Rogers Communications Reports Second Quarter 2017 Results
- Total service revenue and adjusted operating profit growth of 5%
- Continued strong financial and subscriber performance in Wireless
- Service revenue and adjusted operating profit growth of 8% and 9%, respectively
- Wireless adjusted operating profit margin expansion of 70 basis points
- Postpaid net additions of 93,000, up 28,000
- Postpaid churn of 1.05%, down 9 basis points and the lowest rate since 2009
- Cable adjusted operating profit growth of 3% on stable revenue
- Cable adjusted operating profit margin expansion of 150 basis points
- Continued strong Internet revenue growth of 7%
- Internet net additions of 11,000, down slightly
- Acquired Advanced Wireless Service (AWS-1) spectrum licence in the Greater Toronto Area for $184 million to create even more capacity for our customers in a key market
TORONTO, July 20, 2017 /CNW/ - Rogers Communications Inc. today announced its unaudited financial and operating results for the second quarter ended June 30, 2017.
Consolidated Financial Highlights
(In millions of Canadian dollars, except |
Three months ended June 30 |
Six months ended June 30 |
||||||
2017 |
2016 |
% Chg |
2017 |
2016 |
% Chg |
|||
Total revenue |
3,592 |
3,455 |
4 |
6,930 |
6,700 |
3 |
||
Total service revenue 1 |
3,466 |
3,308 |
5 |
6,680 |
6,393 |
4 |
||
Adjusted operating profit 2 |
1,410 |
1,347 |
5 |
2,576 |
2,448 |
5 |
||
Net income |
531 |
394 |
35 |
825 |
624 |
32 |
||
Adjusted net income 2 |
514 |
427 |
20 |
843 |
672 |
25 |
||
Basic earnings per share |
$1.03 |
$0.77 |
34 |
$1.60 |
$1.21 |
32 |
||
Adjusted basic earnings per share 2 |
$1.00 |
$0.83 |
20 |
$1.64 |
$1.30 |
26 |
||
Cash provided by operating activities |
823 |
1,121 |
(27) |
1,419 |
1,719 |
(17) |
||
Free cash flow 2 |
626 |
495 |
26 |
964 |
715 |
35 |
1 |
As defined. See "Key Performance Indicators". |
2 |
As defined. See "Non-GAAP Measures". These measures should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. |
"Our second quarter results reflect the strong efforts of our highly engaged and committed team, underpinned by an incredibly rich mix of business assets. We reported strong revenue and adjusted operating profit growth from continued momentum and operating leverage in our largest segment, Wireless," said Joe Natale, President and CEO. "Our team delivered excellent Wireless results across the board, including substantially lower churn, and significantly grew adjusted operating profit and expanded margins. In Cable, we also grew adjusted operating profit and margins."
"I have been at Rogers for 13 weeks now and I am extremely excited about the prospects we have ahead of us. We have simplified our organizational structure for deeper end-to-end accountability for the customer experience and to drive further improvements in customer service and business performance. We are also intensifying our company-wide focus on cost efficiency to help generate further margin expansion. We will drive a deeper focus on delivering an outstanding customer experience while growing revenue and profitability to create more value for shareholders."
Key Financial Highlights
Higher revenue
Revenue increased 4% this quarter, largely driven by Wireless service revenue growth of 8%. Wireless service revenue increased primarily as a result of a larger subscriber base and the continued adoption of higher-value Share Everything plans.
Cable revenue was stable this quarter, as continued strong Internet revenue growth of 7% offset declines in Television and Phone revenue. Excluding the impact of the CRTC decision that reduced access service rates, Cable and Internet revenue would have increased by 1% and 10%, respectively.
Media revenue increased 4% this quarter primarily as a result of the continued growth of sports-related revenue, increased sales at Today's Shopping Choice (TSC, previously branded as The Shopping Channel), and higher conventional broadcast TV advertising revenue, partially offset by lower publishing-related advertising and circulation revenue due to the strategic shift to digital media announced late last year.
Higher adjusted operating profit
Adjusted operating profit increased 5% this quarter primarily as a result of Wireless adjusted operating profit growth of 9%, due to the strong flow through of revenue growth described above.
Cable adjusted operating profit increased 3% this quarter as a result of a decrease in operating expenses and the ongoing product mix shift to higher-margin Internet. Excluding the impact of the CRTC decision, adjusted operating profit would have increased by 6% this quarter.
Media adjusted operating profit decreased 30% this quarter primarily as a result of higher Toronto Blue Jays player payroll (including the impact of foreign exchange) and the impact of the strategic shift in publishing.
Higher net income and adjusted net income
Net income increased 35% and adjusted net income increased 20% this quarter as a result of higher adjusted operating profit and lower depreciation and amortization; net income also increased as a result of a gain on disposition of certain real estate assets.
Substantial free cash flow affords financial flexibility
This quarter, we continued to generate substantial cash flow from operating activities and free cash flow of $823 million and $626 million, respectively. Free cash flow growth was primarily driven by lower net additions to property, plant and equipment and increased adjusted operating profit.
We ended the second quarter with a debt leverage ratio (adjusted net debt / adjusted operating profit) of 3.0, which improved from a ratio of 3.1 as at the end of the same period last year, despite the $184 million spectrum licence acquisition this quarter. See "Managing our Liquidity and Financial Resources" in our Second Quarter 2017 Management's Discussion and Analysis for more information.
Our solid financial results enabled us to continue to make investments in our network and still return substantial dividends to shareholders. We paid $247 million in dividends this quarter.
Strategic Update
Our second quarter results reflect continued momentum. During the quarter, we simplified our organizational structure for deeper end-to-end accountability for the customer experience. We continue to focus on the fundamentals we believe are the key drivers of shareholder value: growth in revenue, margins, adjusted operating profit, free cash flow, and return on investment. We have an unmatched asset base with significant opportunities within that base to drive sustainable growth.
