Rogers Communications Reports Third Quarter 2012 Financial and Operating Results
TORONTO, Oct. 24, 2012, 2012 (Menafn - Canada NewsWire via COMTEX) --Third Quarter Revenue Grows to 3,176 Million, Adjusted Operating Profit Increases 5% to 1,288 Million, Adjusted Diluted EPS up 7% to 96 cents; Pre-Tax Free Cash Flow up 15% to 589 Million;
Postpaid Wireless Net Subscriber Additions of 76,000 and Network Margins of 48% Reflect Improved Postpaid Churn, Stabilizing Trend in Postpaid ARPU and Continued Realization of Cost Efficiencies;
Cable Operations Total Service Units Up 17,000, with Margins of 48% Reflecting Continued Revenue Growth and Successful Cost Management;
Media Revenue Reflects Strong Growth in Sports Broadcasting and Entertainment More Than Offset by Continued Softness in the Ad Market
TORONTO, Oct. 24, 2012 /CNW/ - Rogers Communications Inc., one of Canada's leading diversified communications and media companies, today announced its unaudited consolidated financial and operating results for the three months ended September 30, 2012, in accordance with International Financial Reporting Standards ("IFRS").
Financial highlights from continuing operations are as follows((1)):
Three months ended September 30,
(In20122011% Chg
millions of
dollars,
except per
share
amounts)
Operating3,1763,131
revenue1
As
Adjusted:
Operating1,288
profit1,2275
Net495
income4891
Earnings0.96
per share0.907
Diluted
earnings0.960.907
per share
Pre-tax
free cash58951015
flow
(1)This summary of our third quarter 2012 results should be read in conjunction with our Third Quarter 2012 MD&A, our Third Quarter 2012 Unaudited Interim Condensed Consolidated Financial Statements and Notes thereto, and our 2011 Annual Report all of which are incorporated by reference in this news release. The financial information presented herein has been prepared on the basis of International Financial Reporting Standards ("IFRS") for interim financial statements and is expressed in Canadian dollars.
"Our top line and operating profit growth in the third quarter was highlighted by strong postpaid wireless smartphone sales and accelerated wireless data revenue growth, as well as strong margins in both our wireless and cable businesses where customer retention and cost containment initiatives have taken hold," said Nadir Mohamed, President and Chief Executive Officer of Rogers Communications Inc. "Despite intensely competitive markets, we continued to successfully leverage our technology leadership to deliver new and innovative products and services and to invest in our networks at a healthy pace, while at the same time continuing to generate strong earnings and free cash flow."
Highlights of the third quarter of 2012 include the following:
--Consolidated revenue growth for the quarter was driven by
Wireless network revenue growth of 2%, Wireless equipment
revenue growth of 16% and Cable Operations revenue growth of
1%, offset by declines in Media and RBS compared to the same
quarter last year. Consolidated adjusted operating profit
increased by 5% with a 3% increase at Wireless, a 10% increase
at Cable Operations and a 16% increase at RBS, partially offset
by a 9% decrease at Media compared to the same quarter last
year.
--Wireless data revenue grew by 18% and comprises 41% of Wireless
network revenue compared to 36% in the same quarter last year.
During the third quarter, Wireless activated 707,000
smartphones, of which approximately 36% were for subscribers
new to Wireless. This resulted in subscribers with smartphones,
who typically generate average monthly revenue per user
("ARPU") nearly twice that of voice only subscribers,
representing 65% of the overall postpaid subscriber base as at
September 30, 2012, up from 52% at September 30, 2011.
--Driven by strong 48% margins at both Wireless and Cable
Operations, consolidated margins of 41% were up 140 basis
points from the same period last year. Adjusted net income
improved 1% from the same quarter last year and adjusted
diluted earnings per share of 0.96 was up 6 cents or 7%
year-over-year.
--Generated 589 million of consolidated pre-tax free cash flow
in the quarter, defined as adjusted operating profit less PP&E
expenditures and interest on long-term debt (net of
capitalization), an increase of 15% compared to the third
quarter of 2011 and reflecting increased adjusted operating
profit combined with a decreased level of PP&E expenditures.
Pre-tax free cash flow per share increased by 22% over the same
period.
--Expanded Canada's first wireless Long Term Evolution ("LTE") 4G
broadband network to 24 Canadian markets, including Victoria,
Edmonton, Regina and Quebec City. Rogers' expanding LTE network
now reaches 54% of the Canadian population, and Rogers
currently offers the largest selection of LTE devices of any
carrier in Canada. LTE is a next generation wireless technology
that enables unparalleled connectivity, capable of speeds that
are between three and four times faster than HSPA with peak
potential download rates of up to 150 Megabits per second
("Mbps").
--Rogers and SAP announced plans to deploy enterprise mobile
applications which leverage the SAP mobile platform. This
exclusive new offering will help simplify the way organizations
mobilize their workforce, by helping employees gain real-time
access to enterprise mobile applications on tablets and
smartphones that are traditionally used on desktop computers.
