Mr. Guy
Laurence reports
ROGERS COMMUNICATIONS REPORTS FOURTH QUARTER 2014 RESULTS
Rogers Communications Inc. has released its unaudited consolidated financial and operating results for the
fourth quarter ended Dec. 31, 2014.
Highlights:
- Accelerated revenue growth to 4 per cent and adjusted operating profit growth to
6 per cent;
- Expanded adjusted operating profit margins to 37 per cent and free cash flow to
$275-million;
- Introduced key Rogers 3.0 initiatives including the NHL, Roam Like Home
and shomi;
- Delivered on 2014 guidance and announced annualized dividend rate
increase of 5 per cent to $1.92 per share.
"We saw a healthy acceleration in revenue growth and adjusted operating
profit along with improvement in wireless revenue and ARPU," said Guy
Laurence, president and chief executive officer of Rogers Communications. "We continued
our shift from volume to value this quarter, and as expected we saw
vibrations in both our wireless and cable subscriber metrics as we made
certain commercial policy changes, consistent with our longer-term
strategic goals. We remain committed to the strategy of providing our
customers with added value while making the necessary adjustments to
remain competitive in the market," added Mr. Laurence. "Rogers 3.0 is now
up and running and we delivered a number of key commercial propositions
in the quarter. For the full year, we delivered on our financial
guidance and entered 2015 with a 5-per-cent dividend increase which reflects
our financial strength and confidence in the future."
Financial highlights
Higher operating revenue:
- Consolidated revenue increased 4 per cent this quarter, reflecting revenue
growth of 3 per cent in wireless and 20 per cent in media, stable revenue in cable, and
a decline of 1 per cent in business solutions. Wireless revenue increased as a
result of both higher network revenue from the continued adoption of
higher ARPU-generating simplified plans and greater smart phone sales.
Cable revenue was stable as continued Internet revenue growth was
offset by decreased revenue in television and phone. Media revenue
increased as a result of the NHL licensing agreement and growth at
Sportsnet and radio, partially offset by continued softness in
conventional broadcast TV and print advertising;
- Activated 836,000 wireless smart phones this quarter, of which 28 per cent were
new subscribers, with higher-value smart phone customers growing to
represent 84 per cent of wireless postpaid subscribers.
Strong adjusted operating profit:
- The 6-per-cent increase in consolidated adjusted operating profit this quarter
reflects increases in wireless of 4 per cent, in business solutions of 17 per cent and
in media of 59 per cent, partially offset by a decrease in cable of 2 per cent.
Wireless experienced higher network revenues, partially offset by
higher costs for subsidized smart phones sold. Cable results were
impacted by investments in programming and customer-value-enhancement-related costs. Media benefited from the impact of higher revenues and
cost-efficiencies in television and publishing.
- Consolidated adjusted operating profit margin increased by 60 basis
points to 36.6 per cent this quarter with margins of 42.6 per cent in wireless and
48.7 per cent in cable. The NHL licensing agreement was margin-neutral on a
consolidated basis.
- The reductions of 1 per cent in adjusted net income and 7 per cent in net income are
mainly due to a 10-per-cent increase in depreciation and amortization which
more than offset the 6-per-cent increase in adjusted operating profit.
Maintained strong balance sheet and available liquidity:
- Generated $275-million of consolidated free cash flow this quarter,
representing an increase of 152 per cent, while cash provided by operating
activities was $1,031-million this quarter, representing a decrease of
4 per cent;
-
Approximately $2.8-billion of available liquidity as at Dec. 31, 2014, including $200-million of cash, $2.5-billion available under the
bank credit facility and $100-million available under the accounts
receivable securitization program;
- Returned $235-million of cash to shareholders through the payment of a 45.75-cent-per-share quarterly cash dividend, which was 5 per cent greater
than in the same period of 2013. Earlier today, Rogers announced that the
board has authorized an annualized dividend rate increase of 5 per cent
to $1.92 per share, effective immediately.
Strategic highlights
Overhaul the customer experience:
- Launched Roam Like Home, a simple and cost-effective way for wireless
customers to use the Internet, make calls, send texts and e-mails in
the United States with their Rogers Share Everything Plan, letting them access
their Canadian wireless plans while they are in the United States;
- Reduced annual customer complaints by more than 30 per cent from the previous
year as reported by the federal Commissioner for Complaints for
Telecommunications Services in its annual report. The report
registers the number of complaints made by customers of major telecom
service providers;
- Appointed executive leaders with significant experience in the industry
and global best practices:
- Deepak Khandelwal joined Rogers as chief customer officer. Mr.
