Rogers Reports Second Quarter 2010 Financial and Operating Results
Adjusted Operating Profit up 11% as Revenue Grows 5% to $3.0 Billion;
Revenue Increases Combine with Cost Efficiencies to Drive Margin
Expansion at each of Wireless, Cable and Media;
Wireless Data Revenue Growth Continues Strong at 39%, while Cable
Total Service Units grow 25,000 More Than Second Quarter 2009;
Growth Across Media's Portfolio Leads to 8% Revenue Increase
which Combine with Cost Efficiencies to Drive 78% Adjusted
Operating Profit Growth;
Consolidated Second Quarter Free Cash Flow up 20%, Adjusted Net
Income up 13%, and Adjusted Earnings Per Share up 23%
TORONTO, July 27 /CNW/ - Rogers Communications Inc. today announced the filing of its consolidated financial and operating results for the three and six months ended June 30, 2010.
Financial highlights are as follows(1):
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except per ---------------------------------------------------
share amounts) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating revenue $ 3,029 $ 2,891 5 $ 5,916 $ 5,638 5
Operating profit 1,182 1,033 14 2,304 2,115 9
Net income 451 374 21 831 683 22
Basic and diluted net
income per share $ 0.78 $ 0.59 32 $ 1.42 $ 1.08 31
As adjusted:
Operating profit $ 1,200 $ 1,083 11 $ 2,363 $ 2,088 13
Net income 464 412 13 872 668 31
Basic and diluted
net income per
share $ 0.80 $ 0.65 23 $ 1.49 $ 1.06 41
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(1) For a detailed discussion of our financial and operating metrics and
results, please review our 2009 Annual Report together with our
second quarter 2010 MD&A and our second quarter 2010 Unaudited
Interim Consolidated Financial Statements and Notes thereto which can
be found at www.rogers.com and on SEDAR at www.sedar.com or on EDGAR
at www.sec.gov.
"Our results for the second quarter of 2010 demonstrate continued revenue and subscriber growth combined with healthy operating leverage resulting from efficiency gains across the business," said Nadir Mohamed, President and Chief Executive Officer of Rogers Communications. "As a result, we expanded margins in all three segments and delivered double digit growth in adjusted operating profit, free cash flow and earnings per share."
Highlights of the second quarter of 2010 include the following:
- Generated consolidated quarterly revenue growth of 5%, with Wireless
network growth of 7%, and growth of 4% in Cable Operations and 8% in
Media. Wireless, Cable Operations and Media adjusted operating profit
increased by 10%, 4%, and 78% respectively. Revenue growth and cost
reduction initiatives combined to drive the adjusted operating profit
margin up to 39.6% from 37.5% year-over-year on a consolidated basis,
with Wireless network margins increasing to 49.9% from 48.5%, Cable
Operations margins increasing to 43.4% from 43.1%, and Media margins
increasing to 16.7% from 10.1% year-over-year.
- Wireless network revenue growth was fuelled by data revenue growth of
39% and net subscriber additions of 119,000. Wireless data revenue
now comprises 27% of Wireless network revenue and was helped by the
activation and upgrade of approximately 385,000 additional smartphone
devices during the quarter, predominantly BlackBerry, iPhone and
Android devices, of which approximately 35% were for subscribers new
to Wireless. This resulted in subscribers with smartphones, who
generate ARPU nearly twice that of voice only subscribers,
representing 35% of the overall postpaid subscriber base as at
June 30, 2010, up from 25% as at June 30, 2009.
- Grew total service units (television, Internet and telephony
subscribers) at Cable by more than 25,000 versus the second quarter
2009, with Internet subscriber penetration now at 72% of television
subscribers and residential voice-over-cable telephony penetration at
42% of television subscribers.
- Wireless announced that it would offer Apple's iPhone 4, and also
began offering prepaid wireless service plans for Apple's recently
introduced touchscreen tablet computer, the iPad, for customers who
want to take their movies, TV shows, music, games and reading with
them.
- We unveiled the Rogers Handset Protection Guarantee program for
wireless customers. The program, a first from a Canadian wireless
service provider, provides a simple and cost effective replacement
service for customers whose devices have been lost, stolen or broken.
- Launched Rogers' Extreme Text Messaging service, a North American
first, allowing wireless customers to personalize their texting
experience with signatures, distribution lists, blocking and
forwarding, making the texting experience as easy and feature rich as
email.
- Announced the introduction of a new wireless brand called chatr, the
first in the prepaid unlimited talk and text category to offer
customers the reach and reliability of a proven network. chatr will
offer unlimited voice and text plans within defined urban chatr
zones, and be supported by extensive retail distribution. The
introduction of chatr rounds out Rogers' existing multi-brand
approach to targeting distinct market segments.
- Cable announced the official launch of its innovative Rogers On
Demand Online distribution platform, Canada's one-stop web
destination for on-demand access to a vast video library that
features prime time, daytime and specialty TV, movies, news, sports,
and music content.
- Media strengthened its radio presence in Edmonton, Alberta with the
agreement to acquire BOUNCE (CHBN-FM), one of Edmonton's top hit
music stations, and in London, Ontario with the agreement to acquire
BOB-FM (CHST-FM), a continual ratings leader in that market. These
transactions are subject to CRTC approval, and are expected to close
in the second half of 2010.
- Together with Canucks Sports and Entertainment, we announced a
10-year strategic alliance giving Rogers the arena naming and
telecommunications sponsorship rights. The Vancouver stadium that is
home to the NHL's Canucks will now be known as Rogers Arena.
