EX-99.1 2 d808488dex991.htm EX-99.1 EX-99.1
Table of Contents

LOGO

MAKE MORE POSSIBLE
Rogers Communications Inc. | 2019 Annual Report


Table of Contents

LOGO

OUR PURPOSE
To connect Canadians to a world of possibilities and the memorable moments that matter most in their lives
2 | ROGERS COMMUNICATIONS INC. 2019 ANNUAL REPORT


Table of Contents

LOGO

ABOUT ROGERS
We are a team of proud Canadians dedicated to making more possible for our customers each and every day.
Our founder, Ted Rogers, believed in the power of communication to enrich, entertain, and embolden Canadians. He followed in his father’s footsteps, and at the age of 27, purchased his first radio station, CHFI.
From these modest beginnings, Rogers has From these modest beginnings, Rogers has grown to become a proud Canadian company – a company devoted to delivering the very best in wireless, residential, and media to Canadians and Canadian businesses.
TABLE OF CONTENTS
PAGE 3 PAGE 4 PAGE 6 PAGE 8 PAGE 10
About Life at Bringing 5G to A Message A Message Rogers Rogers Canadians First from Edward from Joe
PAGE 12 PAGE 14 PAGE 15 PAGE 16 PAGE 150
A Year Senior Executive Directors 2019 Corporate and in Review Officers Financial Report Shareholder Information
2019 ANNUAL REPORT ROGERS COMMUNICATIONS INC. | 3


Table of Contents

LOGO

# LIFE AT ROGERS
We are a team of proud Canadians who love to work at Rogers: 88% of our team recommend Rogers as a great
place to work!
Incredible rewards, benefits & workplace
As a proud Canadian company, we offer some of the best benefits and perks around:
· Terrific discounts on our products and services, including the Toronto Blue Jays
· Robust Wealth Accumulation Program
· On-site fitness and health centres
· Open-concept workspaces and cafés to meet and collaborate
Amazing brands to build & grow your career
Our amazing brands offer meaningful growth opportunities:
· Over 100 brands to work for across radio stations, television stations, cable and wireless services, and sports
· Invest more than $40 million in employee programs every year
· Progressive programs for interns and new grads to get a head start in their career
· Strong local teams in every major Canadian city
4 | ROGERS COMMUNICATIONS INC. 2019 ANNUAL REPORT


Table of Contents

LOGO
An inclusive & diverse culture Our diverse team and culture are what set us apart: · 89% of our team say they feel included at work · Strong three-year inclusion and diversity targets · Recognized as one of Canada’s Best Diversity Employers Inspiring vision & leadership We have strong, experienced leaders: · 87% of our team recommend their manager as a great person to work for · We have engaging, authentic and transparent leaders who care about their team Strong commitment to the community and CSR We care deeply about the communities where we live and work, and integrating sustainability in our strategy: · We support the charities that matter most to our employees and help 80 charities through our annual volunteering program · CSR initiatives are focused on governance, our customers’ experience, our employees’ experience, our environmental footprint, community investment, and Canada’s economy 2019 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 5ROGERS #MoreLove#Plus Damour


Table of Contents

LOGO

ROGERS 5G
Thirty-five years ago, Ted Rogers launched wireless services in Canada with a $500,000 loan. It was a bold and brave move. Ted’s courage and foresight laid the foundation for bringing 5G to Canadians.
BRINGING 5G TO CANADIANS FIRST
Investing to build Canada’s only national wireless network
· First to launch 1, 2, 3, 4G, and now 5G technology in Canada
· Invested over $30 billion in wireless networks over the past 35 years
Introducing Canada’s first 5G network
· Launched 5G in downtown Vancouver, Toronto, Ottawa, and Montreal
· We will expand to over 20 more markets in 2020
· Deployed 5G technology on 2.5 GHz spectrum with 600 MHz to follow
6 | ROGERS COMMUNICATIONS INC. 2019 ANNUAL REPORT


Table of Contents

LOGO

Partnering with Ericsson on 5G
· Builds on Rogers and Ericsson’s 30+ year partnership
· Ericsson is North America’s 5G partner of choice
Leading industry with
5G-ready unlimited plans
· First national carrier to introduce unlimited data plans with no data overages
· 1.4 million Canadians have already embraced these plans
· Drove 65% growth in data usage from
Rogers InfiniteTM users
Advancing 5G research and development
· Investing in made-in-Canada technology
· Established six key partnerships to research, incubate, and commercialize 5G technology
· Collaborating with global telecom leaders on 5G applications, network engineering, and security, to accelerate 5G adoption
2019 ANNUAL REPORT ROGERS COMMUNICATIONS INC. | 7


Table of Contents

 

LOGO

Edward S. Rogers
Chair of the Board
Rogers Communications Inc.
A MESSAGE FROM EDWARD
Dear fellow shareholders,
2020 represents a milestone year for Rogers on two very historical and transformational fronts.
The first was 60 years ago when Ted Rogers made a bold decision to purchase CHFI radio, the country’s first FM station. In those early days, only 5% of homes could receive the station’s FM signal while its AM competitors could boast 100% access based on their more established format.
The second event occurred 35 years ago when Rogers made a visionary decision to launch a wireless network in Canada. While this investment in an emerging industry was met with skepticism, our company persevered and the Cantel network launched its first wireless call on Canada Day in 1985.
While both of these decisions are important from a historical basis, what is even more significant and common to both of these events is the underlying entrepreneurial leadership and courage that was needed to turn risk into successful, long-term opportunities.
As Rogers enters the next technology revolution of 5G, I am pleased to say that the successful and bold spirit that
guided those early transformational events still embodies the spirit of Rogers today.
Rogers Communications is making the forward-looking decisions needed to drive the long-term success of all our businesses. Not only are these investments expected to create long-term value for shareholders, but they demonstrate that Rogers remains committed to leading our industry in innovation and keeping Canadians at the forefront of new technology.
Our customers are at the centre of everything we do, and our priority is to provide Canadians with products and services that offer the best value and best customer experience. With that in mind, Rogers was the first national telecom provider to offer Canadians unlimited wireless data plans. This customer-friendly rejuvenation of the marketplace is ensuring customers will no longer have to endure overage charges. Our customers have embraced these plans and we are excited they see the value in what these plans will provide them going forward.
We followed up on these popular plans with another major technological event earlier this year when Rogers
8 | ROGERS COMMUNICATIONS INC. 2019 ANNUAL REPORT


Table of Contents

LOGO

“We remain committed to leading our industry in innovation and keeping Canadians at the forefront of technology”
proudly launched Canada’s first 5G network. Like the importance of bringing the wireless industry to Canada 35 years ago, Rogers 5G will bring Canadians entertainment, innovation, and powerful new tools to assist in their personal lives and drive their professional lives and businesses for years to come.
Rogers remains the #1 choice for wireless needs with the most wireless customers in Canada. We also are the only company in Canada to offer Canadians a high-quality coast-to-coast-to-coast wireless facilities-based network.
In our Cable business, we continued to roll out our innovative Ignite TV to more customers and we are providing the fastest and most reliable Internet speeds across our entire cable footprint. The multi-decade investments in our four-product Cable business are ensuring our customers get the value, flexibility, and performance they require in these important home services.
At Rogers, we have a strong foundation of sports and media assets and we are very proud of our national sports presence and the contribution teams like the Blue Jays and Raptors make to Canada’s culture. We remain committed to making ongoing investments in our sports and media assets as we bring the best content and formats to our Canadian viewers and fans.
Shareholders are benefitting from the successful investments we are making across our businesses.
In 2019, we increased our dividend and completed notable share repurchases. Going forward, you should expect Rogers to maintain its disciplined and balanced approach to capital allocation, with a prioritization on growing our core businesses, while still returning meaningful amounts of capital to shareholders over the long term.
Each of our three main businesses is a valuable contributor to the social and economic fabric that makes Canada what it is today and what it will be in the future. I could not be happier with how the Rogers organization has embraced this responsibility and how it is positioned to lead on these fronts.
Rogers Communications is continuing to build on its legacy of putting customers first through driving innovation, embracing entrepreneurship, and executing on speed to market. These are characteristics that Ted Rogers founded and built our company on and they drive our organization today. I am confident in our Board of Directors, our CEO, our management, and the more than 25,000 team members whose abilities, passion, and hard work will allow us to meet the challenges in front of us today and rise to the exciting opportunities of tomorrow.
Edward S. Rogers
Chair of the Board
Rogers Communications Inc.
2019 ANNUAL REPORT ROGERS COMMUNICATIONS INC.| 9


Table of Contents

LOGO

Joe Natale
President and CEO
Rogers Communications Inc.
A MESSAGE FROM JOE
My Fellow Shareholders,
I am pleased to share we made meaningful progress on our strategic priorities in 2019. We delivered best-in-class employee engagement, grew customer likelihood to recommend, and delivered industry-leading total shareholder return over the past three years. We also laid the groundwork to introduce new innovative services and technologies to Canadians.
Overall, we made a number of strategic moves to position Rogers for long-term growth.
Building a high-performing culture
I truly believe our success starts with our people – investing in their growth and building a strong and inclusive culture. In 2019, we continued to invest significantly in our team achieving an employee engagement score of 85%, five points above global best-in-class.
Our efforts were also recognized externally through numerous employment awards, including being named one of Canada’s Top Employers for Young People and one of Canada’s Most Admired Corporate Cultures.
Investing in our communities and Corporate Social Responsibility (CSR)
We care deeply about the communities where we live and work, and are committed to integrating sustainability into our strategy. In 2019, we contributed $14.1 billion to Canada’s economic footprint. We helped 80 charities through our annual volunteering program and contributed more than $60 million in cash and in-kind investments to help our communities thrive across Canada. Corporate
Social Responsibility is an integral part of our long-term strategy decisions with a focus on governance, our customers’ experience, our employees’ experience, our environmental footprint, community investment, and Canada’s economy. We report annually on our progress in our Corporate Social Responsibility report, which is based on independent external measurement of broad-based key indicators.
Investing in our customers’ experience
In 2019, we continued to make significant headway on our comprehensive multi-year plan to improve our customers’ experience. I am pleased to share we grew customer likelihood to recommend, improved service levels in customer care, and grew online digital adoption.
We also introduced a number of innovative new services such as Rogers Pro On-the-Go and announced a new customer solutions centre in Kelowna, B.C.
Bringing Canadians a superior IPTV service
We migrated 325,000 subscribers to Ignite TV. We significantly enhanced our product roadmap, launched global best-in-class WiFi hub technology, introduced customer self-install and added new content like Amazon Prime video.
Looking at 2020 we are excited about our product roadmap which includes enhanced smart home technologies, video entertainment flexibility, and exciting new content with the integration of popular streaming services.
10 ROGERS COMMUNICATIONS INC. 2019 ANNUAL REPORT


Table of Contents

LOGO

Bringing Canadians worry-free Wireless
In 2019, we led the industry with the launch of unlimited data plans and announced simple, interest-free device financing. We made this bold move to stimulate data use while improving our customer experience.
Rapid consumer adoption of these new plans reinforces the pent-up demand for clear, simple and worry-free Wireless services. In the first 6 months, 1.4 million customers chose our Rogers Infinite plans.
While this move created short-term financial impact given the loss in data overage revenue, it was a critical step to reposition Wireless for 5G and the long-term. Despite this transition, we still delivered strong growth in free cash flow and adjusted EBITDA while revenue was flat. If you exclude the impact of data overage losses, we continued to grow the underlying fundamentals in Wireless. Our 2020 targets reflect this continued transition.
This was a key strategic move and I am incredibly proud of our team for their leadership in this area.
Returning significant capital to shareholders
In 2019, we continued to return capital to shareholders, maintained the strength of our balance sheet, and delivered on our capital allocation priorities.
We returned $1.7 billion in cash to shareholders through dividends and share buy-backs – an almost 70% increase over last year.
Importantly, we delivered industry-leading total shareholder returns of 36% over the past three years.
Investing in 5G and Canada’s digital future
In 2019, we invested over $2.5 billion in digital infrastructure and network technology, the backbone of Canada’s digital economy. Thanks to these investments, Rogers was recognized with the “Best Network Experience” in Wireless and the “Fastest Internet Service Provider” in our residential business.
2020 marks the start of our multi-year rollout of 5G technology. Working with Ericsson, North America’s 5G partner of choice, we will bring 5G to over 20 markets including Vancouver, Toronto, Ottawa and Montreal.
“It is truly an exciting time for our company, our customers and our country “
5G will support a massive increase in the number of connected devices that will instantaneously connect everything – from smart cities and remote patient healthcare, to robotics and driverless vehicles – it is the biggest technological transformation since the launch of Wireless in 1985.
It is critical that we have a regulatory environment that facilitates and supports investment and allows a long-term perspective.
Looking ahead
It is truly an exciting time for our company, our customers, and our country. The innovations happening across our industry will forever change how Canadians connect to each other and the world around them.
As we celebrate our 60th anniversary in Canada, we will build on Ted’s legacy to connect Canadians to a world of possibilities and the moments that matter most in their lives.
I am tremendously proud of our team and their hard work and commitment to make more possible for Canadians.
My very best, Joe
2019 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 11


Table of Contents

LOGO

A YEAR IN REVIEW
Create best-in-class customer experiences by putting our customers first in everything we do
· Increased customer likelihood to recommend
· Grew customer self-serve and online digital adoption
· Introduced new device financing options to give customers more choice and transparency
· Introduced Rogers Pro On-the-Go™, a new retail service that delivers and sets up wireless devices to a customer’s location of choice
Deliver innovative solutions and compelling content that our customers will love
· Led the industry with the launch of Rogers Infinite unlimited data plans with no overage fees
· Launched Fido Data Overage Protection to help customers manage their wireless data, worry-free
· Expanded Ignite TV™ service across the entire Rogers cable footprint
· Invested $683 million to produce compelling Canadian content
Invest in our networks and technology to deliver leading performance and reliability
· Awarded “Best in Test” for overall wireless experience by Umlaut, a global benchmarking leader
· Awarded the 2019 Speedtest Award for Canada’s fastest Internet by Ookla™
· Secured 600 MHz 5G spectrum in every single province and territory
12 ROGERS COMMUNICATIONS INC. 2019 ANNUAL REPORT


Table of Contents

LOGO

Drive profitable growth in all the markets we serve
· Achieved revised 2019 financial guidance targets
· Returned $1.7 billion to shareholders
· Delivered industry-leading total shareholder return of 36% over the past three years
· Delivered strong growth in Cable driven by Internet leadership
Develop our people and a high performance culture
· Achieved a company-wide engagement score of 85%
· Recognized with 10 employment awards, including one of Canada’s Most Admired Corporate Cultures
· Recognized by the 2019 Bloomberg Gender-Equality Index for transparency in gender reporting
· Included on the LGBT Corporate Canadian Index for advancing equality in the workplace
Be a strong, socially responsible leader in our communities across Canada
· Contributed $14.1 billion to Canada’s economic footprint
· Contributed more than $60 million in cash and in-kind investments to help our communities thrive
· We report annually on our progress in a Corporate Social Responsibility report and utilize an outside firm to provide assurance on our key performance indicators
2019 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 13


Table of Contents

LOGO

SENIOR EXECUTIVE OFFICERS
As at March 5, 2020
1. Joe Natale President and
Chief Executive Officer
2. Eric P. Agius
Chief Customer Officer
3. Jordan R. Banks President, Media
4. Lisa L. Durocher Chief Digital Officer
5. Jorge Fernandes Chief Technology and Information Officer
6. Philip J. Hartling
President, Connected Home
7. Brent R. Johnston President, Wireless
8. Graeme McPhail
Chief Legal and Regulatory Officer and Secretary
9. Sevaun T. Palvetzian
Chief Communications Officer
10. Dean Prevost
President, Rogers for Business
11. James M. Reid
Chief Human Resources Officer
12. Tony Staffieri, FCPA, FCA Chief Financial Officer
14 ROGERS COMMUNICATIONS INC. 2019 ANNUAL REPORT


Table of Contents

LOGO

DIRECTORS
As at March 5, 2020
1. Edward S. Rogers Chair
2. John H. Clappison, FCPA, FCA
Lead Director
3. Bonnie R. Brooks, C.M.
Company Director
4. Robert Dépatie Company Director
5. Robert J. Gemmell Company Director
6. Alan D. Horn, CPA, CA
President and Chief Executive Officer, Rogers Telecommunications Limited
7. Philip B. Lind, C.M.
Vice Chair
8. John A. MacDonald Company Director
9. Isabelle Marcoux, C.M. Chair, Transcontinental Inc.
10. Joe Natale President and Chief Executive Officer
11. The Hon. David R. Peterson,
PC, QC
Chairman Emeritus,
Cassels Brock & Blackwell LLP
12. Loretta A. Rogers Company Director
13. Martha L. Rogers Company Director
14. Melinda M. Rogers Deputy Chair
2019 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 15


