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Rogers Communications Reports First Quarter 2015 Results

T.RCI.A

Accelerated Revenue Growth to 5% with Increases in Wireless, Cable, and Media

Executed Planned Investments to Retain Wireless Customers Before the Final Expiry of Three-Year Contracts This Summer, Accelerating Migration to Rogers Share Everything Plans

Delivered Key Customer Programs: Introduced Rogers IGNITE, Expanded Roam Like Home to Over 35 Countries, Extended Network Coverage to Rural Areas, and Launched New Fido Plans with Spotify and VICE

TORONTO, April 20, 2015 /CNW/ - Rogers Communications Inc., a leading diversified Canadian communications and media company, today announced its unaudited consolidated financial and operating results for the first quarter ended March 31, 2015.

Financial Highlights              
            Three months ended March 31
(In millions of Canadian dollars, except per share amounts, unaudited)           2015 2014
               
Operating revenue           3,175 3,020
As adjusted 1:              
  Operating profit           1,124 1,161
  Net income           275 340
  Basic and diluted earnings per share           $ 0.53 $ 0.66
                 
Net income           255 307
Basic earnings per share           $ 0.50 $ 0.60
Diluted earnings per share           $ 0.48 $ 0.57
               
Free cash flow 1           266 356
Cash provided by operating activities           227 408
1   Adjusted amounts and free cash flow are non-GAAP measures and should not be considered as a
substitute or alternative for GAAP measures. They are not defined terms under IFRS and do not have
standard meanings, so may not be a reliable way to compare us to other companies. See "Non-GAAP
Measures" for information about these measures, including how we calculate them.

"We continued to see steady revenue growth this quarter along with strong growth in Wireless ARPA," said Guy Laurence, President and Chief Executive Officer of Rogers. "We made planned strategic investments to retain high-value customers ahead of the conclusion of the industry-wide shift to two-year contracts this summer - our underlying adjusted operating profit growth was otherwise solid. At the same time, we moved full steam ahead with our Rogers 3.0 program by delivering a number of initiatives that are popular with our customers. Our plan is gaining traction and we expect continued improvements in our key financial and operating results as the year progresses."

Key Financial Highlights

Higher operating revenue

  • Consolidated revenue increased 5% this quarter, reflecting revenue growth of 4% in Wireless, 1% in Cable, and 26% in Media, with stable revenue in Business Solutions. Wireless revenue increased as a result of both higher network revenue from the continued movement of our base to LTE, the adoption of higher ARPU and ARPA-generating Share Everything plans, as well as greater smartphone sales. Cable revenue was relatively 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, Radio, and Next Issue Canada partially offset by continued softness in conventional broadcast TV and print advertising.

  • The implementation of a CRTC decision mandating that telecommunications providers could no longer require customers to provide a minimum of 30 days' notice to cancel services resulted in a decrease of $3 million in Cable revenue this quarter and an increase in Cable total service unit losses of approximately 40,000 (which includes combined Internet, Television, and Phone subscribers).

  • Activated 700,000 wireless smartphones this quarter, of which 32% were new subscribers, with higher-value smartphone customers representing 83% of Wireless postpaid subscribers as at March 31, 2015.

Lower adjusted operating profit impacted by planned customer investments

  • The 3% decrease in consolidated adjusted operating profit this quarter reflects decreases in Wireless of 3%, in Cable of 2%, and in Media of 33% ($8 million), while adjusted operating profit in Business Solutions was stable. Wireless experienced higher costs associated with the increased volume of subsidized smartphones sold primarily as a result of proactively early-upgrading targeted subscribers in advance of the conclusion of the industry-wide shift to two-year contracts this summer, partially offset by higher network revenues. Cable results were impacted by investments in programming, customer value enhancements, and the CRTC cancellation notification policy change. Media's results, during what is traditionally its softest quarter, were impacted by the timing of programming and productions costs, a large portion of which were seasonal in nature and related to hockey.

  • Consolidated adjusted operating profit margin decreased by 300 basis points to 35.4% this quarter with margins of 45.8% in Wireless and 46.2% in Cable.

  • The reductions of 19% in adjusted net income and 17% in net income were mainly as a result of an 8% increase in depreciation and amortization in addition to the 3% decrease in consolidated adjusted operating profit.

Cash flow and available liquidity

  • Generated $266 million of consolidated free cash flow this quarter, representing a decrease of 25%, primarily as a result of a timing-related increase in cash income taxes paid and the lower adjusted operating profit. Cash provided by operating activities was $227 million this quarter.

  • Maintained approximately $2.4 billion of liquidity available under our bank credit facilities as at March 31, 2015.

  • Returned $235 million of cash to shareholders through the payment of our quarterly cash dividend which the Rogers Board of Directors increased by 5% to 48 cents per share earlier this quarter.

Strategic Highlights

Overhaul the customer experience

  • Reduced the number of customer complaints by more than 20% over the six months ended January 31, 2015 based on data collected for the Commissioner for Complaints for Telecommunications Services' (CCTS) mid-year report released in April 2015. This reduction is on top of the more than 30% reduction over the preceding 12-month period ended July 31, 2014 published in CCTS's November 2014 annual report. As part of our Rogers 3.0 plan, we are committed to putting our customers first, and while our work is far from over, this report shows our focus on customers is paying off and we're heading in the right direction.

  • Expanded Roam Like Home to over 35 European countries, further simplifying how Wireless consumers use the Internet, make calls, and send texts and emails with their Rogers Share Everything plan. Customers access their identical Canadian plan features while in Europe, all at a relatively low cost.

  • Introduced a new Wireless Hardware Upgrade Program where customers now have the option to upgrade their wireless device online.

  • Released Rogers' 2014 Transparency Report, our second annual report on how we share customer information in response to requests from legal authorities.

  • Unveiled a new look and feel, improved search and navigation capabilities, and accelerated response times for our online Community Forums. More customers want self-serve and our Community Forums are one of many ways our customers will be able to get the information they need quickly and easily.

