, Thane, and good morning, everyone. Our quarterly and full year financial performance demonstrate the stability of our business and our proven ability to execute under any circumstances. The Bell team takes pride in delivering what we promised, taking the necessary near-term actions, including driving costs out of the business and balancing growth with profitability to meet our commitments to our customers and to our investors, while at the same time, putting in place the technology, product, customer service and cultural foundation that 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 a 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 Bell's future success. We met our broadband fibre buildout target, and we surpassed our mobile 5G and 5G+ coverage objectives. In fact, we now offer multi-gig symmetrical Internet speeds of 3 gigabits in 6.5 million locations. That's a big competitive advantage that our cable competitors cannot match across their entire footprints. And our performance and quality gap over cable is reflected in our Internet subscriber metrics. We also secured new 5G+ spectrum licenses in the recently completed 3,800 megahertz auction. We now have the most 5G+ spectrum in Canada, acquired at a total cost that was the lowest among national wireless carriers. In wireless, we delivered a great result in an increasingly competitive environment. We delivered a healthy step-up in sales,…

Thank you, Mirko, and good morning, everyone. I'll begin on Slide 9 with BCE's consolidated financial results. We had a strong quarter to end the year with 5.3% higher adjusted EBITDA that drove a 1.9 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 and moderated service revenue growth this quarter. Regarding CapEx, due to the deceleration of our fibre network buildout in the back half of the year, CapEx was down $609 million in full year 2023. As Mirko pointed out, we reduced planned capital investment by an additional $105 million in Q4 as a direct result of the CRTC's fibre resale decision. Our strong EBITDA growth, substantial CapEx reduction, lower cash taxes and the positive 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, starting with a high-level summary of Q4 subscriber metrics. Overall, I would say that we're doing a very good job in wireless, striking a healthy balance between volume growth, acquisition cost, and ARPU. We delivered a record quarter for postpaid mobile phone gross activations that drove 128,715 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. This disciplined approach was reflected in our promotional offers where handset subsidies were on average 32% lower than they were in '22, driving a significant improvement in wireless product margin. Wireless ARPU was up 0.4% this quarter, driven by our focus on premium…

Thanks, Curtis. So given the volume of information we presented this morning, I'm sensitive to the time we have left for Q&A, so I would please ask that you limit yourself to one question, so we can get to everybody in the queue. With that, Matthew, we're ready to take our first question.

Thank you. The first question is from Maher Yaghi from Scotiabank. Please go ahead.

Thank you for taking my question. Believe it or not, I won't ask you about Q4 or 2024. I think we need to discuss the elephant in the room here. One can't satisfy the regulatory environment when looking at pricing pressure hitting Canadian telcos on both wireless and wireline. I mean, we have seen similar issues in the Canadian broadcasting industry due to slow evolution on regulation. Mirko, I wanted to ask you, is your telecom service in Canada at risk of seeing similar long-term profitability issues if regulation continues to lag technological advancements? 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 these regulatory pressures? Thank you.

Thanks, Maher. Thanks for that question. It's a lot there. Let me start with, I 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 2020, 2021 to get us in a position where we could deliver strong results in 2023. And we're continuing to do that, always plan for the environment that's around us now and where we expect it to go. And that's kind of where your question is going. So, that could be technology, that could be kind of macroeconomic, customer expectations, obviously, matter a lot, competitive environment and significantly regulatory. So, I mean -- okay, 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 and the -- or less. And the at least is basically saying if it gets worse on the regulatory front in terms of some of these rules that we know very well, fibre access, in this particular case, we will do more, and that could be cutting investments in these areas without -- and then redirecting monies to growth CapEx and transformation CapEx, and it could be more restructuring, for sure. Like, the 16.5% capital intensity ratio is 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, not in 2024 or 2025, when we were kind of anticipating to build to 9 million fibre locations by the end of 2025. So, we've pulled our spending in earlier than planned, specifically…

Thank you.

Thank you. The next question is from David Barden from Bank of America. Please go ahead.

Hey, guys, thanks so much for taking the question. I guess, maybe, Curtis, I think the free cash flow guide was probably the biggest surprise. I just want to make sure I'm thinking about this correctly. If we do a free cash flow walk from 2023, starting at $3.14 billion and we add a $500 million CapEx reduction tailwind, we add a $300 million midpoint guidance EBITDA increase and we subtract the $400 million of severance, and then we subtract $300 million of higher interest expense, we get to about $3.25 billion. So that suggests that there's at least a [$0.25 billion] (ph) more incremental stuff, I guess that would be taxes and working capital. Could you kind of address the gap there? And I apologize to Thane for asking a related question, which is if your free cash flow is $3 billion and your common dividend is $3.5 billion and your preferred dividends are $200 million, we've got a pretty huge gap there. When do we close it? Thanks.

