BCE Inc. 2018 Annual Report

Today / Fibre to the home / Rural Internet / Customer service / Wireless networks / Crave / Collaboration solutions / Smart Cities / IoT / Streaming video / Whole Home Wi-Fi / Fibe TV / Basketball / Inclusion / Virtual networks / Advertising reach / Mobile roaming / Hockey / Alt TV / Football / Connected cars / R&D / Local programming / Managed services / Streaming radio / Mental health / Manitoba / Prepaid wireless / Enterprise security / Business efﬁciency / Public safety / Self serve / News, sports & entertainment / The Source / Montréal transit / Branch connectivity / Order tracking / Content production / Soccer / Broadband speeds / Uniﬁed communications / Data centres / Cloud computing / Smart Homes / Canada / Dividends / just got better. BCE Inc. 2018 Annual Report / WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 Our goal To be recognized by customers as Canada’s leading communications company. Our 6 strategic imperatives Invest in broadband Accelerate networks wireless and services Leverage Expand wireline media momentum leadership Achieve a Improve competitive customer cost service structure WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 BCE Inc. 2018 Annual Report Table of contents Table of contents Our strategy 3 / Financial and operational highlights 4 / Letters to shareholders 6 / Strategic imperatives 10 / Innovation highlights 21 / Community investment 22 / Bell archives 24 / Management’s discussion and analysis (MD&A) 28 / Reports on internal controls 114 / Consolidated financial statements116 / Notes to consolidated financial statements122 / WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 2 Our strategy BCE Inc. 2018 Annual Report Executing our broadband strategy in the highly competitive Canadian communications industry, the Bell team delivered strong gains in wireless, Internet, TV and streaming customers, driving increases in revenue, adjusted EBITDA and free cash flow in line with our guidance targets. Bell’s strong operational and financial performance has supported consistent and steady dividend growth, with 15 increases to the BCE common share dividend and a total shareholder return of 261% over the past 10 years. 2018 Financial Performance ACTUAL TARGET Revenue growth 3.1% 2% – 4% Adjusted EBITDA (1) growth 2.7% 2% – 4% Capital intensity 16.9% ~ 17% Adjusted EPS (1) $3.51 $3.45 – $3.55 Free cash flow (1) growth 4.4% 3% – 7% Driving growth in shareholder value 261% 5.0% 117% 10-YEAR TOTAL INCREASE IN DIVIDEND INCREASE IN DIVIDEND PER SHAREHOLDER RETURN (2) (3) PER COMMON SHARE FOR 2019 COMMON SHARE SINCE THE END OF 2008 (1) Adjusted EBITDA, adjusted EPS and free cash flow are non-GAAP financial measures and do not have any standardized meaning under International Financial Reporting Standards. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. For a full description of these measures, including dividend payout ratio, see section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) on pp. 109 to 112 of the MD&A. (2) Assumes the reinvestment of dividends. WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 (3) Total return since the end of 2008, the year Bell implemented its transformational strategy. 3 BCE Inc. 2018 Annual Report Financial and operational highlights Today just got better The fastest Internet. Lucky Mobile. Crave. Gigabit wireless. Alt TV. Enterprise cloud solutions. Wireless Home Internet. Connected Cars, Smart Homes and Smart Cities. These are just some of the Bell service innovations that make today better for our consumer, business and government customers across the country. Bell has the scale necessary to deliver the world’s best communications technologies throughout the country, a key factor enabling Canadians and our business community to participate fully in an increasingly global marketplace. In fact, Bell invests more in new network infrastructure and Canadian communications R&D than any other company. Our focus on bringing Canadians the best in broadband supports our country’s technological leadership on a global scale, while giving Bell the competitive edge to succeed in Canada’s dynamic communications industry. BCE subscribers (millions)* 2018 2017 CHANGE Wireless 9.61 9.17 +4.8% High-speed Internet 3.93 3.79 +3.8% Television 2.85 2.83 +0.7% Total growth services 16.40 15.79 +3.9% Local residential telephone services 2.99 3.23 (7.5%) Total subscribers (1) 19.39 19.02 +1.9% (1) Excludes business telephone services. WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 4 * Rounding in numbers may affect total figures presented. Financial and operational highlights BCE Inc. 2018 Annual Report Broadband leadership delivers results Outstanding gains in wireless, steady growth in broadband Internet and TV, and stable performance in a fast-changing media marketplace underpinned strong BCE financial results in 2018, supporting our strategy to lead in broadband investment and innovation while delivering steady dividend growth for our shareholders. BCE operating