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

2019 Financial Report

 

 

17

 

  

MANAGEMENT’S DISCUSSION AND ANALYSIS

     

 

19

 

  

Executive Summary

  

19

  

About Rogers

  

19

  

2019 Highlights

  

21

  

Financial Highlights

     

 

22

 

  

Understanding Our Business

  

22

  

Products and Services

  

23

  

Competition

  

25

  

Industry Trends

     

 

27

 

  

Our Strategy, Key Performance Drivers, and Strategic Highlights

  

27

  

Our Strategic Priorities

  

28

  

2019 Objectives

  

28

  

Key Performance Drivers and 2019 Strategic Highlights

  

30

  

2020 Objectives

  

30

  

Financial and Operating Guidance

     

 

32

 

  

Capability to Deliver Results

  

32

  

Leading Networks

  

34

  

Powerful Brands

  

34

  

Widespread Product Distribution

  

34

  

First-Class Media Content

  

35

  

Customer Experience

  

35

  

Engaged People

  

35

  

Financial Strength and Flexibility

  

36

  

Widespread Shareholder Base and Dividends

     

 

37

 

  

2019 Financial Results

  

37

  

Summary of Consolidated Results

  

38

  

Key Changes in Financial Results This Year Compared to 2018

  

39

  

Wireless

  

40

  

Cable

  

42

  

Media

  

43

  

Capital Expenditures

  

44

  

Review of Consolidated Performance

  

47

  

Quarterly Results

  

50

  

Overview of Financial Position

     

 

51

 

  

Managing Our Liquidity and Financial Resources

  

51

  

Sources and Uses of Cash

  

54

  

Financial Condition

  

56

  

Financial Risk Management

  

59

  

Dividends and Share Information

  

61

  

Commitments and Contractual Obligations

  

61

  

Off-Balance Sheet Arrangements

     

 

62

 

  

Governance and Risk Management

  

62

  

Governance at Rogers

  

63

  

Social Responsibility

  

64

  

Income Tax and Other Government Payments

  

65

  

Risk Management

  

66

  

Risks and Uncertainties Affecting Our Business

  

73

  

Controls and Procedures

     

 

74

 

  

Regulation In Our Industry

  

76

  

Wireless

  

78

  

Cable

  

80

  

Media

     

 

82

 

  

Other Information

  

82

  

Accounting Policies

  

87

  

Key Performance Indicators

  

89

  

Non-GAAP Measures and Related Performance Measures

  

91

  

Summary of Financial Results of Long-Term Debt Guarantor

  

92

  

Five-Year Summary of Consolidated Financial Results

 

 

16     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

Management’s Discussion and Analysis

 

This Management’s Discussion and Analysis (MD&A) contains important information about our business and our performance for the year ended December 31, 2019. This MD&A should be read in conjunction with our 2019 Audited Consolidated Financial Statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

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 MD&A is current as at March 5, 2020 and was approved by RCI’s Board of Directors (the Board). This MD&A 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. Rogers 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 MD&A, first quarter refers to the three months ended March 31, 2019, second quarter refers to the three months ended June 30, 2019, third quarter refers to the three months ended September 30, 2019, fourth quarter refers to the three months ended December 31, 2019, this year refers to the twelve months ended December 31, 2019, and last year refers to the twelve months ended December 31, 2018. All results commentary is compared to the equivalent periods in 2018 or as at December 31, 2018, as applicable, unless otherwise indicated.

Effective January 1, 2019, we adopted the new accounting standard, IFRS 16, Leases (IFRS 16), that is discussed in “Accounting Policies” in this MD&A. The adoption of IFRS 16 had a significant effect on our reported results. Due to our selected transition method, we have not restated our prior year comparatives.

Effective January 1, 2019, we redefined free cash flow, a non-GAAP measure, such that we no longer adjust for the “net change in contract asset and deferred commission cost asset balances”. We redefined free cash flow to simplify this measure and believe removing this adjustment will make us more comparable within our industry. See “Non-GAAP Measures and Related Performance Measures” for more information.

Rogers and related marks are trademarks of Rogers Communications Inc. or an affiliate, used under licence. All other brand names, logos, and marks are trademarks and/or copyright of their respective owners. ©2020 Rogers Communications

ABOUT FORWARD-LOOKING INFORMATION

This MD&A includes “forward-looking information” and “forward-looking statements” within the meaning of applicable securities laws (collectively, “forward-looking information”), and assumptions about, among other things, our business, operations, and financial performance and condition approved by our management on the

date of this MD&A. 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:

 

typically includes words like could, expect, may, anticipate, assume, believe, intend, estimate, plan, project, guidance, outlook, target, and similar expressions, although not all forward-looking information includes them;

 

includes 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, that we believe to have been reasonable at the time they were applied but may prove to be incorrect; and

 

was approved by our management on the date of this MD&A.

Our forward-looking information includes conclusions, forecasts, and projections related to the following items, some of which are non-GAAP measures (see “Non-GAAP Measures and Related Performance Measures”), among others:

 

revenue;

 

total service revenue;

 

adjusted EBITDA;

 

capital expenditures;

 

cash income tax payments;

 

free cash flow;

 

dividend payments;

 

the growth of new products and services;

 

expected growth in subscribers and the services to which they subscribe;

 

the cost of acquiring and retaining subscribers and deployment of new services;

 

continued cost reductions and efficiency improvements;

 

reduction of our debt leverage ratio; and

 

all other statements that are not historical facts.

Specific forward-looking information included or incorporated in this MD&A includes, but is not limited to, our information and statements under “Financial and Operating Guidance” relating to our 2020 consolidated guidance on total service revenue, adjusted EBITDA, capital expenditures, and free cash flow. All other statements that are not historical facts are forward-looking information.

We base our conclusions, forecasts, and projections (including the aforementioned guidance) 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; and

 

industry structure and stability.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     17


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Except as otherwise indicated, this MD&A and our forward-looking information 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 on which 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:

 

regulatory changes;

 

technological changes;

 

economic, geopolitical, and other conditions affecting commercial activity;

 

unanticipated changes in content or equipment costs;

 

changing conditions in the entertainment, information, and/or communications industries;

 

the integration of acquisitions;

 

litigation and tax matters;

 

the level of competitive intensity;

 

the emergence of new opportunities; and

 

new interpretations and new accounting standards from accounting standards bodies.

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 MD&A 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 in this 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.

FOR MORE INFORMATION

You can find more information about us, including our Annual Information Form, on our website (investors.rogers.com), on SEDAR (sedar.com), and on EDGAR (sec.gov), or you can e-mail us at investor.relations@rci.rogers.com. Information on or connected to these and any other websites referenced in this document does not constitute part of this MD&A.

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

 

 

18     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

Executive Summary

ABOUT ROGERS

 

Rogers is a proud Canadian company dedicated to making more possible for Canadians each and every day. Our founder, Ted Rogers, purchased his first radio station, CHFI, in 1960. We have grown to become a leading technology and media company that strives to provide the very best in wireless, residential, and media to Canadians and Canadian businesses. Our shares are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI).

 

Almost all of our operations and sales are in Canada. We have a highly skilled and diversified workforce of approximately 25,300 employees. Our head office is in Toronto, Ontario and we have numerous offices across Canada. We report our results of operations in three reportable segments. See “Understanding Our Business” for more information.

 

 

2019 HIGHLIGHTS

KEY FINANCIAL INFORMATION

 

   
    

Years ended December 31

 

(In millions of dollars, except margins and per share amounts)

  

2019

    

2018 1

    

% Chg

 

Consolidated

        

Total revenue

  

 

15,073

 

  

 

15,096

 

  

 

 

Total service revenue 2

  

 

12,965

 

  

 

12,974

 

  

 

 

Adjusted EBITDA 3

  

 

6,212

 

  

 

5,983

 

  

 

4

 

Adjusted EBITDA margin 3

  

 

41.2%

 

  

 

39.6%

 

  

 

1.6 pts

 

        

Net income

  

 

2,043

 

  

 

2,059

 

  

 

(1

Adjusted net income 3

  

 

2,135

 

  

 

2,241

 

  

 

(5

        

Basic earnings per share

  

$

3.99

 

  

$

4.00

 

  

 

 

Adjusted basic earnings per share 3

  

$

4.17

 

  

$

4.35

 

  

 

(4

        

Capital expenditures 4

  

 

2,807

 

  

 

2,790

 

  

 

1

 

Cash provided by operating activities

  

 

4,526

 

  

 

4,288

 

  

 

6

 

Free cash flow 3,5

 

  

 

 

2,278

 

 

 

  

 

 

2,134

 

 

 

  

 

 

7

 

 

 

 

Wireless

        

Service revenue

  

 

7,156

 

  

 

7,091

 

  

 

1

 

Revenue

  

 

9,250

 

  

 

9,200

 

  

 

1

 

Adjusted EBITDA

  

 

4,345

 

  

 

4,090

 

  

 

6

 

Adjusted EBITDA margin

 

  

 

 

47.0%

 

 

 

  

 

 

44.5%

 

 

 

  

 

 

2.5 pts

 

 

 

 

Cable

        

Revenue

  

 

3,954

 

  

 

3,932

 

  

 

1

 

Adjusted EBITDA

  

 

1,919

 

  

 

1,874

 

  

 

2

 

Adjusted EBITDA margin

 

  

 

 

48.5%

 

 

 

  

 

 

47.7%

 

 

 

  

 

 

0.8 pts

 

 

 

 

Media

        

Revenue

  

 

2,072

 

  

 

2,168

 

  

 

(4

Adjusted EBITDA

  

 

140

 

  

 

196

 

  

 

(29

Adjusted EBITDA margin

 

  

 

 

6.8%

 

 

 

  

 

 

9.0%

 

 

 

  

 

 

(2.2 pts

 

 

 

1

Effective January 1, 2019, we adopted IFRS 16, with the ongoing impact of this standard included in our results prospectively from that date. Our 2018 results have not been restated for the effect of IFRS 16. See “Accounting Policies”.

2

As defined. See “Key Performance Indicators”.

3

Adjusted EBITDA, adjusted net income, and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives 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 and Related Performance Measures” for information about these measures, including how we calculate them and the ratios in which they are used.

4

Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences or additions to right-of-use assets.

5 

2018 free cash flow has been restated to adapt to our current definition. See “Non-GAAP Measures and Related Performance Measures” for more information.

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     19


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

KEY PERFORMANCE INDICATORS

 

     

 

As at or years ended December 31

 

 
     

 

2019

 

   

 

2018 1

 

   

 

Chg

 

 

 

Subscriber results (in thousands) 2

      

Wireless postpaid net additions

  

 

334

 

 

 

453

 

 

 

(119

Wireless prepaid net losses

  

 

(97

 

 

(152

 

 

55

 

Wireless subscribers 3

  

 

10,840

 

 

 

10,783

 

 

 

57

 

      

Internet net additions

  

 

104

 

 

 

109

 

 

 

(5

Internet subscribers

  

 

2,534

 

 

 

2,430

 

 

 

104

 

      

Television net losses

  

 

(106

 

 

(55

 

 

(51

Television subscribers

  

 

1,579

 

 

 

1,685

 

 

 

(106

      

Phone net (losses) additions

  

 

(44

 

 

8

 

 

 

(52

Phone subscribers

  

 

1,072

 

 

 

1,116

 

 

 

(44

      

Total service unit net (losses) additions 4

  

 

(46

 

 

62

 

 

 

(108

Total service units 4

 

  

 

 

5,185

 

 

 

 

 

 

5,231

 

 

 

 

 

 

(46

 

 

 

Additional Wireless metrics 2

      

Postpaid churn (monthly)

  

 

1.11%

 

 

 

1.10%

 

 

 

0.01 pts

 

Blended ABPU (monthly)

  

$

66.23

 

 

$

64.74

 

 

 $

1.49

 

Blended ARPU (monthly)

 

  

$

 

55.49

 

 

 

 

$

 

55.64

 

 

 

 

($

 

0.15

 

 

 

Ratios

      

Capital intensity 2

  

 

18.6%

 

 

 

18.5%

 

 

 

0.1 pts

 

Dividend payout ratio of net income 2

  

 

50.0%

 

 

 

48.0%

 

 

 

2.0 pts

 

Dividend payout ratio of free cash flow 2,5

  

 

44.9%

 

 

 

46.3%

 

 

 

(1.4 pts

Return on assets 2

  

 

5.5%

 

 

 

6.5%

 

 

 

(1.0 pts

Debt leverage ratio 5

 

  

 

 

2.9

 

 

 

 

 

 

2.5

 

 

 

 

 

 

0.4

 

 

 

 

Employee-related information

      

Total active employees

 

  

 

 

25,300

 

 

 

 

 

 

26,100

 

 

 

 

 

 

(800

 

 

 

1

Effective January 1, 2019, we adopted IFRS 16, with the ongoing impacts of this standard included in our results prospectively from that date. Our 2018 results have not been restated for the effects of IFRS 16. See “Accounting Policies”.

2 

As defined. See “Key Performance Indicators”.

3 

Effective October 1, 2019, and on a prospective basis, we reduced our Wireless postpaid subscriber base by 53,000 subscribers to remove a low-ARPU public services customer that is in the process of migrating to another service provider. We believe adjusting our base for a customer of this size that migrates off our network provides a more meaningful reflection of the underlying organic performance of our Wireless business. Effective April 1, 2019, we adjusted our Wireless prepaid subscriber base to remove 127,000 subscribers as a result of a change to our deactivation policy from 180 days to 90 days to be more consistent within the industry.

4

Includes Internet, Television, and Phone subscribers.

5

These ratios use free cash flow, adjusted EBITDA, and adjusted net debt, all of which are non-GAAP measures and should not be considered substitutes or alternatives 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 and Related Performance Measures” for information about these measures, including how we calculate them and the ratios in which they are used.

 

20     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

FINANCIAL HIGHLIGHTS

REVENUE

 

Revenue remained stable this year, driven by Wireless and Cable service revenue growth of 1%, offset by a 4% decline in Media revenue.

 

Wireless service revenue increased largely as a result of continuing to monetize the increasing demand for data in the first half of the year along with a disciplined approach around subscriber base management. This increase was partially offset by a decrease in overage revenue (as a result of the faster-than-expected subscriber adoption of our new Rogers Infinite unlimited data plans) and an elevated competitive market environment in the second half of 2019.

 

Cable revenue increased by 1% as a result of the 7% increase in Internet revenue, due to the general movement of customers to higher speed and usage tiers, the impact of Internet service pricing changes, and a larger subscriber base. The increase was partially offset by lower Television and Phone revenue, primarily due to Television and Phone subscriber losses over the past year and the impact of promotional pricing provided to subscribers. We continue to see an ongoing shift in product mix to higher-margin Internet services, with 68% of our residential Internet base at the end of 2019 on plans with download speeds of 100 megabits per second or higher compared to 60% at the end of 2018.

 

Media revenue decreased as a result of the sale of our publishing business during the year and lower revenue at the Toronto Blue Jays, primarily due to a distribution from Major League Baseball in 2018, partially offset by higher Sportsnet and TSC revenue. Excluding the impact of the sale of our publishing business and the distribution from Major League Baseball last year, Media revenue would have increased by 1% this year.

ADJUSTED EBITDA

 

Adjusted EBITDA increased 4% this year, with a consolidated adjusted EBITDA margin of 41.2%, an expansion of 160 basis points. This increase was primarily driven by Wireless, with a 250 basis point expansion to 47.0%, and Cable, with an 80 basis point expansion to 48.5%.

 

Wireless adjusted EBITDA increased 6% this year as a result of the impact of adopting IFRS 16, which contributed approximately 4% of the overall growth, and various cost efficiencies and productivity initiatives.

 

Cable adjusted EBITDA increased 2% this year as a result of strong Internet revenue growth and various cost efficiencies.

 

Media adjusted EBITDA decreased 29% this year primarily as a result of decreased revenue as discussed above, which led to a margin of 6.8%, down 220 basis points from last year. Excluding the impact of the sale of our publishing business and the distribution from Major League Baseball last year, Media adjusted EBITDA would have increased by 1% this year.

NET INCOME AND ADJUSTED NET INCOME

 

Net income decreased 1% and adjusted net income decreased 5% primarily as a result of higher depreciation and amortization and higher finance costs, partially offset by higher adjusted EBITDA. See “Review of Consolidated Performance” for more information.