- Generated consolidated free cash flow (adjusted operating profit less
property, plant and equipment expenditures and interest) of
$591 million, a 20% increase from second quarter 2009, while adjusted
net income grew by 13%. On a per share basis, free cash flow
increased by 30% and adjusted earnings per share increased by 23%
reflecting share buybacks over the past year which decreased the base
of outstanding shares.
- We repurchased 9.0 million RCI Class B Non-Voting shares for
$328 million during the quarter under our $1.5 billion share buyback
authorization, and paid dividends on our common shares totalling
$188 million.
This summary of our second quarter 2010 earnings ("earnings release"), which is current as of July 26, 2010, should be read in conjunction with our second quarter 2010 MD&A, our second quarter 2010 Interim Unaudited Consolidated Financial Statements and Notes thereto, our 2009 Annual MD&A and our 2009 Annual Audited Consolidated Financial Statements and Notes thereto. The financial information presented herein has been prepared on the basis of Canadian generally accepted accounting principles ("GAAP") for interim financial statements and is expressed in Canadian dollars. Please refer to Note 25 of our 2009 Annual Audited Consolidated Financial Statements for a summary of the differences between Canadian GAAP and United States ("U.S.") GAAP for the year ended December 31, 2009.
In this earnings release, the terms "we", "us", "our", "Rogers" and "the Company" refer to Rogers Communications Inc. and our subsidiaries, "Wireless", "Cable" and "Media".
SUMMARIZED CONSOLIDATED FINANCIAL RESULTS
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except per ---------------------------------------------------
share amounts) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating revenue
Wireless $ 1,700 $ 1,616 5 $ 3,362 $ 3,160 6
Cable
Cable Operations 790 763 4 1,579 1,506 5
RBS 140 125 12 273 253 8
Rogers Retail 86 90 (4) 175 192 (9)
Corporate items
and eliminations (12) (6) 100 (26) (11) 136
---------------------------------------------------
1,004 972 3 2,001 1,940 3
Media 396 366 8 697 650 7
Corporate items
and eliminations (71) (63) 13 (144) (112) 29
---------------------------------------------------
Total 3,029 2,891 5 5,916 5,638 5
---------------------------------------------------
---------------------------------------------------
Adjusted operating
profit (loss)
Wireless 815 742 10 1,647 1,452 13
Cable
Cable Operations 343 329 4 683 637 7
RBS 9 7 29 17 22 (23)
Rogers Retail (8) (4) 100 (12) (3) n/m
---------------------------------------------------
344 332 4 688 656 5
Media 66 37 78 74 27 174
Corporate items
and eliminations (25) (28) (11) (46) (47) (2)
---------------------------------------------------
Adjusted operating
profit 1,200 1,083 11 2,363 2,088 13
Stock-based
compensation
recovery (expense) (10) (13) (23) (34) 68 n/m
Integration and
restructuring expenses (8) (37) (78) (10) (41) (76)
Other items, net - - n/m (15) - n/m
---------------------------------------------------
Operating profit 1,182 1,033 14 2,304 2,115 9
Other income and
expense, net 731 659 11 1,473 1,432 3
---------------------------------------------------
Net income $ 451 $ 374 21 $ 831 $ 683 22
---------------------------------------------------
---------------------------------------------------
Basic and diluted net
income per share $ 0.78 $ 0.59 32 $ 1.42 $ 1.08 31
As adjusted:
Net income $ 464 $ 412 13 $ 872 $ 668 31
Basic and diluted
net income per
share $ 0.80 $ 0.65 23 $ 1.49 $ 1.06 41
Additions to property,
plant and equipment
("PP&E")
Wireless $ 206 $ 204 1 $ 405 $ 378 7
Cable
Cable Operations 159 156 2 277 260 7
RBS 8 9 (11) 14 17 (18)
Rogers Retail 3 3 - 4 6 (33)
---------------------------------------------------
170 168 1 295 283 4
Media 9 16 (44) 14 30 (53)
Corporate 54 46 17 91 102 (11)
---------------------------------------------------
Total $ 439 $ 434 1 $ 805 $ 793 2
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SEGMENT REVIEW
WIRELESS
--------
Summarized Wireless Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except ---------------------------------------------------
margin) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating revenue
Postpaid $ 1,559 $ 1,456 7 $ 3,074 $ 2,862 7
Prepaid 74 73 1 140 140 -
---------------------------------------------------
Network revenue 1,633 1,529 7 3,214 3,002 7
Equipment sales 67 87 (23) 148 158 (6)
---------------------------------------------------
Total operating
revenue 1,700 1,616 5 3,362 3,160 6
---------------------------------------------------
Operating expenses
before the undernoted
Cost of equipment
sales 243 254 (4) 480 479 -
Sales and marketing
expenses 152 149 2 263 289 (9)
Operating, general
and administrative
expenses 490 471 4 972 940 3
---------------------------------------------------
885 874 1 1,715 1,708 -
---------------------------------------------------
Adjusted operating
profit 815 742 10 1,647 1,452 13
Stock-based
compensation
recovery (expense) (2) (2) - (7) 8 n/m
Integration and
restructuring expenses - (9) n/m (1) (9) (89)
Other items, net - - n/m (10) - n/m
---------------------------------------------------
Operating profit $ 813 $ 731 11 $ 1,629 $ 1,451 12
---------------------------------------------------
---------------------------------------------------
Adjusted operating
profit margin as %
of network revenue 49.9% 48.5% 51.2% 48.4%
Additions to PP&E $ 206 $ 204 1 $ 405 $ 378 7
-------------------------------------------------------------------------
Summarized Wireless Subscriber Results
-------------------------------------------------------------------------
(Subscriber
statistics in Three months ended Six months ended
thousands, except June 30, June 30,
ARPU, churn and ------------------------------------------------------
usage) 2010 2009 Chg 2010 2009 Chg
-------------------------------------------------------------------------
Postpaid
Gross additions 321 347 (26) 599 662 (63)
Net additions 98 148 (50) 145 252 (107)
Total postpaid
retail
