Rogers Communications Reports Fourth Quarter and Full-Year 2018 Results; Announces 2019 Financial Guidance

• Delivered solid fourth quarter results; grew revenue and adjusted EBITDA by 6%
  • Grew Wireless revenue by 8% and adjusted EBITDA by 7%
  • Delivered Q4 Wireless postpaid net additions of 112,000 and churn of 1.23%, our best Q4 performance in 9 years
  • Increased Wireless blended ABPU by 3%; increased blended ARPU by 2%
  • Grew Cable revenue by 1% and adjusted EBITDA by 3% driven by growth in Internet
• Delivered strong 2018 results; grew total revenue by 5% and adjusted EBITDA by 9%
  • Delivered Wireless adjusted EBITDA growth of 10% and churn improvement of 10 basis points
  • Increased Wireless postpaid net additions growth by 99,000 and delivered 4% blended ABPU growth
  • Achieved strong Cable results led by Internet revenue growth of 7% and net additions growth of 14,000
  • Increased adjusted EBITDA margin by 130 basis points due to our steady focus on cost management
• Released strong financial guidance for full-year 2019
  • Released revenue growth range of 3% to 5%; adjusted EBITDA growth of 7% to 9%
  • Projected capital expenditures of $2.85 billion to $3.05 billion
• Announced annualized dividend rate increase of 4.2% to $2.00 per share

TORONTO, Jan. 24, 2019 (GLOBE NEWSWIRE) — Rogers Communications Inc. today announced its unaudited financial and operating results for the fourth quarter ended December 31, 2018.

Consolidated Financial Highlights

¹ 2017 reported figures have been restated applying the new revenue recognition standard, IFRS 15. See “Critical Accounting Policies and Estimates”.
² As defined. See “Key Performance Indicators”.
³ As defined. See “Non-GAAP Measures”. These measures 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.

“We delivered strong financial and operating results in the fourth quarter and terrific results for the full year,” said Joe Natale, President and CEO. “We delivered on all of our key financial commitments and released a strong outlook for 2019. Overall, we have good momentum and we continue to make meaningful and substantial headway on our key strategic priorities, including our relentless focus on our customers, our well-timed investments in our networks, and our steadfast commitment to deliver strong shareholder value.”

Quarterly Financial Highlights

Higher revenue
Total revenue increased 6% this quarter, largely driven by Wireless service revenue growth of 5%. Growth in Wireless was a result of our balanced approach to continue monetizing the increasing demand for data along with a disciplined approach around subscriber base management. Wireless equipment revenue grew 17% this quarter driven by an increase in sales of higher value devices and increased hardware upgrades.

Cable revenue increased 1% this quarter as Internet revenue growth of 6% continued to drive the Cable segment. This quarter, we had net additions of 25,000 for Internet.

Media revenue increased 3% this quarter primarily as a result of higher advertising and sports-related revenue.

Higher adjusted EBITDA and margins
This quarter, adjusted EBITDA increased 6% with a margin expansion of 10 basis points. This increase was driven by Wireless adjusted EBITDA growth of 7%, as a result of strong growth in Wireless revenue, partially offset by investments in our frontline employees, which led to a margin of 41.7%, down 50 basis points from last year.

Cable adjusted EBITDA increased 3% this quarter primarily from the ongoing product mix shift to higher-margin Internet services and various cost efficiencies achieved. This gave rise to a margin of 49.4% this quarter, up 80 basis points from last year.

Media adjusted EBITDA increased 8% this quarter primarily as a result of increased revenue, resulting in a margin of 7.4%, up 40 basis points from last year.

Higher net income and adjusted net income
Net income and adjusted net income increased this quarter by 1% and 11%, respectively, as a result of higher adjusted EBITDA, partially offset by higher depreciation and amortization.