--Announced the formation of an alliance with international
mobile operators KPN, NTT Docomo, SingTel, Telefnica, Telstra
and Vimpelcom to co-operate on global wireless
machine-to-machine ("M2M") business initiatives supporting a
single, global platform that multinational customers can
leverage to enable connected devices in multiple countries to
better manage operations and reduce costs.
--Rogers and Wavefront opened the doors to a new Rogers Wireless
Innovation Centre in Vancouver to foster excellence in wireless
commercialization, and to provide a facility where business
customers and developers can experience first-hand the latest
in M2M technology and enterprise mobility applications. The
Rogers Wireless Innovation Centre will support current and
emerging developers to get to market faster with innovative
applications for connected devices to strengthen the wireless
developer ecosystem in Canada, as well as educate Canadian
companies about the benefits of M2M technology.
--Enhanced the Rogers One Number Internet-based communications
platform to allow customers to extend their existing Rogers
wireless number not only to their computers, but also to their
regular home phone and tablet.In addition, the Rogers One
Number experience is now offered to small businesses across
Canada.Rogers One Number is a feature of Rogers wireless
plans that enables customers with an Internet connection to
extend their Rogers wireless number to make or transfer calls
using a computer, tablet and home phone.
--Media announced the acquisition of theScore Television Network
and related television assets.theScore is a national
specialty TV service providing sports news, information,
highlights and live event programming. It is Canada's third
largest specialty sports channel with 6.6 million television
subscribers.The acquisition builds on Rogers' rich history in
sports broadcasting and reinforces its commitment to delivering
premium sports content to its audiences on their platform of
choice. Subject to final regulatory approval from the Canadian
Radio-television and Telecommunications Commission ("CRTC"),
which is anticipated early in fiscal 2013, the television
network will be rebranded under the Sportsnet umbrella.
--Completed a 37.5% investment in Maple Leaf Sports &
Entertainment Ltd. ("MLSE"), advancing Rogers' strategy of
delivering highly sought-after content anywhere, anytime, on
any platform across its broadband and wireless networks and its
media assets, while strengthening the value of its sports
brand, Sportsnet.
--Media's Citytv network registered double-digit audience growth
and market share increases across Canada in key demographics
during this year's fall premiere week. With a greatly expanded
footprint, Citytv is now available in approximately 80% of
Canadian homes.
--Finalized a new five-year 2.0 billion syndicated bank credit
facility maturing in July 2017. This new bank credit facility
replaces Rogers' prior bank credit facility that was scheduled
to expire in July 2013, extending our long-term liquidity. At
September 30, 2012, there were no advances outstanding under
the bank credit facility which, together with our cash and cash
equivalents, provides for 2.5 billion of currently available
liquidity.
This earnings release, which is current as of October 23, 2012, is a summary of our third quarter 2012 results, and should be read in conjunction with our Third Quarter 2012 MD&A and our Third Quarter 2012 Unaudited Interim Condensed Financial Statements and Notes thereto, our 2011 Annual MD&A and our 2011 Audited Annual Consolidated Financial Statements and Notes thereto, and our other recent filings with securities regulatory authorities available on SEDAR at sedar.com.
The financial information presented herein has been prepared on the basis of IFRS for interim financial statements and is expressed in Canadian dollars unless otherwise stated.
During the second quarter of this year, we completed the closure of our Video operations. As a result, the consolidated results no longer include the results of our Video business and the results of that business are now treated as discontinued operations for accounting and reporting purposes. Current and prior period results have been restated to reflect this change.
As this earnings release includes forward-looking statements and assumptions, readers should carefully review the section of this earnings release entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions".
In this earnings release, the terms "we", "us", "our", "Rogers", "Rogers Communications" and "the Company" refer to Rogers Communications Inc. and our subsidiaries, "Wireless", "Cable", and "Media".