subscribers 7,124 6,702 422 7,124 6,702 422
Average monthly
revenue per
user ("ARPU") $ 73.54 $ 73.24 $ 0.30 $ 72.83 $ 72.69 $ 0.14
Average monthly
minutes of
usage 577 604 (27) 567 587 (20)
Monthly churn 1.06% 1.00% 0.06% 1.08% 1.05% 0.03%
Prepaid
Gross additions 165 135 30 293 265 28
Net additions
(losses) 21 (6) 27 (13) (38) 25
Total prepaid
retail
subscribers 1,502 1,454 48 1,502 1,454 48
ARPU $ 16.61 $ 16.77 $(0.16) $ 15.64 $ 15.92 $(0.28)
Average monthly
minutes of
usage 112 124 (12) 109 120 (11)
Monthly churn 3.26% 3.24% 0.02% 3.43% 3.44% (0.01%)
Total Postpaid
and Prepaid
Gross additions 486 482 4 892 927 (35)
Net additions 119 142 (23) 132 214 (82)
Total postpaid
and prepaid
retail
subscribers 8,626 8,156 470 8,626 8,156 470
Monthly churn 1.44% 1.41% 0.03% 1.49% 1.48% 0.01%
Blended ARPU $ 63.66 $ 63.09 $ 0.57 $ 62.82 $ 62.32 $ 0.50
Blended average
monthly minutes
of usage 495 516 (21) 485 500 (15)
-------------------------------------------------------------------------
Wireless Subscribers and Network Revenue
The year-over-year decrease in net subscriber additions for the quarter primarily reflects a combination of an increased level of competitive intensity, a significantly higher than usual market share of subscriber additions by Wireless in the prior year period, and a slowing of consumer iPhone purchases in advance of the availability of the new iPhone 4 during the third quarter of 2010. Wireless began offering prepaid wireless service plans for Apple's recently introduced touchscreen tablet computer, the iPad, during the quarter and this contributed to the increase in prepaid subscribers versus the prior year period.
The increase in network revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, was driven predominantly by the continued growth of Wireless' postpaid subscriber base and the continued adoption of wireless data services. Year-over-year, blended ARPU increased by 0.9%, which reflects higher wireless data, feature and long-distance revenues, partially offset by declines in roaming and out-of-plan usage revenues reflecting a combination of economic softness, the creation over the past year of voice and data roaming value plans for frequent travelers, and general competitive intensity.
For both the three and six months ended June 30, 2010, wireless data revenue increased by approximately 39% over the corresponding periods of 2009, to $436 million and $851 million, respectively. This growth in wireless data revenue reflects the continued penetration and growing usage of smartphone and wireless laptop devices which are driving increased usage of e-mail, wireless Internet access, text messaging and other wireless data services. For both the three and six months ended June 30, 2010, data revenue represented approximately 27% of total network revenue, compared to approximately 20% in the corresponding periods of 2009.
Wireless activated and upgraded approximately 385,000 smartphone devices, predominately iPhone, BlackBerry and Android devices, of which approximately 35% were for subscribers new to Wireless, during the three months ended June 30, 2010. This resulted in subscribers with smartphones representing 35% of the overall postpaid subscriber base as at June 30, 2010, compared to 25% as at June 30, 2009. These subscribers have committed to new multi-year-term contracts, and generate ARPU nearly twice that of voice only subscribers.
Wireless' success in maintaining the low level of postpaid churn reflects targeted customer retention programs and continued enhancements in network coverage and quality.
Wireless Equipment Sales
The year-over-year decrease in the equipment sales component of revenue, including activation fees and net of equipment subsidies, for the three and six months ended June 30, 2010, versus the corresponding periods of 2009, reflects fluctuations in the mix, volumes, and subsidy levels associated with device sales to new and upgrading subscribers.
Wireless Operating Expenses
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(In millions of ---------------------------------------------------
dollars) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating expenses
Cost of equipment
sales $ 243 $ 254 (4) $ 480 $ 479 -
Sales and marketing
expenses 152 149 2 263 289 (9)
Operating, general
and administrative
expenses 490 471 4 972 940 3
---------------------------------------------------
Operating expenses
before the undernoted 885 874 1 1,715 1,708 -
Stock-based
compensation
expense (recovery) 2 2 - 7 (8) n/m
Integration and
restructuring
expenses - 9 n/m 1 9 (89)
Other items, net - - n/m 10 - n/m
---------------------------------------------------
Total operating
expenses $ 887 $ 885 - $ 1,733 $ 1,709 1
-------------------------------------------------------------------------
The decrease in cost of equipment sales for the three months ended June 30, 2010, compared to the corresponding period of 2009, was primarily the result of the timing of hardware shipments versus the prior period, offset by a higher average cost of more sophisticated devices. These factors also contributed to the relatively steady level of cost of equipment sales for the six months ended June 30, 2010, compared to the corresponding period of 2009.
Sales and marketing expenses increased slightly for the three months ended June 30, 2010, compared to the corresponding period of 2009, due to modest increased spending on advertising and promotion costs for new marketing campaigns, offset by savings resulting from cost reduction initiatives. Sales and marketing expenses decreased 9% for the six months ended June 30, 2010, compared to the corresponding period of 2009, due to lower sales volumes as well as savings resulting from cost reduction initiatives.
The year-over-year increase in operating, general and administrative expenses for the second quarter, excluding retention spending discussed below, was driven by a combination of growth in the Wireless postpaid subscriber base offset by savings related to operating and scale efficiencies across various functions.