Substantial cash flow affords financial flexibility and supports network evolution
We continued to generate substantial cash flow from operating activities of $1,051 million this quarter and free cash flow of $275 million. Cash flow from operating activities decreased by 8% as a result of a higher net investment in working capital items and higher interest paid. Free cash flow increased by 20% as a result of higher adjusted EBITDA.

Our solid financial results enabled us to continue to make investments in our network, strengthen our balance sheet and liquidity, and still return substantial dividends to shareholders. We paid $247 million in dividends this quarter and announced a 4.2% increase to our annualized dividend rate, bringing our annual declared dividend to $2.00 per share. We ended the fourth quarter with a debt leverage ratio of 2.5, down from 2.7 at the end of 2017.

Strategic Highlights

Our six company priorities guide our work and decision-making as we further improve our operational execution and make well-timed investments to grow our core businesses and deliver increased shareholder value. Below are some highlights for 2018.

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

• Delivered a 10 basis point improvement in Wireless postpaid churn.
• Improved customer self-serve and grew customer digital adoption.

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

• Improved our wireless network performance in our top 6 markets.
• Signed a three-year partnership with the University of British Columbia to create Canada’s first real-world 5G hub.
• Received the 2018 Speedtest® Award for Canada’s Fastest Internet from Ookla®.

Deliver innovative solutions and compelling content that our customers will love

• Introduced Ignite TV across our Ontario cable footprint.
• Invested $679 million during the 2018 broadcast year to create and produce Canadian content.
• Celebrated 50 years of local programming through Rogers TV.

Drive profitable growth in all the markets we serve

• Achieved 2018 guidance targets, and raised adjusted EBITDA guidance in the third quarter.
• Grew total revenue by 5% and adjusted EBITDA by 9%.
• Delivered total shareholder return of 12.5%, 21 points above the TSX Composite Index.

Develop our people and a high performance culture

• Achieved a best-in-class employee engagement score of 82%.
• Recognized by Mediacorp Canada as one of Canada’s Top 100 Employers in November 2018 and as a Top Employer for Young People in February 2018.
• Achieved female representation of 30% for executive positions of Vice-President and above.

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

• Contributed approximately $60 million through cash and in-kind investments to help our communities thrive.
• Provided 313 students with Ted Rogers Scholarships and awarded 105 community grants in 2018.
• Expanded our Connected for Success affordable Internet program to 300 non-profit housing providers.

Achieved 2018 Guidance

The following table outlines guidance ranges that we had previously provided and our actual results and achievements for the selected full-year 2018 financial metrics.

n/m – not meaningful

¹ This table outlines guidance ranges for selected full-year 2018 consolidated financial metrics provided in our January 25, 2018 earnings release and subsequently updated on October 19, 2018. Guidance ranges presented as percentages reflect percentage increases over 2017 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” 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.

2019 Outlook

For the full-year 2019, we expect steady growth in revenue and adjusted EBITDA to drive higher free cash flow, despite higher projected capital expenditures. In 2019, we expect to have the financial flexibility to maintain our network advantages, to further reduce debt, and to continue to return cash to shareholders.

¹ Guidance ranges presented as percentages reflect percentage increases over full-year 2018 results. 2019 amounts for purposes of assessing our performance against guidance will be calculated in accordance with accounting policies after adopting IFRS 16, Leases (IFRS 16) on January 1, 2019. See “Critical Accounting Polices and Estimates” for more information.
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” for information about these measures, including how we calculate them.
³ We will record the initial impacts of adopting IFRS 16 in our opening balance sheet effective January 1, 2019. The ongoing impacts will be addressed in our results prospectively from that date. Our 2018 results will not be restated such that our 2019 guidance ranges for adjusted EBITDA and free cash flow include the effect of our adoption of IFRS 16. Were we to adopt IFRS 16 on a retrospective basis, 2018 adjusted EBITDA and free cash flow would each have been $174 million higher.
⁴ Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences.
⁵ Effective January 1, 2019, we will amend our definition of free cash flow. Free cash flow presented above reflects this change. See “Managing our Liquidity and Financial Resources” for more information, including a reconciliation of the impact of this change on full-year 2018 free cash flow.