Maintaining Leadership and Momentum in Wireless
We accelerated momentum in Wireless this quarter. Service revenue growth of 8% was the highest growth rate since 2009. Postpaid net additions were 93,000, up 28,000 on substantially lower churn of 1.05%. Postpaid churn declined 9 basis points and represented the lowest churn since 2009. We achieved this strong postpaid subscriber growth while still generating adjusted operating profit growth of 9% and related margin expansion of 70 basis points on strong flow through of revenue. Adjusted operating profit growth was the highest growth rate since 2010.
Improving Cable on the Strength of Internet and our Robust Product Roadmap
Second quarter Cable revenue was stable year on year. Cable adjusted operating profit increased 3% and the related margin expanded 150 basis points, primarily driven by cost efficiencies and the ongoing product mix shift to higher-margin Internet offerings. In a highly competitive environment, Cable total service unit net losses increased by 6,000 and Internet net additions decreased by 1,000.
We generated strong Internet revenue growth of 7% this quarter on the popularity of our Ignite Internet offerings. We offer the fastest widely available Internet speeds in our marketplace with Ignite Gigabit Internet service available to our entire Cable footprint of over four million homes.
Excluding the impact of lower wholesale revenue as a result of the Canadian Radio-television and Telecommunications Commission's (CRTC) decision to reduce access service rates, Internet revenue growth would have been 10% in the quarter. Similarly, Cable revenue and adjusted operating profit growth this quarter would have been 1% and 6%, respectively, excluding this same impact.
We expect to launch Comcast's X1 all-IP video platform in 2018. Our customers will benefit from Comcast's commitment to innovation. Our adoption of the X1 platform not only includes access to one of the most advanced IPTV solutions, but also to Comcast's state-of-the-art customer premise equipment. Comcast attributes the transformative X1 platform to improving its Xfinity TV subscriber performance, reducing churn, and increasing engagement for customers.
Media Focused on Sports
Media remains focused on our strong portfolio of live sports entertainment. Second quarter Media revenue growth of 4% was largely driven by our sports assets, including the strength of Sportsnet, which continued its reign as Canada's number-one sports media brand for the second year in a row (2015 and 2016 calendar years). Adjusted operating profit was impacted primarily due to higher Toronto Blue Jays player payroll (including the impact of foreign exchange) and the impact of our shift to digital media announced in the fourth quarter of 2016.
About Rogers
Rogers is a leading diversified Canadian communications and media company that's working to deliver a great experience to our customers every day. We are Canada's largest provider of wireless communications services and one of Canada's leading providers of cable television, high-speed Internet, information technology, and telephony services to consumers and businesses. Through Rogers Media, we are engaged in radio and television broadcasting, sports, televised and online shopping, magazines, and digital media. Our shares are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI).
Quarterly Investment Community Teleconference
Our second quarter 2017 results teleconference with the investment community will be held on:
- July 20, 2017
- 8:00 a.m. Eastern Time
- webcast available at rogers.com/webcast
- media are welcome to participate on a listen-only basis
A rebroadcast will be available at rogers.com/investors on the Events and Presentations page for at least two weeks following the teleconference. Additionally, investors should note that from time to time, Rogers' management presents at brokerage-sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Rogers' website at rogers.com/events.
For More Information
You can find more information relating to us on our website (rogers.com/investors), on SEDAR (sedar.com), and on EDGAR (sec.gov), or you can e-mail us at [email protected]. Information on or connected to these and any other websites referenced in this earnings release is not part of, or incorporated into, this earnings release.
You can also go to rogers.com/investors for information about our governance practices, corporate social responsibility reporting, a glossary of communications and media industry terms, and additional information about our business.
About this Earnings Release
This earnings release contains important information about our business and our performance for the three and six months ended June 30, 2017, as well as forward-looking information about future periods. This earnings release should be read in conjunction with our Second Quarter 2017 MD&A; our Second Quarter 2017 Interim Condensed Consolidated Financial Statements and notes thereto, which have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB); our 2016 Annual MD&A; our 2016 Audited Consolidated Financial Statements and notes thereto, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB; and our other recent filings with Canadian and US securities regulatory authorities, including our Annual Information Form, which are available on SEDAR at sedar.com or EDGAR at sec.gov, respectively. We draw attention to our 2016 Annual MD&A where we disclosed that certain comparative figures were retrospectively amended as a result of the IFRS Interpretations Committee's agenda decision relating to IAS 12, Income Taxes.
For more information about Rogers, including product and service offerings, competitive market and industry trends, our overarching strategy, key performance drivers, and objectives, see "Understanding Our Business", "Our Strategy, Key Performance Drivers, and Strategic Highlights", and "Capability to Deliver Results" in our 2016 Annual MD&A.
All dollar amounts are in Canadian dollars unless otherwise stated and are unaudited. All percentage changes are calculated using the rounded numbers as they appear in the tables. Information is current as at July 19, 2017 and was approved by the Audit and Risk Committee of our Board of Directors (Board) on that date. This earnings release includes forward-looking statements and assumptions. See "About Forward-Looking Information" for more information.
We, us, our, Rogers, Rogers Communications, and the Company refer to Rogers Communications Inc. and its subsidiaries. RCI refers to the legal entity Rogers Communications Inc., not including its subsidiaries. Rogers also holds interests in various investments and ventures.
In this earnings release, this quarter, the quarter, or the second quarter refer to the three months ended June 30, 2017, the first quarter refers to the three months ended March 31, 2017, and year to date refers to the six months ended June 30, 2017 unless the context indicates otherwise. All results commentary is compared to the equivalent periods in 2016 or as at December 31, 2016, as applicable, unless otherwise indicated.