SUMMARIZED CONSOLIDATED FINANCIAL RESULTS
Three months ended September 30,Nine months ended September 30,
(In millions20122011% Chg20122011% Chg
of dollars,
except per
share amounts)
Operating
revenue
Wireless1,8891,8325,3605,312
31
Cable8388262,506
Operations12,4711
RBS8696263
(10)312(16)
Media3924071,186
(4)1,183-
Corporate
items and(29)(30)(3)(90)(87)3
eliminations
Total3,1763,1319,225
operating19,191-
revenue
Adjusted
operating
profit (loss)
Wireless8438152,376
32,366-
Cable403367101,184
Operations1,1463
RBS22191662
66(6)
Media5055115
(9)136(15)
Corporate
items and(30)(29)3(79)(76)4
eliminations
Adjusted1,2881,2273,658
operating53,6381
profit
Stock-based19n/m
compensation(26)(20)(30)(33)
recovery
(expense)
Settlement ofn/mn/m
pension---(11)
obligations
Integration,128
restructuring(7)(15)(53)(82)(36)
and
acquisition
expenses
Operating1,2551,2313,556
profit23,561-
Other income(789)(734)(2,353)
and expense,7(2,306)2
net
Net income4664971,2031,255
from(6)(4)
continuing
operations
Loss fromn/m68
discontinued-(6)(32)(19)
operations
Net income4664911,1711,236
(5)(5)
Basic earnings0.900.922.312.29
per share -(2)1
continuing
operations
Diluted0.900.882.302.28
earnings per21
share -
continuing
operations
Basic earnings0.900.912.252.26
per share(1)-
Diluted0.900.872.242.25
earnings per3-
share
As Adjusted:
Net income4954891,3331,386
1(4)
Basic0.960.902.562.53
earnings per71
share
Diluted0.960.902.552.52
earnings per71
share
Additions to
property,
plant and
equipment
("PP&E")
Wireless299329737845
(9)(13)
Cable18619057311
Operations(2)517
RBS15131545
427
Media11101032
307
Corporate17174820
-40
Total5285591,4351,474
additions to(6)(3)
PP&E
Pre-tax free589510151,7331,684
cash flow3
SEGMENT REVIEW
WIRELESS
Summarized Wireless Financial Results
Three months ended September 30,Nine months ended September 30,
(In20122011% Chg20122011% Chg
millions of
dollars,
except
margin)
Operating
revenue
Network1,7441,7075,0084,960
revenue21
Equipment
sales14512516352352-
Total
operating1,8891,83235,3605,3121
revenue
Operating
expenses
Cost of
equipment(379)(319)19(1,027)(960)7
Other
operating(667)(698)(4)(1,957)(1,986)(1)
expenses
(1,046)(1,017)3(2,984)(2,946)1
Adjusted8438152,3762,366
operating3-
profit
Adjusted
operating
profit
margin as
% of48.3%47.7%47.4%47.7%
network
revenue
Additions299329737845
to PP&E(9)(13)
Data7196111,9951,72516
revenue18
included in
network
revenue
Summarized Wireless Subscriber Results
(SubscriberThree months ended September 30,Nine months ended September 30,
statistics in
thousands,
except ARPU,20122011Chg20122011Chg
churn and
usage)
Postpaid
Gross386
additions38061,0701,072(2)
Net
additions76742210227(17)
Total7,788256
postpaid7,5327,7887,532256
subscribers
Monthly1.34%1.36%(0.02%)1.25%1.27%(0.02%)
churn
Average71.5072.08(0.58)69.1370.78(1.65)
monthly
revenue per
user
("ARPU")
Prepaid
Gross186
additions258(72)496654(158)
Net
additions187(86)(117)104(221)
(losses)
Total1,644
prepaid1,756(112)1,6441,756(112)
subscribers
Monthly3.77%3.37%0.40%4.05%3.68%0.37%
churn
ARPU16.7316.720.0115.8315.710.12
Blended ARPU61.9261.790.1359.5560.64(1.09)
Wireless Subscribers and Network Revenue
For the three months ended September 30, 2012, the increase in the number of gross and net postpaid subscriber additions primarily relates to increases in the number of smartphone sales versus the same prior year period. Wireless activated and upgraded approximately 707,000 smartphones, compared to approximately 609,000 in the third quarter of 2011. This is the second highest number of smartphone activations in any quarter in Rogers' history. The smartphones activated during the quarter were predominantly iPhone, Android and Blackberry devices, of which approximately 36% were for subscribers new to Wireless. The overall addition of smartphones increased the percentage of subscribers with smartphones to 65% of Wireless' total postpaid subscriber base at September 30, 2012, compared to 52% as at September 30, 2011. These subscribers generally commit to new voice and data multi-year term contracts, typically generate ARPU nearly twice that of voice only subscribers and churn at lower rates than voice only subscribers.
The year-over-year decrease in prepaid subscriber net additions for the quarter ended September 30, 2012, primarily reflects an increase in the level of churn associated with heightened competitive intensity, particularly at the lower end of the wireless market where the prepaid product is most penetrated.
The increase in wireless network revenue for the three and nine months ended September 30, 2012 reflects the continued growth of Wireless' postpaid subscriber base and the increased adoption and usage of wireless data services.
For the three months and nine months ended September 30, 2012, wireless data revenue increased by approximately 18% and 16%, respectively, from the corresponding period of 2011 to 719 million and 1,995 million, respectively. This growth in wireless data revenue reflects the continued penetration and growing usage of smartphones, tablet devices and wireless laptops, which drive increased usage of e-mail, wireless Internet access, text messaging and other wireless data services. The increase in the wireless data revenue growth rate from the previous quarter primarily reflects increased data roaming. For the three and nine months ended September 30, 2012, wireless data revenue represented approximately 41% and 40%, respectively, of total network revenue, compared to approximately 36% and 35%, respectively, in the corresponding periods of 2011.
The modest year-over-year increase in blended ARPU for the quarter ended September 30, 2012 reflects growth in postpaid subscribers and wireless data revenue, partially offset by a decline in wireless voice revenues. The wireless data component of blended ARPU increased by 15.4%, which was partially offset by an 8.3% decline in the wireless voice component as a result of the heightened level of competitive intensity in the wireless voice service market.