  • Put customers first in an agreement with the Competition Bureau to issue credits or refunds to customers who were charged for unwanted third-party premium text messaging services.

Deliver compelling content everywhere

  • Introduced 'Fido Pulse' Wireless plans delivering more value with 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.

  • Acquired exclusive Canadian English-language multimedia rights for Sportsnet to the 2016 World Cup of Hockey including television, online, and mobile rights for every game of the highly-anticipated tournament.

  • Reached an average audience of 2.64 million viewers for City's televised presentation of the 57th Annual GRAMMY Awards, setting a record as the most-watched program in the network's history.

  • Added more titles and exclusive content to shomi including agreements with DHX Media and Corus Entertainment. shomi added popular kids' shows such as iCarly, Yo Gabba Gabba, and SpongeBob SquarePants, as well as exclusive content through a deal with Sony Pictures Television for the Golden Globe-winning show Transparent and acclaimed series Outlander.

Focus on innovation and network leadership

  • Launched new Rogers IGNITE broadband Internet-based bundled offerings with new usage options and value-added content, including Rogers NHL GameCentre LIVE and shomi.

  • Released independent testing research from SamKnows dated February 2015 confirming that Rogers' broadband Internet customers continue to enjoy fast and reliable upload and download service, delivered at 100 percent or more on average of advertised speeds, even during peak network hours.

  • Rogers was the first in Canada to launch Voice over LTE (VoLTE) technology giving customers across the country access to higher-quality HD voice and video calls and faster call setup and connection times and the ability to simultaneously place calls, browse the web or stream video at considerably greater LTE speeds.

  • Extended wireless network coverage in even more rural markets across Canada allowing customers to stay connected in additional places, at no extra charge and with no sign-up or opt-in requirements.

  • Rogers' wireless network was the first in Canada to be Category 6 enabled, allowing customers in select communities across Ontario and British Columbia to enjoy faster download speeds and a higher quality video experience on Category 6-enabled smartphones and tablets.

  • Extended Rogers Smart Home Monitoring services to residents in Vancouver and the Lower Mainland, British Columbia allowing them to connect, protect, and manage what's happening at home using their mobile devices or computers.

Drive growth in the business market

  • Deployed the GSMA Embedded SIM Specification of the M2M World Alliance, a global partnership of telecommunications providers. This standard allows for remote wireless provisioning of machine-to-machine (M2M) devices, significantly reducing the cost and time for enabling globally connected devices.

Invest in and develop our people

  • Selected as one of Canada's Best Diversity Employers for 2015 in a report released by Mediacorp Inc. in March 2015 for recognition of our efforts to promote diversity and inclusion in the workplace.

Be a strong Canadian growth company

  • Appointed Dirk Woessner as President, Consumer Business Unit effective April 6, 2015. Mr. Woessner was previously at Deutsche Telekom where he held a number of senior leadership positions in both wireless and broadband within the United Kingdom and Germany.

  • Announced the internal appointment of Jamie Williams as our Chief Information Officer effective May 4, 2015. Mr. Williams brings a 20-year track record of transforming IT systems in complex and challenging North American telecommunications environments.

About non-GAAP measures
This earnings release contains non-GAAP measures such as adjusted operating profit, adjusted operating profit margin, adjusted net income, free cash flow, adjusted net debt, adjusted net debt to adjusted operating profit, and adjusted basic and diluted earnings per share. These are non-GAAP measures and should not be considered as a substitute or alternative for GAAP measures. They are not defined terms under International Financial Reporting Standards (IFRS), and do not have standard meanings, so may not be a reliable way to compare us to other companies. See "Non-GAAP Measures" for information about these measures, including how we calculate them.

This earnings release contains important information about our business and our performance in the first quarter of 2015 as well as forward-looking information about future periods.

This earnings release should be read in conjunction with our First Quarter 2015 MD&A, our First Quarter 2015 Interim Condensed Consolidated Financial Statements and Notes, which have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB), our 2014 Annual MD&A, our 2014 Audited Consolidated Financial Statements and Notes thereto, which have been prepared in accordance with IFRS as issued by the IASB, and our other recent filings with Canadian and US securities regulatory authorities, which are available on SEDAR at sedar.com or EDGAR at sec.gov, respectively.

For more information about Rogers, including product and service offerings, competitive market and industry trends, and our overarching strategy, see "Understanding Our Business", "Our Strategy", and "Capability to Deliver Results" in our 2014 Annual MD&A. For our key performance drivers and objectives, see "Key Performance Drivers and Highlights" in our 2014 Annual MD&A and the section "Key Highlights" in this earnings release for our first quarter 2015 key achievements.

All dollar amounts are in Canadian dollars unless otherwise stated. All percentage changes are calculated using the rounded numbers as they appear in the tables. This earnings release is current as at April 20, 2015 and was approved by the Audit Committee of our Board of Directors on that date. This earnings release includes forward-looking statements and assumptions. See "About Forward-Looking Information" for more information.

We, us, our, Rogers, Rogers Communications, and the Company refer to Rogers Communications Inc. and its subsidiaries. RCI refers to the legal entity Rogers Communications Inc., not including its subsidiaries. RCI also holds interests in various investments and ventures.

We are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI).

In this earnings release, this quarter refers to the three months ended March 31, 2015. All results commentary is compared to the equivalent periods in 2014 or as at December 31, 2014, as applicable, unless otherwise indicated.