Summary of Consolidated Financial Results
(In millions of dollars, except margins and per |
Three months ended June 30 |
Six months ended June 30 |
||||||
2017 |
2016 |
% Chg |
2017 |
2016 |
% Chg |
|||
Revenue |
||||||||
Wireless |
2,048 |
1,931 |
6 |
4,016 |
3,821 |
5 |
||
Cable |
870 |
870 |
— |
1,725 |
1,726 |
— |
||
Business Solutions |
96 |
97 |
(1) |
191 |
193 |
(1) |
||
Media |
637 |
615 |
4 |
1,111 |
1,063 |
5 |
||
Corporate items and intercompany eliminations |
(59) |
(58) |
2 |
(113) |
(103) |
10 |
||
Revenue |
3,592 |
3,455 |
4 |
6,930 |
6,700 |
3 |
||
Total service revenue 1 |
3,466 |
3,308 |
5 |
6,680 |
6,393 |
4 |
||
Adjusted operating profit (loss) |
||||||||
Wireless |
924 |
846 |
9 |
1,737 |
1,609 |
8 |
||
Cable |
428 |
415 |
3 |
820 |
808 |
1 |
||
Business Solutions |
32 |
31 |
3 |
63 |
62 |
2 |
||
Media |
63 |
90 |
(30) |
35 |
41 |
(15) |
||
Corporate items and intercompany eliminations |
(37) |
(35) |
6 |
(79) |
(72) |
10 |
||
Adjusted operating profit 2 |
1,410 |
1,347 |
5 |
2,576 |
2,448 |
5 |
||
Adjusted operating profit margin 2 |
39.3% |
39.0% |
0.3pts |
37.2% |
36.5% |
0.7pts |
||
Net income |
531 |
394 |
35 |
825 |
624 |
32 |
||
Basic earnings per share |
$1.03 |
$0.77 |
34 |
$1.60 |
$1.21 |
32 |
||
Diluted earnings per share |
$1.03 |
$0.76 |
36 |
$1.60 |
$1.21 |
32 |
||
Adjusted net income 2 |
514 |
427 |
20 |
843 |
672 |
25 |
||
Adjusted basic earnings per share 2 |
$1.00 |
$0.83 |
20 |
$1.64 |
$1.30 |
26 |
||
Adjusted diluted earnings per share 2 |
$1.00 |
$0.83 |
20 |
$1.63 |
$1.30 |
25 |
||
Additions to property, plant and equipment, net |
451 |
647 |
(30) |
937 |
1,199 |
(22) |
||
Cash provided by operating activities |
823 |
1,121 |
(27) |
1,419 |
1,719 |
(17) |
||
Free cash flow 2 |
626 |
495 |
26 |
964 |
715 |
35 |
1 |
As defined. See "Key Performance Indicators". |
2 |
Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See "Non-GAAP Measures" for information about these measures, including how we calculate them. |
Results of our Reporting Segments
WIRELESS
Wireless Financial Results
Three months ended June 30 |
Six months ended June 30 |
|||||||
(In millions of dollars, except margins) |
2017 |
2016 |
% Chg |
2017 |
2016 |
% Chg |
||
Revenue |
||||||||
Service revenue |
1,925 |
1,788 |
8 |
3,774 |
3,522 |
7 |
||
Equipment revenue |
123 |
143 |
(14) |
242 |
299 |
(19) |
||
Revenue |
2,048 |
1,931 |
6 |
4,016 |
3,821 |
5 |
||
Operating expenses |
||||||||
Cost of equipment |
446 |
434 |
3 |
902 |
894 |
1 |
||
Other operating expenses |
678 |
651 |
4 |
1,377 |
1,318 |
4 |
||
Operating expenses |
1,124 |
1,085 |
4 |
2,279 |
2,212 |
3 |
||
Adjusted operating profit |
924 |
846 |
9 |
1,737 |
1,609 |
8 |
||
Adjusted operating profit margin as a % of service revenue |
48.0% |
47.3% |
0.7pts |
46.0% |
45.7% |
0.3pts |
||
Additions to property, plant and equipment |
158 |
207 |
(24) |
318 |
388 |
(18) |
Wireless Subscriber Results 1
(In thousands, except churn, postpaid |
Three months ended June 30 |
Six months ended June 30 |
|||||||
2017 |
2016 |
Chg |
2017 |
2016 |
Chg |
||||
Postpaid |
|||||||||
Gross additions |
366 |
349 |
17 |
709 |
653 |
56 |
|||
Net additions |
93 |
65 |
28 |
153 |
79 |
74 |
|||
Total postpaid subscribers 2 |
8,710 |
8,350 |
360 |
8,710 |
8,350 |
360 |
|||
Churn (monthly) |
1.05% |
1.14% |
(0.09pts) |
1.08% |
1.16% |
(0.08pts) |
|||
ARPA (monthly) |
$124.31 |
$116.06 |
$8.25 |
$121.95 |
$114.13 |
$7.82 |
|||
Prepaid |
|||||||||
Gross additions |
213 |
194 |
19 |
363 |
351 |
12 |
|||
Net additions (losses) |
14 |
25 |
(11) |
(28) |
6 |
(34) |
|||
Total prepaid subscribers 2 |
1,689 |
1,612 |
77 |
1,689 |
1,612 |
77 |
|||
Churn (monthly) |
3.96% |
3.57% |
0.39pts |
3.85% |
3.61% |
0.24pts |
|||
Blended ARPU (monthly) |
$62.13 |
$60.18 |
$1.95 |
$61.04 |
$59.35 |
$1.69 |
1 |
Subscriber counts, subscriber churn, postpaid ARPA, and blended ARPU are key performance indicators. See "Key Performance Indicators". |
2 |
As at end of period. |
Service revenue
The 8% increase in service revenue this quarter and 7% increase year to date were a result of:
- larger postpaid and prepaid subscriber bases; and
- higher blended ARPU as a result of the increased mix of higher-rate plans from our various brands, which includes the customer-friendly Rogers Share Everything plans, and increased data usage. These plans generate higher postpaid ARPA, bundle in various calling features and long distance, provide the ability to pool and manage data usage across multiple devices, and grant access to our other offerings, such as Roam Like Home, Rogers NHL GameCentre LIVE, Spotify, and Texture by Next Issue.
The 7% increases in postpaid ARPA this quarter and year to date were primarily a result of subscribers increasingly adding new lines to existing accounts, including through the continued adoption of Rogers Share Everything plans. Customers on Share Everything plans have increasingly utilized the advantages of premium offerings and access their shareable plans with multiple devices on the same account.