SUBSTANTIAL FREE CASH FLOW SUPPORTS FINANCIAL FLEXIBILITY

 

Our substantial cash flow generation enabled us to continue making investments in our network and returning substantial capital to shareholders through dividends and our normal course issuer bid (NCIB) programs. We paid $1,016 million in dividends in 2019. In addition, we purchased 9.9 million shares under our NCIB programs for $655 million in 2019.

 

Our cash provided by operating activities increased by 6% this year, primarily as a result of higher adjusted EBITDA. Free cash flow increased 7% this year to $2,278 million as a result of higher adjusted EBITDA, partially offset by higher interest on borrowings.

 

Our debt leverage ratio was 2.9 as at December 31, 2019, up from 2.5 as at December 31, 2018, driven by the acquisition of 600 MHz spectrum licences in 2019 and the impact of adopting IFRS 16, which contributed 0.2 of the increase.

 

Our overall weighted average cost of borrowings was 4.30% as at December 31, 2019 (2018 – 4.45%) and our overall weighted average term to maturity on our debt was 14.1 years as at December 31, 2019 (2018 – 10.7 years).

 

We ended the year with approximately $2.5 billion of available liquidity (2018 – $2.4 billion), including $1.6 billion (2018 – $1.6 billion) available under our bank and letter of credit facilities, $0.4 billion (2018 – $0.4 billion) available under our $1.05 billion accounts receivable securitization program, and $0.5 billion (2018 – $0.4 billion) in cash and cash equivalents.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     21


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Understanding Our Business

 

Rogers is a leading Canadian technology and media company.

THREE REPORTABLE SEGMENTS

We report our results of operations in three reportable segments. Each segment and the nature of its business are as follows:

 

    Segment   Principal activities

    Wireless

 

Wireless telecommunications operations for Canadian consumers and businesses.

    Cable

  Cable telecommunications operations, including Internet, television, telephony (phone), and smart home monitoring services for Canadian consumers and businesses, and network connectivity through our fibre network and data centre assets to support a range of voice, data, networking, hosting, and cloud-based services for the business, public sector, and carrier wholesale markets.

    Media

 

A diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, specialty channels, multi-platform shopping, and digital media.

See “Capability to Deliver Results” for more information about our extensive wireless and cable networks and significant wireless spectrum position.

Wireless and Cable are operated by our wholly owned subsidiary, Rogers Communications Canada Inc. (RCCI), and certain of our other wholly owned subsidiaries. Media is operated by our wholly owned subsidiary, Rogers Media Inc., and its subsidiaries.

PRODUCTS AND SERVICES

WIRELESS

Rogers is a Canadian leader in delivering a range of innovative wireless network technologies and services. Our postpaid and prepaid wireless services are offered under the Rogers, Fido, and chatr brands, and provide consumers and businesses with the latest wireless devices, services, and applications including:

 

mobile high-speed Internet access, including our Rogers Infinite unlimited data plans;

 

wireless voice and enhanced voice features;

 

Rogers Pro On-the-Go, a personalized service experience for device delivery and setup to a customer’s location of choice within the service area;

 

device financing;

 

wireless home phone;

 

device protection;

 

text messaging;

 

e-mail;

 

global voice and data roaming, including Roam Like Home and Fido Roam;

 

bridging landline phones with wireless phones through products like Rogers Unison;

 

machine-to-machine solutions and Internet of Things (IoT) solutions; and

 

advanced wireless solutions for businesses.

In 2019, we were the first national carrier to launch unlimited data through our Rogers Infinite plans. These plans provide customers with a shareable pool of high-speed LTE data and unlimited data at reduced speeds thereafter, thereby eliminating data overage fees on these plans. The reduced speed data is fast enough to send instant messages and emails, browse the Internet, engage in social media, or stream standard definition video.

CABLE

We are one of the largest cable providers in Canada. Our cable network provides an innovative and leading selection of high-speed broadband Internet access, digital television and online viewing, phone, smart home monitoring, and advanced home WiFi services to consumers in Ontario, New Brunswick, and on the island of Newfoundland. We also provide services to businesses across Canada that aim to meet the increasing needs of today’s critical business applications.

In 2018, we launched our new Internet protocol (IP) television product, Ignite TV, to our entire Ontario Cable footprint; in 2019, we expanded Ignite TV to our remaining Cable footprint in New Brunswick and Newfoundland. Ignite TV, which is licensed from Comcast Corporation (Comcast), delivers a high-value, premium service with advanced features and video experiences and is the foundation to a robust product roadmap of innovation leading to a truly connected home service.

We have adopted Comcast’s new WiFi solution as a next step on our innovation roadmap. This whole-home networking solution provides customers with a simple, fast, and intuitive way to control and manage their connected devices. The cloud-based platform links to Data Over Cable Service Interface Specifications (DOCSIS) 3.1 WiFi gateway devices to deliver fast, reliable connectivity in the home and allows customers to easily add and control devices and pair Ignite WiFi pods that boost signal strength, and use voice controls to see who is on the network, all in a safe and secure manner.

Internet services include:

 

Internet access (including basic and unlimited usage packages), security solutions, and e-mail;

 

access speeds of up to one gigabit per second (Gbps), covering our entire Cable footprint;

 

Rogers Ignite and Fido Internet unlimited packages, combining fast and reliable speeds with the freedom of unlimited usage and options for self-installation;

 

Rogers Ignite WiFi Hub, offering a personalized WiFi experience with a simple digital dashboard for customers to manage their home WiFi network, providing visibility and control over family usage; and

 

Rogers Smart Home Monitoring, offering services such as monitoring, security, automation, energy efficiency, and smart control through a smartphone app.

Television services include:

 

local and network TV, made available through traditional digital or IP-based Ignite TV, including starter and premium channel packages along with à la carte channels;

 

on-demand television;

 

cloud-based digital video recorders (DVRs) available with Ignite TV services;

 

 

22     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents
 

voice-activated remote controls, restart features, and integrated apps such as YouTube, Netflix, Sportsnet NOW, and Amazon Prime Video on Ignite TV;

 

personal video recorders (PVRs), including Whole Home PVR and 4K PVR capabilities;

 

an Ignite TV app, giving customers the ability to experience Ignite TV (including setting recordings) on their smartphone, tablet, laptop, or computer;

 

Download and Go, the ability to download recorded programs onto your smartphone or tablet to watch at a later time using the Ignite TV app;

 

linear and time-shifted programming;

 

digital specialty channels;

 

4K television programming, including regular season Toronto Blue Jays home games and select marquee National Hockey League (NHL) and National Basketball Association (NBA) games; and

 

televised content delivered on smartphones, tablets, and personal computers through the Rogers Anyplace TV app.

Phone services include:

 

residential and small business local telephony service; and

 

calling features such as voicemail, call waiting, and long distance.

Enterprise services include:

 

voice, data networking, IP, and Ethernet services over multi-service customer access devices that allow customers to scale and add services, such as private networking, Internet, IP voice, and cloud solutions, which blend seamlessly to grow with their business requirements;

 

optical wave, Internet, Ethernet, and multi-protocol label switching services, providing scalable and secure metro and wide area private networking that enables and interconnects critical business applications for businesses that have one or many offices, data centres, or points of presence (as well as cloud applications) across Canada;

 

simplified information technology (IT) and network technology offerings with security-embedded, cloud-based, professionally managed solutions; and

 

extensive cable access network services for primary, bridging, and back-up (including through our wireless network, if applicable) connectivity.

MEDIA

Our portfolio of Media assets, with a focus on sports and regional TV and radio programming, reaches Canadians from coast to coast.

In Sports Media and Entertainment, we own the Toronto Blue Jays, Canada’s only Major League Baseball (MLB) team, and the Rogers Centre event venue, which hosts the Toronto Blue Jays’ home games, concerts, trade shows, and special events.

Our agreement with the NHL (NHL Agreement), which runs through the 2025-2026 NHL season, allows us to deliver more than 1,200 regular season games per season across television, smartphones, tablets, and personal computers, both through traditional streaming services as well as through NHL LIVE. It also grants Rogers national rights on those platforms to the Stanley Cup Playoffs and Stanley Cup Final, all NHL-related special events and non-game events (such as the NHL All-Star Game and the NHL Draft), and rights to sublicense broadcasting rights.

In Television, we operate several conventional and specialty television networks, including:

 

Sportsnet’s four regional stations along with Sportsnet ONE, Sportsnet 360, and Sportsnet World;

 

Citytv network, which, together with affiliated stations, has broadcast distribution to approximately 82% of Canadian individuals;

 

OMNI multicultural broadcast television stations, including OMNI Regional, which provide multilingual newscasts nationally to all digital basic television subscribers;

 

specialty channels that include FX (Canada), FXX (Canada), and OLN (formerly Outdoor Life Network); and

 

TSC, Canada’s only nationally televised shopping channel, which generates a significant and growing portion of its revenue from online sales.

In Radio, we operate 55 AM and FM radio stations in markets across Canada, including popular radio brands such as 98.1 CHFI, 680 NEWS, Sportsnet The FAN, KiSS, JACK FM, and SONiC.

We also offer a range of digital services and products, including:

 

our digital sports-related assets, including NHL LIVE, Sportsnet NOW, and Sportsnet NOW+;

 

other digital assets including FXNOW and Citytv NOW; and

 

a range of other websites, apps, podcasts, and digital products associated with our various brands and businesses.

OTHER

We offer the Rogers World Elite Mastercard, Rogers Platinum Mastercard, and the Fido Mastercard, credit cards that allow customers to earn cashback rewards points on credit card spending.

OTHER INVESTMENTS

We hold interests in a number of associates and joint arrangements, some of which include:

 

our 37.5% ownership interest in Maple Leaf Sports & Entertainment Ltd. (MLSE), which owns the Toronto Maple Leafs, the Toronto Raptors, Toronto FC, the Toronto Argonauts, and the Toronto Marlies, as well as various associated real estate holdings; and

 

our 50% ownership interest in Glentel Inc. (Glentel), a large provider of multicarrier wireless and wireline products and services with several hundred Canadian retail distribution outlets.

We also hold a number of interests in marketable securities of publicly traded companies, including Cogeco Inc. and Cogeco Communications Inc.

COMPETITION

The telecommunications industry is a highly competitive industry served by many national, regional, and reseller players giving consumers a broad choice in service providers and plan offerings. The industry is very capital intensive and requires meaningful, continual investments to implement next-generation technology and to support existing infrastructure. Given the highly regulated nature of the industry, the already competitive dynamic could be further influenced by regulatory change (see “Regulation In Our Industry”).

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     23


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Traditional wireline telephony and television services are now offered over the Internet. Consumers continue to change how they choose to communicate or watch video, and this is changing the mix of packages and pricing that service providers offer and could affect churn levels.

In the media industry, there also continues to be a shift in consumer viewing habits towards digital and online media consumption and advertisers are directing more advertising dollars to those media channels. In addition, we now compete with a range of digital and online media companies, including large global companies.

WIRELESS

We compete on customer experience, price, quality of service, scope of services, network coverage, sophistication of wireless technology, breadth of distribution, selection of devices, and branding and positioning.

 

Wireless technology – our extensive long-term evolution (LTE) network caters to customers seeking the increased capacity and speed it provides. We are also working to expand our 5G network to further these capabilities. We compete with BCE Inc. (Bell) and TELUS Corporation (Telus) at a national level, and with Shaw Communications Inc. (Shaw), Videotron, SaskTel, and Eastlink Inc. (Eastlink) at a regional level, all of whom operate LTE networks. We also compete with these providers on high-speed packet access (HSPA) and global system for mobile communications (GSM) networks and with providers that use alternative wireless technologies, such as WiFi “hotspots” and mobile virtual network operators (MVNO), such as Primus.

 

Product, branding, and pricing – we compete nationally with Bell, Telus, and Shaw, including their flanker brands Virgin Mobile (Bell), Lucky Mobile (Bell), Koodo (Telus), Public Mobile (Telus), and Freedom Mobile (Shaw). We also compete with various regional players and resellers.

 

Distribution of services and devices – we have one of the largest distribution networks in the country, and compete with other service providers for dealers, prime locations for our own stores, and third-party retail distribution shelf space.

 

Wireless networks – consolidation amongst regional players, or with incumbent carriers, could alter the regional or national competitive landscapes for Wireless.

 

Spectrum – we currently have the largest spectrum position in the country. Innovation, Science and Economic Development Canada (ISED Canada) has announced that flexible use licences in a 200 MHz frequency range from 3450-3650 MHz will be issued to both existing and new wireless licensees, with an auction of the 3500 MHz spectrum not retained by existing licensees to occur in December 2020. The 3500 MHz spectrum, along with other frequency bands, is essential to the deployment of 5G networks. An additional future high-frequency spectrum release is currently planned to take place in 2022. The outcome of these auctions may increase competition. See “Regulation In Our Industry” for more information.

CABLE

Internet

We compete with other Internet service providers (ISPs) that offer fixed connection residential high-speed Internet access services. Rogers and Fido high-speed Internet services compete directly with, among others:

 

Bell’s Internet services in Ontario, New Brunswick, and on the island of Newfoundland; and

 

various resellers using wholesale telecommunication company digital subscriber line (DSL) and cable Third-Party Internet Access (TPIA) services in local markets.

A number of different players in the Canadian market also compete for enterprise network and communications services. There are relatively few national providers, but each market has its own competitors that usually focus on the geographic areas in which they have the most extensive networks. In the enterprise market, we compete with facilities- and non-facilities-based telecommunications service providers. In markets where we own network infrastructure, we compete with incumbent fibre-based providers. Our main competitors are as follows:

 

Ontario – Bell, Cogeco Data Services, and Zayo;

 

Quebec – Bell, Telus, and Videotron;

 

Atlantic Canada – Bell and Eastlink; and

 

Western Canada – Shaw and Telus.

Television

We compete with:

 

other Canadian multi-channel broadcast distribution undertakings (BDUs), including Bell, Shaw, and other satellite and IPTV providers;

 

over-the-top (OTT) video offerings through providers like Netflix, YouTube, Apple, Amazon Prime Video, Crave, Google, Disney+, and other channels streaming their own content; and

 

over-the-air local and regional broadcast television signals received directly through antennas, the illegal distribution of Canadian and international channels via video streaming boxes, and the illegal reception of US direct broadcast satellite services.

Phone

While Phone represents a small portion of our business, we compete with other telephony service providers, including:

 

Bell’s wireline phone service in Ontario, New Brunswick, and on the island of Newfoundland;

 

incumbent local exchange carrier (ILEC) local loop resellers and voice over IP (VoIP) service providers (such as Primus and Comwave), other VoIP-only service providers (such as Vonage and Skype), and other voice applications riding over the Internet access services of ISPs (such as Facebook and WhatsApp); and

 

substitution of wireline for wireless products, including mobile phones and wireless home phone products.

 

 

24     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

MEDIA

Competition in Sports Media and Entertainment includes other:

 

televised and online sports broadcasters;

 

Toronto professional teams, for attendance at Toronto Blue Jays games;

 

MLB teams, for Toronto Blue Jays players and fans;

 

local sporting and special event venues;

 

professional sports teams, for merchandise sales revenue; and

 

new digital sports media companies.

Television and Radio, both of which are both focused on local and regional content, compete for audiences and advertisers with:

 

other Canadian television and radio stations, including those owned and operated by the CBC, Bell Media, and Corus Entertainment;

 

OTT video offerings through providers like Netflix, YouTube, Apple, Amazon Prime Video, Crave, Google, Disney+, and other channels streaming their own content;

 

OTT radio offerings, such as iHeartRadio, Apple Music, Spotify, and Radioplayer Canada;

 

other media, including newspapers, magazines, and outdoor advertising; and

 

other technologies available on the Internet or through the cloud, such as social media platforms, online web information services, digital assistants, music downloading, and portable media players.

TSC competes with:

 

retail stores and their related e-commerce websites;

 

web-only e-commerce sites, including social commerce;

 

infomercials that sell products on television; and

 

other television channels, for channel placement, viewer attention, and loyalty.

Our digital media products compete for readership and advertisers with:

 

online information and entertainment websites and apps, including digital news services, streaming services, and content available via social networking services;

 

magazines, both digital and printed; and

 

other traditional media, such as TV and radio.

INDUSTRY TRENDS

The telecommunications industry in Canada is very capital intensive and highly regulated. Our reportable segments are affected by various overarching trends relating to changing technologies, consumer demands, economic conditions, and, in particular, regulatory developments, all of which could limit essential future investments in the Canadian marketplace. See “Risks and Uncertainties Affecting Our Business” and “Regulation In Our Industry” for more information. Below is a summary of the industry trends affecting our specific reportable segments.

