Rogers Communications(RCI) - 2022 Q1 - Quarterly Report

Company Overview This section provides an overview of Rogers' identity, strategic direction from its leadership, and key personnel About Rogers Rogers is a leading Canadian technology and media company founded by Ted Rogers, providing wireless, cable, sports, and media services across Canada - Rogers has grown from a single radio station, CHFI, to a major Canadian technology and media company offering services in wireless, cable, sports, and media[5] - The company's stated purpose is to connect Canadians to the most important aspects of their lives[2] A Message from Tony Staffieri, President and CEO The CEO highlights 2022 as a significant year, emphasizing the upcoming combination with Shaw to create a truly national network operator, focusing on network leadership, customer experience, and successful integration - The combination with Shaw is a central theme, positioned to create a national network, increase choice, and allow for more effective competition[7][18] - Strategic priorities for 2022 are centered on network leadership, customer service improvement, and execution[9][15] - Increased investments are planned for the 5G network, utilizing newly acquired 3500 MHz spectrum, and for the cable business to advance the 10G initiative with DOCSIS 4.0 technology[11][12] - The company's 2022 guidance reflects expectations for stronger growth across all business segments, driven by renewed priorities and investments[22] A Message from Edward S. Rogers, Chair of the Board The Chair emphasizes continuing the founder's legacy through long-term investments, particularly the transformational Shaw transaction, and highlights strategic board changes and community commitments - The Rogers and Shaw transaction is presented as a bold step to accelerate network investment, increase competition, and bridge the digital divide in Western Canada[26][27] - In 2021, strategic changes were made to the Board and management team to improve business performance and deliver the benefits of the Shaw transaction[29] - The company is committed to maintaining network leadership, being the first to launch 5G in Canada and investing in 3500 MHz spectrum to expand its reach to underserved communities[34][35] - Community support in 2021 included expanding the low-cost 'Connected for Success' internet program to over 750,000 Canadians and awarding hundreds of Ted Rogers Scholarships[36][37] Executive Leadership Team and Directors This section lists the members of the Executive Leadership Team and the Board of Directors as of March 3, 2022, including their respective titles and committee chairmanships - Provides a list of the 11 members of the Executive Leadership Team, led by President and CEO Tony Staffieri[40] - Provides a list of the 13 members of the Board of Directors, chaired by Edward S. Rogers[41] 2021 Financial Report (Management's Discussion and Analysis) This section provides a comprehensive analysis of Rogers' 2021 financial performance, strategic initiatives, and risk management Executive Summary In 2021, Rogers achieved 5% growth in total revenue to $14.66 billion and a 1% increase in adjusted EBITDA to $5.89 billion, while net income slightly decreased and free cash flow declined by 29% 2021 Key Financial Information (Consolidated) | (In millions of dollars) | 2021 | 2020 | % Chg | | :--- | :--- | :--- | :--- | | Total revenue | 14,655 | 13,916 | 5% | | Adjusted EBITDA | 5,887 | 5,857 | 1% | | Net income | 1,558 | 1,592 | (2)% | | Adjusted net income | 1,803 | 1,725 | 5% | | Basic earnings per share | $3.09 | $3.15 | (2)% | | Capital expenditures | 2,788 | 2,312 | 21% | | Free cash flow | 1,671 | 2,366 | (29)% | 2021 Key Performance Indicators | (in thousands) | 2021 | 2020 | Chg | | :--- | :--- | :--- | :--- | | Wireless postpaid net additions | 448 | 245 | 203 | | Wireless subscribers | 11,297 | 10,943 | 354 | | Internet net additions | 49 | 57 | (8) | | Internet subscribers | 2,665 | 2,598 | 67 | - Revenue growth was driven by increases across all segments: Wireless service revenue up 1%, Cable revenue up 3%, and Media revenue up 23%[72] - Free cash flow decreased by 29% to $1.67 billion, mainly due to higher capital expenditures for network investments and increased cash income taxes related to the device financing business model[81] - The debt leverage ratio rose to 3.4 at year-end, up from 3.0 in 2020, driven by borrowings to pay for 3500 MHz spectrum