Rogers Communications Inc. today announced its consolidated financial and operating results for the first quarter ended March 31, 2005.
Highlights of the first quarter of 2005 included the following:
- Operating revenue increased 25.1% for the quarter, with all three operating companies contributing to the year-over-year growth,including 47.7% growth at Wireless, 6.8% growth at Cable and 1.7% growth at Media.
- Consolidated quarterly operating profit grew 24.4% year-over-year,with 35.9% growth at Wireless, 5.5% growth at Cable and 73.8% growth at Media.
- Wireless ended the quarter with a total of 5,583,200 retail wireless voice and data subscribers, with postpaid net additions in the quarter of 89,200, compared to 83,200 in the first quarter of 2004, and prepaid subscriber net losses in the quarter of 24,200, compared to 29,400 net losses in the first quarter of 2004.
- The integration of Fido (formerly Microcell) progressed as planned during the quarter with significant advancements being made in integration of the two GSM networks and in planning for the billing and back office systems integration later in the year. During the quarter, approximately $4.0 million of property, plant and equipment expenditures and $3.9 million of expenses were incurred as part of the integration program, which remains on track to be substantially complete by the end of 2005. Payments of $6.1 million were also made related to the restructuring accrual originally recorded on acquisition.
- On a pro forma basis, assuming the acquisitions of Microcell and the minority interests of Wireless had occurred on January 1, 2003,quarterly operating revenue increased by 12.6% on a consolidated basis and by 19.2% at Wireless; quarterly operating profit increased by 21.9% on a consolidated basis and by 31.2% at Wireless; Wireless added 89,200 net postpaid voice and data subscribers for the quarter compared to 97,000 in the first quarter of 2004; and Wireless lost 24,200 net prepaid voice subscribers for the quarter compared to net
losses of 30,400 in the first quarter of 2004.
- Cable increased the total number of revenue generating units by 83,200 in the quarter, driven by growth of 51,600 Internet subscribers and 36,800 digital cable subscribers (households), modestly offset by the loss of 5,200 basic cable subscribers.
- Cable and Sony Pictures announced an agreement for Sony to provide movies from its extensive library of content for Cable's video-on-demand service. With this agreement, Cable now has studio agreements covering approximately 60% of current Hollywood film output and Cable customers can now access over 2,000 titles of on-demand content.
- Media's operating profit increased $4.8 million from the same quarter in 2004 on solid results at Radio, Omni and The Shopping Channel,continued operating cost saving measures at Publishing and production expense savings associated with the ongoing NHL player lockout.
"Solid financial and operating results in nearly every part of the company and the favourable impacts of the strategic wireless transactions we completed in the fourth quarter of 2004 have combined to deliver an excellent
start to the year," said Ted Rogers, President and CEO of Rogers Communications Inc. "As we progress through 2005, we'll continue to remain solidly focused on our core strategy of profitable growth, on the successful
integration of Fido and launch of our cable telephony service, and on driving continued operational enhancements and unparalleled innovation to create value
for our customers and shareholders alike."
Wireless Network Revenue (Actual)
Network revenue of $803.3 million accounted for 91.8% of total Wireless revenues in the three months ended March 31, 2005, and increased 47.7% from the corresponding period in 2004. This increase was driven by the acquisition
of Fido's subscriber base on November 9, 2004, the continued growth of Wireless' subscriber base and the 2.1% increase in blended ARPU.
Wireless ended the quarter with a total of 5,583,200 retail subscribers.
Net additions of postpaid voice and data subscribers for the quarter were 89,200, compared to 83,200 net additions in the first quarter of 2004. Prepaid subscriber net losses for the quarter were 24,200, compared to 29,400 net
losses in the first quarter of 2004.
Postpaid voice and data subscriber ARPU of $59.20 in the quarter represented an increase of 6.2% over the quarter ended March 31, 2004. The increase in postpaid ARPU reflects the continued growth of wireless data and
roaming revenues and an increase in the penetration of optional services. As Canada's only GSM/GPRS/EDGE provider, Wireless expects to continue to experience increases in outbound roaming revenues from its subscribers
traveling outside of Canada, as well as strong growth in inbound roaming revenues from travelers to Canada who utilize its network.