WIRELESS TRENDS

The ongoing extensive investment made by Canadian wireless providers has created far-reaching and sophisticated wireless networks that have enabled consumers and businesses to utilize fast multimedia capabilities through wireless data services. Consumer demand for mobile devices, digital media, and on-demand content is pushing providers to build networks that can

support the expanded use of applications, mobile video, messaging, and other wireless data. Mobile commerce continues to increase as more devices and platforms adopt secure technology to facilitate wireless transactions.

Wireless providers are investing in the next generation of broadband wireless data networks, such as Licensed Assisted Access and 5G technologies, to support the growing data demand and new products and applications.

In 2019, we were the first national carrier in Canada to launch unlimited data plans. Along with Rogers, certain other wireless carriers in Canada have introduced new unlimited wireless data plans that are simpler for customers to understand, allow for increased consumer data usage, and eliminate overage fees that were being incurred on legacy plans.

To help make the cost of new wireless devices more affordable for consumers, Rogers and other Canadian wireless carriers have also introduced wireless device financing, whereby consumers can finance the full cost of the device over a 24-month term at 0% interest. We believe being able to finance devices over 24 months will reduce subscriber churn.

In addition to the wireless device financing plans now available, subscribers are increasingly bringing their own devices or keeping their existing devices longer and therefore may not enter into term contracts for wireless services. This may negatively impact subscriber churn, but may also create gross addition subscriber opportunities as a result of increased churn from other carriers. This trend may also negatively impact the monthly service fees charged to subscribers as they shop for plans that best meet their needs.

Wireless market penetration in Canada is approximately 89% of the population and is expected to continue growing, per the Bank of America Merrill Lynch October 2019 Global Wireless Matrix.

CABLE TRENDS

Technology advancement, non-traditional competitors, consumer behaviours, and regulatory developments are key areas influencing Cable. This market is very capital intensive, and a strong Internet offering is the backbone to effectively serving this market. Applications on the Internet are increasingly being used as a substitute for wireline telephone services, and televised content is increasingly available online. Downward television tier migration (cord shaving) and television cancellation with the intent of substitution (cord cutting) have been growing with increased adoption of OTT services. The Canadian Radio-television and Telecommunications Commission’s (CRTC) decision to lower wholesale Internet access rates may also adversely affect companies that wholesale Internet services (see “Regulation In Our Industry” for more information).

Cable and wireline companies are expanding their service offerings to include faster broadband Internet. Canadian companies, including Rogers, are increasingly offering download speeds of 1 Gbps or higher and Internet offerings with unlimited bandwidth. Consumers are demanding faster-than-ever speeds for streaming online media, uploading personal content, and playing online video games, and for their ever-growing number of connected devices. In order to help facilitate these speeds, cable and wireline companies are shifting their networks towards higher speed and capacity DOCSIS 3.1 and fibre-to-the-home (FTTH) technologies.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     25


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

These technologies provide faster potential data communication speeds than earlier technologies, allowing both television and Internet signals to reach consumers more quickly in order to sustain reliable speeds to address the increasing number of Internet-capable devices.

Our business customers use fibre-based access and cloud computing to capture and share information in more secure and accessible environments. This, combined with the rise of multimedia and Internet-based business applications, is driving exponential growth in data demand.

Businesses and all levels of government are transforming data centre infrastructure by moving toward virtual data storage and hosting. This is driving demand for more advanced network functionality, robust, scalable services, and supportive dynamic network infrastructure.

Canadian wireline companies are dismantling legacy networks and investing in next-generation platforms and data centres that combine voice, data, and video solutions onto a single distribution and access platform. As next generation platforms become more popular, our competition will begin to include systems integrators and manufacturers.

Devices and machines are becoming more interconnected and there is more reliance on the Internet and other networks to facilitate updates and track usage.

Broadcast television technology continues to improve with 4K TV broadcasts and high dynamic range (HDR) for higher resolution and improved video image colour and saturation.

The CRTC Basic Telecommunications Services decision in 2016 established several criteria to improve Internet access for Canadian residents and businesses. As a result, the CRTC believes fixed broadband subscribers should have access to speeds of at least 50 Mbps download and 10 Mbps upload, and access to a service with an unlimited data allowance.

The CRTC has created a new code of conduct for Internet services, which came into effect on January 31, 2020, in order to establish guidelines for consumer interactions with their ISPs.

MEDIA TRENDS

Consumer viewing behaviours are continually evolving and the industry continues to adjust to these changes. Access to live sports and other premium content has become even more important for acquiring and retaining audiences that in turn attract advertisers and subscribers. Therefore, ownership of content and/or long-term agreements with content owners has also become increasingly important to media companies. Leagues, teams, networks, and new digital entrants are also experimenting with the delivery of live sports content through online, social, and virtual platforms, while non-traditional sports are also growing in mindshare.

Consumer demand for digital media, content on mobile devices, and on-demand content is increasing and media products, such as magazines, have experienced significant digital uptake, requiring industry players to increase their efforts in digital content and capabilities in order to compete. This trend is also causing advertisers to shift their spending from conventional TV and print publishing to digital platforms.

Competition has changed and traditional media assets in Canada are increasingly being controlled by a small number of competitors with significant scale and financial resources in order to compete with digital competitive factors. Technology has allowed new entrants and even individuals to become media players in their own right.

Some players have become more vertically integrated across both traditional and emerging platforms. Relationships between providers and purchasers of content have become more complex. Global aggregators have also emerged and are competing for both content and viewers.

 

 

26     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

Our Strategy, Key Performance Drivers, and Strategic Highlights

As part of our long-term vision to become number one, we set annual objectives to measure progress on our six strategic priorities and to address short-term opportunities and risks.

OUR STRATEGIC PRIORITIES

 

Our long-term vision builds on our many strengths, including our unique mix of network and media assets. Our focus is clear: deliver best-in-class engagement, a best-in-class customer experience, and industry-leading shareholder value.

To achieve this vision, our strategic priorities are as follows:

 

Create best-in-class customer experiences by putting our customers first in everything we do;

 

Invest in our networks and technology to deliver leading performance and reliability;

 

Deliver innovative solutions and compelling content that our customers will love;

 

Drive profitable growth in all the markets we serve;

 

Develop our people and a high performance culture; and

 

Be a strong, socially responsible leader in our communities across Canada.

CREATE BEST-IN-CLASS CUSTOMER EXPERIENCES BY PUTTING OUR CUSTOMERS FIRST IN EVERYTHING WE DO

Everything starts and ends with our customers, so improving their experience is core to our strategy. We obsess over our customers’ end-to-end service experiences by listening carefully to the voice of our customers and to the voice of our frontline. We will continue to focus on making things clear, simple, and fair for our customers while we evolve our channel strategy and continue to build our digital capabilities so our customers have reliable and consistent experiences across our channels.

INVEST IN OUR NETWORKS AND TECHNOLOGY TO DELIVER LEADING PERFORMANCE AND RELIABILITY

We believe that networks are the lifeblood of our business and world-class performance is critical to our future. Our plan is to deliver high-performing network services with a focus on core performance and reliability. Our investments in our cable network will allow us to continue to improve Cable Internet performance and reliability. Accelerated investments in our wireless network are necessary to keep up with our customers’ growing data demands while launching 5G in Canada.

DELIVER INNOVATIVE SOLUTIONS AND COMPELLING CONTENT THAT OUR CUSTOMERS WILL LOVE

Innovation has always been a part of our DNA. We strive to deliver compelling products and innovative solutions to our customers that make their lives easier. We will do this by leveraging proven technologies and remarkable innovations from across the globe, making them more cost-effective for us.

Rogers has some of the most sought-after media assets in Canada, including a deep roster of leading sports assets, top radio stations, and award-winning television programming. Canadians expect to be able to consume the content they want, when and where they want. We will continue to invest in delivering the content our audiences value and want most, delivered on their screens of choice.

DRIVE PROFITABLE GROWTH IN ALL THE MARKETS WE SERVE

The overarching goal of our plan is to accelerate revenue growth in a sustainable way and to translate it into strong margins, profit, free cash flow, return on assets, and returns to shareholders. Our focus is on our core growth drivers with a strong capability in cost management to support future investments.

DEVELOP OUR PEOPLE AND A HIGH PERFORMANCE CULTURE

Our people and our culture are the heart and soul of our success, and their passion for our customers and our company is remarkable. A high-performing culture is integral to our success and that starts by investing in our team and their experience as employees. We are working to strengthen our employment brand and to make Rogers a top employer known for attracting and retaining the best talent. This means fostering an open, trusting, and diverse workplace grounded in accountability and performance.

BE A STRONG, SOCIALLY RESPONSIBLE LEADER IN OUR COMMUNITIES ACROSS CANADA

Giving back where we live and work is an important part of who we are. Our goal is to be a relevant and respected community leader in each region of our country. This means leveraging our strong local teams to be active and engaged volunteers in our communities and to deliver a strong, regionally empowered program.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     27


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

2019 OBJECTIVES

For 2019, we set forth the following objectives related to our strategic priorities.

 

      Strategic Priority    2019 Objectives     
     Create best-in-class customer experiences by putting our customers first in everything we do   

Improve our end-to-end customer experience by creating frictionless multi-channel capabilities; invest in distribution improvements; simplify frontline tools; and deliver personalized online tools and apps to improve our customers’ experiences

   
     Invest in our networks and technology to deliver leading performance and reliability   

Deliver network performance and a system stability plan that supports our 5G and Connected Home roadmaps by increasing our fibre deployments, densifying our network, and modernizing our IT systems

   
     Deliver innovative solutions and compelling content that our customers will love   

Deliver solutions that will grow our core businesses by expanding our 5G network capabilities, extending our Ignite Connected Home products, and growing our compelling content and data-driven advertising solutions

   
     Drive profitable growth in all the markets we serve   

Drive company-wide financial results by achieving our financial goals and 2019 guidance while investing to support future growth and driving a focus on cost management and margin improvement

   
    

Develop our people and a high performance culture

  

Build our culture and our reputation by cultivating strong, accountable leaders in a high-performing culture, sustaining and growing best-in-class engagement, and becoming a destination for talent

   
   Be a strong, socially responsible leader in our communities
across Canada
  

Become a strong home team in each region by growing our community investment and giving program, building on our regional focus, and supporting our rural and affordable access agenda

 

KEY PERFORMANCE DRIVERS AND 2019 STRATEGIC HIGHLIGHTS

The following achievements display the progress we made towards meeting our refocused strategic priorities and the objectives we set along with them, as discussed above.

 

CREATE BEST-IN-CLASS CUSTOMER EXPERIENCES BY PUTTING OUR CUSTOMERS FIRST IN EVERYTHING WE DO

 

Increased our customer likelihood to recommend scores across all business units.

 

Improved service levels in our call centres and reduced the average handle time.

 

Grew online digital adoption and reduced call volume into our call centres.

 

Launched Rogers Infinite unlimited data plans with no overage charges, the first national Canadian carrier to introduce such plans.

 

Introduced 24-month $0 down, interest-free wireless device financing on Rogers Infinite plans.

 

Attracted 1.4 million customers to our new Rogers Infinite unlimited data plans.

 

Announced a new customer solutions centre in Kelowna, BC, to better serve our customers across time zones.

 

Launched Rogers Pro On-the-Go, a new, personalized retail service that delivers and sets up new wireless devices to the customer’s location of choice within the service area.

 

Launched Fido Data Overage Protection, which pauses data usage when a customer’s limit is reached so they can enjoy their wireless services worry-free.

 

Ended the year with over 325,000 subscribers on Ignite TV, the foundation of our Connected Home future.

 

Invested in our IT infrastructure to improve system stability, decreasing customer-impacting minutes by over 80%.

INVEST IN OUR NETWORKS AND TECHNOLOGY TO DELIVER LEADING PERFORMANCE AND RELIABILITY

 

Secured 20-year 600 MHz spectrum licences covering all provinces and territories across the country for a total price of $1.7 billion to give our customers the best wireless experience. This low-frequency spectrum is a critical foundation for deploying 5G technology across Canada.

 

Announced our initial rollout of Canada’s first 5G network in downtown Vancouver, Toronto, Ottawa, and Montreal in preparation for the commercial availability of 5G devices in 2020; we expect to expand the Rogers 5G network to over 20 more markets in 2020.

 

Became a founding member of the 5G Future Forum, which will collaborate to develop interoperable 5G standards for Mobile Edge Computing across key geographic regions, including the Americas, Asia-Pacific, and Europe.

 

 

28     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents
 

Turned on Canada’s first 5G-powered campus at the University of British Columbia to facilitate pre-commercial research and testing of 5G applications and announced a three-year partnership agreement with the University of Waterloo to advance 5G research.

 

Announced the launch of a 5G innovation hub that will test 5G applications and use cases at Communitech in Waterloo.

 

Awarded “Best in Test” for overall wireless customer experience nationally by Umlaut, a global mobile network benchmarking leader, based on measurement testing conducted between May 6 and July 15, 2019.

 

Awarded, in October 2019, the 2019 Speedtest® Award for Canada’s Fastest Internet by Ookla, a global leader in fixed broadband mobile network testing.

 

Announced a reciprocal roaming arrangement with AT&T to extend LTE-M coverage for IoT customers throughout Canada and the United States.

DELIVER INNOVATIVE SOLUTIONS AND COMPELLING CONTENT THAT OUR CUSTOMERS WILL LOVE

 

Launched Sportsnet Now and Amazon Prime Video on Ignite TV.

 

Launched Ignite TV in Newfoundland and New Brunswick.

 

Invested $683 million during the 2019 broadcast year to create and produce compelling Canadian content.

 

Launched the Ignite WiFi Hub app and introduced Wall-to-Wall WiFi pods to manage home WiFi networks and enhance WiFi connectivity in homes.

 

Partnered with the Aboriginal Peoples Television Network to broadcast the first-ever NHL game in Plains Cree.

DRIVE PROFITABLE GROWTH IN ALL THE MARKETS WE SERVE

 

Achieved our revised 2019 guidance targets.

 

Grew adjusted EBITDA by 4%.

 

Attracted 334,000 net new wireless postpaid subscribers and 104,000 net new Internet subscribers.

 

Returned $1.7 billion to shareholders through dividend payments and share repurchases.

DEVELOP OUR PEOPLE AND A HIGH PERFORMANCE CULTURE

 

Achieved a company-wide engagement score of 85%, five points above global best-in-class companies.

 

Recognized, in November 2019, as one of Canada’s Top 100 employers by MediaCorp Canada Inc. for the 7th year in a row.

 

Recognized, in November 2019, as one of Canada’s Most Admired Corporate Cultures by Waterstone.

 

Recognized, in July 2019, as one of the 50 Most Engaged Workplaces in North America by Achievers for our leadership and innovation in engaging our employees and workplaces.

 

Named to the 2019 Bloomberg Gender-Equality Index in January 2019, which named 230 companies committed to transparency in gender reporting and advancing women’s equality in the workplace.

 

Recognized, in March 2019, as one of Canada’s Best Diversity Employers by MediaCorp Canada Inc.

 

Named, in May 2019, to the LGBT Corporate Canadian Index, an index that recognizes companies advancing equality.

 

Announced a $10 million investment to support a new cybersecurity centre at Ryerson University focused on building diverse digital skills of the future and to help fulfill our ongoing demand for skilled cybersecurity professionals.

BE A STRONG, SOCIALLY RESPONSIBLE LEADER IN OUR COMMUNITIES ACROSS CANADA

 

Contributed $14 billion in economic value to the Canadian economy.

 

Contributed over $60 million through cash and in-kind investments to help our communities thrive.

 

Made a meaningful difference in the lives of youth through the Ted Rogers Scholarship Fund, Jays Care Foundation, and the Ted Rogers Community Grants program.

 

Expanded our Connected for Success affordable broadband program to 335 community housing partners.

 

Raised over $2 million for over 1,100 charities during Give Together Month, with Rogers matching employee donations up to $1,000.

 

Volunteered 20,000 hours to support 80 volunteer events across Canada for our second annual Give Together Volunteer Days.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     29


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

2020 OBJECTIVES

 

      Strategic Priority    2020 Objectives     
     Create best-in-class customer experiences by putting our customers first in everything we do   

Evolve our customer experience across all our channels; solve customer problems the first time they contact us; and invest in tools to create frictionless digital and frontline experiences.