The above table outlines guidance ranges for selected full-year 2019 consolidated financial metrics. These ranges take into consideration our current outlook, our 2018 results, and the estimated effect of our adoption of IFRS 16 on January 1, 2019 on a cumulative catch-up basis and not retrospectively. The purpose of the financial outlook is to assist investors, shareholders, and others in understanding certain financial metrics relating to expected 2019 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” (including the material assumptions listed under the heading “Key assumptions underlying our 2019 guidance”) 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.

We provide annual guidance ranges on a consolidated full-year basis that are consistent with annual full-year Board of Directors-approved plans. 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.

About Rogers

Rogers is a leading diversified Canadian communications and media company. We are Canada’s largest provider of wireless communications services and one of Canada’s leading providers of cable television, high-speed Internet, information technology, and telephony services to consumers and businesses. Through Rogers Media, we are engaged in radio and television broadcasting, sports, televised and online shopping, magazines, and digital media. 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).

Quarterly Investment Community Teleconference

Our fourth quarter 2018 results teleconference with the investment community will be held on:

• January 24, 2019
• 8:00 a.m. Eastern Time
• webcast available at investors.rogers.com
• media are welcome to participate on a listen-only basis

A rebroadcast will be available at investors.rogers.com for at least two weeks following the teleconference. Additionally, investors should note that from time to time, Rogers’ management presents at brokerage-sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Rogers’ website at investors.rogers.com.

For More Information

You can find more information relating to us 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 earnings release is not part of, or incorporated into, this earnings release.

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

About this Earnings Release

This earnings release contains important information about our business and our performance for the three and twelve months ended December 31, 2018, as well as forward-looking information about future periods. This earnings release should be used as preparation for reading our forthcoming Management’s Discussion and Analysis (MD&A) and Audited Consolidated Financial Statements for the year ended December 31, 2018, which we intend to file with securities regulators in Canada and the US in the coming weeks. These statements will be made available on the investors.rogers.com, sedar.com, and sec.gov websites or mailed upon request.

The financial information contained in this earnings release is prepared using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. This earnings release should be read in conjunction with our 2017 Annual MD&A, our 2017 Audited Consolidated Financial Statements, our 2018 First, Second, and Third Quarter MD&A and Interim Condensed Consolidated Financial Statements, and our other recent filings with Canadian and US securities regulatory authorities, which are available on SEDAR at sedar.com or EDGAR at sec.gov, respectively.

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.

All dollar amounts are in Canadian dollars unless otherwise stated and are unaudited. All percentage changes are calculated using the rounded numbers as they appear in the tables. Information is current as at January 24, 2019 and was approved by RCI’s Board of Directors (the Board). This earnings release includes forward-looking statements and assumptions. See “About Forward-Looking Information” for more information.

In this earnings release, this quarter, the quarter, or the fourth quarter refer to the three months ended December 31, 2018, first quarter refers to the three months ended March 31, 2018, second quarter refers to the three months ended June 30, 2018, third quarter refers to the three months ended September 30, 2018, and year to date or full-year refer to the twelve months ended December 31, 2018. All results commentary is compared to the equivalent periods in 2017 or as at December 31, 2017, as applicable, unless otherwise indicated.

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

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.

Effective January 1, 2018, we redefined our reportable segments as a result of technological evolution and the increased overlap between the various product offerings within our legacy Cable and legacy Business Solutions reportable segments, as well as how we allocate resources amongst, and the general management of, our reportable segments. The results of our legacy Cable segment, legacy Business Solutions segment, and our Smart Home Monitoring products are presented within a redefined Cable segment. Financial results related to our Smart Home Monitoring products were previously reported within Corporate items and intercompany eliminations. We have retrospectively amended our 2017 comparative segment results to account for this redefinition.