Great. Thanks for the question, David. So ultimately, we continue to drive free cash flow growth while we're funding generational investments in our network. There are growth initiatives that Mirko talked about that we're funding, that's cloud and security services and all the digital transformation projects. As Mirko said, we were looking to spend more than $4.1 billion, but $4.1 billion still remains a pretty significant level of investment. I'd 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. That's an exceptional one-time 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 is we're building out broadband -- fibre and broadband [sub-seg] (ph) regions. So, we incur those costs and then we get refunded by the government. But there is a timing gap there. Again, it's just a matter of time, we do get the money back, but it causes a pressure in 2024. And then, again, as you noted, interest paid is quite a step-up this year, given interest rates and the bigger balance sheet. So, there are a handful of moving pieces. But ultimately, we're pretty confident in our ability to drive free cash flow growth. And our dividend at this level is supported by the free cash flow growth we're going to push forward this year.

Thanks.

Thank you. The next question is from Stephanie Price from CIBC World Markets. Please go ahead.

Good morning. Thank you. Just following up on the last question, I was hoping you could talk a little bit about the longer-term outlook for dividend growth. Do you see 3% as 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?

We'll assess that, Stephanie. Hi, it's Mirko. We'll assess that year by year, of course. 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 remains number one this year. For this year, the 3% is absolutely appropriate, particularly given where our dividend yield sits at right now. And then, we'll 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. They often do. So that'll be how we line up our priorities and we'll reassess it again next year. But I'd say 3% is a solid bump in this environment and it's still competitive with our peer group.

Thank you very much.

Thank you. The next question is from Drew McReynolds from RBC Capital Markets. Please go ahead.

Yeah. Thanks very much. Good morning. So, Mirko, with respect to some of the top-line uncertainty, whether it's in your control, but a lot of it's not in your control, including regulatory. 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 how you're lowering the cost to serve kind of programming -- program beyond 2024, and in that, 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.

Yeah. Thank you for the question. So again, as we line up how we're going to spell -- spend our capital most efficiently, you got kind of dividends on one side, then, yeah, you got network expansion, which unfortunately is at a significantly reduced pace, but that'll continue. And then, it's a question of allocating the rest as 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 of Bell, we're able to get more efficient with our CapEx dollars over time, and of course, drive costs out of the business and drive growth. So, some examples, and I'm repeating a little bit what I said in my opening remarks, but it's important. Moving core consumer products to single ordering and billing architecture is -- I mean, has so many benefits; a more understandable bill, a better customer experience, obviously, you only have one architecture to manage, not multiple billers to manage, fewer manual kick outs, which means fewer people needing to oversee billing and fewer -- shorter time to market when 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. 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. Customer self-install continues to scale, especially where we -- obviously, where we have fibre. AI and generative AI are big opportunities that we're going to harness at -- 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. We've got too many legacy products, especially in the enterprise side, and we're going to rationalize that, and that's going to kind of make us leaner and better. I highlighted in my opening remarks the move to a single IPTV platform that has multiple benefits. Better product, better customers experience, that's one. A single Fibe TV architecture across our entire operating territory. We're not going to have three or four Fibe TV services, which we currently do. So, big cost savings there. And on the growth side of that is the addressable TV capabilities that are going to drive digital advertising revenue for Bell Media. So, 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, standardizing contractor rates, in-sourcing where we can, 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 costs out of the business and actually enable better growth.

Comprehensive list. Thanks for that.

Thank you. The next question is from Simon Flannery from Morgan Stanley. Please go ahead.

Great. 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. And I want to really see what you were seeing on the ground today. I think you 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 you're actually starting to see some signs? Obviously, you've talked a lot about media, but more in the communication side of the business? Thanks.

Right. Okay. So, look, our guidance on revenue and EBITDA are pretty much in-line with previous years, but for the impact of the Best Buy transaction on product revenues. So, I mean, that's one thing I'd say right off the top. So, we're balancing kind of what we see as and the macro environment, but also the areas where we've done quite well, whether or not it'd be Internet or wireless loadings. We're seeing on the enterprise side quite strong service revenue growth and kind of what we call the growth verticals, cloud service solution, security, automation, digitization, that kind of work that we do for our customers. Actually, we saw pretty strong organic solutions revenue growth at Bell Business Markets. And, of course, then that's excluding the impact of FXI, which is also going to going to grow. So, I think on the enterprise side, it's a question of continuing to maintain our position in our core business, the kind of the legacy business 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. In the small business segment, we're not really seeing too much downsizing and rationalizing, or too much of an increase in business closures. But like I said in previous quarters, we're monitoring that carefully. And then, on the wireless side, I'd say, customer payment patterns are okay. We haven't seen a material change, but again, worthy of further monitoring, and the environment remains pretty competitive. But I have to say I was quite pleased in Q4 with how we managed the competitiveness. Like, we did a really nice job leveraging our premium brand strategy to load customers on the better network at higher ARPUs, and you can see that in our organic ARPU growth, and we've used the flanker, Virgin in particular, to better segment the customer base and serve the value segment. So, we're resisting dropping price on the premium brand for the sake of saying that we're loading customers on the premium brand. So, I mean, I think there's still some upside there on the wireless side, and of course on Internet.