Summary of Consolidated Financial Results                          
            Three months ended March 31
(In millions of dollars, except margins and per share amounts)           2015       2014     % Chg
                           
Operating revenue                          
  Wireless           1,794       1,727     4
  Cable           870       860     1
  Business Solutions           94       94     -
  Media           464       367     26
  Corporate items and intercompany eliminations           (47)       (28)     68
Operating revenue           3,175       3,020     5
                           
Adjusted operating profit (loss)                          
  Wireless           765       790     (3)
  Cable           402       409     (2)
  Business Solutions           28       28     -
  Media           (32)       (24)     (33)
  Corporate items and intercompany eliminations           (39)       (42)     (7)
Adjusted operating profit 1           1,124       1,161     (3)
                           
Adjusted operating profit margin 1           35.4%       38.4%     (3.0 pts)
                           
Net income           255       307     (17)
Diluted earnings per share           $ 0.48       $ 0.57     (16)
                           
Adjusted net income 1           275       340     (19)
Adjusted diluted earnings per share 1           $ 0.53       $ 0.66     (20)
                           
Additions to property, plant and equipment           475       488     (3)
Free cash flow 1           266       356     (25)
Cash provided by operating activities           227       408     (44)
1   Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted diluted
earnings per share, and free cash flow are non-GAAP measures and should not be considered as
a substitute or alternative for GAAP measures. These are not defined terms under IFRS and do
not have standard meanings, so may not be a reliable way to compare us to other companies. See
"Non-GAAP Measures" for information about these measures, including how we calculate them.

KEY CHANGES IN FINANCIAL RESULTS THIS QUARTER COMPARED TO 2014

Operating revenue
Wireless network revenue increased this quarter compared to the same period last year primarily as a result of the continued adoption of higher ARPU-generating simplified pricing plans, the continued growth in usage of wireless data, and the ongoing transition from three-year to two-year contracts, partially offset by the continued decline in roaming revenue as a result of lower-priced roaming plans.

Cable operating revenue increased this quarter compared to the same period last year as a result of Internet revenue growth and the impact and timing of pricing changes across all product types, partially offset by TV subscriber losses over the past year. The implementation of a CRTC decision mandating that telecommunications providers could no longer require customers to provide a minimum of 30 days' notice to cancel services resulted in a decrease of $3 million in Cable revenue this quarter and an increase in Cable total service unit losses of approximately 40,000.

Business Solutions operating revenue was stable this quarter compared to the same period last year as the continued growth in on-net and next generation services, including our data centre businesses, was offset by the continued planned reduction in lower-margin, off-net legacy revenue.

Media operating revenue increased this quarter compared to the same period last year as a result of revenue generated by our National Hockey League (NHL) licensing agreement and growth at Sportsnet, Radio, and Next Issue Canada, partially offset by continued softness in conventional broadcast TV and print advertising.

Adjusted operating profit
Wireless adjusted operating profit decreased this quarter compared to the same period last year as a result of the higher volumes of subsidized smartphones sold as a result of our initiative to proactively early upgrade existing customers in the first half of 2015, prior to the final expiration of three-year contracts, partially offset by the network revenue growth described above and cost reductions.

Cable adjusted operating profit decreased this quarter compared to the same period last year as a result of investments in programming and customer value enhancements, partially offset by the revenue changes discussed above.

Business Solutions adjusted operating profit was stable this quarter as a result of the continued growth in on-net and near-net next generation businesses and productivity improvements, offset by the continued decline in the off-net legacy business.

Media adjusted operating loss increased this quarter compared to the same period last year as a result of higher programming and production costs, a large portion of which were seasonal in nature and related to hockey. See "Media Financial Results" for more information on seasonality and the impact of programming and production costs.

Results of our Business Segments
                           
WIRELESS
                           
Wireless Financial Results                          
            Three months ended March 31
(In millions of dollars, except margins)           2015       2014     % Chg
                           
Operating revenue                          
  Network revenue           1,672       1,636     2
  Equipment sales           122       91     34
Operating revenue           1,794       1,727     4
                           
Operating expenses                          
  Cost of equipment 1           (393)       (297)     32
  Other operating expenses           (636)       (640)     (1)
            (1,029)       (937)     10
Adjusted operating profit           765       790     (3)
                           
Adjusted operating profit margin as a % of network revenue           45.8%       48.3%     (2.5 pts)
Additions to property, plant and equipment           180       181     (1)
1  Includes the cost of equipment sales and direct channel subsidies.
                           

Wireless Subscriber Results 1  
       
  Three months ended March 31
(In thousands, except churn, ARPA, and ARPU) 2015 2014 Chg
       
Postpaid 2      
  Gross additions 277 293 (16)
  Net (losses) additions (26) 2 (28)
  Total postpaid subscribers 3 8,139 8,076 63
  Churn (monthly) 1.24% 1.20% 0.04 pts
  ARPU (monthly) $66.21 $65.20 $1.01
  ARPA (monthly) $107.47 $103.10 $4.37
Prepaid      
  Gross additions 126 76 50
  Net (losses) (37) (73) 36
  Total prepaid subscribers 3 1,340 1,356 (16)
  Churn (monthly) 3.99% 3.55% 0.44 pts
Blended ARPU 2 $58.75 $57.63 $1.12
       
1 Subscriber counts, subscriber churn, ARPA, and ARPU are key performance indicators. See "Key
Performance Indicators".      
2 Effective January 1, 2015 and on a prospective basis, our Wireless postpaid subscriber results
included Wireless Home Phone subscribers resulting in a base adjustment of approximately 92,000
cumulative subscribers. Excluding the impact of the Wireless Home Phone subscriber base
adjustment, postpaid ARPU would have increased by 2% or $1.61 and blended ARPU would have
would have increased by 3% or $1.58 compared to the same period in the prior year.
3 As at end of period.      
 

Network revenue
The 2% increase in network revenue this quarter was a result of:

  • continued adoption of the customer-friendly Rogers Share Everything plans, which generate higher ARPU and ARPA 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 our other products, such as Roam Like Home and Rogers NHL GameCentre LIVE; partially offset by
  • approximately 18% lower roaming revenue as a result of lower-priced US and international roaming plans introduced for customers in 2014, which simplify the customer experience and should increase roaming usage.

A 4% increase in network revenue and postpaid ARPU and a 6% increase in ARPA would have been realized this quarter if roaming revenue was excluded from our calculation.