Total retention spending, including subsidies on handset upgrades, was $170 million and $325 million in the three and six months ended June 30, 2010, respectively, compared to $144 million and $287 million in the corresponding periods of 2009. The retention spending for the three and six months ended June 30, 2010 increased compared to the corresponding periods of 2009 as a result of a higher volume of upgrade activity by existing subscribers and an increased mix of more sophisticated devices, versus the prior periods.
Wireless Adjusted Operating Profit
The 10% year-over-year increase in adjusted operating profit and the adjusted operating profit margin of 49.9% on network revenue (which excludes equipment sales revenue) for the three months ended June 30, 2010 primarily reflects the increase in network revenue offset by the increase in the total operating expenses discussed above.
Wireless Additions to Property, Plant and Equipment ("PP&E")
Wireless additions to PP&E are classified into the following categories:
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(In millions of ---------------------------------------------------
dollars) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Additions to PP&E
Capacity $ 96 $ 119 (19) $ 224 $ 209 7
Quality 73 49 49 116 99 17
Network - other 7 5 40 13 19 (32)
Information
technology and
other 30 31 (3) 52 51 2
---------------------------------------------------
Total additions
to PP&E $ 206 $ 204 1 $ 405 $ 378 7
-------------------------------------------------------------------------
Wireless PP&E additions reflect spending on network capacity, such as radio channel additions, network core improvements and network enhancing features, including the deployment of our HSPA+ network. Quality related PP&E is associated with upgrades to the network to enable higher throughput speeds, in addition to improved network access associated activities such as site build programs, and network sectorization work. In addition, Quality includes test and monitoring equipment and operating support system activities. Investments in Network - other are associated with network reliability and renewal initiatives, infrastructure upgrades, and new product platforms. Information technology and other wireless specific system initiatives included billing and back-office system upgrades, and other facilities and equipment spending.
Spending for the three months ended June 30, 2010 related to the Quality PP&E increased by 49% over the second quarter of 2009 due to increased new cell-site build activity. Quarter-over-quarter Capacity PP&E was lower by 19%, as a result of decreased spending on switching/radio network controller equipment and transmission augmentation projects. Network - other spending increased 40% over the second quarter of 2009 due to new product initiatives, such as the development of a pre-paid rocket stick and subscriber day passes for U.S. and international roaming.
Other Wireless Developments
Wireless announced the introduction of a new wireless brand called chatr. This new wireless brand will focus on the growing urban zone based unlimited talk and text category.
On July 9, 2010, Wireless reached an agreement to acquire the assets of Cityfone Telecommunications Inc. ("Cityfone") for cash consideration of $24 million. Cityfone is a leading independent Canadian Mobile Virtual Network Operator that resells Wireless' post paid wireless voice and data services to subscribers through private label programs with major Canadian brands.
CABLE
-----
Summarized Cable Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except ---------------------------------------------------
margin) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating revenue
Cable Operations $ 790 $ 763 4 $ 1,579 $ 1,506 5
RBS 140 125 12 273 253 8
Rogers Retail 86 90 (4) 175 192 (9)
Intercompany
eliminations (12) (6) 100 (26) (11) 136
---------------------------------------------------
Total operating
revenue 1,004 972 3 2,001 1,940 3
---------------------------------------------------
Adjusted operating
profit (loss) before
the undernoted
Cable Operations 343 329 4 683 637 7
RBS 9 7 29 17 22 (23)
Rogers Retail (8) (4) 100 (12) (3) n/m
---------------------------------------------------
Adjusted operating
profit 344 332 4 688 656 5
Stock-based
compensation
recovery (expense) (2) (4) (50) (5) 21 n/m
Integration and
restructuring
expenses (7) (7) - (8) (11) (27)
Other items, net - - n/m (5) - n/m
---------------------------------------------------
Operating profit $ 335 $ 321 4 $ 670 $ 666 1
---------------------------------------------------
---------------------------------------------------
Adjusted operating
profit (loss)
margin
Cable Operations 43.4% 43.1% 43.3% 42.3%
RBS 6.4% 5.6% 6.2% 8.7%
Rogers Retail (9.3%) (4.4%) (6.9%) (1.6%)
Additions to PP&E
Cable Operations $ 159 $ 156 2 $ 277 $ 260 7
RBS 8 9 (11) 14 17 (18)
Rogers Retail 3 3 - 4 6 (33)
---------------------------------------------------
Total additions
to PP&E $ 170 $ 168 1 $ 295 $ 283 4
-------------------------------------------------------------------------
The following segment discussions provide a detailed discussion of the Cable operating results.