The 3% increases in blended ARPU this quarter and year to date were a result of:
- increased service revenue as discussed above; partially offset by
- the general increase in our prepaid subscriber base over the past year relative to the increased service revenue.
We believe the increases in gross and net additions to our postpaid subscriber base and the lower postpaid churn this quarter and year to date were results of our strategic focus on enhancing the customer experience by providing higher-value offerings, such as our Share Everything plans, improving our customer service, and continually increasing the quality of our network.
Equipment revenue
The 14% decrease in equipment revenue this quarter and 19% decrease year to date were a result of:
- larger average investments in customers who purchased devices under term contracts; and
- an 11% decrease in device upgrades by existing subscribers this quarter and 9% decrease year to date; partially offset by
- higher postpaid gross additions.
Operating expenses
Cost of equipment
The 3% increase in the cost of equipment this quarter and 1% increase year to date were a result of:
- a shift in the product mix of device sales towards higher-cost smartphones; and
- higher postpaid gross additions; partially offset by
- the decrease in device upgrades by existing subscribers as discussed above.
Other operating expenses
The 4% increases in other operating expenses this quarter and year to date were a result of higher costs of service.
Additionally, year to date other operating expenses were affected by higher commissions, as a result of our higher postpaid gross additions.
Adjusted operating profit
The 9% increase in adjusted operating profit this quarter and 8% increase year to date were a result of the strong flow through of service revenue growth discussed above.
Other Wireless developments
Spectrum licence acquisition
In June 2017, upon receipt of all necessary regulatory approvals, we acquired an AWS-1 spectrum licence from Quebecor Inc., pursuant to an existing agreement, by paying $184 million. Upon acquisition, we recognized the spectrum licence as an intangible asset of $184 million, which included directly attributable costs. The spectrum licence provides us with more wireless capacity in the Greater Toronto Area.
CABLE
Cable Financial Results
Three months ended June 30 |
Six months ended June 30 |
||||||
(In millions of dollars, except margins) |
2017 |
2016 |
% Chg |
2017 |
2016 |
% Chg |
|
Revenue |
|||||||
Internet |
402 |
376 |
7 |
789 |
736 |
7 |
|
Television |
377 |
394 |
(4) |
752 |
789 |
(5) |
|
Phone |
90 |
99 |
(9) |
181 |
198 |
(9) |
|
Service revenue |
869 |
869 |
— |
1,722 |
1,723 |
— |
|
Equipment revenue |
1 |
1 |
— |
3 |
3 |
— |
|
Revenue |
870 |
870 |
— |
1,725 |
1,726 |
— |
|
Operating expenses |
|||||||
Cost of equipment |
— |
1 |
(100) |
1 |
2 |
(50) |
|
Other operating expenses |
442 |
454 |
(3) |
904 |
916 |
(1) |
|
Operating expenses |
442 |
455 |
(3) |
905 |
918 |
(1) |
|
Adjusted operating profit |
428 |
415 |
3 |
820 |
808 |
1 |
|
Adjusted operating profit margin |
49.2% |
47.7% |
1.5pts |
47.5% |
46.8% |
0.7pts |
|
Additions to property, plant and equipment |
249 |
300 |
(17) |
477 |
546 |
(13) |
Cable Subscriber Results 1
Three months ended June 30 |
Six months ended June 30 |
||||||
(In thousands) |
2017 |
2016 |
Chg |
2017 |
2016 |
Chg |
|
Internet |
|||||||
Net additions |
11 |
12 |
(1) |
41 |
28 |
13 |
|
Total Internet subscribers 2 |
2,186 |
2,076 |
110 |
2,186 |
2,076 |
110 |
|
Television |
|||||||
Net losses |
(25) |
(23) |
(2) |
(49) |
(49) |
— |
|
Total Television subscribers 2 |
1,771 |
1,847 |
(76) |
1,771 |
1,847 |
(76) |
|
Phone |
|||||||
Net additions (losses) |
2 |
5 |
(3) |
4 |
(5) |
9 |
|
Total Phone subscribers 2 |
1,098 |
1,085 |
13 |
1,098 |
1,085 |
13 |
|
Cable homes passed 2 |
4,269 |
4,173 |
96 |
4,269 |
4,173 |
96 |
|
Total service units 3 |
|||||||
Net losses |
(12) |
(6) |
(6) |
(4) |
(26) |
22 |
|
Total service units 2 |
5,055 |
5,008 |
47 |
5,055 |
5,008 |
47 |
1 |
Subscriber counts are key performance indicators. See "Key Performance Indicators". |
2 |
As at end of period. |
3 |
Includes Internet, Television, and Phone subscribers. |
Revenue
The stable revenue this quarter and year to date were primarily a result of:
- a higher subscriber base for our Internet products; and
- the impact of service pricing changes; offset by
- Television subscriber losses over the past year; and
- lower wholesale revenue as a result of a CRTC decision that reduced access service rates.
Excluding the impact of the CRTC decision, Cable revenue would have increased by 1% this quarter and year to date.
Internet revenue
The 7% increases in Internet revenue this quarter and year to date were a result of:
- a larger Internet subscriber base;
- general movement of customers to higher speed and usage tiers of our Ignite Internet offerings; and
- the impact of Internet service pricing changes; partially offset by
- more promotional pricing provided to subscribers; and
- lower wholesale revenue as a result of a CRTC decision that reduced access service rates. Excluding this impact, Internet revenue would have increased by 10% this quarter and year to date.
Television revenue
The 4% decrease in Television revenue this quarter and 5% decrease year to date were a result of:
- the decline in Television subscribers over the past year; and
- more promotional pricing provided to subscribers; partially offset by
- the impact of Television service pricing changes.
Phone revenue
The 9% decreases in Phone revenue this quarter and year to date were a result of the impact of pricing packages.
Operating expenses
The 3% decrease in operating expenses this quarter and 1% decrease year to date were a result of:
- relative shifts in product mix to higher-margin Internet offerings from conventional Television broadcasting; and
- various cost efficiencies and productivity initiatives.