Additionally, effective January 1, 2018, we commenced using adjusted EBITDA as the key measure of profit for the purpose of assessing performance for each segment and to make decisions about the allocation of resources. This measure replaced our previous adjusted operating profit non-GAAP measure. We believe adjusted EBITDA more fully reflects segment and consolidated profitability. The difference between adjusted operating profit and adjusted EBITDA is that adjusted EBITDA includes stock-based compensation expense. Use of this measure changed our definition of free cash flow. 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” for information about these measures, including how we calculate them.

Summary of Consolidated Financial Results

¹ 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
² These figures have been retrospectively amended as a result of our reportable segment realignment. See “Reportable Segments”.
³ As defined. See “Key Performance Indicators”.
⁴ Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic and diluted earnings per share, 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” for information about these measures, including how we calculate them.

Results of our Reportable Segments

WIRELESS

Wireless Financial Results

¹ 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
² Other operating expenses for 2017 have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Wireless Subscriber Results ¹

¹ Subscriber counts, subscriber churn, blended ABPU, and blended ARPU are key performance indicators. Effective January 1, 2018, in conjunction with our transition to IFRS 15, we commenced reporting blended ABPU as a new key performance indicator. See “Key Performance Indicators”.
² As at end of period.
³ Blended ARPU has been restated for 2017 using revenue recognition policies in accordance with IFRS 15.

Service revenue
The 5% increase in service revenue this quarter was a result of:

• 2% increase in blended ARPU this quarter, primarily due to the increased mix of subscribers on higher-rate plans from our various brands; and
• a larger postpaid subscriber base.

The 3% increase in blended ABPU this quarter was a result of the increased service revenue as described above.

Gross postpaid subscriber additions this quarter were 448,000. We believe the marginal decrease in this figure from the same period last year was a result of a highly competitive market this quarter along with our disciplined approach around subscriber base management. We believe the higher postpaid net additions and lower postpaid churn this quarter were a result of our strategic focus on enhancing the customer experience by improving our customer service and continually increasing the quality of our network.

Equipment revenue
The 17% increase in equipment revenue this quarter was a result of:

• an increase in sales of higher-value devices; and
• an increase in device upgrades by existing subscribers.

Operating expenses
Cost of equipment

The 12% increase in the cost of equipment this quarter was a result of:

• a shift in the product mix of device sales towards higher-cost smartphones; and
• the increase in device upgrades by existing subscribers.

Other operating expenses

The 6% increase in other operating expenses this quarter was primarily a result of investments in frontline employees.

Adjusted EBITDA
The 7% increase in adjusted EBITDA this quarter was a result of the revenue and expense changes discussed above.

CABLE

Cable Financial Results

¹ Effective January 1, 2018 and on a retrospective basis, we realigned our reportable segments and related financial results. See “Reportable Segments”.
² Other operating expenses for 2017 have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Cable Subscriber Results ¹

¹  Subscriber counts are key performance indicators. See “Key Performance Indicators”.
²  Effective January 1, 2018, and on a retrospective basis, our Internet subscriber results include Smart Home Monitoring subscribers.
³  As at end of period.
⁴  Includes Internet, Television, and Phone.

Revenue
The 1% increase in revenue this quarter 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
• a lower subscriber base for our Television products.

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

• general movement of customers to higher speed and usage tiers of our Internet offerings;
• the impact of Internet service pricing changes; and
• a larger Internet subscriber base; partially offset by
• promotional pricing provided to subscribers.

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

• the decline in Television subscribers over the past year; partially offset by
• the impact of Television service pricing changes, net of promotional pricing provided to subscribers.

Phone revenue
The 12% decrease in Phone revenue this quarter was a result of promotional pricing provided to subscribers.

Operating expenses
The 1% decrease in operating expenses this quarter was a result of various cost efficiencies and productivity initiatives.

Adjusted EBITDA
The 3% increase in adjusted EBITDA this quarter was a result of the revenue and expense changes discussed above.