Wireless Equipment Sales
The increase in revenue from equipment sales for the three months ended September 30, 2012, compared to the corresponding period of 2011, primarily reflects the increase in the number of postpaid gross additions and hardware upgrades by existing subscribers, combined with a shift in the mix of smartphones towards higher value devices versus the prior year and the launch of the new iPhone 5. Equipment sales were flat for the nine months ended September 30, 2012, compared to the corresponding period of 2011.
Wireless Operating Expenses
The increase in cost of equipment for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, was primarily the result of the increased number of smartphone sales to new customers, upgrades for existing customers and the launch of the new iPhone 5. During the three months ended September 30, 2012, we activated and upgraded 71% more iPhones and 16% more smartphones overall than in the same period last year. During the nine months ended September 30, 2012, we activated and upgraded 43% more iPhones and 14% more smartphones overall than in the same period last year.
Total retention spending, including subsidies on handset upgrades, was 214 million and 622 million, respectively, in the three and nine months ended September 30, 2012, compared to 181 million and 563 million, respectively, in the corresponding periods of 2011. These increases primarily reflect a higher number of hardware upgrades by existing subscribers than during the prior year combined with a shift in the mix towards higher value smartphones.
The year-over-year decrease in other operating expenses for the three and nine months ended September 30, 2012, excluding retention spending discussed above, was driven by efficiency gains resulting from cost management initiatives across various functions. Rogers continues to focus on implementing a program of cost reduction and efficiency improvement initiatives to manage the overall level of operating expenses.
Wireless Adjusted Operating Profit
The 3% year-over-year increase in adjusted operating profit and the 48.3% adjusted operating profit margin on network revenue (which excludes equipment sales revenue) for the three months ended September 30, 2012 primarily reflects the growth of network revenue in the period coupled with cost management and efficiency improvements as discussed above.
Wireless Additions to PP&E
Wireless additions to PP&E are classified into the following categories:
Three months ended September 30,Nine months ended September 30,
(In millions20122011% Chg20122011% Chg
of dollars)
Additions to
PP&E
Capacity196194455477
1(5)
Quality
4764(27)113157(28)
Network -
other410(60)1937(49)
Information
technology5261(15)150174(14)
and other
Total299329737845
additions to(9)(13)
PP&E
Wireless PP&E additions can be categorized as spending on network capacity, such as radio channel additions, network core improvements and network enhancing features, including the continued deployment of our LTE and HSPA networks. Quality-related additions to PP&E are 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. Quality also 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 include billing and back-office system upgrades, and other facilities and equipment spending.
For the three and nine months ended September 30, 2012, the decreases in Quality and Network - other were primarily due to lower cell site construction and lower expenditures on Rogers One Number than in comparative periods. Information technology and other were lower for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, as a result of lower expenditures on customer billing systems and platforms for new services offset by investments to upgrade our retail stores.
Capacity spend changes year-over-year relate to timing of expenditure relating to LTE expansion and HSPA capacity initiatives.
CABLE OPERATIONS
Summarized Financial Results
Three months ended September 30,Nine months ended September 30,
(In millions20122011% Chg20122011% Chg
of dollars,
except
margin)
Operating
revenue
Cable4704751,4161,423
Television(1)-
Internet
24923277356887
Home Phone
119119-355360(1)
Total Cable
Operations83882612,5062,4711
operating
revenue
Operating
expenses
Cost of
equipment(5)(7)(29)(14)(19)(26)
Other
operating(430)(452)(5)(1,308)(1,306)-
expenses
(435)(459)(5)(1,322)(1,325)-
Adjusted403367101,1841,146
operating3
profit
Adjusted48.1%44.4%47.2%46.4%
operating
profit
margin
Additions to18619057351711
PP&E(2)
Summarized Subscriber Results
Three months ended September 30,Nine months ended September 30,
(Subscriber20122011Chg20122011Chg
statistics in
thousands)
Cable homes passed3,7993,7403,7993,740
5959
Television
Net additions
(losses)(16)9(25)(58)(8)(50)
Total television2,2392,3032,2392,303
subscribers(64)(64)
Digital cable
Households,
net additions(1)22(23)(1)29(30)
(losses)
Total digital1,7761,7671,7761,767
cable99
households
Cable high-speed
Internet
Net additions2951
39(10)58(7)
Total cable1,8441,7681,8441,768
high-speed7676
Internet
subscribers
Cable telephony
lines
Net additions13
and migrations416(12)37(24)
Total cable1,0651,0441,0651,044
telephony lines2121
Total cable
service units
Net additions17
(losses)64(47)687(81)
Total cable5,1485,1155,1485,115
service units3333
Circuit-switched
lines
Net losses and
migrations to
cable telephony
platform
-(1)1-(12)12
Total
circuit-switched-1(1)-1(1)
lines
Cable Television Revenue
Cable Television revenue was relatively flat for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, reflecting pricing changes made in March 2012, together with a continued increase in penetration of our digital cable product offerings year-to-date offset by the impact of promotional and retention pricing activity associated with heightened IPTV competitive activity.