Khandelwal was previously at Google where he served as head of global
customer experience with customers in over 100 countries worldwide;
- Nitin Kawale joined Rogers as president, enterprise business unit. Mr.
Kawale is the former president of Cisco Systems Canada where he was
responsible for all aspects of the Canadian operations, including sales,
marketing, finance, distribution and services;
- Jacob Glick was appointed to the newly created position of chief
corporate affairs officer. Prior to Rogers, Mr. Glick held a number of
leadership positions at Google, including head of its global central
public policy and government relations teams;
- Dirk Woessner was appointed as president, consumer business unit,
effective April 6, 2015. Mr. Woessner was previously at Deutsche
Telekom where he held a number of leadership positions with Telekom
Deutschland and T-Mobile in the United Kingdom and Germany;
- Announced an agreement under which Rogers will own 50 per cent of Glentel Inc., including its several hundred Canadian wireless retail
distribution outlets, subject to regulatory approval.
Focus on innovation and network leadership:
- First Canadian carrier to launch LTE-Advanced, now available in various
communities across Canada. This next evolution of LTE wireless
technology combines Rogers's 700-megahertz and AWS spectrum so customers can
download and live-stream high-quality video in more places on mobiles
and tablets. During this quarter, LTE-Advanced was launched in
Vancouver, Edmonton, Calgary, Windsor, London, Hamilton, Toronto,
Kingston, Moncton, Fredericton, Halifax and Saint John.
Deliver compelling content everywhere:
- Reaching 22 million Canadians, Hockey Night in Canada continues to be
the most-watched sporting event in Canada in a typical week with
viewership up 12 per cent from last year since the national NHL rights were
acquired by Rogers. Audiences on Scotiabank Wednesday Night Hockey on
Sportsnet are up 14 per cent this year, while Rogers Hometown Hockey on City
has increased the network's audiences on Sunday nights by 50 per cent. Since
the start of the NHL season, audiences on Sportsnet One are up 33 per cent and
up 40 per cent on Sportsnet 360;
- Launched Rogers NHL GameCentre Live with more than 1,000 regular season
games streamed wirelessly and on-line, available on smart phones, tablets
and computers, and with significantly enhanced features. Rogers NHL
GameCentre Live is available to all Canadians and was offered free on
an introductory basis to Rogers wireless data and Internet customers.
Exclusively available to Rogers customers as an exciting added new
dimension to Rogers NHL GameCentre Live is GamePlus, which streams
unique camera angles, on-demand replays and more interviews, including
the ability to watch live and review big plays from up to seven
different camera angles;
- Launched shomi, an exciting new subscription video-on-demand streaming
service available on mobile, tablet, on-line and through Rogers cable
set-top boxes. shomi ups the ante in on-line and televised entertainment
with the most popular shows on TV today, iconic series from the past,
fan-favourite films and a library of kids programming. Available to
Rogers and Shaw Television or Internet customers, shomi has an easy-to-use interface and more personalized selections for customers. shomi is
a joint venture equally owned by Rogers and Shaw Communications;
- Partnered with Vice Media in a joint agreement to deliver Canadian-made
news and entertainment programming across mobile, Web and TV platforms
in 2015. Vice Canada properties will include a state-of-the-art
multimedia production facility in Toronto that will produce content for
use globally, the Vice TV Network, mobile content and Vice's network of
Canadian digital properties.
Drive growth in the business market:
- Launched Rogers Talks, a series of free events across Canada for small
businesses in conjunction with Small Business Month. Experts in social
media, marketing and sales were on hand to talk about how technology
can help small business owners grow.
Invest in and develop Rogers's people:
- Recognized as one of Canada's top employers for the second straight year
by Canada's Top 100 Employers, a national competition now entering its
16th year which looks at more than 3,250 Canadian employers. In
addition, Rogers was for the first time named to the elite top-10 list
of the best companies to work for in Canada by Canada's Top 100
Employers 2015.
2014 ACHIEVEMENTS AGAINST FULL YEAR GUIDANCE
(in millions of dollars)
2014 2014
guidance actual Achievement
Consolidated guidance
Adjusted operating profit $5,000-$5,150 $5,019 Achieved
Additions to property, plant and equipment(1) $2,275-$2,375 $2,366 Achieved
Free cash flow $1,425-$1,500 $1,437 Achieved
1. Includes additions to property, plant and equipment expenditures for wireless, cable, business
solutions, media and corporate segments, and excludes purchases of spectrum licences.