MEDIA

Media Financial Results

¹ Operating expenses for 2017 have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Revenue
The 3% increase in revenue this quarter was a result of:

• higher advertising revenue; and
• higher sports-related revenue.

Operating expenses
The 2% increase in operating expenses this quarter was a result of:

• higher programming costs; partially offset by
• various cost efficiencies and productivity initiatives across the divisions.

Adjusted EBITDA
The 8% increase in adjusted EBITDA this quarter was a result of the revenue and expense changes discussed above.

CAPITAL EXPENDITURES

¹ Effective January 1, 2018 and on a retrospective basis, we realigned our reportable segments and related financial results. As a result, certain figures have been amended for comparative purposes. See “Reportable Segments”.
² Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences.
³ As defined. See “Key Performance Indicators”.

Wireless
The increase in capital expenditures in Wireless this quarter was a result of investments made to upgrade our wireless network to continue delivering reliable performance for our customers. We have continued augmenting our existing LTE network with 4.5G technology investments that are also 5G-ready.

Cable
The decrease in capital expenditures in Cable this quarter was a result of lower investments in information technology, partially offset by greater investments in customer premise equipment. We also continued upgrading our hybrid fibre-coaxial infrastructure with additional fibre deployments and further DOCSIS technology enhancements. These deployments and enhancements 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.

Media
The increase in capital expenditures in Media this quarter was a result of higher investments in the Rogers Centre, partially offset by lower investments in our broadcast infrastructure.

Corporate
The decrease in capital expenditures in Corporate this quarter was a result of higher investments in information technology in 2017.

Capital intensity
Capital intensity decreased this quarter as a result of lower capital expenditures, as discussed above, and higher total revenue.

Review of Consolidated Performance

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

¹ 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
² 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” for information about this measure, including how we calculate it.

Depreciation and amortization

Total depreciation and amortization increased this quarter primarily as a result of higher capital expenditures this year. See “Capital Expenditures” for more information.

Restructuring, acquisition and other
This quarter, we incurred $94 million (2017 – $31 million) in restructuring, acquisition and other expenses. These costs were primarily a result of certain sports-related contract termination costs and severance costs associated with the targeted restructuring of our employee base.

Finance costs

¹ Interest on borrowings includes interest on short-term borrowings and on long-term debt.

Bond forwards
During the quarter, 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 January 31, 2019, with the ability to extend them further, and redesignated them as effective hedges.

Income tax expense

¹ 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

The payment of cash income taxes was lower this quarter based on the timing of installment payments.

Net income

¹ 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Adjusted net income
We calculate adjusted net income from adjusted EBITDA as follows:

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
²  Adjusted EBITDA, adjusted net income, and adjusted basic and diluted earnings per share 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” for information about these measures, including how we calculate them.
³  Finance costs exclude a $21 million loss on discontinuation of hedge accounting on certain bond forwards for the three and twelve months ended December 31, 2018 (2017 – nil) and a $28 million loss on repayment of long-term debt for the twelve months ended December 31, 2018 (2017 – nil).
⁴ Other income for the twelve months ended December 31, 2017 excludes a $20 million provision reversal on the wind down of shomi.
⁵  Income tax expense excludes a $32 million recovery (2017 – $7 million recovery) for the three months ended December 31, 2018 and a $61 million recovery (2017 – $28 million recovery) for the twelve months ended December 31, 2018 related to the income tax impact for adjusted items. For the three and twelve months ended December 31, 2017, income tax expense also excludes expenses as a result of legislative tax changes of $2 million.

Managing our Liquidity and Financial Resources

Operating, investing, and financing activities

¹ 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Operating activities
The 8% decrease in cash provided by operating activities this quarter was a result of a higher net investment in working capital items and higher interest paid, partially offset by lower income taxes paid.

Investing activities
Capital expenditures
During the quarter, we incurred $828 million on capital expenditures, before changes in non-cash working capital items, which was lower than the same period in 2017. See “Capital Expenditures” for more information.