Adjusted operating profit
The 3% increase in adjusted operating profit this quarter and the 1% increase year to date were a result of the revenue and expense changes discussed above. Excluding the impact of the CRTC decision that reduced access service rates, adjusted operating profit would have increased by 6% this quarter and 4% year to date.
BUSINESS SOLUTIONS
Business Solutions Financial Results
Three months ended June 30 |
Six months ended June 30 |
||||||
(In millions of dollars, except margins) |
2017 |
2016 |
% Chg |
2017 |
2016 |
% Chg |
|
Revenue |
|||||||
Next generation |
79 |
78 |
1 |
157 |
153 |
3 |
|
Legacy |
15 |
17 |
(12) |
30 |
37 |
(19) |
|
Service revenue |
94 |
95 |
(1) |
187 |
190 |
(2) |
|
Equipment revenue |
2 |
2 |
— |
4 |
3 |
33 |
|
Revenue |
96 |
97 |
(1) |
191 |
193 |
(1) |
|
Operating expenses |
64 |
66 |
(3) |
128 |
131 |
(2) |
|
Adjusted operating profit |
32 |
31 |
3 |
63 |
62 |
2 |
|
Adjusted operating profit margin |
33.3% |
32.0% |
1.3pts |
33.0% |
32.1% |
0.9pts |
|
Additions to property, plant and equipment |
31 |
38 |
(18) |
60 |
76 |
(21) |
Revenue
The 1% decrease in service revenue this quarter and 2% decrease year to date were a result of the continued decline in our legacy and off-net voice business, partially offset by growth of higher-margin, next generation on-net and near-net IP-based services revenue. We expect legacy service revenue will continue to decrease as we focus on migrating customers to more advanced, cost-effective IP-based services and solutions.
Next generation services, which include our data centre operations, represented 84% of service revenue in the quarter (2016 - 82%) and 84% year to date (2016 - 81%).
Operating expenses
The 3% decrease in operating expenses this quarter and 2% decrease year to date were a result of:
- lower service costs related to the continued decline in our legacy and off-net voice business; and
- cost efficiencies and productivity initiatives; partially offset by
- higher service costs related to our next generation on-net and near-net IP-based offerings.
Adjusted operating profit
The 3% increase in adjusted operating profit this quarter and 2% increase year to date were a result of the revenue and expense changes discussed above.
MEDIA
Media Financial Results
Three months ended June 30 |
Six months ended June 30 |
|||||
(In millions of dollars, except margins) |
2017 |
2016 |
% Chg |
2017 |
2016 |
% Chg |
Revenue |
637 |
615 |
4 |
1,111 |
1,063 |
5 |
Operating expenses |
574 |
525 |
9 |
1,076 |
1,022 |
5 |
Adjusted operating profit |
63 |
90 |
(30) |
35 |
41 |
(15) |
Adjusted operating profit margin |
9.9% |
14.6% |
(4.7pts) |
3.2% |
3.9% |
(0.7pts) |
Additions to property, plant and equipment |
13 |
13 |
— |
26 |
31 |
(16) |
Revenue
The 4% increase in revenue this quarter and 5% increase year to date were a result of:
- higher sports-related revenue;
- higher TSC merchandise sales; and
- higher conventional broadcast TV advertising revenue; partially offset by
- lower publishing-related advertising and circulation revenue due to the strategic shift to digital media announced last year.
Year to date revenue in 2017 benefitted from a distribution in the first quarter to the Toronto Blue Jays from Major League Baseball.
Operating expenses
The 9% increase in operating expenses this quarter and 5% increase year to date were a result of:
- higher Toronto Blue Jays player payroll (including the impact of foreign exchange);
- higher sports-related programming and production costs; and
- higher TSC merchandise costs; partially offset by
- lower publishing costs due to the strategic shift as discussed above.
Adjusted operating profit
The 30% decrease in adjusted operating profit this quarter and 15% decrease year to date were a result of the revenue and expense changes discussed above.
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT, NET
Three months ended June 30 |
Six months ended June 30 |
||||||
(In millions of dollars, except capital intensity) |
2017 |
2016 |
% Chg |
2017 |
2016 |
% Chg |
|
Additions to property, plant and equipment |
|||||||
Wireless |
158 |
207 |
(24) |
318 |
388 |
(18) |
|
Cable |
249 |
300 |
(17) |
477 |
546 |
(13) |
|
Business Solutions |
31 |
38 |
(18) |
60 |
76 |
(21) |
|
Media |
13 |
13 |
— |
26 |
31 |
(16) |
|
Corporate |
74 |
89 |
(17) |
130 |
158 |
(18) |
|
Total additions to property, plant and equipment 1 |
525 |
647 |
(19) |
1,011 |
1,199 |
(16) |
|
Proceeds from disposition of property, plant and equipment |
(74) |
— |
— |
(74) |
— |
— |
|
Total additions to property, plant and equipment, net |
451 |
647 |
(30) |
937 |
1,199 |
(22) |
|
Capital intensity 2 |
12.6% |
18.7% |
(6.1pts) |
13.5% |
17.9% |
(4.4pts) |
1 |
Additions to property, plant and equipment do not include expenditures for spectrum licences. |
2 |
As defined. See "Key Performance Indicators". |
Wireless
The decreases in additions to property, plant and equipment in Wireless this quarter and year to date were primarily a result of higher LTE network investments in 2016 relative to 2017 to enhance network coverage and the quality of our network. Deployment of our 700 MHz LTE network reached 92% of Canada's population as at June 30, 2017. The 700 MHz LTE network offers improved signal quality in basements, elevators, and buildings with thick concrete walls. Deployment of our overall LTE network reached approximately 95% of Canada's population as at June 30, 2017.
Cable
The decreases in additions to property, plant and equipment in Cable this quarter and year to date were a result of investments associated with delivering Ignite Gigabit Internet across our Cable footprint in 2016, as well as costs related to development of our IPTV product in 2016. This was partially offset by costs incurred this quarter and year to date related to our forthcoming X1 IP-based video platform and higher investments in customer premise equipment in 2017.