   
     Invest in our networks and technology to deliver leading performance and reliability   

Continue our cable and wireless network uplift programs; accelerate our network leadership in 5G and IoT; and deliver reliable systems and leverage emerging technologies.

   
     Deliver innovative solutions and compelling content that our customers will love   

Drive a growth agenda in each of our lines of business; create capabilities to establish great partnerships; and challenge the core value propositions in each of our businesses.

   
    

Drive profitable growth in all the markets we serve

  

Deliver on our 2020 financial commitments and execute on our cost management playbook.

   
    

Develop our people and a high performance culture

  

Build our culture and reputation as a great Canadian company; attract diverse talent that builds our future workforce; and deliver a differentiated and rewarding employee experience.

   
   Be a strong, socially responsible leader in our communities
across Canada
  

Grow our presence both locally and regionally; distinguish our community investment and social responsibility programs; and grow our business in key underserved markets across Canada.

 

FINANCIAL AND OPERATING GUIDANCE

We provide consolidated annual guidance ranges for selected financial metrics on a basis consistent with the annual plans approved by the Board.

2019 ACHIEVEMENTS AGAINST GUIDANCE

The following table outlines guidance ranges that we had previously provided and our actual results and achievements for the selected full-year 2019 financial metrics.

 

(In millions of dollars, except percentages)

 

  

2018
Actual

 

  

2019

Guidance

Ranges

 

    

2019

Actual

 

    

Achievement

 

 

 

Consolidated Guidance 1

              

Revenue

   15,096      Decrease of 1% to increase of 1%        15,073        (0.2)%         

Adjusted EBITDA 2

   5,983      Increase of 3% to 5%      6,212        3.8%         

Capital expenditures 3

   2,790      2,750 to 2,850        2,807        n/m         

Free cash flow 2,4

   2,134      Increase of 100 to 200        2,278        6.7%         

 

n/m

– not meaningful

1 

The table outlines guidance ranges for selected full-year 2019 consolidated financial metrics provided in our January 25, 2019 earnings release and subsequently updated on October 22, 2019. Guidance ranges presented as percentages reflect percentage increases or decreases over 2018 actual results.

2 

Adjusted EBITDA and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives 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 and Related Performance Measures” for information about these measures, including how we calculate them.

3 

Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences or additions to right-of-use assets.

4

Effective January 1, 2019, we redefined free cash flow such that we no longer adjust for the “net change in contract asset and deferred commission cost asset balances”. We redefined free cash flow to simplify this measure and believe removing it will make us more comparable within our industry. Free cash flow presented above reflects this change.

2020 FULL-YEAR CONSOLIDATED GUIDANCE

For the full-year 2020, we expect relatively stable service revenue and that growth in adjusted EBITDA will drive higher free cash flow. In 2020, we expect to have the financial flexibility to maintain our network advantages and to continue to return cash to shareholders. We are providing a guidance range for total service revenue this year as this metric more closely reflects our core business with our customers.

 

(In millions of dollars, except percentages)

 

 

2019
Actual

 

   

2020

Guidance Ranges 1

 

 

 

Consolidated Guidance

   

Total service revenue 2

    12,965       Decrease of 2% to increase of 2%  

Adjusted EBITDA 3

    6,212       Increase of 0% to 2%  

Capital expenditures 4

    2,807       2,700 to 2,900  

 

Free cash flow 3

 

 

 

 

2,278

 

 

 

 

 

 

Increase of 2% to 4%

 

 

 

1

Guidance ranges presented as percentages reflect percentage increases over full-year 2019 results.

2

As defined. See “Key Performance Indicators”.

3

Adjusted EBITDA and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives 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 and Related Performance Measures” for information about these measures, including how we calculate them.

4

Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences or additions to right-of-use assets.

 

30     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

The above table outlines guidance ranges for selected full-year 2020 consolidated financial metrics. These ranges take into consideration our current outlook and our 2019 results. The purpose of the financial outlook is to assist investors, shareholders, and others in understanding certain financial metrics relating to expected 2020 financial results for evaluating the performance of our business. This information may not be appropriate for other purposes. Information about our guidance, including the various assumptions underlying it, is forward-looking and should be read in conjunction with “About Forward-Looking Information”, “Risks and Uncertainties Affecting Our Business”, the material assumptions listed below under “Key underlying assumptions”, and the related disclosure and information about various economic, competitive, and regulatory assumptions, factors, and risks that may cause our actual future financial and operating results to differ from what we currently expect.

Any updates to our full-year financial guidance over the course of the year would only be made to the consolidated guidance ranges that appear above.

Key underlying assumptions

Our 2020 guidance ranges presented in “2020 Full-Year Consolidated Guidance” are based on many assumptions including, but not limited to, the following material assumptions for the full-year 2020:

 

continued increase in competitive intensity in all segments in which we operate;

 

a substantial portion of our 2020 US dollar-denominated expenditures is hedged at an average exchange rate of $1.30/US$;

 

key interest rates remain relatively stable throughout 2020;

 

no significant additional legal or regulatory developments, shifts in economic conditions, or macro changes in the competitive environment affecting our business activities. We note that

   

regulatory decisions issued during 2020 could materially alter underlying assumptions around our 2020 Wireless, Cable, and/or Media results in the current and future years, the impacts of which are currently unknown and not factored into our guidance;

 

specifically, we continue to charge the interim rates, as set in March 2016, to resellers of our high-speed Internet access services;

 

Wireless customers continue to adopt, and upgrade to, higher-value smartphones at similar rates in 2020 compared to 2019;

 

an overall shift in the market dynamics to unlimited data wireless service plans and wireless device financing;

 

lower overage revenue, most notably in the first half of 2020, as a result of the introduction of our Rogers Infinite plans late in the second quarter of 2019;

 

overall wireless market penetration in Canada grows in 2020 at a similar rate as in 2019;

 

our relative market share in Wireless and Cable is not negatively impacted by changing competitive dynamics or accelerated shifts in consumer video and/or data consumption;

 

continued subscriber growth in Wireless and Internet; stable to declining Television subscribers, including the impact of customers migrating to Ignite TV from our legacy product; and a decline in our Phone subscriber base;

 

in Media, continued growth in sports and declines in certain traditional media businesses; and

 

with respect to the increase in capital expenditures:

   

we continue to invest appropriately to ensure we have competitive wireless and cable networks through (i) building a 5G wireless network and (ii) upgrading our hybrid fibre-coaxial network to lower the number of homes passed per node, utilize the latest technologies, and deliver an even more reliable customer experience; and

   

we continue to make expenditures related to our Connected Home roadmap in 2020.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     31


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Capability to Deliver Results

LEADING NETWORKS

 

WIRELESS

Rogers has one of the most extensive and advanced wireless networks in Canada, which:

 

is the only national network in Canada fully owned by a single carrier;

 

was the first LTE high-speed network in Canada;

 

was the first 5G network in Canada;

 

reached 96% of the Canadian population as at December 31, 2019 on our LTE network alone;

 

is supported by voice and data roaming agreements with international carriers in more than 200 destinations, including a growing number of LTE roaming operators; and

 

includes network sharing arrangements with three regional wireless operators that operate in urban and rural parts of Canada.

We are continuously enhancing our IP service infrastructure for all our wireless services. Advances in technology have transformed the ways in which our customers interact and use the variety of tools available to them in their personal and professional lives. Technology has also changed the way businesses operate.

We are augmenting our existing LTE network with 4.5G technology investments that are designed to migrate to a 5G environment. We increased our 5G-related trials across key applications and multiple frequencies in 2019. A number of investments will be required to successfully launch and maintain a 5G network, including:

 

refarming spectrum currently used for 2G and 3G to LTE and for 5G;

 

densifying our wireless network with macro and small cells in key markets; and

 

purchasing 5G-ready radio network equipment with lower unit and operational costs, the ability to aggregate more radio carriers, and greater spectral efficiency.

In early 2020, we launched our 5G network commercially in downtown Vancouver, Toronto, Ottawa, and Montreal. We expect to expand to over 20 more markets by the end of the year. We also announced we are the exclusive Canadian member of the global 5G Future Forum, a first-of-its-kind 5G and mobile edge computing forum that includes Verizon, Vodafone, Telstra, KT, and América Móvil.

Our 5G network currently uses 2500 MHz spectrum in the downtown cores of Vancouver, Toronto, Ottawa, and Montreal. In 2020, we will expand the network to use the 600 MHz spectrum licences we acquired in 2019. 600 MHz spectrum is best suited to carry wireless data across long distances and through dense urban buildings, creating more consistent and higher-quality coverage in both remote and urban areas and in smart cities. In the future, we will deploy 3.5 GHz spectrum and dynamic spectrum sharing, which will allow our existing spectrum supporting 4G to also be used for 5G networks.

Significant spectrum position

Our wireless services are supported by our significant wireless spectrum licence holdings in both high-band and low-band frequency ranges. As part of our network strategy, we expect to continue making significant capital investments in spectrum to:

 

support the rapidly growing usage of wireless data services;

 

support the expansion of our 5G network; and

 

introduce new innovative network-enabled features and functionality.

 

 

Our spectrum holdings as at December 31, 2019 include:

 

     Type of spectrum

  

Rogers licence

  

Who it supports

     600 MHz

  

20 to 40 MHz across Canada, covering 100% of the Canadian population.

  

5G subscribers

     700 MHz

  

24 MHz in Canada’s major geographic markets, covering 95% of the Canadian population.

   4G / 4.5G LTE subscribers; future 5G subscribers.

     850 MHz

  

25 MHz across Canada.

   2G GSM, 3.5G HSPA+, 4G / 4.5G LTE subscribers; future 5G subscribers.

     1900 MHz

  

60 MHz in all areas of Canada except 40 MHz in northern Quebec, 50 MHz in southern Ontario, and 40 MHz in the Yukon, Northwest Territories, and Nunavut.

   2G GSM, 3.5G HSPA+, 4G / 4.5G LTE subscribers; future 5G subscribers.

     AWS 1700/2100 MHz

  

40 MHz in British Columbia and Alberta, 30 MHz in southern Ontario, an additional 10 MHz in the Greater Toronto Area, and 20 MHz in the rest of Canada.

  

4G / 4.5G LTE subscribers; future 5G subscribers.

     2500 MHz

  

40 MHz FDD across Canada except 20 MHz in parts of Quebec and an additional 25 MHz TDD in key population areas in Quebec, Ontario, and British Columbia.

  

4G, 4.5G LTE, and 5G subscribers.

 

32     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

We also have access to additional spectrum through the following network sharing agreements:

 

     Type of spectrum    Kind of venture    Who it supports

     2300 MHz/3500 MHz

     range

  

Inukshuk Wireless Partnership is a joint operation with BCE Inc. in which Rogers holds a 50% interest. Inukshuk holds licences for 30 MHz (of which 20 MHz is usable) of FDD 2300 MHz spectrum primarily in eastern Canada, including certain population centres in southern and eastern Ontario, southern Quebec, and smaller holdings in New Brunswick, Manitoba, Alberta, and British Columbia. Inukshuk also holds 3500 MHz TDD licences (between 50-175 MHz) in most of the major population centres across Canada. The current fixed wireless LTE national network utilizes the jointly held 2300 MHz and 3500 MHz spectrum bands. See “3500 MHz Spectrum Licence Band” in “Regulation In Our Industry” for more information.

   Fixed wireless subscribers.

     850 MHz, 1900 MHz

     AWS spectrum,

     700 MHz

  

Three network-sharing arrangements to enhance coverage and network capabilities:

 

•  with Bell MTS, which covers 98% of the population across Manitoba;

 

•  with TBayTel, that covers the combined base of customers in northwestern Ontario; and

 

•   with Quebecor (Videotron) to provide HSPA and LTE services across the province of Quebec and Ottawa.

  

3.5G / 4G HSPA+, 4G LTE subscribers.

3.5G / 4G HSPA+, 4G LTE subscribers.

3.5G / 4G LTE subscribers.

 

CABLE

Our expansive fibre and hybrid fibre-coaxial (HFC) infrastructure delivers services to consumers and businesses in Ontario, New Brunswick, and on the island of Newfoundland. We also operate a transcontinental, facilities-based fibre-optic network with 76,000 kilometres of fibre optic cable that is used to service business customers, including government and other telecommunications service providers. We also use our extensive fibre network for backhaul for wireless cell site traffic. In Canada, the network extends coast-to-coast and includes local and regional fibre, transmission electronics and systems, hubs, points of presence, and IP routing and switching infrastructure. The network also extends to the US from Vancouver south to Seattle; from the Manitoba-Minnesota border through Minneapolis, Milwaukee, and Chicago; from Toronto through Buffalo; and from Montreal through Albany to New York City and Ashburn, allowing us to connect Canada’s largest markets, while also reaching key US markets for the exchange of data and voice traffic.

The network is structured to optimize performance and reliability and to allow for the simultaneous delivery of video, voice, and Internet over a single platform. It is generally constructed in rings that interconnect with distribution hubs, providing redundancy to minimize disruptions that can result from fibre cuts and other events.

Homes and commercial buildings are connected to our network through HFC nodes or FTTH. We connect the HFC node to the network using fibre optic cable and the home to the node using coaxial cable or fibre. Using 860 MHz and 750 MHz of cable spectrum in Ontario and Atlantic Canada, respectively, we deliver video, voice, and broadband services to our customers. HFC node segmentation reduces the number of homes passed per HFC node, thereby increasing the bandwidth and capacity per subscriber.

We continually upgrade the network to improve capacity, enhance performance and reliability, reduce operating costs, and introduce new features and functionality. Our investments are focused on:

 

uplifting our HFC network to 1.2 GHz while at the same time improving network performance, quality, and reliability by deploying digital fibre optics, removing radio frequency amplifiers, and reducing homes passed per node to an average of 60;

 

increasing capacity per subscriber by enabling the 1.2 GHz of spectrum with additional DOCSIS 3.1 downstream and upstream capacity and deploying DOCSIS 4.0 that, over time, are expected to support downstream speeds up to 10 gigabits per second (Gbps);

 

improving video signal compression by moving to more advanced video protocols;

 

improving channel and on-demand capacity through switched digital video; and

 

increasing the FTTH footprint by connecting more homes and multiple dwelling unit buildings directly to fibre.

Broadband Internet service is provided using a DOCSIS CCAP 3.0/3.1 platform, which combines multiple radio frequency channels onto one access point at the customer premise, delivering exceptional performance. Over the last 20 years, HFC node segmentation, along with DTV spectrum repurposing and evolution from DOCSIS 1.0 to DOCSIS 3.1, has increased downstream and upstream capacity by approximately 1,000 and 200 times, respectively. This track record of investing in our networks and demonstrating the capability to cost-effectively deploy best-in-class service is one of our key strategies for ensuring that we stay competitive with other service providers that provide Internet service into homes and businesses over copper facilities. By the end of 2016, 100% of our cable network had been upgraded to DOCSIS CCAP technology supporting DOCSIS 3.1 and Ignite Gigabit Internet.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     33


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

We have been deploying 1 GHz fibre-to-the-curb (FTTC) in new development areas and transitioning to FTTH since 2005. In 2018, we began upgrading our HFC network to a mix of 1.2 GHz FTTC and FTTH. FTTC provides the foundation for subsequent generations of DOCSIS, including Remote PHY and DOCSIS 4.0, which will improve high-speed Internet accessibility, quality, and tier speed attainability, while increasing the capacity of our HFC network. FTTH will be based on gigabit passive optical network (GPON) technology that is expected to support symmetrical downstream/upstream speeds up to 10 Gbps per node in select neighbourhoods.

We continue to invest in and improve our cable network services; for example, with technology to support gigabit Internet speeds, Ignite TV, Rogers 4K TV, our 4K PVR set-top box, and a significant commitment to live broadcasting in 4K, including regular season Toronto Blue Jays home games for 2020 and numerous NHL and NBA games.

Voice-over-cable telephony services are also served using the DOCSIS network. Our offerings ensure a high quality of service by including geographic redundancy and network backup powering. Our phone service includes a rich set of features, such as TV Call Display (available on our NextBox set-top boxes), three-way calling, and advanced voicemail features that allow customers to be notified of, and listen to, their home voicemail on their wireless phone or over the Internet.

We own and operate some of the most advanced networks and data centres in Canada. We leverage our national fibre, cable, and wireless networks and data centre infrastructure to enable businesses to deliver greater value to their customers through proactive network monitoring and problem resolution with enterprise-level reliability, security, and performance. Our primary and secondary Network Operation Centres proactively monitor Rogers’ networks to mitigate the risk of service interruptions and to allow for rapid responses to any outages.