The 2% increase in postpaid ARPU was a result of increased network revenue and wireless data usage. Commencing in 2015, we are disclosing ARPA as one of our key performance indicators. See "Key Performance Indicators" for more information. The 4% increase in postpaid ARPA was a result of the continued adoption of Share Everything plans relative to the number of subscriber accounts as customers are increasingly utilizing the advantages of accessing their shareable plans with multiple devices on the same account.

The increases in postpaid subscriber churn and net losses and lower gross additions to our postpaid subscriber base compared to the prior year were expected in the short-term as a result of:

  • our strategic focus on optimizing subscriber value;
  • a focus on migrating existing customers to current pricing plans; and
  • adjustments to the required rate plans for subsidized premium device eligibility.

We had fewer net subscriber losses this quarter compared to the fourth quarter of 2014. The 4 basis point increase in postpaid subscriber churn compared to the first quarter last year improved from the 12 basis point increase in the fourth quarter of 2014 compared to the fourth quarter of 2013.

We activated and upgraded approximately 700,000 smartphones for new and existing subscribers this quarter, a 21% increase compared to approximately 579,000 in the same period last year. This increase in smartphone activations was a result of:

  • a greater number of hardware upgrades by existing subscribers; partially offset by
  • the reduction in postpaid gross additions.

The percentage of subscribers with smartphones was 83% of our total postpaid subscriber base as at March 31, 2015. In our experience, smartphone subscribers typically:

  • generate significantly higher ARPU; and
  • are less likely to churn than customers on less advanced devices.

Equipment sales
The 34% increase in revenue from equipment sales this quarter primarily reflects:

  • the impact of more device upgrades by existing subscribers;
  • a shift in the sales mix to smartphones which included a higher proportion of iPhone devices; and
  • increased equipment sales prices; partially offset by
  • fewer gross activations.

Operating expenses
The 32% increase in the cost of equipment sales this quarter was primarily as a result of:

  • a shift in the product mix towards higher-cost smartphones; and
  • increased equipment sales volumes as we proactively early upgraded targeted subscribers in advance of the industry's "double cohort" resulting in an increase of 18% more upgrades this quarter, the majority of which were higher-cost smartphones including 44% more iPhones.

The "double cohort" refers to the greater than usual number of subscriber contracts coming to an end as both three-year and two-year contracts expire near the same time. The final expiration of remaining three-year contracts for consumers will occur this summer.

Total customer retention spending (primarily consisting of subsidies on handset upgrades) was 32% higher this quarter with 18% more existing subscribers upgrading their hardware combined with the shift in product mix 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
The 3% decrease in adjusted operating profit this quarter was a result of the revenue and expense changes discussed above.

CABLE                          
                           
Cable Financial Results                          
            Three months ended March 31
(In millions of dollars, except margins)           2015 1       2014     % Chg
                           
Operating revenue                          
    Internet           324       305     6
    Television           426       431     (1)
    Phone           118       121     (2)
    Service revenue           868       857     1
    Equipment sales           2       3     (33)
Operating revenue           870       860     1
                           
Operating expenses                          
    Cost of equipment           (1)       (2)     (50)
    Other operating expenses           (467)       (449)     4
            (468)       (451)     4
Adjusted operating profit           402       409     (2)
                           
Adjusted operating profit margin           46.2%       47.6%     (1.4 pts)
Additions to property, plant and equipment           224       251     (11)
1   The operating results of Source Cable Ltd. (Source Cable) are included in the
    Cable results of operations from the date of acquisition on November 4, 2014.
                           
Cable Subscriber Results 1                          
            Three months ended March 31
(In thousands)           2015 2       2014     Chg
                           
Internet                          
    Net (losses) additions           (7)       20     (27)
    Total Internet subscribers 2,3           2,004       1,981     23
Television                          
    Net losses           (41)       (20)     (21)
    Total television subscribers 2,3           1,983       2,107     (124)
Phone                          
    Net (losses) additions           (20)       10     (30)
    Total phone subscribers 2,3           1,130       1,163     (33)
                             
Cable homes passed 2,3           4,085       3,990     95
Total service units 2,3,4                          
    Net (losses) additions           (68)       10     (78)
    Total service units 2,3           5,117       5,251     (134)
1   Subscriber counts are key performance indicators. See "Key Performance
Indicators".
2   On November 4, 2014, we acquired approximately 16,000 high-speed Internet
subscribers, 16,000 Television subscribers and 11,000 Phone subscribers
from our acquisition of Source Cable. The acquisition also increased homes
passed by 26,000.
3   As at end of period.
4   Includes Internet, Television, and Phone subscribers.

Operating revenue
The 1% increase in overall Cable revenue this quarter was primarily a result of:

  • a higher subscriber base for our Internet products combined with the movement of customers to higher speed and usage tiers;
  • the impact and timing of pricing changes implemented over the past year; partially offset by
  • Television and Phone subscriber losses over the past year; and
  • Phone promotional discounting.

The implementation of a CRTC decision mandating that, effective January 23, 2015, telecommunications providers could no longer require customers to provide a minimum of 30 days' notice to cancel services had the effect of increasing the amount of Cable product subscriber deactivations reported this quarter. The policy change effectively resulted in an extra month of customer deactivations being counted this quarter and a corresponding increase in the number of subscriber losses of approximately 17,000 Television subscribers, 15,000 high-speed Internet subscribers, and 8,000 Phone subscribers. This decreased Cable revenue by $3 million for the quarter.

Internet revenue
The 6% increase in Internet revenue this quarter was a result of:

  • general movement by customers to higher speed and usage tiers;
  • the impact and timing of changes in Internet service pricing;
  • a larger Internet subscriber base; partially offset by
  • the effect of the CRTC cancellation notification policy change.