2015 full-year consolidated guidance
Selected full-year 2015
consolidated financial metrics take into consideration Rogers's current outlook and its actual results for 2014 and are based on a
number of assumptions, including those noted below.
2015 GUIDANCE
(in millions of dollars)
2014 actual 2015 guidance
Consolidated guidance
Adjusted operating profit $5,019 $5,020-$5,175
Additions to property, plant and equipment(1) $2,366 $2,350-$2,450
Free cash flow $1,437 $1,350-$1,500
1. Includes additions to property, plant and equipment expenditures for wireless,
cable, business solutions, media and corporate segments, and excludes purchases
of spectrum licences.
Key underlying assumptions
The 2015 guidance ranges are based on many assumptions, including
but not limited to the following material assumptions:
- Continued intense competition in all segments in which Rogers operates;
- A substantial portion of U.S.-dollar-denominated expenditures being hedged;
- No significant additional regulatory developments, shifts in economic conditions or macro changes in the competitive environment affecting the company's business activities. Rogers notes that regulatory decisions expected during 2015 could potentially materially alter underlying assumptions around the 2015 wireless, cable, business solutions and/or media results in the current and future years, the impacts of which are currently unknown and not factored into the guidance.
Supplemental details
These supplemental details do not represent part of the company's formal 2015
guidance and are provided for informative purposes only. Any update
over the course of 2015 would only be made to the consolidated level
guidance ranges provided:
- Growth in wireless network revenue to between $6,780-million and $6,945-million and adjusted operating profit to between $3,260-million and $3,365-million;
- Growth in cable revenue to between $3,520-million and $3,620-million and adjusted operating profit to between $1,665-million and $1,710-million;
- Growth in business solutions revenue to between $420-million and $440-million and adjusted operating profit to between $125-million and $145-million;
- Growth in media revenue to between $2,045-million and $2,105-million and adjusted operating profit to between $170-million and $190-million.
Wireless
Network revenue
Network revenue and blended ARPU increased by 2 per cent this quarter as a
result of:
- Continued adoption of the customer-friendly Rogers Share Everything
Plans, which generate higher ARPU and bundle in certain calling
features and long distance, grant the ability to pool data usage with
other devices on the same account, and entice customers with access to
the company's other products, such as Roam Like Home and Rogers NHL GameCentre
Live;
- Higher usage of wireless data services; partially offset by
lower roaming revenue due to lower priced international roaming plans
introduced in early 2014. The rate of decline in roaming has slowed
sequentially due to the lapping of the impact of U.S. travel packs
introduced in the fourth quarter of 2013.
Excluding the decline in roaming revenue, network revenue and postpaid
ARPU would have increased by 3 per cent this quarter.
The increase in churn and volatility in net additions to the company's postpaid
subscriber base were expected in the short term as Rogers implements its Rogers 3.0 plan and the company's strategic focus toward optimizing subscriber
value versus subscriber volumes, as well as migrating existing
customers to current pricing plans. During the quarter Rogers implemented a
number of commercial policies which, among other things, adjusted the
entry price levels for customers to be eligible for subsidized premium
devices, and also eliminated eligibility for device subsidies for a
number of previously discounted offerings.
Rogers activated and upgraded approximately 836,000 smart phones for new and
existing subscribers this quarter, compared with approximately 790,000 in
the same period last year. This increase in smart phone activations was
due to a greater number of activations and hardware upgrades by
existing subscribers, partially offset by the reduction in postpaid
gross additions.
The percentage of subscribers with smart phones this quarter was 84 per cent of
the company's total postpaid subscriber base, compared with 75 per cent in the same period
last year. In the company's experience, smart phone subscribers typically generate
significantly higher ARPU and are less likely to churn than customers
on less-advanced devices. Effective this quarter, customers with
smart phones in the company's Bring Your Own Device program are included in the company's
smart phone subscriber measures, which also contributed to the increase
in smart phone penetration.
Data revenue increased by 8 per cent this quarter primarily because of the
continued penetration and growing use of smart phones, tablet devices
and wireless laptops, which are increasing the use of e-mail, Internet
access, social media, mobile video, text messaging and other wireless
data services. Data revenue represented approximately 52 per cent of total
network revenue this quarter, compared with approximately 49 per cent in the same
period last year.