Our data centres provide guaranteed uptime and expertise in collocation, cloud, and managed services solutions. We own and operate 12 state-of-the-art, highly reliable, certified data centres across Canada, including:

 

Canada’s first Tier III Design and Construction certified multi-tenant facility in Toronto;

 

Alberta’s first Tier III certified data centre; and

 

a third Tier III certified data centre in Ottawa.

POWERFUL BRANDS

The Rogers brand has strong national recognition through our:

 

established networks;

 

extensive distribution;

 

recognizable media content and programming;

 

advertising;

 

event and venue sponsorships, including the Rogers Cup;

 

community investment, including the Ted Rogers Scholarship Fund; and

 

naming rights to some of Canada’s landmark buildings.

We also own or utilize some of Canada’s most recognized brands, including:

 

the wireless brands of Rogers, Fido, and chatr;

 

the residential brands of Rogers and Fido;

 

23 TV stations and specialty channels, including Sportsnet, Omni, Citytv, FX (Canada), and FXX (Canada);

 

55 radio stations, including 98.1 CHFI, 680 NEWS, Sportsnet The FAN, KiSS, JACK FM, and SONiC;

 

major league sports teams, including the Toronto Blue Jays, and teams owned by MLSE, such as the Toronto Maple Leafs, the Toronto Raptors, Toronto FC, and the Toronto Argonauts;

 

an exclusive 12-year agreement with the NHL, which runs through the 2025-2026 season, that allows us to deliver coverage of professional hockey in Canada; and

 

TSC, a premium online and TV shopping retailer.

WIDESPREAD PRODUCT DISTRIBUTION

WIRELESS

We have an extensive national distribution network and offer our wireless products nationally through multiple channels, including:

 

company-owned Rogers, Fido, and chatr retail stores;

 

customer self-serve using rogers.com, fido.ca, chatrwireless.com, and e-commerce sites;

 

an extensive independent dealer network;

 

major retail chains and convenience stores;

 

other distribution channels, such as WOW! mobile boutique, as well as Wireless Wave and TBooth Wireless through our ownership interest in Glentel;

 

our contact centres;

 

outbound telemarketing; and

 

Rogers Pro On-the-Go, a new, personalized retail service that delivers and sets up new wireless devices to the customer’s location of choice within the service area.

CABLE

We distribute our residential cable products using various channels, including:

 

company-owned Rogers and Fido retail stores;

 

customer self-serve using rogers.com and fido.ca;

 

our contact centres, outbound telemarketing, and door-to-door agents; and

 

major retail chains.

Our sales team and third-party retailers sell services to the business, public sector, and carrier wholesale markets. An extensive network of third-party channel distributors deals with IT integrators, consultants, local service providers, and other indirect sales relationships. This diverse approach gives greater breadth of coverage and allows for strong sales growth for next-generation services.

FIRST-CLASS MEDIA CONTENT

We deliver highly sought-after sports content enhanced by the following initiatives:

 

an exclusive 12-year agreement with the NHL, which runs through the 2025-2026 season, that allows us to deliver coverage of professional hockey in Canada across television, smartphones, tablets, and the Internet;

 

 

34     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents
 

NHL LIVE, an online OTT destination for enhancing NHL action on any screen;

 

Sportsnet NOW, Canada’s first OTT sports service, offering 24/7 access to Sportsnet’s TV content;

 

Sportsnet NOW+, which offers access to additional content, such as additional NHL games, the Bundesliga, Premiership Rugby, and the IndyCar Series;

 

Rogers Hometown Hockey Tour, which brings hockey-themed festivities and outdoor viewing parties to 25 communities across Canada over the 2019-2020 NHL season;

 

the MLB Network, a 24-hour network dedicated to baseball, brought to Canada on Rogers television services;

 

an 8-year, multi-platform broadcast rights agreement with MLB Properties and MLB Advanced Media to show live and in-progress games and highlights within Canada through November 2021;

 

a 10-year, multi-platform agreement that runs through August 2024, which makes Rogers the exclusive wholesaler and Canadian distributor of World Wrestling Entertainment’s (WWE) flagship programming; and

 

exclusive broadcasting and distribution rights of the Toronto Blue Jays through our ownership of the team.

CUSTOMER EXPERIENCE

We are committed to providing our customers with the best experience possible. To do this, we have invested in several areas to make it easier and more convenient for customers to interact with us, such as:

 

contact centres located throughout Canada;

 

an innovative Integrated Voice Response (IVR) system that can take calls in four languages, including English, French, Mandarin, and Cantonese;

 

voice authentication technology across all of our contact centres that automatically identifies our registered customers by their voice, increasing security and protecting customers from potential fraud;

 

self-serve options, including:

   

the ability for Fido and Rogers customers to complete price plan changes and hardware upgrades online;

   

a simplified login, allowing Fido customers to log in to their accounts online or through the Fido MyAccount app using their Facebook login credentials, eliminating the need to remember multiple login credentials and making self-service easier to access;

   

the ability for customers to install their Internet and TV products at their convenience, without the need for a technician visiting their residence; and

   

Rogers EnRoute, a tool that gives customers the ability to track on their phone when a technician will arrive for an installation or service call;

 

customer care available over Facebook Messenger, Twitter, and online chat through our websites;

 

Rogers Infinite unlimited data plans with no overage charges;

 

24-month, $0 down, interest-free wireless device financing on Rogers Infinite plans and through our Fido Payment Program;

 

Rogers Pro On-the-Go, a personalized retail service whereby within hours of ordering a new wireless device, a connected solutions professional will meet a customer at their time and location of choice (within the service area) and set up their device based on their preferences;

 

Ignite WiFi Hub for all Ignite TV customers to give them ultimate control over their WiFi experience;

 

Family Data Manager, a data manager tool, and Data Top Ups, both of which allow Wireless customers to manage and customize their data usage in real-time through MyRogers;

 

Fido Data Bytes, which grant Fido Pulse customers an additional hour of data, five times per billing cycle, at no extra charge;

 

Fido XTRA, a program that gives Fido postpaid Wireless and Internet customers free access to new perks every Thursday, such as deals and giveaways from leading brands on food, drinks, apparel, entertainment, and more;

 

a simple online bill, making it easier for customers to read and understand their monthly charges; and

 

Roam Like Home and Fido Roam, worry-free wireless roaming allowing Canadians to use their wireless plan like they do at home when traveling to included destinations.

ENGAGED PEOPLE

For our team of approximately 25,300 employees, we strive to create a great workplace, focusing on all aspects of the employee experience, which include:

 

engaging employees and building high-performing teams through initiatives including engagement surveys and leadership development programs;

 

aiming to attract and retain top talent through effective training and development, performance-driven employee recognition programs, and career progression programs for front-line employees;

 

maintaining our commitment to diversity and inclusion; and

 

providing a safe, collaborative, and agile workplace that provides employees the tools and training to be successful.

FINANCIAL STRENGTH AND FLEXIBILITY

We have an investment-grade balance sheet, conservative debt leverage, and substantial available liquidity of $2,493 million as at December 31, 2019. Our capital resources consist primarily of cash provided by operating activities, available lines of credit, funds available under our accounts receivable securitization and US dollar-denominated commercial paper (US CP) programs, and issuances of long-term debt. We also owned approximately $1,831 million of marketable equity securities in publicly traded companies as at December 31, 2019.

The following information is forward-looking and should be read in conjunction with “About Forward-Looking Information”, “Financial and Operating Guidance”, “Risks and Uncertainties Affecting Our Business”, and our other disclosures about various economic, competitive, and regulatory assumptions, factors, and risks that could cause our actual future financial and operating results to differ from those currently expected.

As noted in “Financial and Operating Guidance”, we anticipate generating positive free cash flow in 2020. We expect that we will have sufficient capital resources to satisfy our cash funding requirements in 2020, including the funding of dividends on our common shares, repayment of maturing short-term borrowings and long-term debt, and other financing activities, investing activities, and other requirements. This takes into account our

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     35


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

opening cash balance, cash provided by operating activities, and funds available to us under credit facilities, our accounts receivable securitization program, our US CP program, and other bank, publicly issued, or private placement debt from time to time. As at December 31, 2019, there were no significant restrictions on the flow of funds between RCI and its subsidiary companies.

We believe we can satisfy foreseeable additional funding requirements by issuing additional debt financing, which, depending on market conditions, could include restructuring our existing bank credit and letter of credit facilities, entering into new bank credit facilities, issuing public or private long-term or short-term debt, amending the terms of our accounts receivable securitization or US CP programs, or issuing equity. We may also opportunistically refinance a portion of existing debt depending on

market conditions and other factors. There is no assurance, however, that these financing initiatives will or can be done as they become necessary.

WIDESPREAD SHAREHOLDER BASE AND DIVIDENDS

RCI’s Class B Non-Voting common shares (Class B Non-Voting Shares) are widely held and actively trade on the TSX and the NYSE with a combined average daily trading volume of approximately 1.5 million shares in 2019. In addition, RCI’s Class A Voting common shares (Class A Shares) trade on the TSX. At the discretion of the Board, we pay an equal dividend on both classes of shares. In 2019, each share paid an annualized dividend of $2.00.

 

 

36     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

2019 Financial Results

 

See “Accounting Policies” in this MD&A and the notes to our 2019 Audited Consolidated Financial Statements for important accounting policies and estimates as they relate to the following discussion.

We use several key performance indicators to measure our performance against our strategy and the results of our peers and

competitors. Many of these are not defined terms under IFRS and should not be considered alternative measures to net income or any other financial measure of performance under IFRS. See “Key Performance Indicators” and “Non-GAAP Measures and Related Performance Measures” for more information.

 

 

SUMMARY OF CONSOLIDATED RESULTS

 

     

 

Years ended December 31

 

 

 

(In millions of dollars, except margins and per share amounts)

 

  

 

2019

 

   

 

2018 1

 

   

 

% Chg

 

 

Revenue

      

Wireless

     9,250       9,200       1  

Cable

     3,954       3,932       1  

Media

     2,072       2,168       (4

Corporate items and intercompany eliminations

     (203     (204      

Revenue

     15,073       15,096        

Total service revenue 2

     12,965       12,974        

Adjusted EBITDA 3

      

Wireless

     4,345       4,090       6  

Cable

     1,919       1,874       2  

Media

     140       196       (29

Corporate items and intercompany eliminations

     (192     (177     8  

Adjusted EBITDA 3

     6,212       5,983       4  

Adjusted EBITDA margin 3

     41.2%       39.6%       1.6 pts  
      

Net income

     2,043       2,059       (1

Basic earnings per share

   $ 3.99     $ 4.00        

Diluted earnings per share

   $ 3.97     $ 3.99       (1
      

Adjusted net income 3

     2,135       2,241       (5

Adjusted basic earnings per share 3

   $ 4.17     $ 4.35       (4

Adjusted diluted earnings per share 3

   $ 4.15     $ 4.34       (4
      

Capital expenditures

     2,807       2,790       1  

Cash provided by operating activities

     4,526       4,288       6  

Free cash flow 3,4

     2,278       2,134       7  
1

Effective January 1, 2019, we adopted IFRS 16, with the ongoing impacts of this standard included in our results prospectively from that date. Our 2018 results have not been restated for the effects of IFRS 16. See “Accounting Policies”.

2

As defined. See “Key Performance Indicators”.

3

Adjusted EBITDA, adjusted net income, and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives 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 and Related Performance Measures” for information about these measures, including how we calculate them and the ratios in which they are used.

4 

2018 free cash flow has been restated to adapt to our current definition. See “Non-GAAP Measures and Related Performance Measures” for more information.

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     37


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

KEY CHANGES IN FINANCIAL RESULTS THIS YEAR COMPARED TO 2018

REVENUE

Wireless service revenue increased this year as a result of continuing to monetize the increasing demand for data in the first half of the year along with a disciplined approach around subscriber base management. This increase was partially offset by a decrease in overage revenue (as a result of stronger customer adoption of our new Rogers Infinite unlimited data plans) in the second half of 2019. Wireless equipment revenue decreased 1% this year driven by a decrease in gross subscriber additions and fewer hardware upgrades.

Cable revenue increased this year as a result of the increase in Internet revenue, due to the general movement of customers to higher speed and usage tiers, the impact of Internet service pricing changes, and a larger subscriber base for our Internet products, partially offset by promotional pricing provided to subscribers and Television and Phone subscriber losses over the past year.

Media revenue decreased this year as a result of the sale of our publishing business and a Major League Baseball distribution to the Toronto Blue Jays in 2018. Excluding the impact of the sale of our publishing business and the distribution from Major League Baseball last year, Media revenue would have increased by 1% this year.

ADJUSTED EBITDA

Wireless adjusted EBITDA increased this year primarily as a result of the adoption of IFRS 16, which contributed approximately 4% of the growth, and a larger postpaid subscriber base, which led to a margin of 47.0%, up 250 basis points from last year.

Cable adjusted EBITDA increased this year as a result of strong Internet revenue growth, the ongoing product mix shift to higher-margin Internet services, and various cost efficiencies, which led to a margin of 48.5%, up 80 basis points from last year.

Media adjusted EBITDA decreased this year primarily as a result of lower revenue as discussed above and higher programming costs, partially offset by lower player compensation at the Toronto Blue Jays, which led to a margin of 6.8%, down 220 basis points from last year. Excluding the impact of the sale of our publishing business and the distribution from Major League Baseball last year, Media adjusted EBITDA would have increased by 1% this year.

NET INCOME AND ADJUSTED NET INCOME

Net income and adjusted net income both decreased this year primarily as a result of higher depreciation and amortization and higher finance costs, partially offset by higher adjusted EBITDA.

 

 

38     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

WIRELESS

ROGERS IS CANADA’S LARGEST PROVIDER OF WIRELESS COMMUNICATIONS SERVICES

As at December 31, 2019, we had:

 

approximately 10.8 million subscribers; and

 

approximately 33% subscriber and revenue share of the Canadian wireless market.

WIRELESS FINANCIAL RESULTS

 

   
    

Years ended December 31

 

(In millions of dollars, except margins)

  

2019

    

2018

    

% Chg

 

Revenue

        

Service revenue

  

 

7,156

 

  

 

7,091

 

  

 

1

 

Equipment revenue

  

 

2,094

 

  

 

2,109

 

  

 

(1

Revenue

  

 

9,250

 

  

 

9,200

 

  

 

1

 

Operating expenses

        

Cost of equipment

  

 

2,231

 

  

 

2,264

 

  

 

(1

Other operating expenses

  

 

2,674

 

  

 

2,846

 

  

 

(6

Operating expenses

  

 

4,905

 

  

 

5,110

 

  

 

(4

Adjusted EBITDA

  

 

4,345

 

  

 

4,090

 

  

 

6

 

Adjusted EBITDA margin

  

 

47.0%

 

  

  

44.5%

 

  

 

     2.5 pts

 

Capital expenditures

  

  

1,320

 

  

 

1,086

 

  

 

22

 

WIRELESS SUBSCRIBER RESULTS 1

 

   

(In thousands, except churn, blended ABPU,
and blended ARPU)

  

Years ended December 31

 
  

 

2019

   

2018

   

Chg

 

Postpaid

      

Gross additions

  

 

1,566

 

 

 

1,632

 

 

 

(66

Net additions

  

 

334

 

 

 

453

 

 

 

(119

Total postpaid subscribers 2,3

  

 

9,438

 

 

 

9,157

 

 

 

281

 

Churn (monthly)

  

 

1.11%

 

 

 

1.10%

 

 

 

0.01 pts

 

Prepaid

      

Gross additions

  

 

773

 

 

 

751

 

 

 

22

 

Net losses

  

 

(97

 

 

(152

 

 

55

 

Total prepaid subscribers 2,4

  

 

1,402

 

 

 

1,626

 

 

 

(224

Churn (monthly)

  

 

4.86%

 

 

 

4.38%

 

 

 

0.48 pts

 

Blended ABPU (monthly)

  

$

66.23

 

 

$

64.74

 

 

 $

1.49

 

Blended ARPU (monthly)

  

$

55.49

 

 

$

55.64

 

 

($

0.15

 

1 

Subscriber counts, subscriber churn, blended ABPU, and blended ARPU are key performance indicators. See “Key Performance Indicators”.

2 

As at end of period.

3 

Effective October 1, 2019, and on a prospective basis, we reduced our Wireless postpaid subscriber base by 53,000 subscribers to remove a low-ARPU public services customer that is in the process of migrating to another service provider. We believe adjusting our base for a customer of this size that migrates off our network provides a more meaningful reflection of the underlying organic performance of our Wireless business.