The realization of Internet net losses in the short-term was a result of our strategic focus towards optimizing subscriber value versus subscriber volume as we migrate existing customers to current price plans. There was also heightened competition where cross-bundling of various wireline products impacted our Internet subscribers. We believe that our new IGNITE broadband Internet-based bundled offerings we introduced late in the quarter will help our revenue metrics as these offerings give the consumer better choice on usage and incorporate value-added content.

Television revenue
The slight decrease in Television revenue this quarter was a result of:

  • the decline in Television subscribers over the past year mainly associated with heightened pay TV competition;
  • the effect of the CRTC cancellation notification policy change; partially offset by
  • the impact and timing of pricing changes implemented over the past year.

The digital cable subscriber base represented 89% of our total Television subscriber base as at the end of the quarter, compared to 85% in the same period last year. We expect to complete our ongoing analog-to-digital network transition to digital by the end of 2015.

Phone revenue
The 2% decrease in Phone revenue this quarter was a result of:

  • decreased subscriber volume; and
  • increased promotional discounting activity;
  • the effect the CRTC cancellation notification policy change; partially offset by
  • the impact and timing of pricing changes implemented over the past year.

Operating expenses
The 4% increase in operating expenses this quarter was a result of:

  • higher investments in programming and customer value enhancements; partially offset by
  • various cost efficiency and productivity initiatives.

Adjusted operating profit
The 2% decrease in adjusted operating profit this quarter was a result of the revenue and expense changes discussed above.

BUSINESS SOLUTIONS                            
                             
Business Solutions Financial Results                            
            Three months ended March 31
(In millions of dollars, except margins)           2015       2014       % Chg
                             
Operating revenue                            
  Next generation           70       64       9
  Legacy           23       29       (21)
  Service revenue           93       93       -
  Equipment sales           1       1       -
Operating revenue           94       94       -
                             
Operating expenses           (66)       (66)       -
Adjusted operating profit           28       28       -
                             
Adjusted operating profit margin           29.8%       29.8%       -
Additions to property, plant and equipment           33       26       27

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-sized enterprise, public sector, and carrier wholesale markets. Business Solutions is also focused on data centre colocation, hosting, cloud, and disaster recovery services.

Next generation services, which include our data centre operations, represented 75% (2014 - 69%) of total service revenue in the quarter. 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 was stable this quarter as a result of:

  • continuing execution of our plan to grow higher-margin on-net and near-net next generation IP-based services revenue; and
  • higher revenue from data centre operations; offset by
  • the continuing planned decline in the legacy off-net voice and data business, a trend we expect to continue as we focus the business on on-net and near-net opportunities and customers move to more advanced and cost-effective IP-based services and solutions.

Operating expenses
Operating expenses were stable this quarter as a result of:

  • lower legacy service costs related to planned lower volumes and customer levels; and
  • ongoing initiatives to reduce costs and increase productivity; offset by
  • higher on-net and next generation service costs associated with higher volumes.

Adjusted operating profit
Adjusted operating profit was stable this quarter as a result of the continued growth in on-net and near-net next generation business and productivity improvements offset by the continued decline in off-net legacy business.

MEDIA                          
                           
Media Financial Results                          
            Three months ended March 31
(In millions of dollars, except margins)           2015       2014     % Chg
                           
Operating revenue           464       367     26
                           
Operating expenses           (496)       (391)     27
Adjusted operating loss           (32)       (24)     (33)
                           
Adjusted operating loss margin           (6.9%)       (6.5%)     (0.4 pts)
Additions to property, plant and equipment           9       14     (36)

National NHL licensing agreement
The national NHL licensing agreement commenced in the fourth quarter of 2014. The first quarter of the calendar year is when the greatest volume of regular season games are played, followed by the second quarter which includes fewer games but includes the league playoffs. Playoff games are expected to command a premium in advertising revenues. NHL-related programming and production costs are expensed based on the proportion of games played without differentiation between regular season and playoff games.

Operating revenue
The 26% increase in operating revenue this quarter was a result of:

  • approximately $106 million of revenue generated by the national NHL licensing agreement;
  • higher subscription revenue generated by our Sportsnet properties; and
  • higher Radio and Next Issue Canada revenue; partially offset by
  • continued softness in conventional broadcast TV and print advertising.

Operating expenses
The 27% increase in operating expenses this quarter was a result of:

  • higher programming and production costs of approximately $120 million as a result of the increase in the number of NHL hockey games associated with the national and regional NHL licensing agreements. There were more regional NHL games relative to last year partially as a result of schedule changes due to the 2014 Winter Olympic Games in the prior year; partially offset by
  • lower conventional broadcast TV programming costs;
  • lower publishing costs related to lower printing, postage, shipping, and circulation costs; and
  • decreased operating costs in Radio.

Adjusted operating loss
The $8 million increase in adjusted operating loss this quarter reflects the revenue and expense changes described above. The NHL games contributed an expected adjusted operating loss of approximately $14 million this quarter as a result of the seasonal peak period of games, as discussed above. We anticipate this seasonal loss will be offset in the second quarter of 2015 with the higher-value playoff season expected to generate greater advertising revenue, while at the same time there are fewer games produced and over which rights are amortized.

Compared to the fourth quarter of 2014, the lower revenue and adjusted operating profit trends primarily reflect the seasonality of Media's business. In addition to the NHL impacts described above, this is a result of higher conventional advertising revenue occurring in the fourth quarter of 2014 due to fall season premieres in broadcasting and higher retail sales at The Shopping Channel due to holiday shopping.

Additions to Property, Plant and Equipment                          
            Three months ended March 31
(In millions of dollars, except capital intensity)           2015       2014     % Chg
                           
Additions to property, plant and equipment                          
  Wireless           180       181     (1)
  Cable           224       251     (11)
  Business Solutions           33       26     27
  Media           9       14     (36)
  Corporate           29       16     81
Total additions to property, plant and equipment           475       488     (3)
                           
Capital intensity 1           15.0%       16.2%     (1.2 pts)
1 Capital intensity is a key performance indicator. See "Key Performance Indicators".