CABLE OPERATIONS
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except ---------------------------------------------------
margin) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating revenue
Core Cable $ 448 $ 440 2 $ 905 $ 868 4
Internet 214 195 10 418 381 10
Rogers Home Phone 128 128 - 256 257 -
---------------------------------------------------
Total Cable Operations
operating revenue 790 763 4 1,579 1,506 5
---------------------------------------------------
Operating expenses
before the undernoted
Sales and marketing
expenses 58 64 (9) 110 119 (8)
Operating, general
and administrative
expenses 389 370 5 786 750 5
---------------------------------------------------
447 434 3 896 869 3
---------------------------------------------------
Adjusted operating
profit 343 329 4 683 637 7
Stock-based
compensation
recovery (expense) (2) (4) (50) (5) 19 n/m
Integration and
restructuring
expenses (1) (6) (83) (1) (7) (86)
Other items, net - - n/m (7) - n/m
---------------------------------------------------
Operating profit $ 340 $ 319 7 $ 670 $ 649 3
---------------------------------------------------
---------------------------------------------------
Adjusted operating
profit margin 43.4% 43.1% 43.3% 42.3%
-------------------------------------------------------------------------
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Six months ended
(Subscriber June 30, June 30,
statistics in ---------------------------------------------------
thousands) 2010 2009 Chg 2010 2009 Chg
-------------------------------------------------------------------------
Cable homes passed 3,661 3,577 84 3,661 3,577 84
Television
Net additions
(losses) - (19) 19 1 (27) 28
Total television
subscribers 2,296 2,292 4 2,296 2,292 4
Digital cable
Households, net
additions 11 8 3 37 43 (6)
Total households 1,701 1,593 108 1,701 1,593 108
Cable high-speed
Internet
Net additions
(losses) 7 (4) 11 24 7 17
Total cable high-
speed Internet
subscribers 1,643 1,578 65 1,643 1,578 65
Cable telephony lines
Net additions and
migrations 16 21 (5) 38 38 -
Total cable
telephony lines 975 878 97 975 878 97
Total cable service
units
Net additions
(losses) 23 (2) 25 63 18 45
Total cable
service units 4,914 4,748 166 4,914 4,748 166
-------------------------------------------------------------------------
Circuit-switched lines
Net losses and
migrations (11) (27) 16 (27) (50) 23
Total circuit-
switched lines 97 165 (68) 97 165 (68)
-------------------------------------------------------------------------
Core Cable Revenue
The increase in Core Cable revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, reflects the continued increasing penetration of our digital cable product offerings. The temporary slowdown in the year-over-year growth rate of Core Cable revenue from the first quarter to the second quarter of 2010 reflects the timing of annual pricing changes, which took place in March 2009 and July 2010.
Cable continues to lead the Canadian cable industry in digital cable penetration. The digital cable subscriber base grew by 7% from June 30, 2009 to June 30, 2010, to 74% of television households passed by our cable networks, compared to 70% as at June 30, 2009. Increased demand from subscribers for the larger selection of digital content, video on demand, HDTV and personal video recorder ("PVR") equipment continues to drive the growth in the digital subscriber base.
Cable Internet Revenue
The year-over-year increase in Internet revenues for the three and six months ended June 30, 2010, primarily reflects the increase in the Internet subscriber base, combined with Internet services price changes made in March 2010 and increased promotional programs.
With the high-speed Internet base at approximately 1.6 million subscribers, Internet penetration is approximately 45% of the homes passed by our cable networks and 72% of our television subscriber base, at June 30, 2010.
Rogers Home Phone Revenue
Rogers Home Phone revenue for the three and six months ended June 30, 2010, reflects the year-over-year growth in the cable telephony customer base with a corresponding cable telephony revenue growth of approximately 9% for the quarter, offset by the ongoing decline of the legacy circuit-switched telephony and long-distance only customer bases. The lower net additions of cable telephony lines in the second quarter of 2010 versus the corresponding period of 2009 are primarily the result of fewer customer migrations from circuit-switch to cable telephony.
Cable telephony lines in service grew 11% from June 30, 2009 to June 30, 2010. At June 30, 2010, cable telephony lines represented 27% of the homes passed by our cable networks and 42% of television subscribers.
Cable continues to focus principally on growing its on-net cable telephony line base. As part of this on-net focus, Cable continues to significantly de-emphasize sales of the circuit-switched product. Of the 16,000 net line additions to cable telephony during the second quarter of 2010, approximately 1,000 were migrations of lines from our legacy circuit-switched platform to our cable telephony platform. Because of the strategic decision in early 2008 to de-emphasize sales of the circuit-switched telephony product outside of the cable footprint, Cable expects that circuit-switched net line losses will continue as that base of subscribers continues to contract over time.
Excluding the impact of the shrinking circuit-switched telephony business, the year-over-year revenue growth for Rogers Home Phone and Cable Operations for the second quarter ended June 30, 2010 would have been 9% and 5%, respectively.
Cable Operations Operating Expenses
The increase in Cable Operations' operating expenses for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, was primarily driven by higher costs associated with programming and other content, network operations, and increases in information technology costs, offset by cost reductions and efficiency initiatives across various functions. Cable Operations continues to focus on implementing a program of permanent cost reduction and efficiency improvement initiatives to control the overall growth in operating expenses.
Cable Operations Adjusted Operating Profit
The year-over-year growth in adjusted operating profit was primarily the result of the revenue growth and cost changes described above. As a result, Cable Operations adjusted operating profit margins increased to 43.4% and 43.3%, respectively, for the three and six months ended June 30, 2010, compared to 43.1% and 42.3%, respectively, in the corresponding periods of 2009.
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except ---------------------------------------------------
margin) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
RBS operating
revenue $ 140 $ 125 12 $ 273 $ 253 8
---------------------------------------------------
Operating expenses
before the undernoted
Sales and marketing
expenses 10 6 67 22 12 83
Operating, general
and administrative
expenses 121 112 8 234 219 7
---------------------------------------------------
131 118 11 256 231 11
---------------------------------------------------
Adjusted operating
profit 9 7 29 17 22 (23)
Stock-based
compensation
recovery - - n/m - 1 n/m
Integration and
restructuring
expenses (2) (1) 100 (3) (1) 200
---------------------------------------------------
Operating profit $ 7 $ 6 17 $ 14 $ 22 (36)
---------------------------------------------------
---------------------------------------------------
Adjusted operating
profit margin 6.4% 5.6% 6.2% 8.7%
-------------------------------------------------------------------------
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Six months ended
(Subscriber June 30, June 30,
statistics in ---------------------------------------------------
thousands) 2010 2009 Chg 2010 2009 Chg
-------------------------------------------------------------------------
Local line
equivalents
Total local line
equivalents 156 187 (31) 156 187 (31)
Broadband data
circuits
Total broadband
data circuits 35 37 (2) 35 37 (2)
-------------------------------------------------------------------------
RBS Revenue
The increase in RBS revenues reflects the increase in long-distance revenue, which includes higher volumes by both carrier and internal customers, and the acquisition of Blink, partially offset by the ongoing decline in the legacy portions of the business. RBS is focused on leveraging on-net revenue opportunities utilizing Cable's existing network facilities as well as maintaining its existing medium enterprise customer base while growing the carrier business. Excluding the acquisition of Blink, revenue growth for the three months ended June 30, 2010 would have been 8%. For the three and six months ended June 30, 2010, long-distance revenue increased, which was partially offset by a decline in RBS legacy data and local revenues, compared to the corresponding periods of 2009.