Financing activities
During the quarter, we received net amounts of $282 million (2017 – repaid net amounts of $126 million) on our short-term borrowings, long-term debt, and related derivatives. See “Financial Risk Management” for more information on the cash flows relating to our derivative instruments.

Short-term borrowings
Our short-term borrowings consist of amounts outstanding under our accounts receivable securitization program and under our US dollar-denominated commercial paper (US CP) program. Below is a summary of our short-term borrowings as at December 31, 2018 and December 31, 2017.

The tables below summarize the activity relating to our short-term borrowings for the three and twelve months ended December 31, 2018 and 2017.

Concurrent with our US CP issuances, we entered into debt derivatives to hedge the foreign currency risk associated with the principal and interest components of the borrowings under our US CP program. See “Financial Risk Management” for more information.

Long-term debt
Our long-term debt consists of amounts outstanding under our bank credit facilities and letter of credit facilities and the senior notes and debentures we have issued. The tables below summarize the activity relating to our long-term debt for the three and twelve months ended December 31, 2018 and 2017.

Dividends
Below is a summary of the dividends we declared and paid on our outstanding RCI Class A Voting common shares (Class A Shares) and RCI Class B Non-Voting common shares (Class B Non-Voting Shares) in 2018 and 2017. On January 24, 2019, we announced a 4.2% increase in the annualized dividend rate to $2.00 per Class A Voting Share and Class B Non-Voting Share, to be paid in quarterly installments of $0.50 per share.

Free cash flow

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
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” 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.
⁴  Cash income taxes are net of refunds received.

Free cash flow increased this quarter primarily as a result of higher adjusted EBITDA and lower cash income taxes.

Effective January 1, 2019, we will redefine free cash flow such that we will no longer adjust for the “net change in contract asset and deferred commission cost asset balances” as outlined in the table below. We will redefine free cash flow to simplify this measure and we believe removing it will make us more comparable within our industry. This item was added on a transitional basis following our adoption of IFRS 15 to help stakeholders understand the impact this standard had on our results. The below table shows the effect this change will have on our free cash flow for the three and twelve months ended December 31, 2018 and 2017.

¹  Free cash flow is a non-GAAP measure and should not be considered a substitute or alternative for GAAP measures. This 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” for information about this measure, including how we calculate it.

Financial Condition

Below is a summary of our total available liquidity under our cash and cash equivalents, bank credit facilities, letter of credit facilities, and short-term borrowings as at December 31, 2018 and December 31, 2017.

In addition to the sources of available liquidity noted above, we held $1,051 million of marketable securities in publicly traded companies as at December 31, 2018 (December 31, 2017 – $1,465 million).

Weighted average cost of borrowings
Our weighted average cost of borrowings was 4.45% as at December 31, 2018 (December 31, 2017 – 4.70%) and our weighted average term to maturity was 10.7 years (December 31, 2017 – 9.9 years).

Credit ratings
Below is a summary of the credit ratings on RCI’s outstanding senior notes and debentures (long-term) and US CP (short-term) as at December 31, 2018.

¹  Unchanged in the quarter.
²  We did not seek a rating from Fitch for our short-term obligations in 2018.

Adjusted net debt and debt leverage ratio
We use adjusted net debt and debt leverage ratio to conduct valuation-related analysis and make capital structure-related decisions. Adjusted net debt includes long-term debt, net debt derivative assets or liabilities, short-term borrowings, and cash and cash equivalents or bank advances.

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
²  Includes current and long-term portion of long-term debt before deferred transaction costs and discounts. See “Reconciliation of adjusted net debt” in “Non-GAAP Measures” for the calculation of this amount.
³  For purposes of calculating adjusted net debt and debt leverage ratio, we believe including debt derivatives valued without adjustment for credit risk is commonly used to evaluate debt leverage and for market valuation and transactional purposes.
⁴  Adjusted net debt, adjusted EBITDA, and debt leverage ratio 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” for information about these measures, including how we calculate them.