Business Solutions
The decreases in additions to property, plant and equipment in Business Solutions this quarter and year to date were a result of higher investments in network infrastructure in 2016 relative to 2017, partially offset by higher information technology investments in 2017.
Media
Additions to property, plant and equipment in Media were stable this quarter. The decrease year to date reflects higher investments in digital platforms and broadcasting facilities in 2016 relative to 2017, partially offset by greater investments in the Rogers Centre this year.
Corporate
The decreases in additions to property, plant and equipment in Corporate this quarter and year to date were a result of higher information technology investments and premise improvements at our various offices in 2016 relative to 2017.
Proceeds from disposition of property, plant and equipment
We sold certain real estate assets this quarter for total proceeds of $74 million.
Capital intensity
Capital intensity decreased this quarter and year to date as a result of lower net additions to property, plant and equipment as discussed above, and higher total revenue.
Financial Guidance
There are no changes at this time to the consolidated guidance ranges for revenue, adjusted operating profit, free cash flow, or additions to property, plant and equipment, net, which were provided on January 26, 2017. See "About Forward-Looking Information" in this earnings release and in our 2016 Annual MD&A. Adjusted operating profit and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. They are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See "Non-GAAP Measures" for information about these measures, including how we calculate them.
Key Performance Indicators
We measure the success of our strategy using a number of key performance indicators that are defined and discussed in our 2016 Annual MD&A and this earnings release. We believe these key performance indicators allow us to appropriately measure our performance against our operating strategy as well as against the results of our peers and competitors. The following key performance indicators are not measurements in accordance with IFRS and should not be considered an alternative to net income or any other measure of performance under IFRS. They include:
- Subscriber counts;
- Subscriber churn (churn);
- Postpaid average revenue per account (ARPA);
- Blended average revenue per user (ARPU);
- Capital intensity; and
- Total service revenue.
Non-GAAP Measures
We use the following non-GAAP measures. These are reviewed regularly by management and our Board in assessing our performance and making decisions regarding the ongoing operations of our business and its ability to generate cash flows. Some or all of these measures may also be used by investors, lending institutions, and credit rating agencies as indicators of our operating performance, of our ability to incur and service debt, and as measurements to value companies in the telecommunications sector. These are not recognized measures under GAAP and do not have standard meanings under IFRS, so may not be reliable ways to compare us to other companies.
|
Why we use it |
How we calculate it |
Most |
Adjusted |
|
Adjusted operating profit: |
Net income |
Adjusted net |
|
Adjusted net income: |
Net income
|
Free cash flow |
|
Adjusted operating profit |
Cash provided |
Adjusted net |
|
Total long-term debt |
Long-term debt |
Adjusted net |
|
Adjusted net debt (defined above) |
Long-term debt |
Reconciliation of adjusted operating profit
Three months ended June 30 |
Six months ended June 30 |
||||
(In millions of dollars) |
2017 |
2016 |
2017 |
2016 |
|
Net income |
531 |
394 |
825 |
624 |
|
Add (deduct): |
|||||
Income tax expense |
182 |
141 |
289 |
220 |
|
Other (income) expense |
(31) |
9 |
(42) |
(25) |
|
Finance costs |
189 |
189 |
379 |
385 |
|
Restructuring, acquisition and other |
34 |
27 |
62 |
71 |
|
Gain on disposition of property, plant and equipment |
(49) |
— |
(49) |
— |
|
Depreciation and amortization |
535 |
572 |
1,080 |
1,146 |
|
Stock-based compensation |
19 |
15 |
32 |
27 |
|
Adjusted operating profit |
1,410 |
1,347 |
2,576 |
2,448 |
Reconciliation of adjusted operating profit margin
Three months ended June 30 |
Six months ended June 30 |
||||
(In millions of dollars, except percentages) |
2017 |
2016 |
2017 |
2016 |
|
Adjusted operating profit margin: |
|||||
Adjusted operating profit |
1,410 |
1,347 |
2,576 |
2,448 |
|
Divided by: total revenue |
3,592 |
3,455 |
6,930 |
6,700 |
|
Adjusted operating profit margin |
39.3% |
39.0% |
37.2% |
36.5% |
Reconciliation of adjusted net income
Three months ended June 30 |
Six months ended June 30 |
||||
(In millions of dollars) |
2017 |
2016 |
2017 |
2016 |
|
Net income |
531 |
394 |
825 |
624 |
|
Add (deduct): |
|||||
Stock-based compensation |
19 |
15 |
32 |
27 |
|
Restructuring, acquisition and other |
34 |
27 |
62 |
71 |
|
Gain on divestitures pertaining to investments |
— |