Wireless
The relatively stable additions to property, plant and equipment at Wireless this quarter are primarily related to LTE capacity investments and site build activity to further enhance network coverage and quality and the continued deployment of our 700 MHz spectrum. Deployment of the LTE network has reached approximately 87% of Canada's population as at March 31, 2015.

Cable
The decrease in additions to property, plant and equipment at Cable this quarter was a result of lower customer equipment investment in our next generation NextBox digital set-top boxes compared to the same quarter last year. We also made investments this quarter to improve the capacity of our Internet platform, further improve the reliability and quality of the network, and continue the development of our next generation IP-based video service.

Business Solutions
The increase in Business Solutions property, plant and equipment additions this quarter was a result of data centre investments and network expansion to reach additional customers and sites.

Media
The decrease in Media property, plant and equipment additions this quarter was a result of greater prior year investments made to our digital, IT infrastructure, and broadcast facilities.

Corporate
The increase in Corporate property, plant and equipment additions this quarter was a result of higher spending on premise improvements at our various offices.

Capital Intensity
Capital intensity decreased this quarter as a result of a decline in additions to property, plant and equipment combined with the increase in operating revenue.

Financial Guidance
We have no changes to the 2015 annual consolidated guidance ranges for adjusted operating profit, additions to property, plant and equipment, or free cash flow that we provided on January 29, 2015. See "About Forward-Looking Information" in this earnings release and in our 2014 Annual MD&A.

Key Performance Indicators

We measure the success of our strategy using a number of key performance indicators that are defined and discussed in our 2014 Annual MD&A and this earnings release. We believe these key performance indicators allow us to appropriately measure our performance against our operating strategy as well as against the results of our peers and competitors. The following key performance indicators are not measurements in accordance with IFRS and should not be considered as an alternative to net income or any other measure of performance under IFRS. They include:

  • Subscriber counts;
  • Subscriber churn;
  • Average revenue per user (ARPU);
  • Average revenue per account (ARPA); and
  • Capital intensity.

Commencing this quarter, we are disclosing ARPA as one of our key performance indicators, which is described below:

Average revenue per account - Wireless
Average revenue per account (ARPA) helps us identify trends and measure our success in attracting and retaining multiple-device accounts. A single Wireless postpaid account typically provides subscribers with the advantage of allowing for the pooling of plan attributes across multiple devices and on a single bill. Each Wireless postpaid account is represented by an identifiable billing account number. A single Wireless postpaid account may include more than one identifiable telephone number and receive monthly Wireless services for a variety of connected devices including smartphones, basic phones, tablets, and other devices. Wireless postpaid accounts under our various brand names are considered separate accounts. We calculate Wireless ARPA by dividing total Wireless postpaid network revenue (monthly) by the average number of Wireless postpaid accounts for the same time period.

               
            Three months ended March 31
(In millions of dollars, except ARPA and months; subscribers in thousands)           2015 2014
               
Postpaid ARPA (monthly)              
  Total network revenue           1,672 1,636
  Less: prepaid revenue           58 58
  Postpaid (voice and data) revenue           1,614 1,578
               
  Divided by: average Wireless postpaid accounts           5,006 5,102
  Divided by: three months for the quarter           3 3
Postpaid ARPA (monthly)           $ 107.47 $ 103.10

Non-GAAP Measures

We use the following non-GAAP measures. These are reviewed regularly by management and our Board of Directors in assessing our performance and making decisions regarding the ongoing operations of our business and its ability to generate cash flows. Some or all of these measures may also be used by investors, lending institutions, and credit rating agencies as an indicator of our operating performance, our ability to incur and service debt, and as a measurement to value companies in the telecommunications sector. These are not recognized measures under GAAP and do not have standard meanings under IFRS, so they may not be a reliable way to compare us to other companies.

Non-GAAP
measure
Why we use it How we calculate it Most comparable
IFRS financial
measure
Adjusted
operating profit
and related
margin
  • To evaluate the performance of our
    businesses and when making
    decisions about the ongoing
    operations of the business and our
    ability to generate cash flows.

  • We believe that certain investors and
    analysts use adjusted operating profit
    to measure our ability to service debt
    and to meet other payment obligations.

  • We also use it as one component in
    determining short-term incentive
    compensation for all management
    employees.
Adjusted operating profit:
Net income
add back
income taxes, other (income) expense, finance
costs, depreciation and amortization,
impairment of assets, stock-based
compensation, and restructuring, acquisition
and other expenses.

Adjusted operating profit margin:
Adjusted operating profit
divided by
Operating revenue (network revenue for
Wireless).
Net income
Adjusted net
income

Adjusted basic
and diluted
earnings per
share
  • To assess the performance of our
    businesses before the effects of these
    items, because they affect the
    comparability of our financial results
    and could potentially distort the
    analysis of trends in business
    performance. Excluding these items
    does not imply they are non-recurring.
Net income
add back
stock-based compensation, restructuring,
acquisition and other expenses, impairment of
assets, gains on sale of investments, losses on  
repayment of long-term debt, and income tax
adjustments on these items, including
adjustments as a result of legislative changes.
Net income

Basic and diluted
earnings per share 
Free cash flow
  • To show how much cash we have
    available to repay debt and reinvest in
    our company, which is an important
    indicator of our financial strength and
    performance.

  • We believe that some investors and
    analysts use free cash flow to value a
    business and its underlying assets.
Adjusted operating profit
minus
additions to property, plant and equipment,
interest on borrowings net of interest
capitalized, and cash income taxes.
Cash provided by
operating activities
Adjusted net
debt
  • To conduct valuation-related analysis
    and make decisions about capital
    structure.

  • We believe this helps investors and
    analysts analyze our enterprise and
    equity value and assess our leverage.
Total long-term debt
plus
current portion of long-term debt, deferred
transaction costs and discounts, net debt
derivative assets or liabilities, bank advances,
and short-term borrowings
minus
cash and cash equivalents.
Long-term debt
Adjusted net
debt to adjusted  
operating profit
  • To conduct valuation-related analysis
    and make decisions about capital
    structure.