Great. Thanks a lot.

Thank you. The next question is from Tim Casey from BMO Capital Markets. Please go ahead.

Thanks. Curtis, can we go back to your walkdown on free cash flow and your comment on working capital? Are you implying there's a relief coming in 2025? Because you're talking about those working capital items being one time in nature. I mean, I just think people are struggling with the walkdown on this and how you end up with free cash flow guiding below $3 billion. Thanks.

Yeah. Thanks for the question, Tim. I think there are a couple of things, and some of these things, unfortunately, 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 the two years after that, it swings in our favor. Another one I'd mention, so in '23, as supply chain normalize, our AR, 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 '23, but it's already normal in '23, so there's no incremental win in '24.

Thank you.

Thank you. The next question is from Jerome Dubreuil from Desjardins Securities. Please go ahead.

Hi, thanks. Good morning. One on network convergence. You do have a high level of overlap between your wireless and wireline networks, but you're not 100%. We're seeing competitors making strides and putting more focus on fixed wireless, even in urban areas. Is this something you are increasingly considering, or are you happy with your current addressable market? And maybe, also, is this possible in the context of network sharing agreement? Thank you.

Hey, Jerome. We've had a fixed wireless product in market since 2018, and we had a pretty aggressive build target initially, which we had to scale back because of some regular regulatory outcomes and then forged ahead again when the regulatory rules got a little bit better in 2019 and '20. By the way, another -- it shows how regulatory decisions do matter. But we have a pretty sizable addressable market with fixed wireless. We've been selling our products since 2018. We continue to upgrade it, and it works in rural where you don't -- very well in rural where you don't have fibre or DOCSIS cable. It's my view fixed wireless access will never be competitive where there is fibre and top-tier cable. And then, in rural areas, you also have to appreciate, compared to 2018, there's now Starlink as an option for customers. So, long way to say, 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.

Thank you.

Thank you. The next question is from Aravinda Galappatthige from Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my question. It's on the adjusted EBITDA guide, 1.5% to 4.5%. Just wanted to understand sort of the lower end there. I mean, there's obviously the benefit of the acquisition in media and then the $150 million to $200 million translates to somewhere between 1.5% to 2% roughly. Is it that perhaps you because of the ad conditions you're assuming a steeper decline in media, is that what sort of dragging down that low end? I wanted to understand the low end of that range a little bit better. Thanks.

Yeah. Hi, Aravinda. Thanks for your question. I mean, 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 $150 million to $200 million of cost savings. So that $50 million range there driven by our workforce reduction. So, in-line with last year's guidance range.

Okay. But then, I mean, the acquisition obviously adds about [half a turn] (ph), isn't that case? 0.5%?

Yeah. So, you're talking about OUTFRONT. Yeah, OUTFRONT hasn't closed yet. So, you're right, there's a bit of a balance here between ad market recovery and potential closing of the acquisition.

Okay. Thanks.

Thank you. The next question is from Batya Levi from UBS. Please go ahead.

Good morning. This is Chris for Batya. Just digging into the postpaid phone churn result, any color you can give on the performance you're seeing by geography and whether the level of competition has been consistent across regions? And any early color you might be able to provide on 1Q? Has the level of switching intensity eased so far in January? Thanks.

Yeah. So, look on churn, we're not sitting idly by. Like, we've got to watch this very carefully. It has gone up. It feels a lot more obviously like pre-COVID than it has in the last several years. So, what we're going to do is 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 in 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. 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 that's what we're going to be looking for. Now, if we look back at Q4, you can see how diligent we were, right? We managed to deliver record sales, strong service growth, solid nets, organic ARPU growth, significantly better product margin, and basically, we didn't have to overspend to deliver kind of the solid results we did. So again, it's always about balancing the spend on the share you gain while making sure that you're doing all the right things tactically to keep churn in check.

Okay. Thank you.

Yeah. Matthew, we're starting to time out. So, this will be our last question.

Perfect. Thank you. The next question is from David McFadgen from Cormark Securities. Please go ahead.

Okay. Thanks for squeezing me in. Just a question on the CapEx. I know like the regulatory decisions that have been made, but don't the financial metrics just force you to cut CapEx anyways? If you want to get down to 100% payout ratio and you have to pay $400 million in severance, $300 million in higher interest expense, doesn't that just kind of force your hand to lower the CapEx anyways? And now with the lower CapEx, when would you expect to reach the 9 million homes?

Well, no. We outlined two years ago on 2021 that our goal was to hit 9 million fibre 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 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 a direct result of the regulatory environment, because we had clearly signaled that 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. And we are -- we can always at $4.1 billion of CapEx compared to $4.6 billion, obviously, it's a reduction, but we get to choose where to spend that $4.1 billion, right? And we've chosen to deemphasize fibre and focus on other growth vectors and transformation. So, even within the reduced CapEx budget for 2024, there are allocation decisions that are totally in our control.

Okay. All right. Thank you.

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 clarifications. On that, have a great day. Thank you.

The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.