4 

Effective April 1, 2019, we adjusted our Wireless prepaid subscriber base to remove 127,000 subscribers as a result of a change to our deactivation policy from 180 days to 90 days to be more consistent within the industry.

REVENUE

Our revenue depends on the size of our subscriber base, the revenue per user, the revenue from the sale of wireless devices, and other equipment revenue.

Service revenue

Service revenue includes revenue derived from voice and data services from:

 

postpaid and prepaid monthly fees;

 

data usage;

 

airtime;

 

long distance charges;

 

essential services charges;

 

inbound and outbound roaming charges; and

 

certain other fees and charges.

The 1% increase in service revenue this year was a result of:

 

a larger postpaid subscriber base; partially offset by

 

a decrease in overage revenue as a result of the strong customer adoption of our Rogers Infinite unlimited data plans.

The 2% increase in blended ABPU was a result of an ongoing shift in the product mix of device sales towards higher-value devices.

We believe the decreases in gross and net additions to our postpaid subscriber base this year were a result of our disciplined approach around subscriber base management and an overall softness in the market in the first half of the year. This decline was partially offset by increases in postpaid gross and net additions in the second half of the year as a result of the strong adoption of our Rogers Infinite plans by new customers.

Equipment revenue

Equipment revenue includes revenue from sales to subscribers through fulfillment by Wireless’ customer service groups, websites, telesales, corporate stores, and independent dealers, agents, and retailers.

The 1% decrease in equipment revenue this year was a result of:

 

fewer device upgrades by existing subscribers; and

 

fewer gross additions; partially offset by

 

an increase in sales of higher-value devices.

OPERATING EXPENSES

We record operating expenses in two categories:

 

the cost of wireless devices and equipment; and

 

all other expenses involved in day-to-day operations, to service existing subscriber relationships, and to attract new subscribers.

The 1% decrease in the cost of equipment this year was a result of the same factors discussed in equipment revenue above.

The 6% decrease in other operating expenses this year was a result of:

 

the adoption of IFRS 16; and

 

various cost efficiencies and productivity initiatives.

ADJUSTED EBITDA

The 6% increase in adjusted EBITDA this year was a result of the revenue and expense changes discussed above.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     39


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

CABLE

ONE OF CANADA’S LEADING PROVIDERS OF HIGH-SPEED INTERNET, CABLE TELEVISION, AND PHONE SERVICES

As at December 31, 2019, we had:

  approximately 2.5 million high-speed Internet subscribers;
  approximately 1.6 million Television subscribers, including 325,000 subscribers on our premier Ignite TV product;
  approximately 1.1 million Phone subscribers; and
  a network passing approximately 4.5 million homes in Ontario, New Brunswick, and on the island of Newfoundland.

CABLE FINANCIAL RESULTS

 

   
    

Years ended December 31

 

(In millions of dollars, except margins)

  

2019

    

2018

    

% Chg

 

Revenue

        

Internet

  

 

2,259

 

  

 

2,114

 

  

 

7

 

Television

  

 

1,430

 

  

 

1,442

 

  

 

(1

Phone

  

 

251

 

  

 

363

 

  

 

(31

Service revenue

  

 

3,940

 

  

 

3,919

 

  

 

1

 

Equipment revenue

  

 

14

 

  

 

13

 

  

 

8

 

Revenue

  

 

3,954

 

  

 

3,932

 

  

 

1

 

Operating expenses

        

Cost of equipment

  

 

23

 

  

 

21

 

  

 

10

 

Other operating expenses

  

 

2,012

 

  

 

2,037

 

  

 

(1

Operating expenses

  

 

2,035

 

  

 

2,058

 

  

 

(1

Adjusted EBITDA

  

 

1,919

 

  

 

1,874

 

  

 

2

 

Adjusted EBITDA margin

  

 

48.5%

 

  

 

47.7%

 

  

 

0.8 pts

 

Capital expenditures

  

 

1,153

 

  

 

1,429

 

  

 

(19

CABLE SUBSCRIBER RESULTS 1

 

   
    

Years ended December 31

 

(In thousands)

  

2019

   

2018

   

Chg

 

Internet

      

Net additions

  

 

104

 

 

 

109

 

 

 

(5

Total Internet subscribers 2

  

 

2,534

 

 

 

2,430

 

 

 

104

 

Television

      

Net losses

  

 

(106

 

 

(55

 

 

(51

Total Television subscribers 2

  

 

1,579

 

 

 

1,685

 

 

 

(106

Phone

      

Net (losses) additions

  

 

(44

 

 

8

 

 

 

(52

Total Phone subscribers 2

  

 

1,072

 

 

 

1,116

 

 

 

(44

Homes passed 2

  

 

4,472

 

 

 

4,361

 

 

 

111

 

Total service units 3

      

Net (losses) additions

  

 

(46

 

 

62

 

 

 

(108

Total service units 2

  

 

5,185

 

 

 

5,231

 

 

 

(46

 

1 

Subscriber counts are key performance indicators. See “Key Performance Indicators”.

2 

As at end of period.

3 

Includes Internet, Television, and Phone.

REVENUE

Internet revenue includes:

 

monthly subscription and additional use service revenue from residential, small business, enterprise, public sector, and wholesale Internet access subscribers;

 

monthly service revenue from our smart home monitoring products; and

 

modem and other equipment rental fees.

Television revenue includes:

 

IPTV and digital cable services, such as:

   

basic service fees;

   

tier service fees;

   

access fees for use of channel capacity by third parties; and

   

premium and specialty service subscription fees, including pay-per-view service fees and video-on-demand service fees; and

 

rentals of television set-top boxes.

Phone revenue includes revenue from residential and small business local telephony service from:

 

monthly service fees;

 

calling features, such as voicemail, call waiting, and caller ID; and

 

long distance calling.

The 1% increase in Cable revenue this year was a result of:

 

the movement of Internet customers to higher speed and usage tiers;

 

the impact of service pricing changes; and

 

a larger Internet subscriber base; partially offset by

 

promotional pricing provided to subscribers; and

 

lower subscriber bases for our Television and Phone products.

Internet revenue

The 7% increase in Internet revenue this year was a result of:

 

general movement of customers to higher speed and usage tiers of our Internet offerings, with 68% of our residential Internet base on plans of 100 megabits per second or higher (2018 – 60%);

 

a larger Internet subscriber base; and

 

the impact of Internet service pricing changes; partially offset by

 

promotional pricing provided to subscribers.

Television revenue

The 1% decrease in Television revenue this year was a result of:

 

the decline in legacy Television subscribers over the past year; partially offset by

 

the migration of subscribers from our legacy TV product to Ignite TV;

 

the movement of customers to higher content tiers; and

 

the impact of Television service pricing changes.

Phone revenue

The 31% decrease in Phone revenue this year was a result of:

 

new bundled pricing constructs that provide a larger Phone discount; and

 

the general decline in Phone subscribers over the past year.

Equipment revenue

Equipment revenue includes revenue generated from the sale of television set-top boxes, Internet modems and other equipment, and smart home monitoring equipment. Equipment revenue this year was in line with 2018.

 

 

40     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

OPERATING EXPENSES

We record Cable operating expenses in three categories:

 

the cost of programming;

 

the cost of equipment revenue (television set-top boxes, Internet modem and other equipment, and smart home monitoring equipment); and

 

all other expenses involved in day-to-day operations, to service and retain existing subscriber relationships, and to attract new subscribers.

The 1% decrease in operating expenses this year was a result of:

 

the impact of the adoption of IFRS 16; and

 

various cost efficiencies and productivity initiatives.

ADJUSTED EBITDA

The 2% increase in adjusted EBITDA this year was a result of the revenue and expense changes described above.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     41


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

MEDIA

DIVERSIFIED CANADIAN MEDIA COMPANY

We have a broad portfolio of media properties, which most significantly includes:

  sports media and entertainment, such as Sportsnet and the Toronto Blue Jays;
  our exclusive national 12-year NHL Agreement;
  category-leading television and radio broadcasting properties;
  multi-platform televised and online shopping; and
  digital media.

MEDIA FINANCIAL RESULTS

 

     

 

Years ended December 31

 

 

(In millions of dollars, except margins)

  

 

2019

    

 

2018

    

 

% Chg

 

 

Revenue

  

 

 

 

2,072

 

 

  

 

 

 

2,168

 

 

  

 

 

 

(4

 

Operating expenses

  

 

1,932

 

  

 

1,972

 

  

 

(2

 

Adjusted EBITDA

  

 

 

 

140

 

 

  

 

 

 

196

 

 

  

 

 

 

(29

 

 

Adjusted EBITDA margin

  

 

 

 

6.8%

 

 

  

 

 

 

9.0%

 

 

  

 

 

 

(2.2 pts

 

Capital expenditures

  

 

102

 

  

 

90

 

  

 

13

 

REVENUE

Media revenue is earned from:

 

advertising sales across its television, radio, and digital media properties;

 

subscriptions to televised and OTT products;

 

ticket sales, fund redistribution and other distributions from MLB, and concession sales; and

 

retail product sales.

The 4% decrease in revenue this year was a result of:

 

the sale of our publishing business in the second quarter of 2019; and

 

lower revenue at the Toronto Blue Jays, primarily as a result of a distribution from Major League Baseball in 2018; partially offset by

 

higher revenue generated by Sportsnet and TSC.

Excluding the sale of our publishing business and the impact of the distribution from Major League Baseball last year, Media revenue would have increased by 1% this year.

OPERATING EXPENSES

We record Media operating expenses in four primary categories:

 

the cost of broadcast content, including sports programming and production;

 

Toronto Blue Jays player compensation;

 

the cost of retail products sold; and

 

all other expenses involved in day-to-day operations.

The 2% decrease in operating expenses this year was a result of:

 

lower Toronto Blue Jays player compensation; and

 

lower publishing-related costs due to the sale of this business; partially offset by

 

higher programming costs; and

 

higher cost of sales as a result of higher revenue at TSC.

ADJUSTED EBITDA

The 29% decrease in adjusted EBITDA this year was a result of the revenue and expense changes described above. Excluding the impact of the sale of our publishing business in the second quarter of 2019 and the distribution from Major League Baseball last year, adjusted EBITDA would have increased by 1% this year.

 

 

42     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

CAPITAL EXPENDITURES

Capital expenditures include costs associated with acquiring property, plant and equipment and placing it into service. The telecommunications business requires extensive and continual investments, including investment in new technologies and the expansion of capacity and geographical reach. Expenditures related to the acquisition of spectrum licences and additions to right-of-use assets are not included in capital expenditures and do not factor into the calculation of free cash flow or capital intensity. See “Managing Our Liquidity and Financial Resources”, “Key Performance Indicators”, and “Non-GAAP Measures and Related Performance Measures” for more information.

Capital expenditures are significant and have a material impact on our cash flows; therefore, our management teams focus on planning, funding, and managing them. We believe this measure best reflects our cost of property, plant and equipment in a given period and is a simpler measure for comparing between periods.

 

   

(In millions of dollars, except capital
intensity)

 

Years ended December 31

 
 

2019

   

2018

   

% Chg

 

Capital expenditures 1

     

Wireless

 

 

1,320

 

 

 

1,086

 

 

 

22

 

Cable

 

 

1,153

 

 

 

1,429

 

 

 

(19

Media

 

 

102

 

 

 

90

 

 

 

13

 

Corporate

 

 

232

 

 

 

185

 

 

 

25

 

Capital expenditures 1

 

 

2,807

 

 

 

2,790

 

 

 

1

 

Capital intensity 2

 

 

18.6%

 

 

 

18.5%

 

 

 

0.1 pts

 

 

1 

Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences or additions to right-of-use assets.

2 

As defined. See “Key Performance Indicators”.

WIRELESS

The increase in capital expenditures in Wireless this year was a result of investments made to upgrade our wireless network to continue delivering reliable performance for our customers. We continued augmenting our existing LTE network with 4.5G technology investments that are also 5G-ready to prepare for the commercial launch of 5G in select markets in early 2020.

In 2019, we acquired spectrum licences for $1,731 million, which is not included in the table above. See “Managing Our Liquidity and Financial Resources”.

CABLE

The decrease in capital expenditures in Cable this year was a result of lower purchases of customer premise equipment and lower investments related to the initial launch of Ignite TV. We have continued upgrading our network infrastructure with additional fibre deployments, including increasing our fibre-to-the-home and fibre-to-the-curb distribution. These upgrades will lower the number of homes passed per node and incorporate the latest technologies to help deliver more bandwidth and an even more reliable customer experience as we progress in our Connected Home roadmap.

MEDIA

The increase in capital expenditures this year was a result of higher investments in renovations at various Toronto Blue Jays facilities, partially offset by lower investment in our broadcast and IT infrastructure and the sale of our publishing business.

CORPORATE

The increase in Corporate capital expenditures this year was a result of higher investments in IT and our various real estate facilities this year, including the impact of $25 million of proceeds from the sale of certain assets last year.

CAPITAL INTENSITY

Capital intensity this year was in line with 2018.

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     43


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

REVIEW OF CONSOLIDATED PERFORMANCE

This section discusses our net income and other expenses that do not form part of the segment discussions above.

 

   
    

Years ended December 31

 

(In millions of dollars)

  

2019

   

2018

   

% Chg

 

Adjusted EBITDA 1

  

 

6,212

 

 

 

5,983

 

 

 

4

 

Deduct (add):

      

Depreciation and amortization

  

 

2,488

 

 

 

2,211

 

 

 

13

 

Gain on disposition of property, plant and equipment

  

 

 

 

 

(16

 

 

(100

Restructuring, acquisition and other

  

 

139

 

 

 

210

 

 

 

(34

Finance costs

  

 

840

 

 

 

793

 

 

 

6

 

Other income

  

 

(10

 

 

(32

 

 

(69

Income tax expense

  

 

712

 

 

 

758

 

 

 

(6

Net income

  

 

2,043

 

 

 

2,059

 

 

 

(1

 

1

Adjusted EBITDA is a non-GAAP measure and should not be considered a substitute or alternative for GAAP measures. It is not a defined term under IFRS and does not have a standard meaning, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures and Related Performance Measures” for information about this measure, including how we calculate it.

ADJUSTED EBITDA

See “Key Changes in Financial Results This Year Compared to 2018” for a discussion of the increase in adjusted EBITDA this year.

DEPRECIATION AND AMORTIZATION

 

   
    

Years ended December 31

 

(In millions of dollars)

  

2019

    

2018

    

% Chg

 

Depreciation

  

 

2,297

 

  

 

2,174

 

  

 

6

 

Amortization

  

 

16

 

  

 

37

 

  

 

(57

Depreciation and amortization before depreciation of right-of-use assets

  

 

2,313

 

  

 

2,211

 

  

 

5

 

Depreciation of right-of-use assets 1

  

 

175

 

  

 

 

  

 

n/m

 

Total depreciation and amortization

  

 

2,488

 

  

 

2,211

 

  

 

13

 

 

1 

See “Accounting Policies” for more information.

Total depreciation and amortization increased this year primarily as a result of depreciation of right-of-use assets due to our adoption of IFRS 16 on January 1, 2019 and higher capital expenditures over the past several years. See “Capital Expenditures” for more information.

RESTRUCTURING, ACQUISITION AND OTHER

During the year ended December 31, 2019, we incurred $139 million (2018 – $210 million) in restructuring, acquisition and other expenses. These expenses in 2019 and 2018 primarily consisted of severance costs associated with the targeted restructuring of our employee base and other contract termination costs.

In 2018, these costs also included certain sports-related contract termination costs.

FINANCE COSTS

 

   
    

Years ended December 31

 

(In millions of dollars)

  

2019

   

2018

   

% Chg

 

Interest on borrowings 1

  

 

746

 

 

 

709

 

 

 

5

 

Interest on post-employment benefits liability

  

 

11

 

 

 

14

 

 

 

(21

Loss on repayment of long-term debt

  

 

19

 

 

 

28

 

 

 

(32

(Gain) loss on foreign exchange

  

 

(79

 

 

136

 

 

 

n/m

 

Change in fair value of derivative instruments

  

 

80

 

 

 

(95

 

 

n/m

 

Capitalized interest

  

 

(19

 

 

(20

 

 

(5

Other

  

 

21

 

 

 

21

 

 

 

 

Finance costs before interest on lease liabilities

  

 

779

 

 

 

793

 

 

 

(2

Interest on lease liabilities 2

  

 

61

 

 

 

 

 

 

n/m

 

Total finance costs

  

 

840

 

 

 

793

 

 

 

6

 

 

1 

Interest on borrowings includes interest on short-term borrowings and on long-term debt.