Data revenue represented approximately 7.1% of total network revenue in the first quarter of 2005 compared to 4.9% in the first quarter last year, reflecting the continued rapid growth of Blackberry, SMS, downloadable ring tones and games, and other wireless data services and applications.
Prepaid ARPU increased to $12.09 in the first quarter of 2005, compared to $10.96 in the first quarter of 2004. This increase was primarily a result of the acquisition of Fido's higher ARPU prepaid subscriber base.
Postpaid voice and data subscriber churn increased to 1.90% in the three months ended March 31, 2005 from 1.73% in the corresponding period of 2004.
Effective December 1, 2004, voluntarily deactivating subscribers are required to continue billing and service for 30 days from the date termination is
requested. This continued service period, which is consistent with the subscriber agreement terms and conditions, resulted in approximately 7,000
greater net postpaid subscriber deactivations being included in the three months ended March 31, 2005. This had the impact of increasing postpaid churn by or 0.05% for three months ended March 31, 2005. The increase in postpaid churn also resulted from the acquisition of the Fido subscriber base, which has historically experienced a higher churn rate.
Prepaid churn decreased to 3.70% from 3.80% in the prior year period due to the change in methodology for determining churn for Fido's subscriber base, which was partially offset by the impact of competitive prepaid offerings in the market.
One-way messaging (paging) subscriber churn for the quarter increased to 2.64%, while one-way messaging ARPU decreased by 2.2%. With 186,200 paging subscribers, Wireless continues to view paging as a profitable but mature business segment, and recognizes that churn will likely continue at relatively high rates as one-way messaging subscribers increasingly migrate to two-way
messaging and converged voice and data services.
Core Cable Revenue
Core cable revenue, which accounted for 63.0% of total revenues in the three month period ended March 31, 2005, totalled $318.2 million, an $8.1 million or 2.6% increase over 2004. Analog cable service increased year-
over-year by $2.7 million due to the July 2004 basic service price increases, with the remaining $5.4 million increase primarily attributable to the increased use of our VOD services.
The increase in Core cable average monthly revenue per subscriber ("ARPU") to $47.06 from $45.58 reflects the growing penetration of Cable's digital products, its continued up-selling of customers into enhanced
programming packages and pricing increases. Cable estimates that approximately 1.14 million customers now subscribe to two or more of Rogers' cable, Internet
and wireless services. During the fourth quarter of 2004, Cable introduced a flexible new approach to bundling, Rogers Better Choice Bundles, which were a contributor to the growth in its digital subscriber base of 36,800 customers in the three months ended March 31, 2005. The popularity of Cable's VOD services is increasing and Cable believes it will be further enhanced with the
recent announcement of its agreement with Sony Pictures for access to Sony's extensive library of content for Cable's VOD service. With this agreement, Cable now has studio agreements covering approximately 60% of the current
Hollywood film output and Rogers subscribers can now access over 2,000 titles of VOD content.
The growth of $14.6 million, or 16.3%, in Internet revenue primarily reflects the 21.2% increase in the number of Internet subscribers. Average revenue per Internet subscriber per month for the three month period ended
March 31, 2005 was $36.08, a decrease from $37.48 for the corresponding 2004 period, due to an increase in the proportion of subscribers to Cable's low priced, entry level Internet offerings. Year-over-year, the Internet
subscriber base has grown by 172,600, resulting in 38.9% Internet penetration of basic cable households, and 29.8% Internet penetration as a percentage of homes passed.
Video Stores Revenue
The $9.7 million, or 13.1%, increase in Rogers Video store revenue reflects the combination of a 7.8% increase in same store revenues and an increase in the number of stores at March 31, 2005 to 302 compared to 278 at
March 31, 2004. ("Same stores" are stores that were open for the full quarters in both 2005 and 2004). The growth in same store revenues is attributable to significant increases in DVD and wireless product sales. Virtually all of the Rogers Video locations sell Rogers Wireless products and services while a significant number of the locations in Cable's service areas offer full
customer service support for payment and billing enquiry as well as access to a wide variety of cable, Internet and wireless products and services, in addition to the core DVD, video and game rental and sales offerings.