Equipment sales
The 8-per-cent increase in revenue from equipment sales this quarter primarily
reflects a shift in the sales mix to smart phones and lower subsidy
levels. The impact of a greater number of upgrades by existing
subscribers was more than offset by fewer gross activations. Rogers activated 19 per cent more iPhones this quarter compared with the same period
last year, which corresponded to the launch of the iPhone 6. During the
quarter, customers choosing to upgrade wireless devices represented
approximately 7 per cent of the postpaid subscriber base, which is consistent
with the same period last year.
Operating expenses
The cost of equipment sales increased by 2 per cent this quarter primarily
because of the shift in the mix toward higher-cost smart phones,
partially offset by the decreased equipment volumes.
Total customer retention spending (including subsidies on handset
upgrades) increased to $306-million this quarter compared with $292-million in the same period last year as 3 per cent more existing subscribers
upgraded their hardware combined with the mix shift described above.
Other operating expenses (excluding retention spending) decreased this
quarter as a result of improvements in cost management and efficiency
gains.
Adjusted operating profit
Adjusted operating profit increased by 4 per cent this quarter as a result of
the revenue and expense changes discussed above.
Other developments
In late December, 2014, Rogers announced an agreement under which Rogers will
own 50 per cent of Glentel, a large multicarrier mobile phone retailer with
several hundred Canadian wireless retail distribution outlets. The
outlets operate under banner names such as Wireless Wave and TBooth
Wireless. The transaction is expected to close in the first half of
2015 and is subject to regulatory approval.
Cable
Operating revenue
Overall cable revenue was unchanged this quarter primarily as a result
of:
-
A higher subscriber base for the company's Internet products combined with the
movement of customers to higher-end speed and usage tiers;
- The November, 2014, acquisition of Source Cable;
- Offset by
television subscriber losses over the past year;
- Lower phone revenue from promotional discounting.
Internet revenue
Internet revenue increased by 5 per cent this quarter as a result of:
- A larger Internet subscriber base;
- General movement by customers to higher-end speed and usage tiers;
- Changes in Internet service pricing.
The volatility in Internet net additions was a result of the company's strategic
focus toward optimizing subscriber value versus subscriber volumes as
Rogers migrates existing customers to current price plans. There was also
heightened competition where cross-bundling of various wireline
products impacted the company's Internet subscribers.
Television revenue
Television revenue decreased by 2 per cent this quarter as a result of:
- The decline in television subscribers over the past year associated with
heightened pay TV competition;
- Partially offset by
the impact of pricing changes implemented over the past year;
- The acquisition of Source Cable.
The digital cable subscriber base represented 88 per cent of the company's total
television subscriber base at the end of the quarter, compared with 84 per cent
as at Dec. 31, 2013. The larger selection of digital content, video
on-demand, and HDTV and PVR equipment combined with the company's analog
to digital network conversion continue to contribute to the increasing
penetration of the digital subscriber base as a percentage of the company's total
television subscriber base.
Phone revenue
Phone revenue decreased by 6 per cent this quarter as a result of:
- Increased promotional discounting activity for new subscribers on
multiproduct bundles;
- Partially offset by
the impact of pricing changes implemented over the past year.
Operating expenses
Operating expenses increased by 2 per cent this quarter as a result of:
- Higher programming and customer value enhancement related costs;
- Partially offset by
various cost-efficiency and productivity initiatives.
Adjusted operating profit
Adjusted operating profit decreased by 2 per cent this quarter as a result of
the revenue and expense changes discussed above. The Source Cable
acquisition did not have a significant impact on the company's adjusted operating
profit in the quarter.
Cable acquisition
On Nov. 4, 2014, Rogers acquired Source Cable, a small
television, Internet and phone service provider situated in Hamilton,
Ont., for $156-million. The Source Cable subscriber footprint is
adjacent to existing Rogers cable systems in Southwestern Ontario and
is expected to enable numerous synergies.
Business solutions
Business solutions continues to focus primarily on next-generation
IP-based services, leveraging higher-margin on-net and near-net service
revenue opportunities, and using existing network facilities to expand
offerings to the small, medium and large enterprise, public
sector and carrier wholesale markets. Business solutions is also
focused on data centre co-location, hosting, cloud and disaster
recovery services. Next-generation and on-net services in this quarter
represented 75 per cent of total service revenue, which includes the company's data
centre operations. Revenue from the lower-margin off-net legacy
business, which continues to decline as planned, generally includes
circuit-switched local and long-distance voice services and legacy data
services which often use facilities that are leased from other carriers
rather than owned.