Our digital cable subscriber base has grown by 1% since September 30, 2011, and represents 79% of our total television subscriber base as at September 30, 2012, compared to 77% as at September 30, 2011. Increased demand from subscribers for the larger selection of digital content, video on-demand, HDTV and personal video recorder ("PVR") equipment continues to contribute to the growth in the digital subscriber base and Cable Television revenue.
In the first quarter of 2012, Cable Operations began an initiative to convert many of the remaining analog cable customer outlets onto its digital cable platform. This migration, which will occur during 2012 and 2013, will enable the reclamation of significant amounts of network capacity and reduce network operating and maintenance costs going forward. The migration will entail incremental PP&E and operating costs as each of the remaining analog homes are fitted with digital converters and various analog filtering equipment is removed.
Internet Revenue
The year-over-year increase in Internet revenue for the three and nine months ended September 30, 2012 reflects the increase in our Internet subscriber base, combined with Internet service pricing changes made during the previous twelve months. Also impacting the increase is a general movement by subscribers towards higher end tiers, partially offset by the impact of promotional and retention pricing activity associated with heightened competition.
With our high-speed Internet customer base at 1.8 million subscribers, Internet penetration is approximately 49% of the homes passed by our cable network and 82% of our television subscriber base as at September 30, 2012, compared to Internet penetration of approximately 47% of the homes passed by our cable network and 77% of our television subscriber base as at September 30, 2011.
Home Phone Revenue
The relatively flat Home Phone revenues for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, reflect declines in revenue associated with exiting the legacy circuit-switched telephony base that Cable Operations divested last year, offset by the increase in the cable telephony Home Phone customer base.
Excluding the impact of exiting the circuit-switched telephony business, the year-over-year revenue growth for Home Phone for the three and nine months ended September 30, 2012 would have been 3% and 2%, respectively. For the three and nine months ended September 30, 2011, the revenue associated with the divested residential circuit-switched telephony business totalled approximately 3 million and 13 million, respectively.
Cable telephony Home Phone lines in service grew 2% from September 30, 2011 to September 30, 2012 and now represent 28% of the homes passed by our cable network and 48% of television subscribers, compared to 28% of the homes passed by our cable network and 45% of television subscribers at September 30, 2011.
Cable Operations Operating Expenses
Cable Operations' operating expenses decreased for the three months ended September 30, 2012, compared to the corresponding period of 2011, due to cost reductions and efficiency initiatives across various functions and lower new subscriber addition activity, partially offset by incremental retention costs and costs associated with the analog to digital conversion. Rogers continues to focus on implementing a program of cost reduction and efficiency improvement initiatives to manage the overall level of operating expenses.
Cable Operations Adjusted Operating Profit
The year-over-year increase in adjusted operating profit for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, was primarily the result of the revenue and cost changes described above, with the associated adjusted operating profit margin of 48.1% and 47.2% for the three and nine months ended September 30, 2012, respectively, compared to 44.4% and 46.4% in the corresponding periods of 2011.
Cable Operations Additions to PP&E
Three months ended September 30,Nine months ended September 30,
(In millions of20122011% Chg20122011% Chg
dollars)
Additions to
PP&E
Customer6674212155
premise(11)37
equipment
Scalable73192181
infrastructure56306
Line14
extensions1217383219
Upgrades andn/m
rebuild-418(88)
Support33130141
capital44(25)(8)
Total additions186190573517
to PP&E(2)11
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 that 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;
--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.
Replacement of network assets unrelated to line extensions,
rebuilds and upgrades or customer growth.
Additions to Cable Operations PP&E include continued investments in the cable network to enhance the 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 decrease in Cable Operations PP&E additions for the three months ended September 30, 2012, compared to the corresponding period of 2011, was largely driven by lower analog to digital subscriber migration activity and lower installation activity. CPE investments decreased versus prior year for the quarter with lower voice modems offset by slightly higher DOCSIS 3 gateways and set-top boxes. Network investments in scalable infrastructure and line extensions increased for the three months ended September 30, 2012 due to adding capacity and improving our data and video service platforms. Support capital investments decreased during the quarter, compared to the corresponding period in 2011, due to timing of spend on projects related to platforms for new services and customer billing systems.
The increase in Cable Operations PP&E additions for the nine months ended September 30, 2012, compared to the corresponding period of 2011, was largely driven by increased CPE with higher Network spend offset by lower IT investments. The increase in CPE was attributable to higher volumes of DOCSIS 3 gateways, higher volumes of set-top boxes related to Nextbox 2.0 and our analog to digital subscriber migration activities earlier in the year. Network investments in scalable infrastructure and line extensions increased for the nine months ended September 30, 2012 and were focused on adding capacity and improving our data and video service platforms. Support capital investments decreased during the nine months ended September 30, 2012, compared to the corresponding period in 2011, due to timing of spend on projects related to platforms for new services and customer billing systems.