licences and the issuance of $2 billion in subordinated notes[82] Shaw Transaction On March 15, 2021, Rogers announced an agreement to acquire Shaw Communications Inc. for approximately $26 billion, pending key regulatory approvals and expected to close in the first half of 2022 - Rogers agreed to acquire all of Shaw's shares for $40.50 per share, valuing the transaction at approximately $26 billion, including the assumption of about $6 billion of Shaw's debt[86] - The transaction is subject to customary closing conditions, including key regulatory approvals from the CRTC, Competition Bureau, and ISED Canada, with closing expected in the first half of 2022[87] - To finance the transaction, Rogers has secured a committed credit facility of up to $19 billion, partially reduced to $13 billion after entering into a separate $6 billion non-revolving term loan facility[90] Understanding Our Business Rogers operates through its Wireless, Cable, and Media segments, offering diverse services across Canada and facing intense competition and evolving consumer habits Company Segments and Principal Activities | 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 | | Media | A diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, and digital media | - The Wireless segment is a Canadian leader, being the first to launch a 5G network, which now serves over 1,500 communities and 70% of the Canadian population as of year-end 2021[97] - The Media segment's key assets include the Toronto Blue Jays, Rogers Centre, and an exclusive NHL agreement running through the 2025-2026 season[104][105] - Key industry trends include rising consumer demand for wireless data driving 5G investment, the shift in cable towards higher-speed internet and OTT services (cord-cutting), and the migration of media consumption and advertising to digital platforms[118][124][135] Our Strategy, Key Performance Drivers, and Strategic Highlights In 2021, Rogers focused on customer experience and network leadership, achieving 5G expansion and subscriber growth, with 2022 priorities including the Shaw acquisition and projected 4-6% service revenue growth - Key 2021 achievements include expanding the 5G network to over 1,500 communities, investing $3.3 billion in 3500 MHz spectrum, and improving Wireless postpaid churn by 5 basis points to 0.95%[144][146] - The four main focus areas for 2022 are: 1) Successfully complete the Shaw acquisition and integration, 2) Invest in networks for world-class connectivity, 3) Invest in customer experience, and 4) Improve execution and financial performance[154] 2022 Full-Year Consolidated Guidance | Metric | 2021 Actual (in millions) | 2022 Guidance Ranges | | :--- | :--- | :--- | | Total service revenue | $12,533 | Increase of 4% to 6% | | Adjusted EBITDA | $5,887 | Increase of 6% to 8% | | Capital expenditures | $2,788 | $2,800 to $3,000 | | Free cash flow | $1,671 | $1,800 to $2,000 | Capability to Deliver Results Rogers' capability is built on its leading 5G and cable networks, significant spectrum holdings, customer experience initiatives, and strong financial position with $4.2 billion in available liquidity - Rogers' wireless network was the first with 5G in Canada, reaching over 70% of the population by year-end 2021, and its LTE network reaches 96%[162] - The company holds a significant wireless spectrum position across low, mid, and high-band frequencies, including 600 MHz, 700 MHz, 2500 MHz, and newly acquired 3500 MHz licences[159][160] - The cable network consists of 81,000 km of fibre optic cable, delivering services over a hybrid fibre-coaxial (HFC) infrastructure that supports gigabit internet speeds and is evolving towards 10 Gbps with DOCSIS 4.0[164][170] - As of December 31, 2021, the company maintained financial strength with an investment-grade balance sheet and substantial available liquidity of $4.2 billion[180] 2021 Financial Results For 2021, Rogers reported a 5% revenue increase to $14.66 billion and a 1% adjusted EBITDA rise to $5.89 billion, driven by Wireless and Cable, while Media's EBITDA declined due to higher sports programming costs 2021 Consolidated Results Summary | (In millions of dollars) | 2021 | 2020 | % Chg | | :--- | :--- | :--- | :--- | | Total Revenue | 14,655 | 13,916 | 5% | | Adjusted EBITDA | 5,887 | 5,857 | 1% | | Net Income | 1,558 | 1,592 | (2)% | | Adjusted Net Income | 1,803 | 1,725 | 5% | | Capital Expenditures | 2,788 | 2,312 | 21% | - Wireless revenue grew 3% to $8.77 billion, with adjusted EBITDA up 4% to $4.21 billion, driven by a larger postpaid subscriber base and higher roaming revenue[191][200] - Cable revenue increased 3% to $4.07 billion, with adjusted EBITDA up 4% to $2.01 billion, due to customers moving to higher-speed internet tiers and subscriber growth[191][211] - Media revenue rose 23% to $1.98 billion, but adjusted EBITDA fell to a loss of $127 million from a gain of $51 million in 2020, due to higher programming costs as sports seasons returned to a more normal schedule[191][217][218] - Net income decreased by 2%, affected by $324 million in restructuring, acquisition, and other costs, of which $137 million was directly related to the pending Shaw transaction[231][234] Managing our Liquidity and Financial Resources In 2021, cash from operating activities decreased 4% to $4.16 billion, while investing activities significantly increased due to $3.3 billion in spectrum payments, leading to a rise in adjusted net debt to $20.0 billion and a 3.4 debt leverage ratio Cash Flow Summary | (In millions of dollars) | 2021 | 2020 | | :--- | :--- | :--- | | Cash provided by operating activities | 4,161 | 4,321 | | Cash used in investing activities | (6,133) | (2,558) | | Cash provided by financing activities | 203 | 227 | | Change in cash and cash equivalents | (1,769) | 1,990 | - Investing activities were dominated by the $3.3 billion payment for 3500 MHz spectrum licences and $2.8 billion in capital expenditures[278][279] - The company ended 2021 with available liquidity of $4.2 billion, comprising $0.7 billion in cash, $3.1 billion under bank facilities, and $0.4 billion under its receivables securitization program[84][309] - Adjusted net debt increased by $2.2 billion to $20.0 billion, primarily due to borrowings for spectrum acquisition and a decrease in cash position, resulting in a debt leverage ratio of 3.4[325][328] - The company paid $1.01 billion in dividends in 2021, maintaining its annualized dividend of $2.00 per share[304][188] Environmental, Social, and Governance (ESG) Rogers' ESG strategy focuses on employee and customer experience, community investment, environmental responsibility, and governance, highlighted by $70 million in donations and $1.38 billion in government payments in 2021 - In 2021, Rogers provided $70 million in cash and in-kind donations and expanded its 'Connected for Success' low-cost internet program to be available to over 750,000 Canadian households[381][386] - The company was recognized with several employer awards, including Canada's Top 100 Employers and Best Diversity Employer[378] - Voting control of the company is held by the Rogers Control Trust, which owns 98% of the Class A voting shares for the benefit of the Rogers family[391] - Total taxes and other government payments made by Rogers in 2021 amounted to $1.38 billion, including $700 million in income taxes paid[404][405] Risk Management Rogers' risk management focuses on the Shaw transaction's regulatory and financial implications, ongoing COVID-19 impacts, cybersecurity threats, and various litigation risks, including an $850 million lawsuit from Videotron - The completion of the Shaw transaction is a primary risk, contingent on obtaining key regulatory approvals and managing the significant increase in debt, which is expected to exceed $40 billion post-closing[418][420][429] - The COVID-19 pandemic continues to pose risks, including potential reductions in demand, lower roaming revenue, and supply chain disruptions for network equipment and devices[435][436][438] - Cybersecurity and privacy are significant risks, as a breach could result in service disruptions, litigation, and reputational damage[441][445] - The company is involved in several legal proceedings, notably a lawsuit from Videotron alleging breach of contract and seeking $850 million in damages related to a joint LTE network agreement[513] Regulation in our Industry Rogers' business is heavily regulated by ISED Canada and the CRTC, with key developments including the 3500 MHz spectrum auction, upcoming 3800 MHz auction, and CRTC mandates on wholesale MVNO access and low-cost retail plans - The business is regulated by ISED Canada (spectrum) and the CRTC (telecommunications and broadcasting)[523] - Rogers won 325 licences in the 3500 MHz spectrum auction for $3.3 billion in 2021, crucial for its 5G network expansion, with a subsequent auction for the 3800 MHz band expected in early 