Operating revenue
Service revenue decreased by 2 per cent this quarter as a result of:
- The continuing planned decline in the legacy off-net voice and data
business, a trend Rogers expects to continue as it focuses the business on
on-net opportunities and customers move to more advanced and cost-effective IP-based services;
- Partially offset by
continuing execution of the company's plan to grow higher-margin on-net and next-generation IP-based services revenue;
- Higher revenue from data centre operations.
Operating expenses
Operating expenses decreased by 9 per cent this quarter as a result of:
- Lower legacy service costs related to planned lower volumes and customer
levels;
- Initiatives to improve costs and productivity;
- Partially offset
by
higher on-net and next-generation service costs associated with higher
volumes.
Adjusted operating profit
Adjusted operating profit increased by 17 per cent this quarter as a result of
the continued growth in higher margin on-net and next-generation
business and productivity improvements.
Media
Operating revenue
Operating revenue increased by 20 per cent this quarter as a result of:
- Revenue of approximately $100-million generated by the NHL licensing
agreement that became effective for the 2014-2015 season;
- Higher subscription revenue generated by the company's Sportsnet properties;
- Higher radio revenue;
- Revenue growth in Next Issue Canada;
- Partially offset by
continued softness in conventional television and print advertising.
Operating expenses
Operating expenses increased by 15 per cent this quarter as a result of:
- Incremental costs associated with the NHL licensing agreement which are
expensed based on the proportion of the season's games played during a
specified period;
- Partially offset by
lower publishing costs related to the lower print volume;
- Lower programming costs due to conventional television schedule changes.
Adjusted operating profit
Adjusted operating profit increased this quarter, reflecting the revenue
and expense changes described above.
Additions to property, plant and equipment
Total property, plant and equipment additions this quarter were lower
than in the same period of 2013, as Rogers expected, reflecting a
heightened focus on deploying the company's capital more evenly throughout the
year.
Wireless
Wireless property, plant and equipment additions in 2014 reflect LTE
capacity investments and site build activity to further enhance network
coverage and quality and the initial deployment of the company's newly acquired
700-megahertz spectrum. Deployment of the LTE network has now reached
approximately 84 per cent of Canada's population as at Dec. 31, 2014.
Cable
Investments this quarter were made to improve the capacity of the company's
Internet platform, improve the reliability and quality of the network
and continue the development work related to next-generation IP-based
video service. Rogers also invested in customer equipment related to the
continued rollout of the company's next-generation NextBox digital set-top
boxes. The reduction in expenditures year-over-year primarily reflects
a higher than normal volume of new NextBox digital set-top box
deployments in the fourth quarter of last year.
Business solutions
Business solutions property, plant and equipment additions increased
this quarter as a result of data centre investments and network
expansion to reach additional customers and sites.
Media
Media property, plant and equipment additions decreased this quarter as
a result of higher investments made to the company's digital, IT infrastructure
and broadcast facilities in the same quarter last year.
CONSOLIDATED STATEMENTS OF INCOME
(in millions of dollars, except per share amounts)
Three months ended Dec. 31, 12 months ended Dec. 31,
2014 2013 2014 2013
Operating revenue $ 3,366 $ 3,243 $ 12,850 $ 12,706
Operating expenses
Operating costs 2,145 2,094 7,868 7,797
Depreciation and amortization 560 508 2,144 1,898
Restructuring, acquisition and other 43 24 173 85
Finance costs 202 196 817 742
Other (income) expense (10) (14) 1 (81)
-------- -------- --------- ---------
Income before income taxes 426 435 1,847 2,265
Income taxes 129 115 506 596
-------- -------- --------- ---------
Net income $ 297 $ 320 $ 1,341 $ 1,669
======== ======== ========= =========
Earnings per share
Basic $ 0.58 $ 0.62 $ 2.60 $ 3.24
Diluted 0.57 0.62 2.56 3.22
Quarterly investment community teleconference
The fourth-quarter 2014 results teleconference will be held on
Jan. 29, 2015, at 8 a.m. Eastern Time.
A webcast will be available on the Rogers website. A rebroadcast will be available at on the Rogers website on the events and presentations page for at least two weeks following
the teleconference.
We seek Safe Harbor.
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