  • We believe this helps investors and
    analysts analyze our enterprise and
    equity value and assess our leverage.
Adjusted net debt (defined above)
divided by
12 months trailing adjusted operating profit
(defined above).
Long-term debt
divided by net
income

Reconciliation of adjusted operating profit          
        Three months ended March 31
(In millions of dollars)       2015 2014
           
Net income       255 307
Add (deduct):          
  Income taxes       82 106
  Other (income)       (3) (10)
  Finance costs       210 225
  Depreciation and amortization       559 519
  Stock-based compensation       12 5
  Restructuring, acquisition and other       9 9
             
Adjusted operating profit       1,124 1,161
           
Reconciliation of adjusted net income          
        Three months ended March 31
(In millions of dollars)       2015 2014
           
Net income       255 307
Add (deduct):          
  Stock-based compensation       12 5
  Restructuring, acquisition and other       9 9
  Loss on repayment of long-term debt       7 29
Income tax impact of above items       (8) (10)
             
Adjusted net income       275 340
           
Reconciliation of free cash flow          
        Three months ended March 31
(In millions of dollars)       2015 2014
           
Cash provided by operating activities       227 408
Add (deduct):          
  Property, plant and equipment expenditures       (475) (488)
  Interest on borrowings, net of capitalization       (188) (183)
  Restructuring, acquisition and other       9 9
  Interest paid       263 236
  Change in non-cash working capital       350 309
  Other adjustments       80 65
             
Free cash flow       266 356
           
Reconciliation of adjusted net debt and adjusted net debt / adjusted operating profit
        As at
March 31
As at
December 31
(In millions of dollars)       2015 2014
           
Current portion of long-term debt       - 963
Long-term debt       15,490 13,824
Deferred transaction costs and discounts       106 108
        15,596 14,895
Add (deduct):          
  Net debt derivatives assets       (1,441) (846)
  Short-term borrowings       1,035 842
  Bank advances (cash and cash equivalents)       27 (176)
            
Adjusted net debt       15,217 14,715
             
           
        As at
March 31
As at
December 31
(In millions of dollars, except ratios)       2015 2014
           
Adjusted net debt / adjusted operating profit          
  Adjusted net debt       15,217 14,715
  Divided by: trailing 12 months adjusted operating profit       4,982 5,019
Adjusted net debt / adjusted operating profit       3.1 2.9
           
Reconciliation of adjusted earnings per share          
(In millions of dollars, except per share amounts;       Three months ended March 31
number of shares outstanding in millions)       2015 2014
           
Adjusted basic earnings per share:          
  Adjusted net income       275 340
  Divided by: weighted average number of shares outstanding       515 515
Adjusted basic earnings per share       0.53 0.66
           
Adjusted diluted earnings per share:          
  Adjusted net income       275 340
  Divided by: diluted weighted average number of shares outstanding       517 517
Adjusted diluted earnings per share       0.53 0.66
           

Rogers Communications Inc.          
Interim Condensed Consolidated Statements of Income          
(In millions of Canadian dollars, except per share amounts, unaudited)          
           
        Three months ended March 31
(In millions of Canadian dollars, except per share amounts)       2015 2014
           
Operating revenue       3,175 3,020
           
Operating expenses:          
  Operating costs       2,063 1,864
  Depreciation and amortization       559 519
  Restructuring, acquisition and other       9 9
Finance costs       210 225
Other income       (3) (10)
           
Income before income taxes       337 413
Income taxes       82 106
           
Net income for the period       255 307
           
Earnings per share:          
  Basic       $ 0.50 $ 0.60
  Diluted       $ 0.48 $ 0.57
           
           
Rogers Communications Inc.          
Interim Condensed Consolidated Statements of Financial Position          
(In millions of Canadian dollars, unaudited)          
           
        As at
March 31
As at
December 31
(In millions of Canadian dollars)       2015 2014
           
Assets          
Current assets:          
  Cash and cash equivalents       - 176
  Accounts receivable       1,440 1,591
  Inventories       380 251
  Other current assets       328 191
  Current portion of derivative instruments       149 136
Total current assets       2,297 2,345
           
Property, plant and equipment       10,610 10,655
Intangible assets       6,537 6,588
Investments       1,866 1,898
Derivative instruments       1,430 788
Other long-term assets       357 356
Deferred tax assets       9 9
Goodwill       3,883 3,883
           
Total assets       26,989 26,522
           
Liabilities and shareholders' equity          
Current liabilities:          
  Bank advances       27 -
  Short-term borrowings       1,035 842
  Accounts payable and accrued liabilities       2,141 2,578
  Income tax payable       - 47
  Current portion of provisions       7 7
  Unearned revenue       495 443
  Current portion of long-term debt       - 963
  Current portion of derivative instruments       75 40
Total current liabilities       3,780 4,920
           
Provisions       52 55
Long-term debt       15,490 13,824
Derivative instruments       100 11
Other long-term liabilities       360 462
Deferred tax liabilities       1,766 1,769
Total liabilities       21,548 21,041
           
Shareholders' equity       5,441 5,481
           
Total liabilities and shareholders' equity       26,989 26,522
           

Rogers Communications Inc.          
Interim Condensed Consolidated Statements of Cash Flows          
(In millions of Canadian dollars, unaudited)          
           
        Three months ended March 31
(In millions of Canadian dollars)       2015 2014
Operating activities:          
  Net income for the period       255 307
  Adjustments to reconcile net income to cash provided by operating
activities:
         
    Depreciation and amortization       559 519
    Program rights amortization       22 16
    Finance costs       210 225
    Income taxes       82 106
    Stock-based compensation       12 5
    Post-employment benefits contributions, net of expense       (95) (85)
    Other       (10) (6)
        1,035 1,087
  Change in non-cash operating working capital items       (350) (309)
        685 778
  Income taxes paid       (195) (134)
  Interest paid       (263) (236)
           
