Rogers Communications reports second quarter 2015 results

Rogers Communications Inc., a leading diversified Canadian communications and media company, announced its unaudited financial and operating results for the second quarter ended June 30, 2015.

"We grew both the top and adjusted operating profit lines in the quarter while showing improvement in our Wireless and Internet subscriber metrics," said Guy Laurence, President and Chief Executive Officer of Rogers Communications Inc. "In addition, we completed a series of strategic transactions to further enhance our spectrum position, delivered a successful first year of our exclusive national NHL rights agreement, and continued to implement key customer experience improvements. Our Rogers 3.0 plan continues to gain traction, our financials are trending in the right direction, and we're entering the back half of the year with key regulatory decisions behind us."

Key Financial Highlights

Higher operating revenue

• Consolidated revenue increased 6% this quarter, reflecting revenue growth of 6% in Wireless and 23% in Media, with stable revenue in Cable and Business Solutions. Wireless revenue increased as a result of greater smartphone sales, higher network revenue from the continued growth in data use by our subscriber base, as well as the adoption of higher ARPU and ARPA generating Rogers Share Everything plans. Cable revenue was stable as continued Internet revenue growth was offset by modest revenue declines in Television and Phone. Excluding the effect of a CRTC decision earlier in the year mandating that telecommunications providers could no longer require customers to provide a minimum of 30 days' notice when canceling services, Cable operating revenue would have increased by $4 million this quarter. Media revenue increased as a result of the NHL licensing agreement together with growth at Sportsnet, the Toronto Blue Jays, and Next Issue Canada, partially offset by continued softness in conventional broadcast TV and print advertising.
   
• Activated approximately 682,000 wireless smartphones this quarter, of which 33% were new subscribers, with higher-value smartphone customers representing 83% of Wireless postpaid subscribers as at June 30, 2015.

Higher adjusted operating profit

• The 2% increase in consolidated adjusted operating profit this quarter reflected stable adjusted operating profit in Wireless and an increase in Media of 67% ($36 million) partially offset by decreases in Cable of 2% and in Business Solutions of 4%. The increase in Wireless network revenues was partially offset by higher net costs associated with the increased volume of subsidized smartphones sold primarily as a result of the industry-wide transition from three to two-year contracts in early June 2015. Cable results were impacted by investments in programming and customer value enhancements, as well as the CRTC decision discussed above and losses associated with competitive intensity. Media's results improved as a result of increased advertising revenues from our NHL licensing agreement, together with the revenue changes discussed above, and production cost savings in the broadcast and print areas.
   
• Consolidated adjusted operating profit margin decreased by 160 basis points to 39.3% this quarter with margins of 49.3% in Wireless and 47.6% in Cable.
   
• The 5% decrease in adjusted net income and 10% decrease in net income were primarily a result of a 6% increase in depreciation and amortization and a 7% increase in income taxes, partially offset by the 2% increase in consolidated adjusted operating profit.

Cash flow and available liquidity

• Generated $476 million of consolidated free cash flow this quarter, an increase of 9% from the same quarter last year, primarily as a result of higher adjusted operating profit, lower cash income taxes paid, and lower interest on borrowings, partially offset by higher additions to property, plant and equipment. Cash provided by operating activities was $1,114 million this quarter.
   
• Maintained $1.9 billion of liquidity available under our bank credit facilities as at June 30, 2015.
   
• Returned $248 million of cash to shareholders through the payment of our quarterly cash dividend, which the Rogers Board of Directors increased by 5% to $0.48 per share in January 2015.
   
• Increased the full year 2015 guidance range for free cash flow by $175 million from the range initially issued on January 29, 2015. This upward adjustment to our free cash flow guidance primarily reflects the value of tax loss carry forwards acquired as part of the Mobilicity transaction that closed on July 2, 2015. We expect to utilize these loss carry forwards in 2015.