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
Three months ended September 30,Nine months ended September 30,
(In20122011% Chg20122011% Chg
millions
of
dollars,
except
margin)
Operating8696263312
revenue(10)(16)
Operating
expenses(64)(77)(17)(201)(246)(18)
Adjusted22196266
operating16(6)
profit
Adjusted25.6%19.8%23.6%21.2%
operating
profit
margin
Additions15134542
to PP&E157
RBS Revenue
The decrease in RBS revenue for the three and nine months ended September 30, 2012 primarily reflects the planned decline in certain categories of lower margin legacy business, partially offset by the growth in next generation IP and other on-net services. RBS' focus is primarily on IP-based services and increasingly on leveraging higher margin on-net and near-net revenue opportunities, utilizing existing network facilities to expand offerings to the medium-sized enterprise, public sector and carrier markets. Revenue from the lower margin off-net legacy business, which includes long-distance, local and certain legacy data services, continues to decline and was down 27% for the quarter compared to the third quarter of 2011. In contrast, revenue from the higher margin next generation business was up 12% for the quarter and 10% year-to-date due to service to new customers and incremental services to existing customers and now represents approximately 40% of total RBS revenues.
RBS Operating Expenses
The decrease in operating expenses for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, reflects cost reductions and efficiency initiatives across various functions. Rogers continues to focus on implementing a program of cost reduction and efficiency improvement initiatives to manage the overall level of operating expenses.
RBS Adjusted Operating Profit
The year-over-year increase in adjusted operating profit for the three months ended September 30, 2012 reflects steady declines in operating expenses, partially offset by declines in revenue as we exit the lower margin legacy business to focus on growing its on-net and next generation data revenue. The year-over-year decrease in adjusted operating profit for the nine months ended September 30, 2012, compared to the corresponding period in 2011, reflects declines in revenue due to RBS' planned exit of the lower margin legacy business, offset by cost efficiencies which resulted in the increase in RBS' adjusted operating profit margin to 23.6% from 21.2%.
RBS Additions to PP&E
The increase in RBS PP&E additions for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, resulted from the timing of expenditures on customer specific network expansions and support capital.
VIDEO
As of June 2012, Rogers' retail stores no longer rent or sell DVDs and games at any of its locations which now focus exclusively on sales and service relating to Rogers' wireless and cable products. The second quarter of 2012 was the last period for operations of the Video segment, with the remnants of that business now treated as discontinued operations for accounting and reporting purposes.
MEDIA
Summarized Media Financial Results
Three months ended September 30,Nine months ended September 30,
(In20122011% Chg20122011% Chg
millions
of
dollars,
except
margin)
Operating3924071,1861,183
revenue(4)-
Operating
expenses(342)(352)(3)(1,071)(1,047)2
Adjusted5055115136
operating(9)(15)
profit
Adjusted12.8%13.5%9.7%11.5%
operating
profit
margin
Additions11103230
to PP&E107
Media Revenue
The decrease in Media's revenue for the three months ended September 30, 2012, compared to the corresponding period of 2011, was the result of softer results at Television, Publishing, Digital Media, and The Shopping Channel, partially offset by growth at Sportsnet and Sports Entertainment. The third quarter experienced a continued weakening of the advertising market from the levels seen earlier in the year, which suppressed growth in most Media divisions. Revenues for the nine months ended September 30, 2012 increased slightly due to strong growth at Sportsnet and Sports Entertainment.
Media Operating Expenses
The decrease in Media's operating expenses for the three months ended September 30, 2012, compared to the corresponding period of 2011, is primarily due to cost containment efforts, which offset increased baseball player related costs during the quarter. The increase in Media's operating expenses for the nine months ended September 30, 2012, is primarily due to an increase in programming related spending in the Television division and increased player related costs in Sports Entertainment. The Television spending is related to new channels, including CityNews and FX Canada, as well as investments in new programming at Citytv coinciding with the recent expansion of its footprint which enables the monetization of such programming costs over a much larger audience base.
Media Adjusted Operating Profit
The decrease in Media's adjusted operating profit for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, primarily reflects the revenue and expense changes discussed above.
Media Additions to PP&E
Media's PP&E additions during the three and nine months ended September 30, 2012 increased from the corresponding periods in 2011 primarily due to capital expenditures relating to infrastructure upgrades for Sportsnet and Sports Entertainment.
Other Media Developments
On August 25, 2012, Rogers announced that it had entered into an agreement to purchase 100% of the outstanding shares of Score Media Inc. for 167 million. As part of this transaction, Rogers also received a 10% interest in Score Media's digital media assets, which will be spun out as a separate entity called Score Digital. theScore Television Network is a national specialty TV service providing sports news, information, highlights and live event programming across Canada. This transaction is subject to regulatory approval which is anticipated in the first quarter of 2013, following which Rogers will wholly own and control theScore Television Network and its related television assets.
Subsequent to the quarter ended September 30, 2012, on October 19, 2012, the 167 million purchase price was paid and the shares of Score Media were transferred to an interim CRTC-approved trust which is responsible for the independent management of the business in the normal course of operations until CRTC approval is obtained. The ultimate control over the Score Media business will not transfer to Rogers until such approval is obtained. In addition, Rogers will hold approximately 11.8% of the outstanding shares of Score Digital, which includes 10% that will be issued in connection with this transaction and approximately 1.8% of the shares of Score Digital received by Rogers as partial payment for our shareholdings in Score Media prior to the implementation of the transaction.