RBS Operating Expenses
Operating, general and administrative expenses increased for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009. An increase in long-distance costs due to higher call volumes and country mix resulted in higher operating costs which were partially offset by lower data and local carrier charges.
Sales and marketing expenses increased for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, and reflect increased marketing within the medium and large enterprise and carrier segments associated with RBS' launch of a new suite of Ethernet services. The increase also reflects the organizational changes to support an increase in the sales and marketing effort.
RBS Adjusted Operating Profit
The changes in revenues and operating expenses described above resulted in an adjusted operating profit margin of 6.4% and 6.2%, respectively, for the three and six months ended June 30, 2010, compared to 5.6% and 8.7%, respectively, in the corresponding periods of the prior year. Excluding the acquisition of Blink, adjusted operating profit for the three months ended June 30, 2010 would have been approximately $7 million.
ROGERS RETAIL
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except ---------------------------------------------------
margin) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating revenue
Wireless and Cable
sales 49 46 7 97 95 2
Video rental and
sales 37 44 (16) 78 97 (20)
---------------------------------------------------
Total Rogers Retail
operating revenue 86 90 (4) 175 192 (9)
---------------------------------------------------
Operating expenses
before the
undernoted 94 94 - 187 195 (4)
---------------------------------------------------
Adjusted operating
(loss) (8) (4) 100 (12) (3) n/m
Stock-based
compensation
recovery - - n/m - 1 n/m
Integration and
restructuring
expenses (4) - n/m (4) (3) 33
Other items, net - - n/m 2 - n/m
---------------------------------------------------
Operating loss $ (12) $ (4) 200 $ (14) $ (5) 180
---------------------------------------------------
---------------------------------------------------
Adjusted operating
(loss) margin (9.3%) (4.4%) (6.9%) (1.6%)
-------------------------------------------------------------------------
Rogers Retail Revenue
The decrease in Rogers Retail revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, was the result of a continued decline in video rental and sales activities partially offset by higher sales of wireless and other communications products versus the prior year period.
Early in 2010, Rogers began an initiative to more deeply integrate its wireless, cable and video rental distribution channels to better respond to changing customer needs and preferences. As a result of this integration, certain facilities and stores associated principally with the video rental portion of Rogers Retail will be closed.
Rogers Retail Adjusted Operating Loss
The adjusted operating loss at Rogers Retail increased for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, reflecting the trends noted above.
CABLE ADDITIONS TO PP&E
The Cable Operations segment categorizes its PP&E expenditures according to a standardized set of reporting categories that were developed and agreed to by the U.S. cable television industry and which facilitate comparisons of additions to PP&E between different cable companies. Under these industry definitions, Cable Operations additions to PP&E are classified into the following five categories:
- Customer premise equipment ("CPE"), which includes the equipment for
digital set-top terminals, Internet modems and associated
installation costs;
- Scalable infrastructure, which includes non-CPE costs to meet
business growth and to provide service enhancements, including many
of the costs to-date of the cable telephony initiative;
- Line extensions, which includes network costs to enter new service
areas;
- Upgrades and rebuild, which includes the costs to modify or replace
existing coaxial cable, fibre-optic equipment and network
electronics; and
- Support capital, which includes the costs associated with the
purchase, replacement or enhancement of non-network assets.
Summarized Cable PP&E Additions
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(In millions of ---------------------------------------------------
dollars) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Additions to PP&E
Customer premise
equipment $ 66 $ 45 47 $ 112 $ 78 44
Scalable
infrastructure 47 69 (32) 87 104 (16)
Line extensions 12 10 20 20 18 11
Upgrades and
rebuild 5 5 - 8 10 (20)
Support capital 29 27 7 50 50 -
---------------------------------------------------
Total Cable
Operations 159 156 2 277 260 7
RBS 8 9 (11) 14 17 (18)
Rogers Retail 3 3 - 4 6 (33)
---------------------------------------------------
$ 170 $ 168 1 $ 295 $ 283 4
-------------------------------------------------------------------------
Additions to Cable PP&E include continued investments in the cable network to enhance customer experience through increased speed and performance of our Internet service and capacity enhancements to our digital network to allow for incremental HD and On-Demand services to be added.
The increase in Cable Operations PP&E for the three and six months ended June 30, 2010 compared to the corresponding periods of 2009 resulted primarily from higher CPE spending offset by lower scaleable infrastructure expenditures due to the completion of certain projects associated with our Internet and digital cable platforms. The higher CPE spending corresponds with higher levels of cable service unit net additions versus the corresponding prior year periods.
The RBS PP&E additions for the three and six months ended June 30, 2010 decreased slightly compared to the corresponding periods of 2009 and reflects the timing of expenditures on customer networks and support capital.
Rogers Retail PP&E additions are attributable to improvements made to certain retail locations.