2023[552][555] - In April 2021, the CRTC mandated wholesale Mobile Virtual Network Operator (MVNO) access for regional wireless carriers and required national carriers to offer new low-cost and occasional-use retail plans[565][566][569] - The CRTC's 2021 decision on wholesale internet rates, which reversed a 2019 order for significantly lower rates, is currently under appeal by a wholesale ISP, creating ongoing uncertainty in the pricing regime[579][580] Other Information This section details Rogers' critical accounting policies, key performance indicators, upcoming KPI reporting changes, non-GAAP reconciliations, and a five-year summary of consolidated financial results - Critical accounting estimates involve revenue recognition (allocating transaction price), fair value of assets, useful lives of property and equipment, and impairment of assets like goodwill and spectrum licences[593][595][600][602] - Key Performance Indicators (KPIs) used to measure success include subscriber counts, churn, blended ARPU (Wireless), ARPA (Cable), and capital intensity[636] - Starting in 2022, the company will change its reporting of certain KPIs, including shifting to 'mobile phone subscribers' and 'mobile phone ARPU' in Wireless, and reporting only 'retail Internet subscribers' in Cable[652][653] Five-Year Financial Summary (Selected) | (In millions of dollars) | 2021 | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | 14,655 | 13,916 | 15,073 | 15,096 | 14,369 | | Adjusted EBITDA | 5,887 | 5,857 | 6,212 | 5,983 | 5,502 | | Net income | 1,558 | 1,592 | 2,043 | 2,059 | 1,845 | | Free cash flow | 1,671 | 2,366 | 2,278 | 2,134 | 1,685 | Consolidated Financial Statements This section presents Rogers' formal consolidated financial statements for 2021 and 2020, along with the independent auditor's report and detailed notes on accounting policies and financial position Financial Statements and Independent Auditor's Report This section contains Rogers' formal consolidated financial statements for 2021 and 2020, along with KPMG LLP's unqualified audit opinion and identification of goodwill recoverability in Media as a critical audit matter - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the two-year period ended December 31, 2021, stating they present fairly, in all material respects, the financial position and performance in conformity with IFRS[676] - KPMG also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[677][687] - The audit identified the recoverability of the $969 million goodwill balance in the Media segment as a critical audit matter, due to the high degree of judgment involved in assessing future cash flows, discount rates, and terminal growth rates[681][682] Notes to Consolidated Financial Statements The notes provide detailed disclosures on Rogers' significant accounting policies, capital risk management, segmented information, assets, liabilities, financial risk management, and contingent liabilities, including the pending Shaw transaction - The company's capital management objectives are to ensure sufficient liquidity, with key metrics being adjusted net debt ($20.0 billion) and debt leverage ratio (3.4) at year-end 2021[732][737] - As of December 31, 2021, the company had long-term debt with a carrying amount of $17.1 billion and short-term borrowings of $2.2 billion[698] - The company actively uses derivative instruments to manage financial risks, including hedging 100% of the foreign currency risk on its US dollar-denominated senior notes and debentures[886][891] - The defined benefit pension plans were in a net asset position of $18 million as of December 31, 2021, a significant improvement from a net liability position of $574 million at the end of 2020[329][1037] Corporate and Shareholder Information This section provides essential contact details for corporate offices, shareholder services, and investor relations, along with stock exchange listings, dividend information, and trading ranges - Provides contact information for corporate offices, shareholder services (TSX Trust Company), and investor relations[1181][1182][1183] - Rogers' shares are listed on the Toronto Stock Exchange (RCI.A and RCI.B) and the New York Stock Exchange (RCI)[1184] 2022 Expected Dividend Dates | Record Date* | Payment Date* | | :--- | :--- | | March 10, 2022 | April 1, 2022 | | June 10, 2022 | July 4, 2022 | | September 9, 2022 | October 3, 2022 | | December 9, 2022 | January 3, 2023 | | * Subject to Board approval | |