CORPORATE
Other Corporate Developments
On August 22, 2012, Rogers, along with BCE Inc., closed the joint acquisition of a net 75% equity interest in Maple Leafs Sports & Entertainment Ltd. from the Ontario Teachers' Pension Plan. MLSE is one of Canada's largest sports and entertainment companies and owns and operates the Air Canada Centre, the NHL's Toronto Maple Leafs, the NBA's Toronto Raptors, the MLS' Toronto FC, the AHL's Toronto Marlies and other assets. Rogers' net cash investment, following a leveraged recapitalization of MLSE, was 533 million, representing a 37.5% equity interest in MLSE. An additional 7 million of costs were incurred in relation to this investment.
2012 FINANCIAL AND OPERATING GUIDANCE
We have no specific revisions to the 2012 annual consolidated guidance ranges that we provided on February 22, 2012. See the section entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions" below.
Rogers Communications Inc.Unaudited Interim Condensed Consolidated Statements of Income(In millions of Canadian dollars, except per share amounts)
Three months endedNine months ended
September 30,September 30,
2012201120122011
Operating3,1763,1319,2259,191
revenue
Operating
expenses:
Operating1,9141,8855,5875,594
costs
Integration,
restructuring
and7158236
acquisition
costs
Depreciation
and4374271,3661,289
amortization
Operating8188042,1902,272
income
Finance costs(169)(146)(488)(580)
Other income,2-117
net
Share of the
income (loss)
of associates
and joint
ventures,
net of tax(8)1(2)4
Income before
income taxes6436591,7111,703
from continuing
operations
Income tax
expense:
Current6299310383
Deferred1156319865
177162508448
Net income for
the period from4664971,2031,255
continuing
operations
Loss from
discontinued-(6)(32)(19)
operations, net
of tax
Net income4664911,1711,236
Earnings per
share - basic:
Earnings per
share from0.900.922.312.29
continuing
operations
Loss per
share from-(0.01)(0.06)(0.03)
discontinued
operations
Earnings per0.900.912.252.26
share
Earnings per
share -
diluted:
Earnings per
share from0.900.882.302.28
continuing
operations
Loss per
share from-(0.01)(0.06)(0.03)
discontinued
operations
Earnings per0.900.872.242.25
share
Rogers Communications Inc. Unaudited Interim Condensed Consolidated Statements of Financial Position(In millions of Canadian dollars)
September 30,December 31,
20122011
Assets
Current assets:
Cash and cash459-
equivalents
Accounts1,4291,574
receivable
Other current399322
assets
Current
portion of616
derivative
instruments
2,2931,912
Property, plant9,2899,114
and equipment
Goodwill3,2823,280
Intangible2,6302,721
assets
Investments1,4451,107
Derivative2064
instruments
Other long-term133134
assets
Deferred tax4030
assets
19,13218,362
Liabilities and
Shareholders'
Equity
Current
liabilities:
Bank-57
advances
Accounts
payable and1,8522,085
accrued
liabilities
Income tax150-
payable
Current
portion of2535
provisions
Current
portion of344-
long-term
debt
Current
portion of16137
derivative
instruments
Unearned311335
revenue
2,8432,549
Provisions3438
Long-term10,39210,034
debt
Derivative431503
instruments
Other long-term240276
liabilities
Deferred tax1,5691,390
liabilities
15,50914,790
Shareholders'3,6233,572
equity
19,13218,362
Rogers Communications Inc. Unaudited Interim Condensed Consolidated Statements of Cash Flows(In millions of Canadian dollars)
Three months endedNine months ended
September 30,September 30,
2012201120122011
Cash provided by
(used in):
Operating activities:
Net income4664911,1711,236
Adjustments to
reconcile net
income to
net cash flows
from operating
activities:
Depreciation and4374271,3661,289
amortization
Program rights11186060
amortization
Finance costs169146488580
Current income6296300375
tax expense
Deferred taxes1156319865
Pension
contributions,(11)(6)(29)(38)
net of expense
Settlement of
pension---11
obligations
Stock-based
compensation
expense
(recovery)26(19)2030
Amortization of
fair value
decrement
on long-term--11
debt
Share of the loss
(income) of
associates
and joint
ventures, net of8(1)2(4)
tax
Other1(10)(6)(1)
1,2841,2053,5713,604
Change in non-cash
operating working
capital items113178(140)(268)
1,3971,3833,4313,336
Interest paid(223)(244)(555)(553)
Income taxes paid(28)(11)(123)(17)
1,1461,1282,7532,766
Investing activities:
Additions to
property, plant and
equipment(528)(559)(1,435)(1,474)
("PP&E")
Change in non-cash
working capital
items related to5338(49)(121)
PP&E
Acquisitions, net
of cash and cash
equivalents---(532)
acquired
Investments(540)-(540)-
Additions to(46)(40)(67)(50)
program rights
Other(19)(9)(33)(28)
(1,080)(570)(2,124)(2,205)
Financing activities:
Issuance of-2402,0903,650
long-term debt
Repayment of-(120)(1,240)(2,482)
long-term debt
Premium on
repayment of---(76)
long-term debt
Payment on
settlement of
cross-currency
interest rate
exchange agreement
and
forward contracts---(1,208)
Proceeds on
settlement of
cross-currency
interest rate
exchange agreement
and
forward contracts---878
Transaction costs(5)-(14)(10)
incurred
Repurchase of Class
B Non-Voting-(440)(350)(725)
shares
Proceeds received
on exercise of
stock
options-1-1
Dividends paid(205)(194)(599)(568)
(210)(513)(113)(540)
Change in cash and
cash equivalents
(bank advances)(144)4551621
Cash and cash
equivalents (bank
advances), beginning603(69)(57)(45)