Cash provided by operating activities       227 408
Investing activities:          
  Additions to property, plant and equipment       (475) (488)
  Changes in non-cash working capital related to property, plant and
equipment
      (92) (17)
  Additions to program rights       (12) (7)
  Acquisitions and other strategic transactions, net of cash acquired       - (658)
  Other       (12) (3)
           
Cash used in investing activities       (591) (1,173)
Financing activities:          
  Proceeds received on short-term borrowings       208 -
  Repayment of short-term borrowings       (15) -
  Issuance of long-term debt       1,658 2,082
  Repayment of long-term debt       (1,609) (1,221)
  Proceeds on settlement of cross-currency interest rate exchange
agreements and forward contracts
      1,059 2,150
  Payments on settlement of cross-currency interest rate exchange
agreements and forward contracts
      (905) (2,115)
  Transaction costs incurred       - (27)
  Dividends paid       (235) (224)
           
Cash provided by financing activities       161 645
           
Change in cash and cash equivalents       (203) (120)
Cash and cash equivalents, beginning of period       176 2,301
           
(Bank advances) cash and cash equivalents, end of period       (27) 2,181

About Forward-Looking Information

This earnings release includes "forward-looking information" within the meaning of applicable securities laws, and assumptions about, among other things, our business, operations, and financial performance and condition approved by our management on the date of this earnings release. This forward-looking information and these assumptions include, but are not limited to, statements about our objectives and strategies to achieve those objectives, and about our beliefs, plans, expectations, anticipations, estimates, or intentions.

Forward-looking information and statements

  • typically include words like could, expect, may, anticipate, assume, believe, intend, estimate, plan, project, guidance, outlook, and similar expressions, although not all forward-looking information and statements include them;
  • include conclusions, forecasts, and projections that are based on our current objectives and strategies and on estimates, expectations, assumptions, and other factors, most of which are confidential and proprietary and that we believe to be reasonable at the time they were applied but may prove to be incorrect; and
  • were approved by our management on the date of this earnings release.

Our forward-looking information and statements include forecasts and projections related to the following items, among others:

  • 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 deployment of new services
  • continued cost reductions and efficiency improvements
  • the growth of new products and services
  • all other statements that are not historical facts.

We base our conclusions, forecasts, and projections on the following factors, among others:

  • general economic and industry growth rates
  • currency exchange rates and interest rates
  • product pricing levels and competitive intensity
  • subscriber growth
  • pricing, usage and churn rates
  • changes in government regulation
  • technology deployment
  • availability of devices
  • timing of new product launches
  • content and equipment costs
  • the integration of acquisitions
  • 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, announced or may occur after the date the statement containing the forward-looking information is made.

Risks and uncertainties
Actual events and results can be substantially different from what is expressed or implied by forward-looking information as a result of risks, uncertainties, and other factors, many of which are beyond our control, including but not limited to:

  • new interpretations and new accounting standards from accounting standards bodies
  • regulatory changes
  • technological change
  • economic conditions
  • unanticipated changes in content or equipment costs
  • changing conditions in the entertainment, information, and communications industries
  • the integration of acquisitions
  • litigation and tax matters
  • the level of competitive intensity
  • the emergence of new opportunities.

These factors can also affect our objectives, strategies, and intentions. Many of these factors are beyond our control or our current expectations or knowledge. Should one or more of these risks, uncertainties, or other factors materialize, our objectives, strategies, or intentions change, or any other factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans could vary significantly from what we currently foresee.

Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and caution them that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any statements containing forward-looking information or the factors or assumptions underlying them, whether as a result of new information, future events, or otherwise, except as required by law. All of the forward-looking information in this earnings release is qualified by the cautionary statements herein.

Before making an investment decision
Before making any investment decisions and for a detailed discussion of the risks, uncertainties, and environment associated with our business, fully review the sections of our First Quarter 2015 MD&A entitled "Updates to Risks and Uncertainties" and "Regulatory Developments" and fully review the sections in our 2014 Annual MD&A entitled "Regulation in Our Industry" and "Governance and Risk Management", as well as our various other filings with Canadian and US securities regulators, which can be found at sedar.com and sec.gov, respectively.

About Rogers

Rogers Communications is a leading 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 to consumers and businesses. Through Rogers Media, we are engaged in radio and television broadcasting, televised shopping, magazines and trade publications, sports entertainment, and digital media. Our stock is 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 rogers.com.

Information on or connected to our website is not part of or incorporated into this earnings release.

Quarterly Investment Community Teleconference

The first quarter 2015 results teleconference with the investment community will be held on:

  • April 20, 2015
  • 4:30 p.m. Eastern Time
  • webcast available at rogers.com/webcast

A rebroadcast will be available at rogers.com/investors on the Events and Presentations page for at least two weeks following the teleconference. Additionally, investors should note that from time to time, Rogers management presents at brokerage-sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Rogers' website at rogers.com/events and are placed there generally at least two days before the conference.

For More Information

You can find additional information relating to us on our website (rogers.com/investors), on SEDAR (sedar.com), on EDGAR (sec.gov), or by e-mailing your request to investor.relations@rci.rogers.com. Information on or connected to these and other websites referenced in this earnings release is not part of, or incorporated into, this earnings release.

You can also go to rogers.com/investors for information about our governance practices, corporate social responsibility reporting, a glossary of communications and media industry terms, and additional information about our business.

SOURCE Rogers Communications Inc.

Investment community contacts

Bruce M. Mann
416.935.3532
bruce.mann@rci.rogers.com

Dan R. Coombes
416.935.3550
dan.coombes@rci.rogers.com

Bruce Watson
416.935.3582
bruce.watson@rci.rogers.com

Media contact

Terrie Tweddle
416.935.4727
terrie.tweddle@rci.rogers.com

Copyright CNW Group 2015


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