revenues ($ millions) 2018 2017 CHANGE Bell Wireless $8,422 $7,926 6.3% Bell Wireline $12,662 $12,400 2.1% Bell Media $3,121 $3,104 0.5% Inter-segment eliminations ($ 737) ($ 673) (9.5%) Total BCE operating revenues $23,468 $22,757 3.1% +2.7% (2.5%) +3.0% 2018 $9,535 2018 $2,973 2018 $3,151 2017 $9,282 2017 $3,050 2017 $3,058 BCE adjusted EBITDA BCE net earnings BCE adjusted net earnings ($ millions) ($ millions) ($ millions) +0.4% +4.4% (1.6%) 2018 $7,384 2018 $3,567 2018 $3,971 2017 $7,358 2017 $3,418 2017 $4,034 Cash flows from operating activities Free cash flow BCE capital expenditures ($ millions) ($ millions) ($ millions) WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 For more information, please refer to section 7 of the MD&A – Selected annual and quarterly information, page 84. 5 BCE Inc. 2018 Annual Report Message from the Chair of the Board BCE well positioned to continue leading Canada’s broadband innovation As has been the case since Bell’s founding in 1880, BCE remains at the forefront of Canadian communications, deploying the most extensive fibre and mobile broadband infrastructure, driving research and development in communications services, and managing the voice and data connections that Canadian consumers, businesses and government rely on around the clock. In an industry marked by rapid technological advances and company, and the communications provider of choice for rising competition, BCE is well prepared to meet the challenges Canadian business and government. and opportunities ahead. We are leveraging our scale, BCE invested approximately $4 billion in capital in network, strategic focus and expert team to lead Canada’s broadband service and media innovation in 2018, delivering the transformation and deliver value for our shareholders, communications services that consumers and businesses customers and communities now and into the future. depend on and the critical network infrastructure that drives Canada’s social and economic success. Setting the pace in Canadian communications Our capital investment program is among the most significant BCE is committed to operating with the highest standards in any Canadian business sector, well ahead of our competitors of corporate governance, shareholder accountability and and the most capital-efficient in the industry. ethical business conduct. This dedication to corporate responsibility is also reflected Strong financial position underpins shareholder value in BCE’s investments in every region of the country with BCE’s healthy balance sheet, strong $1.8-billion liquidity position advanced communications services, our focus on environmental and stable investment grade credit profile ensure we have the sustainability and support for people and communities nationwide financial flexibility to execute our business plan and our capital with the Bell Let’s Talk mental health initiative. We are dedicated markets objectives. to offering a diverse and inclusive national workplace that fully reflects our communities throughout Canada. In February 2019, BCE announced a 5% increase to the common share dividend to $3.17, effective with the Q1 2019 payment The Bell team’s 2018 performance makes clear that we have on April 15. This is the 15th such increase since the end of 2008, successfully embraced the broadband future across every representing total dividend growth of 117% over this period. business segment. With strong results in broadband wireless, It also marks the 11th consecutive year that BCE will deliver 5% or Internet and TV growth services, Bell built on its position better dividend growth while maintaining our dividend payout as Canada’s #1 Internet provider, largest television and media ratio within the target policy range of 65% to 75% of free cash flow. Annualized dividend per share In addition, BCE undertook a $175 million repurchase of common ($) shares in 2018 through a Normal Course Issuer Bid (NCIB) program. 117% 3.17 Our total shareholder return since the end of 2008 has been 3.02 2.76 2.87 261%, better than most of our North American peers and more 2.60 2.47 2.33 2.17 2.27 than double the return of the S&P/TSX Composite Index. 1.97 2.07 1.83 1.62 1.74 1.46 1.54 BCE reduced the cost of debt in 2018 as Bell Canada raised $1.5 billion in gross proceeds from the issuance of 7-year and 10-year medium-term note (MTN) debentures, as well as US$1.15 billion in gross proceeds from the issuance of 30-year Q4 Q1 Q3 Q1 Q3 Q1 Q2 Q1 Q3 Q1 Q1 Q1 Q1 Q1 Q1 Q1 notes in the first public debt financing by Bell Canada in the US 08 09 09 10 10 11 11 12 12 13 14 15 16 17 18 19 market in more than 20 years. Together, these offerings lowered our after-tax cost of publicly issued debt securities to 3.1%. WorldReginfo - c48972d6-153f-4d34-b388-d081117d93b9 6 Message from the Chair of the Board BCE Inc. 2018 Annual Report Workplace leader Bell is consistently recognized as a leading Canadian corporate citizen and one of the country’s top employers.

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