Strategic Highlights

Overhaul the customer experience

• Introduced a simplified customer bill for Rogers services, making it easier for customers to understand their spending and addressing the number one reason customers call Rogers with questions. The new format makes usage details easier to understand, while creating a new layout and interactive graphical features so customers can more easily see how we calculated their bill. Our new bill is less complicated, is available across multiple platforms, and is an important step in our ongoing commitment to continuous improvement for our customers' experiences.
   
• Expanded Roam Like Home to over 35 European countries, further simplifying how our Wireless consumers use the Internet, make calls, and send texts and emails with their Rogers Share Everything plan when traveling outside of Canada. Customers can access their identical Canadian plan features while in Europe as well as in the US, all at a reasonable and clear cost.
   
• Expanded our online customer self-service offerings to make interacting with Rogers even easier. This includes improved search and navigation capabilities, accelerated response times, and the expansion of our online Community Forums with a new look and feel. We have also improved the 'MyRogers' customer self-serve portal to enhance usability and optimize the site for mobile devices.
   
• Increased the speed and responsiveness of our Rogers.com and Fido.ca websites. In addition, we launched new, easier-to-navigate homepages and mobile-friendly product landing and promotion pages to provide customers with an improved digital experience.
   
• Enhanced and simplified our customer-facing Integrated Voice Response (IVR) system along with our technical support transfer process to minimize the customers' time from when they dial Rogers to when they talk to a live agent.
   
• Closed the purchase of an investment of a 50% interest in Glentel Inc., previously Canada's largest independent wireless retail distribution network with almost 360 Canadian retail outlets. Glentel will continue to be run by an independent management team.
   
• Launched our Retail Academy, a program to further enhance how we serve and support our customers in our branded retail stores. In addition, we started re-branding our footprint of national retail stores and refreshing certain locations to a new design concept, which includes a connected Home Zone lounge where customers can experience Rogers IGNITE Internet bundles and Smart Home Monitoring.

Focus on innovation and network leadership

• Announced the strategic acquisition of wireless provider Mobilicity and completed the transaction to acquire Shaw Communication's AWS-1 spectrum licences. We added 20MHz of contiguous AWS-1 spectrum adjacent to our existing 20MHz of AWS-1 holdings across all of British Columbia and Alberta, and in July added 10MHz of contiguous AWS-1 spectrum across Southern Ontario, the largest population centre in the country. We also divested certain non-contiguous AWS-1 spectrum licences to WIND Mobile Corp.
   
• Augmented our already extensive 2500MHz spectrum holdings during the recent 2500MHz spectrum auction. We successfully executed a tactical fill-in and top-up strategy to acquire nearly our entire allowable spectrum at an average cost of $0.10/MHz/pop, lower than other auction participants. We now hold 40MHz of contiguous, paired 2500MHz spectrum across nearly all of Canada, as well as an additional 20MHz of unpaired 2500MHz spectrum in many key population areas.
   
• Announced broad industry support for Suretap, an innovative mobile digital payment solution pioneered by Rogers. Canada's leading mobile carriers have rallied behind the Rogers-developed solution to drive adoption and provide banks and merchants with an easier, more cost-effective way to deliver the value of mobile payments to their customers.
   
• Applauded the CRTC's partnership with SamKnows, a global leader in Internet performance measurement, to launch an independent testing program designed to give Canadians an objective assessment of their Internet provider's performance. Rogers has been conducting independent testing with SamKnows since 2013, proving each time that we consistently delivered on advertised Internet speed and reliability.
   
• First in Canada to launch Voice over LTE (VoLTE) technology, giving our Wireless customers across the country access to higher-quality high-definition voice and video calls, faster call setup and connection times, and the ability to simultaneously place calls, browse the web, and stream video at considerably greater LTE speeds.
   
• Extended Rogers Smart Home Monitoring services to Calgary and Edmonton, allowing residents to remotely connect to, protect, and manage their homes using their mobile devices or laptops.
   