of period
Cash and cash
equivalents (bank
advances), end of459(24)459(24)
period
The change in
non-cash operating
working capital
items is as follows:
(Increase)/decrease
in accounts
receivable(84)5311631
(Increase)/decrease13145(80)(90)
in other assets
Increase/(decrease)
in accounts payable
and accrued9986(150)(199)
liabilities
Increase/(decrease)(33)(6)(26)(10)
in unearned revenue
113178(140)(268)
Caution Regarding Forward-Looking Statements, Risks and Assumptions
This earnings release includes "forward-looking information" within the meaning of applicable securities laws and assumptions concerning, among other things our business, its operations and its financial performance and condition approved by management on the date of this earnings release. This forward-looking information and these assumptions include, but are not limited to, statements with respect to our objectives and strategies to achieve those objectives, as well as statements with respect to our beliefs, plans, expectations, anticipations, estimates or intentions. This forward-looking information also includes, but is not limited to, guidance and forecasts relating to revenue, adjusted operating profit, property plant and equipment expenditures, cash income tax payments, free cash flow, dividend payments, 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. The words "could", "expect", "may", "anticipate", "assume", "believe", "intend", "estimate", "plan", "project", "guidance", and similar expressions are intended to identify statements containing forward-looking information, although not all forward-looking statements include such words. Conclusions, forecasts and projections set out in forward-looking information are based on our current objectives and strategies and on estimates and other factors and expectations and assumptions, most of which are confidential and proprietary, that we believe to be reasonable at the time applied, but may prove to be incorrect, including, but not limited to: general economic and industry growth rates, currency exchange rates, product pricing levels and competitive intensity, subscriber growth, usage and churn rates, changes in government regulation, technology deployment, device availability, the timing of new product launches, content and equipment costs, the integration of acquisitions, 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 the statement containing the forward-looking information is made.
We caution that all forward-looking information, including any statement regarding our current objectives, strategies and intentions and any factor, assumptions, estimate or expectation underlying the forward-looking information, is inherently subject to change and uncertainty and that actual results may differ materially from those expressed or implied by the forward-looking information. A number of risks, uncertainties and other factors could cause actual results and events to differ materially from those expressed or implied in the forward-looking information or could cause our current objectives, strategies and intentions to change, including but not limited to: new interpretations and new accounting standards from accounting standards bodies, 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 these factors are beyond our control and current expectation 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 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 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 MD&A entitled: "Updates to Risks and Uncertainties" and "Government Regulation and Regulatory Developments", and also sections entitled "Risks and Uncertainties Affecting our Businesses" and "Government Regulation and Regulatory Developments" in our 2011 Annual MD&A. Our annual and quarterly reports can be found online at rogers.com/investors, sedar.com and sec.gov or are available directly from Rogers.
About Rogers Communications Inc.
Rogers Communications is a diversified public Canadian communications and media company. We are Canada's largest provider of wireless 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, sports entertainment, and digital media. We are publicly traded on the Toronto Stock Exchange and on the New York Stock Exchange RCI. For further information about the Rogers group of companies, please visit rogers.com.
Quarterly Investment Community Conference Call
As previously announced by press release, a live webcast of our quarterly results teleconference with the investment community will be broadcast via the Internet at rogers.com/webcast beginning at 8:00 a.m. ET today, October 24, 2012. A rebroadcast of this teleconference will be available on the Events and Presentations page of Rogers' Investor Relations website, rogers.com/investors, for a period of at least two weeks following the teleconference.
SOURCE: Rogers Communications Inc.
To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/October2012/24/c8249.html
SOURCE: Rogers Communications Inc.
SOURCE: Rogers Wireless and Cable
SOURCE: Rogers Media Inc.
Investment Community ContactsBruce M. Mann, 416.935.3532,bruce.mann@rci.rogers.com
Dan Coombes, 416.935.3550,dan.coombes@rci.rogers.comMedia ContactTerrie
Tweddle, 416.935.4727,terrie.tweddle@rci.rogers.com
Copyright (C) 2012 CNW Group. All rights reserved.