— |
— |
(39) |
|
Recovery on wind down of shomi |
(20) |
— |
(20) |
— |
|
Gain on disposition of property, plant and equipment |
(49) |
— |
(49) |
— |
|
Income tax impact of above items |
(1) |
(9) |
(7) |
(14) |
|
Income tax adjustment, legislative tax change |
— |
— |
— |
3 |
|
Adjusted net income |
514 |
427 |
843 |
672 |
Reconciliation of adjusted earnings per share
(In millions of dollars, except per share amounts; number of shares |
Three months ended June 30 |
Six months ended June 30 |
||||
2017 |
2016 |
2017 |
2016 |
|||
Adjusted basic earnings per share: |
||||||
Adjusted net income |
514 |
427 |
843 |
672 |
||
Divided by: |
||||||
Weighted average number of shares outstanding |
515 |
515 |
515 |
515 |
||
Adjusted basic earnings per share |
$1.00 |
$0.83 |
$1.64 |
$1.30 |
||
Adjusted diluted earnings per share: |
||||||
Adjusted net income |
514 |
427 |
843 |
672 |
||
Divided by: |
||||||
Diluted weighted average number of shares outstanding |
516 |
517 |
517 |
517 |
||
Adjusted diluted earnings per share |
$1.00 |
$0.83 |
$1.63 |
$1.30 |
Reconciliation of free cash flow
Three months ended June 30 |
Six months ended June 30 |
||||
(In millions of dollars) |
2017 |
2016 |
2017 |
2016 |
|
Cash provided by operating activities |
823 |
1,121 |
1,419 |
1,719 |
|
Add (deduct): |
|||||
Additions to property, plant and equipment, net |
(451) |
(647) |
(937) |
(1,199) |
|
Interest on borrowings, net of capitalized interest |
(181) |
(187) |
(363) |
(379) |
|
Restructuring, acquisition and other |
34 |
27 |
62 |
71 |
|
Interest paid |
133 |
154 |
371 |
392 |
|
Change in non-cash operating working capital items |
227 |
(35) |
405 |
85 |
|
Other adjustments |
41 |
62 |
7 |
26 |
|
Free cash flow |
626 |
495 |
964 |
715 |
Reconciliation of adjusted net debt and debt leverage ratio
As at |
As at December 31 |
||
(In millions of dollars) |
2017 |
2016 |
|
Current portion of long-term debt |
— |
750 |
|
Long-term debt |
14,927 |
15,330 |
|
Deferred transaction costs and discounts |
114 |
117 |
|
15,041 |
16,197 |
||
Add (deduct): |
|||
Net debt derivative assets |
(1,378) |
(1,683) |
|
Credit risk adjustment related to net debt derivative assets |
(31) |
(57) |
|
Short-term borrowings |
1,988 |
800 |
|
Bank advances |
74 |
71 |
|
Adjusted net debt |
15,694 |
15,328 |
As at |
As at December 31 |
||
(In millions of dollars, except ratios) |
2017 |
2016 |
|
Debt leverage ratio |
|||
Adjusted net debt |
15,694 |
15,328 |
|
Divided by: trailing 12-month adjusted operating profit |
5,220 |
5,092 |
|
Debt leverage ratio |
3.0 |
3.0 |
Rogers Communications Inc.
Interim Condensed Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts, unaudited)
Three months ended June 30 |
Six months ended June 30 |
||||
2017 |
2016 |
2017 |
2016 |
||
Revenue |
3,592 |
3,455 |
6,930 |
6,700 |
|
Operating expenses: |
|||||
Operating costs |
2,201 |
2,123 |
4,386 |
4,279 |
|
Depreciation and amortization |
535 |
572 |
1,080 |
1,146 |
|
Gain on disposition of property, plant and equipment |
(49) |
— |
(49) |
— |
|
Restructuring, acquisition and other |
34 |
27 |
62 |
71 |
|
Finance costs |
189 |
189 |
379 |
385 |
|
Other (income) expense |
(31) |
9 |
(42) |
(25) |
|
Income before income tax expense |
713 |
535 |
1,114 |
844 |
|
Income tax expense |
182 |
141 |
289 |
220 |
|
Net income for the period |
531 |
394 |
825 |
624 |
|
Earnings per share: |
|||||
Basic |
$1.03 |
$0.77 |
$1.60 |
$1.21 |
|
Diluted |
$1.03 |
$0.76 |
$1.60 |
$1.21 |
Rogers Communications Inc.
Interim Condensed Consolidated Statements of Financial Position
(In millions of Canadian dollars, unaudited)
As at |
As at |
||
2017 |
2016 |
||
Assets |
|||
Current assets: |
|||
Accounts receivable |
1,884 |
1,949 |
|
Inventories |
290 |
315 |
|
Other current assets |
292 |
215 |
|
Current portion of derivative instruments |
101 |
91 |
|
Total current assets |
2,567 |
2,570 |
|
Property, plant and equipment |
10,678 |
10,749 |
|
Intangible assets |
7,290 |
7,130 |
|
Investments |
2,385 |
2,174 |
|
Derivative instruments |
1,484 |
1,708 |
|
Other long-term assets |
92 |
98 |
|
Deferred tax assets |
7 |
8 |
|
Goodwill |
3,905 |
3,905 |
|
Total assets |
28,408 |
28,342 |
|
Liabilities and shareholders' equity |
|||
Current liabilities: |
|||
Bank advances |
74 |
71 |
|
Short-term borrowings |
1,988 |
800 |
|
Accounts payable and accrued liabilities |
2,364 |
2,783 |
|
Income tax payable |
105 |
186 |
|
Current portion of provisions |
60 |
134 |
|
Unearned revenue |
361 |
367 |
|
Current portion of long-term debt |
— |
750 |
|
Current portion of derivative instruments |
107 |
22 |
|
Total current liabilities |
5,059 |
5,113 |
|
Provisions |
33 |
33 |
|
Long-term debt |
14,927 |
15,330 |
|
Derivative instruments |
153 |
118 |
|
Other long-term liabilities |
490 |
562 |
|
Deferred tax liabilities |
1,976 |
1,917 |
|
Total liabilities |
22,638 |
23,073 |
|
Shareholders' equity |
5,770 |
5,269 |
|
Total liabilities and shareholders' equity |
28,408 |
28,342 |
Rogers Communications Inc.