MEDIA
-----
Summarized Media Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except ---------------------------------------------------
margin) 2010 2009 % Chg 2010 2009 % Chg
-------------------------------------------------------------------------
Operating revenue $ 396 $ 366 8 $ 697 $ 650 7
---------------------------------------------------
Operating expenses
before the
undernoted 330 329 - 623 623 -
---------------------------------------------------
Adjusted operating
profit 66 37 78 74 27 174
Stock-based
compensation
recovery (expense) (2) (2) - (6) 14 n/m
Integration and
restructuring
expenses (1) (21) (95) (1) (21) (95)
---------------------------------------------------
Operating profit $ 63 $ 14 n/m $ 67 $ 20 n/m
---------------------------------------------------
---------------------------------------------------
Adjusted operating
profit margin 16.7% 10.1% 10.6% 4.2%
Additions to
property, plant
and equipment $ 9 $ 16 (44) $ 14 $ 30 (53)
-------------------------------------------------------------------------
Media Revenue
The increase in Media's revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, reflects improvements in Media's prime time TV ratings, increased subscriber fees, improvements in the advertising market and in consumer discretionary spending, which together are favorably impacting Television, Sportsnet, Radio and The Shopping Channel revenues. Publishing is also beginning to experience positive growth in advertising revenues for the first time in several quarters, while Sports Entertainment reported modest revenue declines associated with fluctuations in attendance levels.
Media Operating Expenses
Media's operating expenses for the three and six months ended June 30, 2010 were flat compared to the corresponding periods of 2009. While focused cost reduction programs across all of Media's divisions over the past year have resulted in reduced operating expenses, these savings were offset by cost of goods sold increases at The Shopping Channel associated with higher sales volumes and certain planned increases in programming costs at Television and Sportsnet.
Media Adjusted Operating Profit
The increase in Media's adjusted operating profit for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, primarily reflects the revenue and expense changes discussed above and resultant operating leverage which caused operating profit and margins to both increase significantly.
Media Additions to PP&E
Media's PP&E additions in the three and six months ended June 30, 2010 declined from the corresponding periods of 2009 due to the completion of Television's new Ontario broadcasting facility in 2009 combined with numerous cost containment initiatives across Media's divisions.
Other Media Developments
In June 2010, Media reached an agreement to acquire London, Ontario FM radio station BOB-FM (CHST-FM) and Edmonton, Alberta FM radio station BOUNCE (CHBN-FM). These transactions are subject to CRTC approval and expected to close in the second half of 2010.
2010 FINANCIAL AND OPERATING GUIDANCE
At this point in the year we have no specific revisions to the 2010 annual financial and operating guidance ranges which we provided on February 17, 2010.
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Income
(In millions of dollars, except per share amounts)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
-------------------------------------------------------------------------
Operating revenue $ 3,029 $ 2,891 $ 5,916 $ 5,638
Operating expenses:
Cost of sales 319 328 622 638
Sales and marketing 303 296 555 577
Operating, general and
administrative 1,217 1,197 2,425 2,267
Integration and
restructuring 8 37 10 41
Depreciation and
amortization 406 446 814 890
-------------------------------------------------------------------------
Operating income 776 587 1,490 1,225
Interest on long-term debt (170) (156) (338) (308)
Debt issuance costs - (5) - (5)
Foreign exchange gain (loss) (19) 80 (7) 51
Change in fair value of
derivative instruments 32 (11) 19 (1)
Other income, net 5 4 4 6
-------------------------------------------------------------------------
Income before income taxes 624 499 1,168 968
-------------------------------------------------------------------------
Income tax expense:
Current 105 (1) 219 (1)
Future 68 126 118 286
-----------------------------------------------------------------------
173 125 337 285
-------------------------------------------------------------------------
Net income for the period $ 451 $ 374 $ 831 $ 683
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted net income
per share $ 0.78 $ 0.59 $ 1.42 $ 1.08
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Balance Sheets
(In millions of dollars)
-------------------------------------------------------------------------
June 30, December 31,
2010 2009
-------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 122 $ 383
Accounts receivable 1,252 1,310
Other current assets 428 338
Current portion of derivative instruments 5 4
Future income tax assets 141 220
-----------------------------------------------------------------------
1,948 2,255
Property, plant and equipment 8,239 8,197
Goodwill 3,085 3,018
Intangible assets 2,673 2,643
Investments 555 547
Derivative instruments 225 78
Other long-term assets 286 280
-------------------------------------------------------------------------
$ 17,011 $ 17,018
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,947 $ 2,175
Income taxes payable 415 208
Current portion of long-term debt 522 1
Current portion of derivative instruments 321 80
Unearned revenue 290 284
-----------------------------------------------------------------------
3,495 2,748
Long-term debt 8,014 8,463
Derivative instruments 646 1,004
Other long-term liabilities 123 133
Future income tax liabilities 487 397
-------------------------------------------------------------------------
12,765 12,745
Shareholders' equity 4,246 4,273
-------------------------------------------------------------------------
$ 17,011 $ 17,018
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Cash Flows
(In millions of dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income for the period $ 451 $ 374 $ 831 $ 683
Adjustments to reconcile
net income to cash flows
from operating activities:
Depreciation and
amortization 406 446 814 890
Program rights and
Rogers Retail rental
amortization 56 37 105 77
Future income taxes 68 126 118 286
Unrealized foreign
exchange loss (gain) 17 (74) 5 (47)
Change in fair value of
derivative instruments (32) 11 (19) 1
Pension contributions,
net of expense (7) (14) (17) (19)
Stock-based compensation
expense (recovery) 10 13 34 (68)
Amortization on fair
value increment of
long-term debt (1) (2) (3) (3)
Other (2) 1 1 -
-----------------------------------------------------------------------
966 918 1,869 1,800
Change in non-cash operating
working capital items 13 (42) (37) (236)
-----------------------------------------------------------------------
979 876 1,832 1,564
-------------------------------------------------------------------------