Overview of Media Revenue, Expenses and Operating Profit
Media's revenue of $219.3 million in the three months ended March 31, 2005 represented an increase of $3.6 million, or 1.7%, from $215.7 million in the corresponding period of 2004. Media's revenue growth was led by The
Shopping Channel, which grew 13.2%, by Radio, which increased 7.8%, and by the inclusion of Sports Entertainment in the quarter. This growth was partially
offset by declines at our Publishing and Television properties.
Total Media operating expenses for the three months ended March 31, 2005 were $208.0 million, down $1.2 million, or 0.6%, over the corresponding period in 2004. Total operating profit in the three months ended March 31, 2005 was $11.3 million, a year-over-year increase of $4.8 million, or 73.8%, compared to the corresponding period in 2004.
Further details of the revenue, operating expense and operating profit results for the divisions of Media are provided below.
Publishing experienced a decrease in revenue of $3.3 million in the three months ended March 31, 2005, compared to the corresponding period in 2004, due largely to the transfer in 2004 of Rogers Medical Intelligence Solutions
("RMIS") out of Rogers Media to RCI, the closing in 2004 of the Physicians Financial News ("PFN") publication, as well as the continued softness of certain industry publications, offset somewhat by the continued strength of
Publishing's consumer publications. The operating profit increase of $4.4 million at Publishing for the quarter ended March 31, 2005 was due to a decrease in operating expenses as a result of the transfer of RMIS and the
closing of PFN, as well as the success of ongoing cost saving measures within
the Publishing division.
Radio operations include the results of Media's 43 FM and AM radio stations. The $3.3 million year-over-year increase in Radio's quarterly revenues reflects primarily the success of 680 News in Toronto and Media's
stations in the Calgary and Ottawa markets. With operating expenses at Radio decreasing by 6.7% due to year over year reductions in marketing costs, quarterly operating profit at Radio grew to $9.2 million from $3.3 million in
the corresponding period in 2004.
Television operations include the results of OMNI.1, OMNI.2, Rogers Sportsnet and our 50% interest in Dome Productions. The $9.6 million decline in Television's revenues compared to the prior year primarily reflects the
impact of the NHL player lockout, resulting in a decline in advertising sales at Sportsnet and Dome Productions. Offsetting this is a significant reduction
in programming and production costs as a result of NHL hockey games not being produced or aired. This decrease in operating costs combined with improved results at OMNI drove the $10.5 million increase in Television's operating
profit compared to the corresponding period in 2004.
The Shopping Channel
The Shopping Channel's revenue growth of $7.6 million reflects a generally improved retail climate in the current quarter relative to the prior year quarter and strong sales of selected product categories including
electronics and fine jewellery. Also during the quarter, the Shopping Channel's off-air sales, which include catalogue, Internet, and physical store sales, increased to 29.6% of revenue compared to 25.5% in the corresponding
period of 2004. The strong revenue growth, combined with reduced product return rates and operating efficiencies at its national distribution centre, drove the 52.9% increase in operating profit at The Shopping Channel.
During the three months ended March 31, 2005, Sports Entertainment generated revenue of $5.4 million that included $3.4 million related to baseball and $2.0 million related to Rogers Centre.
Operating expenses for the three months ended March 31, 2005 were $19.7 million, which consisted primarily of the costs to run the baseball operations (player salaries, team costs, scouting and stadium operations), the costs of operating Rogers Centre, and the costs of marketing and selling baseball tickets. As a result, an operating loss of $14.3 million was recognized for the three months ended March 31, 2005, which is typical of the first quarter given the seasonality of our Sports Entertainment division.
In the prior year comparative quarter, 100% of the results of the Blue Jays were accounted for using the equity method. While there would be no change in net income, had we consolidated the Blue Jays in the prior year, revenues from baseball would have been $2.7 million, baseball operating expenses would have been $11.9 million, and an operating loss of $9.2 would have been recognized.