2 

See “Accounting Policies” for more information.

The 6% increase in finance costs this year was a result of:

 

interest on lease liabilities as a result of our adoption of IFRS 16; and

 

higher outstanding debt as a result of our debt issuances in April 2019, in large part to fund our acquisition of 600 MHz spectrum licences (see “Managing Our Liquidity and Financial Resources”); partially offset by

 

a $21 million loss on discontinuation of hedge accounting on certain bond forward derivatives recognized in 2018.

Interest on borrowings

Interest on borrowings increased this year as a result of the net issuance of senior notes throughout the year, partially offset by a higher proportion of borrowings under our lower-interest US CP program compared to 2018. See “Managing Our Liquidity and Financial Resources” for more information about our debt and related finance costs.

Loss on repayment of long-term debt

This year, we recognized a $19 million loss (2018 – $28 million loss) on repayment of long-term debt, reflecting the payment of redemption premiums associated with our redemption of $900 million (2018 – US$1.4 billion) of 4.7% senior notes in November 2019 that were otherwise due in September 2020 (2018 – 6.8% senior notes in April 2018 that were otherwise due in August 2018).

Foreign exchange and change in fair value of derivative instruments

We recognized $79 million in net foreign exchange gains in 2019 (2018 – $136 million in net losses). These gains and losses were primarily attributed to our US dollar-denominated commercial paper (US CP) program borrowings.

These foreign exchange gains (2018 – losses) were offset by the $80 million loss related to the change in fair value of derivatives (2018 – $95 million gain) that was primarily attributed to the debt derivatives, which were not designated as hedges for accounting purposes, we used to offset the foreign exchange risk related to these US dollar-denominated borrowings.

 

 

44     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

During the year ended December 31, 2018, we determined that we would no longer be able to exercise certain ten-year bond forward derivatives within the originally designated time frame. Consequently, we discontinued hedge accounting on those bond forward derivatives and reclassified a $21 million loss from the hedging reserve within shareholders’ equity to finance costs (recorded in “change in fair value of derivative instruments”). We subsequently extended the bond forwards to May 31, 2019, with the ability to extend them further, and redesignated them as effective hedges. During the year ended December 31, 2019, we exercised our remaining bond forwards.

See “Managing Our Liquidity and Financial Resources” for more information about our debt and related finance costs.

INCOME TAX EXPENSE

Below is a summary of the difference between income tax expense computed by applying the statutory income tax rate to income before income tax expense and the actual income tax expense for the year.

 

   
    

Years ended December 31

 

(In millions of dollars, except tax rates)

  

2019

   

2018

 

Statutory income tax rate

  

 

26.7%

 

 

 

26.7%

 

Income before income tax expense

  

 

2,755

 

 

 

2,817

 

Computed income tax expense

  

 

736

 

 

 

752

 

Increase (decrease) in income tax expense resulting from:

    

Non-deductible stock-based compensation

  

 

 

 

 

5

 

Non-deductible portion of equity losses

  

 

7

 

 

 

1

 

Income tax adjustment, legislative tax change

  

 

(23

 

 

 

Non-taxable portion of capital gains

  

 

(2

 

 

(9

Other items

  

 

(6

 

 

9

 

Total income tax expense

  

 

712

 

 

 

758

 

Effective income tax rate

  

 

25.8%

 

 

 

26.9%

 

Cash income taxes paid

  

 

400

 

 

 

370

 

Our effective income tax rate this year was 25.8% compared to 26.9% for 2018. The effective income tax rate for 2019 was lower than the statutory tax rate primarily as a result of a reduction to the Alberta corporate income tax rate over a four-year period.

Cash income taxes paid increased this year primarily as a result of the timing of installment payments.

NET INCOME

Net income was 1% lower than last year. See “Key Changes in Financial Results This Year Compared to 2018” for more information.

 

   

(In millions of dollars, except per
share amounts)

  

Years ended December 31

 
  

 

2019

    

2018

    

% Chg

 

Net income

  

 

2,043

 

  

 

2,059

 

  

 

(1

Basic earnings per share

  

$

3.99

 

  

$

4.00

 

  

 

 

Diluted earnings per share

  

$

3.97

 

  

$

3.99

 

  

 

(1

ADJUSTED NET INCOME

Adjusted net income was 5% lower compared to 2018, primarily as a result of higher depreciation and amortization and higher finance costs, partially offset by higher adjusted EBITDA.

 

   

(In millions of dollars, except per
share amounts)

 

Years ended December 31

 
 

 

2019

   

2018

   

% Chg

 

Adjusted EBITDA 1

 

 

6,212

 

 

 

5,983

 

 

 

4

 

Deduct (add):

     

Depreciation and amortization

 

 

2,488

 

 

 

2,211

 

 

 

13

 

Finance costs 2

 

 

821

 

 

 

744

 

 

 

10

 

Other income

 

 

(10

 

 

(32

 

 

(69

Income tax expense 3

 

 

778

 

 

 

819

 

 

 

(5

Adjusted net income 1

 

 

2,135

 

 

 

2,241

 

 

 

(5

Adjusted basic earnings per share 1

 

$

4.17

 

 

$

4.35

 

 

 

(4

Adjusted diluted earnings per share 1

 

$

4.15

 

 

$

4.34

 

 

 

(4

 

1

Adjusted EBITDA, adjusted net income, and adjusted basic and diluted earnings per share are non-GAAP measures and should not be considered as substitutes or alternatives 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 and Related Performance Measures” for information about these measures, including how we calculate them.

2 

Finance costs above exclude a $19 million loss on repayment of long-term debt for the year ended December 31, 2019 (2018 – $28 million). Finance costs also exclude a $21 million loss on discontinuation of hedge accounting on certain bond forwards for the year ended December 31, 2018.

3 

Income tax expense above excludes a $43 million recovery (2018 – $61 million recovery) for the year ended December 31, 2019 related to the income tax impact for adjusted items. Income tax expense also excludes a $23 million recovery (2018 – nil) as a result of legislative tax changes for the year ended December 31, 2019.

EMPLOYEES

Employee salaries and benefits represent a material portion of our expenses. As at December 31, 2019, we had approximately 25,300 employees (2018 – 26,100) across all of our operating groups, including shared services and the corporate office. Total salaries and benefits for full-time and part-time employees in 2019 were $2,005 million (2018 – $2,089 million).

 

 

2019 ANNUAL REPORT  ROGERS COMMUNICATIONS INC.   |     45


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

2018 FULL-YEAR RESULTS COMPARED TO 2017

 

   
    

Years ended December 31

 

(In millions of dollars, except margins)

  

2018 1

   

2017 1

   

% Chg

 

Revenue

      

Wireless

  

 

9,200

 

 

 

8,569

 

 

 

7

 

Cable

  

 

3,932

 

 

 

3,894

 

 

 

1

 

Media

  

 

2,168

 

 

 

2,153

 

 

 

1

 

Corporate items and intercompany eliminations 2

  

 

(204

 

 

(247

 

 

(17

Revenue

  

 

15,096

 

 

 

14,369

 

 

 

5

 

Total service revenue 2

  

 

12,974

 

 

 

12,550

 

 

 

3

 

Adjusted EBITDA 3

      

Wireless

  

 

4,090

 

 

 

3,726

 

 

 

10

 

Cable

  

 

1,874

 

 

 

1,819

 

 

 

3

 

Media

  

 

196

 

 

 

127

 

 

 

54

 

Corporate items and intercompany eliminations

  

 

(177

 

 

(170

 

 

4

 

Adjusted EBITDA 3

  

 

5,983

 

 

 

5,502

 

 

 

9

 

Adjusted EBITDA margin 3

  

 

39.6%

 

 

 

38.3%

 

 

 

1.3pts

 

Net income

  

 

2,059

 

 

 

1,845

 

 

 

12

 

Adjusted net income 3

  

 

2,241

 

 

 

1,902

 

 

 

18

 

 

1

Effective January 1, 2019, we adopted IFRS 16, with the ongoing impacts of this standard included in our results prospectively from that date. Our 2018 and 2017 results have not been restated for the effects of IFRS 16. See “Accounting Policies”.

2

As defined. See “Key Performance Indicators”.

3 

Adjusted EBITDA, adjusted EBITDA margin, and adjusted net income are non-GAAP measures and should not be considered substitutes or alternatives 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 and Related Performance Measures” for information about these measures, including how we calculate them.

Revenue

Consolidated revenue increased by 5% in 2018, reflecting revenue growth of 7% in Wireless and 1% in both Cable and Media. Wireless revenue increased as a result of the increased mix of subscribers on higher-rate plans from our various brands and an increase in sales of higher-value devices. Cable revenue increased by 1% as the increase in Internet revenue from the general movement of customers to higher speed and usage tiers of our Internet offerings was partially offset by the decrease in legacy Television subscribers and the impact of Phone pricing packages. Media revenue increased by 1% as a result of higher revenue at the Toronto Blue Jays, including a distribution from Major League Baseball, and higher Sportsnet and other network subscription revenue, partially offset by lower advertising revenue.

Adjusted EBITDA

Consolidated adjusted EBITDA increased in 2018 to $5,983 million, reflecting increases in Wireless, Cable, and Media. Wireless adjusted EBITDA increased 10% as a result of the strong flow-through of service revenue growth, partially offset by higher expenditures associated with increased subscriber volumes and costs of devices. Cable adjusted EBITDA increased by 3% in 2018 as a result of strong Internet revenue growth, the ongoing product mix shift to higher-margin Internet services, and various cost efficiency and productivity initiatives. Media adjusted EBITDA increased 54% primarily as a result of the increase in revenue as discussed above and lower operating expenses from improvements made to our cost structure across the divisions.

Net income and adjusted net income

Net income and adjusted net income both increased in 2018 primarily as a result of higher adjusted EBITDA, partially offset by higher depreciation and amortization. Net income increased to $2,059 million in 2018 from $1,845 million in 2017 and adjusted net income increased to $2,241 million in 2018 from $1,902 million in 2017.

 

 

46     |   ROGERS COMMUNICATIONS INC.  2019 ANNUAL REPORT


Table of Contents

QUARTERLY RESULTS

Below is a summary of our quarterly consolidated financial results and key performance indicators for 2019 and 2018.

QUARTERLY CONSOLIDATED FINANCIAL SUMMARY

 

       
   

2019

         

2018 1

 

(In millions of dollars, except per share amounts)

 

Full Year

   

Q4

   

Q3

   

Q2

   

Q1

          

Full Year

   

Q4

   

Q3

   

Q2

   

Q1

 

Revenue

                     

Wireless

 

 

9,250

 

 

 

2,493

 

 

 

2,324

 

 

 

2,244

 

 

 

2,189

 

   

 

9,200

 

 

 

2,464

 

 

 

2,331

 

 

 

2,214

 

 

 

2,191

 

Cable

 

 

3,954

 

 

 

987

 

 

 

994

 

 

 

997

 

 

 

976

 

   

 

3,932

 

 

 

989

 

 

 

983

 

 

 

991

 

 

 

969

 

Media

 

 

2,072

 

 

 

530

 

 

 

483

 

 

 

591

 

 

 

468

 

   

 

2,168

 

 

 

540

 

 

 

488

 

 

 

608

 

 

 

532

 

Corporate items and intercompany eliminations

 

 

(203

 

 

(58

 

 

(47

 

 

(52

 

 

(46

         

 

(204

 

 

(55

 

 

(33

 

 

(57

 

 

(59

Total revenue

 

 

15,073

 

 

 

3,952

 

 

 

3,754

 

 

 

3,780

 

 

 

3,587

 

   

 

15,096

 

 

 

3,938

 

 

 

3,769

 

 

 

3,756

 

 

 

3,633

 

Total service revenue 2

 

 

12,965

 

 

 

3,244

 

 

 

3,233

 

 

 

3,345

 

 

 

3,143

 

         

 

12,974

 

 

 

3,276

 

 

 

3,271

 

 

 

3,300

 

 

 

3,127

 

Adjusted EBITDA

                     

Wireless

 

 

4,345

 

 

 

1,064

 

 

 

1,138

 

 

 

1,128

 

 

 

1,015

 

   

 

4,090

 

 

 

1,028

 

 

 

1,099

 

 

 

1,029

 

 

 

934

 

Cable

 

 

1,919

 

 

 

497

 

 

 

499

 

 

 

478

 

 

 

445

 

   

 

1,874

 

 

 

489

 

 

 

490

 

 

 

462

 

 

 

433

 

Media

 

 

140

 

 

 

22

 

 

 

130

 

 

 

72

 

 

 

(84

   

 

196

 

 

 

40

 

 

 

73

 

 

 

60

 

 

 

23

 

Corporate items and intercompany eliminations

 

 

(192

 

 

(53

 

 

(55

 

 

(43

 

 

(41

         

 

(177

 

 

(36

 

 

(42

 

 

(47

 

 

(52

Adjusted EBITDA 3

 

 

6,212

 

 

 

1,530

 

 

 

1,712

 

 

 

1,635

 

 

 

1,335

 

         

 

5,983

 

 

 

1,521

 

 

 

1,620

 

 

 

1,504

 

 

 

1,338

 

Deduct (add):

                     

Depreciation and amortization

 

 

2,488

 

 

 

638

 

 

 

627

 

 

 

614

 

 

 

609

 

   

 

2,211

 

 

 

564

 

 

 

558

 

 

 

545

 

 

 

544

 

Gain on disposition of property, plant and equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

(16

 

 

 

 

 

(5

 

 

 

 

 

(11

Restructuring, acquisition and other

 

 

139

 

 

 

38

 

 

 

42

 

 

 

39

 

 

 

20

 

   

 

210

 

 

 

94

 

 

 

47

 

 

 

26

 

 

 

43

 

Finance costs

 

 

840

 

 

 

230

 

 

 

215

 

 

 

206

 

 

 

189

 

   

 

793

 

 

 

205

 

 

 

176

 

 

 

193

 

 

 

219

 

Other (income) expense

 

 

(10

 

 

(12

 

 

16

 

 

 

(1

 

 

(13

         

 

(32

 

 

(26

 

 

15

 

 

 

2

 

 

 

(23

Net income before income tax expense

 

 

2,755

 

 

 

636

 

 

 

812

 

 

 

777

 

 

 

530

 

   

 

2,817

 

 

 

684

 

 

 

829

 

 

 

738

 

 

 

566

 

Income tax expense

 

 

712

 

 

 

168

 

 

 

219

 

 

 

186

 

 

 

139

 

         

 

758

 

 

 

182

 

 

 

235

 

 

 

200

 

 

 

141

 

Net income

 

 

2,043

 

 

 

468

 

 

 

593

 

 

 

591

 

 

 

391

 

         

 

2,059

 

 

 

502

 

 

 

594

 

 

 

538

 

 

 

425

 

Earnings per share:

                     

Basic

 

$

3.99

 

 

$

0.92

 

 

$

1.16

 

 

$

1.15

 

 

$

0.76

 

   

$

4.00

 

 

$

0.97

 

 

$

1.15

 

 

$

1.04

 

 

$

0.83

 

Diluted

 

$

3.97

 

 

$

0.92

 

 

$

1.14

 

 

$

1.15

 

 

$

0.76

 

   

$

3.99

 

 

$

0.97

 

 

$

1.15

 

 

$

1.04

 

 

$

0.80

 

Net income

 

 

2,043

 

 

 

468

 

 

 

593

 

 

 

591

 

 

 

391

 

   

 

2,059

 

 

 

502

 

 

 

594

 

 

 

538

 

 

 

425

 

Add (deduct):

                     

Restructuring, acquisition and other

 

 

139

 

 

 

38

 

 

 

42

 

 

 

39

 

 

 

20

 

   

 

210

 

 

 

94

 

 

 

47

 

 

 

26

 

 

 

43

 

Loss on bond forward derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

21

 

 

 

21

 

 

 

 

 

 

 

 

 

 

Loss on repayment of long-term debt

 

 

19

 

 

 

19

 

 

 

 

 

 

 

 

 

 

   

 

28

 

 

 

 

 

 

 

 

 

 

 

 

28

 

Gain on disposition of property, plant and equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

(16

 

 

 

 

 

(5

 

 

 

 

 

(11

Income tax impact of above items

 

 

(43

 

 

(14

 

 

(13

 

 

(10

 

 

(6

   

 

(61

 

 

(32

 

 

(11

 

 

(10

 

 

(8

Income tax adjustment, legislative tax change

 

 

(23

 

 

 

 

 

 

 

 

(23

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income 3

 

 

2,135

 

 

 

511

 

 

 

622

 

 

 

597