Interim Condensed Consolidated Statements of Cash Flows
(In millions of Canadian dollars, unaudited)
Three months ended June 30 |
Six months ended June 30 |
||||||
2017 |
2016 |
2017 |
2016 |
||||
Operating activities: |
|||||||
Net income for the period |
531 |
394 |
825 |
624 |
|||
Adjustments to reconcile net income to cash provided by operating activities: |
|||||||
Depreciation and amortization |
535 |
572 |
1,080 |
1,146 |
|||
Program rights amortization |
16 |
18 |
36 |
39 |
|||
Finance costs |
189 |
189 |
379 |
385 |
|||
Income tax expense |
182 |
141 |
289 |
220 |
|||
Stock-based compensation |
19 |
15 |
32 |
27 |
|||
Post-employment benefits contributions, net of expense |
(65) |
(71) |
(59) |
(61) |
|||
Gain on divestitures pertaining to investments |
— |
— |
— |
(39) |
|||
Gain on disposition of property, plant and equipment |
(49) |
— |
(49) |
— |
|||
Recovery on wind down of shomi |
(20) |
— |
(20) |
— |
|||
Other |
(3) |
— |
(6) |
10 |
|||
Cash provided by operating activities before changes in non-cash working capital items, income taxes paid, and interest paid |
1,335 |
1,258 |
2,507 |
2,351 |
|||
Change in non-cash operating working capital items |
(227) |
35 |
(405) |
(85) |
|||
Cash provided by operating activities before income taxes paid and interest paid |
1,108 |
1,293 |
2,102 |
2,266 |
|||
Income taxes paid |
(152) |
(18) |
(312) |
(155) |
|||
Interest paid |
(133) |
(154) |
(371) |
(392) |
|||
Cash provided by operating activities |
823 |
1,121 |
1,419 |
1,719 |
|||
Investing activities: |
|||||||
Additions to property, plant and equipment, net |
(451) |
(647) |
(937) |
(1,199) |
|||
Additions to program rights |
(19) |
(14) |
(33) |
(24) |
|||
Changes in non-cash working capital related to property, plant and equipment and intangible assets |
(7) |
32 |
(88) |
(105) |
|||
Acquisitions and other strategic transactions, net of cash acquired |
(184) |
— |
(184) |
— |
|||
Other |
(26) |
47 |
(52) |
7 |
|||
Cash used in investing activities |
(687) |
(582) |
(1,294) |
(1,321) |
|||
Financing activities: |
|||||||
Net proceeds received on short-term borrowings |
889 |
45 |
1,225 |
250 |
|||
Net repayment of long-term debt |
(795) |
(385) |
(848) |
(266) |
|||
Net repayment on settlement of debt derivatives and forward contracts |
(8) |
(23) |
(11) |
(42) |
|||
Dividends paid |
(247) |
(247) |
(494) |
(494) |
|||
Cash used in financing activities |
(161) |
(610) |
(128) |
(552) |
|||
Change in cash and cash equivalents |
(25) |
(71) |
(3) |
(154) |
|||
(Bank advances) cash and cash equivalents, beginning of period |
(49) |
(72) |
(71) |
11 |
|||
Bank advances, end of period |
(74) |
(143) |
(74) |
(143) |
About Forward-Looking Information
This earnings release includes "forward-looking information" and "forward-looking statements" within the meaning of applicable securities laws (collectively, "forward-looking information"), and assumptions about, among other things, our business, operations, and financial performance and condition approved by our management on the date of this earnings release. This forward-looking information and these assumptions include, but are not limited to, statements about our objectives and strategies to achieve those objectives, and about our beliefs, plans, expectations, anticipations, estimates, or intentions.
Forward-looking information
- typically includes words like could, expect, may, anticipate, assume, believe, intend, estimate, plan, project, guidance, outlook, target, and similar expressions, although not all forward-looking information includes them;
- includes conclusions, forecasts, and projections that are based on our current objectives and strategies and on estimates, expectations, assumptions, and other factors, most of which are confidential and proprietary and that we believe to have been reasonable at the time they were applied but may prove to be incorrect; and
- was approved by our management on the date of this earnings release.
Our forward-looking information includes forecasts and projections related to the following items, some of which are non-GAAP measures (see "Non-GAAP Measures"), among others:
- revenue;
- adjusted operating profit;
- additions to property, plant and equipment, net;
- cash income tax payments;
- free cash flow;
- dividend payments;
- the growth of new products and services;
- expected growth in subscribers and the services to which they subscribe;
- the cost of acquiring and retaining subscribers and deployment of new services;
- continued cost reductions and efficiency improvements; and
- all other statements that are not historical facts.
We base our conclusions, forecasts, and projections on the following factors, among others:
- general economic and industry growth rates;
- currency exchange rates and interest rates;
- product pricing levels and competitive intensity;
- subscriber growth;
- pricing, usage, and churn rates;
- changes in government regulation;
- technology deployment;
- availability of devices;
- timing of new product launches;
- content and equipment costs;
- the integration of acquisitions; and
- industry structure and stability.
Except as otherwise indicated, this earnings release and our forward-looking information do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations, or other transactions that may be considered or announced or may occur after the date on which the statement containing the forward-looking information is made.
Risks and uncertainties
Actual events and results can be substantially different from what is expressed or implied by forward-looking information as a result of risks, uncertainties, and other factors, many of which are beyond our control, including, but not limited to:
- regulatory changes;
- technological changes;
- economic conditions;
- unanticipated changes in content or equipment costs;
- changing conditions in the entertainment, information, and communications industries;
- the integration of acquisitions;
- litigation and tax matters;
- the level of competitive intensity;
- the emergence of new opportunities; and
- new interpretations and new accounting standards from accounting standards bodies.
These factors can also affect our objectives, strategies, and intentions. Many of these factors are beyond our control or our current expectations or knowledge. Should one or more of these risks, uncertainties, or other factors materialize, our objectives, strategies, or intentions change, or any other factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans could vary significantly from what we currently foresee.
Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and caution them that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any statements containing forward-looking information or the factors or assumptions underlying them, whether as a result of new information, future events, or otherwise, except as required by law. All of the forward-looking information in this earnings release is qualified by the cautionary statements herein.
Before making an investment decision
Before making any investment decisions and for a detailed discussion of the risks, uncertainties, and environment associated with our business, fully review the sections of our Second Quarter 2017 MD&A entitled "Updates to Risks and Uncertainties" and "Regulatory Developments" and fully review the sections in our 2016 Annual MD&A entitled "Regulation in Our Industry" and "Governance and Risk Management", as well as our various other filings with Canadian and US securities regulators, which can be found at sedar.com and sec.gov, respectively. Information on or connected to our website is not part of or incorporated into this earnings release.
SOURCE Rogers Communications Canada Inc. - English
Investment community contact: Amy Schwalm, 416.704.9057, [email protected]; Media contact: Terrie Tweddle, 647.501.8346, [email protected]
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