• Introduced complimentary high-speed Wi-Fi service throughout the Rogers Centre, our multi-purpose event venue and home to the Toronto Blue Jays, in yet another example of Rogers' commitment to deliver the best-connected experience to Canadians.

Deliver compelling content everywhere

• Sportsnet was the #1 most-watched televised sports brand in Canada, as verified by data collected by Numeris between May 2014 and May 2015. Following a year of double-digit audience growth and record-setting ratings, for the first time in its 17-year history, more Canadians tuned in to Sportsnet channels than to the competition.
   
• Successfully and profitably completed the first year of our exclusive 12-year national NHL licensing agreement while bringing the NHL to more Canadians than ever before. We provided Canadians with new ways to experience games, through NHL GameCentre Live and NHL GamePlus, and on multiple platforms such as their computer, mobile phone, or tablet. We announced Rogers Hometown Hockey will be returning for a second season and will roll into 24 new Canadian communities during the 2015-2016 NHL season with even more hockey festivities and entertainment.
   
• Announced a five-year renewal agreement through 2020 as the title sponsor for the Rogers Cup professional tennis tournament, with Sportsnet garnering coverage rights for a comprehensive suite of televised, online, mobile, and multimedia platforms. The Rogers Cup is a renowned international professional tennis tournament and supports a key pillar in our strategy of delivering world-class content and experiences to Canadians.
   
• Introduced Fido Pulse wireless plans, delivering more value by including a 24-month subscription to Spotify Premium, one of the world's most innovative music streaming services, and original exclusive DAILY VICE, an edgy, ground-breaking news app.
   
• Announced that availability of the popular shomi video streaming service will be expanded throughout Canada later this summer. shomi offers numerous exclusive series and expert-recommended collections, including programming for kids and families, not offered on other services. shomi is accessible on the platforms Canadians want in addition to their TVs, including tablets, mobile, online, Xbox 360, Apple TV, and Chromecast.
   
• Expanded Next Issue Canada (the North American digital magazine newsstand) for French-speaking and bilingual Canadians by adding 20 Québec-based French magazines, including Châtelaine, L'actualité, LOULOU, Sélection du Reader's Digest, and Ricardo, to the more than 150 Canadian and US English magazines already on offer.

Drive growth in the business market

• Recognized, along with AT&T, Verizon, and Vodafone, as a world leader in the machine-to-machine (M2M) retail space by prominent global market research firm Research and Markets. Rogers is a Canadian leader in M2M and this recognition affirms that our in-market solutions for business are world class.
   
• Expanded our third Toronto data centre, doubling our available floor space capacity. This next-generation data centre is 'Uptime Certified Tier III' for design and construction, providing customers with best-in-class uptime guarantees for their mission-critical applications.
   
• Introduced Rogers Voice with Skype for Business, a cloud-based tool that lets businesses experience the commercial version of Skype with enhanced features and better communication with their teams, partners, and customers.

Invest in and develop our people

• Recognized again as a Top Employer for Young People by the editors of Canada's Top 100 Employers in May 2015.
   
• Named one of Canada's Greenest Employers for 2015 by the editors of Canada's Top 100 Employers in April 2015, an award that recognizes employers with innovative environmental programs and earth-friendly policies that actively involve their employees.
   
• Named one of the 50 Best Corporate Citizens in Canada by Corporate Knights in June 2015, an award that recognizes employers that incorporate social, economic, and ecological benefits and costs in their normal course of business.

Be a strong Canadian growth company

• Appointed Rick Brace as President, Media Business Unit effective August 10, 2015. Mr. Brace brings more than 35 years of operational experience within the sports and media industries, including a number of senior leadership positions. He will oversee Rogers' $1.8 billion annual Media sales portfolio, including Sportsnet, sports investments including the Toronto Blue Jays, the NHL, and MLSE, its broadcast business, publishing brands, and The Shopping Channel.