|A MESSAGE FROM THE CEO|
Creating Bell Aliant
The past year will certainly be remembered as a year of change. In early July, we combined the telecommunications and IT operations of Aliant with the regional landline operations of Bell Canada and BCE’s interest in Bell Nordiq, under an income trust structure. Our new organization is geographically diverse, has large scale and a clear focus on wireline voice, Internet and information technology services.
I was surprised and disappointed with the federal government’s proposal to tax income trusts, such as Bell Aliant, beginning in 2011. I recognize the hardship this has caused you and I want to assure you that we have vigorously represented your interests with government officials.
Achieving our financial goals
The opportunities available to Bell Aliant and the strength of our business model are already beginning to show in our financial results. In our first six months of operations, we achieved all the financial goals we set for ourselves when we created Bell Aliant. We were at the high end of our target of 1 to 2 per cent growth in revenue and we met our goal of 2 to 3 per cent growth in distributable cash.
Our outlook for 2007 is very much in line with the performance objectives we set last year. We are looking for organic revenue growth of up to 2 per cent and growth in distributable cash of 2 to 4 per cent, before a major investment in our network, which I will tell you about later.
Growing with Internet and IT
Our increase in revenues this past year was largely due to strong demand for our Internet and IT services. Internet revenues were up almost 20 per cent in 2006, with our number of high-speed customers growing by 24 per cent. Our IT business also had a successful year. Revenue grew by more than 10 per cent. We expect both our Internet and IT businesses to have another strong year in 2007.
Our markets are still relatively underdeveloped for high-speed Internet service. Depending on the province, the percentage of homes with
high-speed access is as much as 29 percentage points below the national average. There are two principal reasons for the difference: lower availability of service; and, fewer homes with computers. We are taking steps to address both.
We are working to increase the availability of service by continuing to expand our network. By the end of 2007, we will pass 74 per cent of homes with our high-speed Internet service. We have also introduced satellite-based, high-speed Internet service, which is available throughout most of our service area.
Getting more customers on-line provides us with significant revenue-generating opportunities. Our PC Purchase program offers customers a convenient way to purchase a home computer
or laptop and get on-line with our package of Internet services.
We expect our IT revenues to see continued growth in 2007. We had significant contract wins in 2006 and we’re very encouraged by the outlook in 2007. The health care industry represents significant potential, and we believe small and medium-sized businesses, particularly in Quebec and Ontario, will also be a big contributor to our growth in 2007.
Productivity is an important element in maintaining our margins, especially as our revenue shifts from the legacy services of local and long distance to the high-growth services of Internet and IT, where margins are typically lower. In 2005 and 2006, we achieved productivity savings of close to $60 million. In 2007, we see even greater savings and anticipate total cost
savings of $75 to $85 million.
Succeeding in 2007
The key to our success in 2007 and beyond is providing a superior customer experience. By consistently meeting or exceeding our customers’ expectations, by providing value through leading products and services, and by forging strong ties in the communities we serve, we will create sustainable value for our unitholders.
Our customer service improvements will focus on quality and speed. For example, we’re making it easier for customers to get Internet service by shortening the time it takes to get the service installed in their homes and we’re establishing a dedicated service centre for our enterprise customers.
Besides outstanding service, we must also provide our customers with good value for their money. In 2007, we’ll be placing more emphasis on our packaged solutions, which are designed to meet almost any lifestyle or business need. Customers with service packages tend to be more loyal and more likely to purchase additional products.
We will continue to provide our customers with the leading products and services required to meet their needs. Our relationship with Bell Canada gives us access to the latest technologies and the economic benefits of scale. We will continue to invest in our network, expanding its capabilities and speed, and introduce new services that are right for our customers.
We have brought world-class services to largely rural markets for over 100 years and formed
lasting ties to the communities we serve; ties
that are not easily broken. Our 10,000 employees located throughout our service area, give us a great competitive advantage. They are active members of their communities, volunteering their time and expertise. We encourage their community involvement and complement their activities by sponsoring community events and charities through our community investment program.
Tightening our focus
In early 2007, we tightened our focus on our core telecommunications and IT businesses. In February, we announced our intention to sell the assets of Aliant Directory Services to Yellow Pages Income Fund. The proceeds of $330 million for our interest in the business will be used to buy back approximately 10 per cent of our outstanding units. The buyback will offset the lost inflow of cash from the directory business with a virtually equal reduction in unit cash distributions, due to the lower number of units that will be outstanding.
Success brings success
We ended 2006 in a strong financial position. Our cash balance was approximately $140 million. From this position of financial strength and
our expectations for 2007, we announced an additional capital investment of $35 to $45 million to quicken the pace of our fibre-to-the-node
project, which involves extending fibre optic cable closer to customers’ homes. Our major markets will benefit greatly from this decision, allowing us to provide customers with faster Internet service and extend the reach of our IPTV service to 140,000 additional homes.
Our board of trustees also recognized our
success in 2006 and expressed confidence
in our future by increasing monthly cash
distributions by almost 3 per cent. Beginning with the February 2007 distribution, which is payable in mid March, the monthly rate was raised to 23.5¢ per unit. On a yearly basis,
that brings our distribution up to $2.82. Based on our recent unit price, our yield is close to
9.5 per cent, making our units very attractive
for yield-oriented investors.
Opportunity lives here
In closing, I want to thank our employees for their hard work and commitment over the past year and thank you, our unitholders, for your confidence in the new organization. I also want to thank our customers, from Kenora to Cape Spear, and especially those who agreed to be photographed and share their stories for our annual report. Our customers can count on us to ensure that opportunity lives wherever they call home.
President & chief executive officer
March 2, 2007