Investing activities:
Additions to property,
plant and equipment
("PP&E") (439) (434) (805) (793)
Change in non-cash working
capital items related
to PP&E 19 8 (70) (123)
Acquisitions, net of cash
and cash equivalents
acquired (2) (11) (132) (11)
Acquisition of spectrum
licences (20) (15) (30) (15)
Additions to program rights (39) (48) (85) (92)
Other 14 (4) 21 (5)
-----------------------------------------------------------------------
(467) (504) (1,101) (1,039)
-------------------------------------------------------------------------
Financing activities:
Issuance of long-term debt 50 1,460 50 1,825
Repayment of long-term debt (50) (975) (50) (1,410)
Repayment of capital lease (1) - (1) -
Repurchase of Class B
Non-Voting shares (328) (509) (630) (509)
Proceeds received on
exercise of stock options 1 - 2 -
Dividends paid (188) (184) (363) (343)
-----------------------------------------------------------------------
(516) (208) (992) (437)
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (4) 164 (261) 88
Cash and cash equivalents
(deficiency), beginning
of period 126 (95) 383 (19)
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 122 $ 69 $ 122 $ 69
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow
information:
Income taxes paid $ 5 $ - $ 12 $ -
Interest paid 193 154 339 307
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The change in non-cash
operating working capital
items is as follows:
Decrease (increase) in
accounts receivable $ (87) $ (24) $ 58 $ 222
Decrease (increase) in
other assets (13) 63 (131) (11)
Increase (decrease) in
accounts payable and
accrued liabilities 23 (55) (177) (487)
Increase in income taxes
payable 100 - 207 -
Increase (decrease) in
unearned revenue (10) (26) 6 40
-------------------------------------------------------------------------
$ 13 $ (42) $ (37) $ (236)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
This earnings release should be read in conjunction with our 2009 Annual Report, our second quarter 2010 MD&A and our second quarter 2010 Unaudited Interim Consolidated Financial Statements and Notes thereto that can be found at www.rogers.com and on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.
Caution Regarding Forward-Looking Statements, Risks and Assumptions
This earnings release includes forward-looking statements and assumptions concerning our business, its operations and its financial performance and condition approved by management on the date of this earnings release. These forward-looking statements and assumptions include, but are not limited to, statements with respect to our objectives and strategies to achieve those objectives, statements with respect to our beliefs, plans, expectations, anticipations, estimates or intentions, including guidance and forecasts relating to revenue, adjusted operating profit, PP&E expenditures, free cash flow, expected growth in subscribers and the services to which they subscribe, the cost of acquiring subscribers and the deployment of new services and all other statements that are not historical facts. Such forward-looking statements are based on current objectives, strategies, expectations and assumptions, most of which are confidential and proprietary, that we believe to be reasonable at the time including, but not limited to, general economic and industry growth rates, currency exchange rates, product pricing levels and competitive intensity, subscriber growth and usage rates, changes in government regulation, technology deployment, device availability, the 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 statements 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 of the financial information contained herein.
We caution that all forward-looking information, including any statement regarding our current intentions, is inherently subject to change and uncertainty and that actual results may differ materially from the assumptions, estimates or expectations reflected in the forward-looking information. A number of factors could cause actual results to differ materially from those in the forward-looking statements or could cause our current objectives and strategies to change, including but not limited to economic conditions, technological change, the integration of acquisitions, unanticipated changes in content or equipment costs, changing conditions in the entertainment, information and communications industries, regulatory changes, litigation and tax matters, the level of competitive intensity and the emergence of new opportunities, many of which are beyond our control and current expectation or knowledge. Therefore, should one or more of these risks materialize, should our objectives or strategies change, or should any other factors underlying the forward-looking statements prove incorrect, actual results and our plans may vary significantly from what we currently foresee. Accordingly, we warn investors to exercise caution when considering any such forward-looking information herein and that it would be unreasonable to rely on such statements as creating any 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 forward-looking statements or assumptions whether as a result of new information, future events or otherwise, except as required by law.
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 2010 MD&A entitled "Updates to Risks and Uncertainties" and "Government Regulation and Regulatory Developments", and also the sections entitled "Risks and Uncertainties Affecting our Businesses" and "Government Regulation and Regulatory Developments" in our 2009 Annual MD&A.
About Rogers Communications Inc.
Rogers Communications is a diversified Canadian communications and media company. We are Canada's largest provider of wireless voice and data communications services and one of Canada's leading providers of cable television, high-speed Internet and telephony services. Through Rogers Media we are engaged in radio and television broadcasting, televised shopping, magazines and trade publications, and sports entertainment. We are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI). For further information about the Rogers group of companies, please visit www.rogers.com.
Quarterly Investment Community Conference Call
As previously announced by press release, a live webcast of our quarterly results conference call with the investment community will be broadcast via the Internet at rogers.com/webcast beginning at 8:30 a.m. ET today, July 27, 2010. A rebroadcast of this teleconference will be available on the Webcast Archive page of the Investor Relations section of rogers.com for a period of at least two weeks following the conference call.
For further information: Investment Community Contacts: Bruce M. Mann, 416.935.3532, [email protected]; Dan Coombes, 416.935.3550, [email protected]; Media Contacts: Wireless, Cable and Corporate: Terrie Tweddle, 416.935.4727, [email protected]; Media and Regulatory: Jan Innes, 416.935.3525, [email protected]
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