Normal course issuer bid
In April 2018, the TSX accepted a notice of our intention to commence a normal course issuer bid (NCIB) that allows us to purchase, during the twelve-month period beginning April 24, 2018 and ending April 23, 2019, the lesser of 35.8 million Class B Non-Voting Shares and that number of Class B Non-Voting Shares that can be purchased under the NCIB for an aggregate purchase price of $500 million. Rogers security holders may obtain a copy of this notice, without charge, by contacting us. We have not repurchased any shares under our NCIB this quarter or this year.

Outstanding common shares

¹ Holders of our Class B Non-Voting Shares are entitled to receive notice of and to attend shareholder meetings; however, they are not entitled to vote at these meetings except as required by law or stipulated by stock exchanges. If an offer is made to purchase outstanding Class A Shares, there is no requirement under applicable law or our constating documents that an offer be made for the outstanding Class B Non-Voting Shares, and there is no other protection available to shareholders under our constating documents. If an offer is made to purchase both classes of shares, the offer for the Class A Shares may be made on different terms than the offer to the holders of Class B Non-Voting Shares.

Financial Risk Management

This section should be read in conjunction with “Financial Risk Management” in our 2017 Annual MD&A. We use derivative instruments to manage financial risks related to our business activities. We only use derivatives to manage risk and not for speculative purposes. We also manage our exposure to both fixed and fluctuating interest rates and had fixed the interest rate on 85.3% of our outstanding debt, including short-term borrowings, as at December 31, 2018 (December 31, 2017 – 89.5%).

Debt derivatives
We use cross-currency interest exchange agreements (debt derivatives) to manage risks from fluctuations in foreign exchange rates associated with our US dollar-denominated senior notes and debentures, credit facility borrowings, and US dollar-denominated commercial paper borrowings. We designate the debt derivatives related to our senior notes and debentures as hedges for accounting purposes against the foreign exchange risk associated with specific debt instruments. Debt derivatives related to our credit facility and US CP borrowings have not been designated as hedges for accounting purposes.

Below is a summary of the debt derivatives we entered into and settled related to our credit facility borrowings and US CP program during the three and twelve months ended December 31, 2018 and 2017.

As at December 31, 2018, we had nil and US$1,178 million notional amount of debt derivatives outstanding relating to our credit facility borrowings and US CP program (December 31, 2017 – nil and US$746 million), respectively.

See “Mark-to-market value” for more information about our debt derivatives.

Senior notes
We did not enter into or settle any debt derivatives related to senior notes during the quarter. See “Mark-to-market value” for more information about our debt derivatives.

Bond forwards
We did not enter into or settle any bond forwards during the three or twelve months ended December 31, 2018 and 2017.

During the quarter, we determined that we would no longer be able to exercise certain ten-year bond forwards within the originally designated time frame. Consequently, we discontinued hedge accounting on those bond forwards and reclassified a $21 million loss from the hedging reserve within shareholders’ equity to finance costs. We subsequently extended the bond forwards to January 31, 2019, with the ability to extend them further, and redesignated them as effective hedges.

See “Mark-to-market value” for more information about our bond forwards.

Expenditure derivatives
Below is a summary of the expenditure derivatives we entered into and settled during the three and twelve months ended December 31, 2018 and 2017.

As at December 31, 2018, we had US$1,080 million notional amount of expenditure derivatives outstanding (December 31, 2017 – US$1,200 million) with terms to maturity ranging from January 2019 to December 2020 (December 31, 2017 – January 2018 to December 2019), at an average rate of $1.24/US$ (December 31, 2017 – $1.28/US$).

See “Mark-to-market value” for more information about our expenditure derivatives.

Equity derivatives
As at December 31, 2018, we had equity derivatives outstanding for 5.0 million (December 31, 2017 – 5.4 million) Class B Non-Voting Shares with a weighted average price of $51.54 (December 31, 2017 – $51.44).

We did not enter into or settle any equity derivatives during the quarter. See “Mark-to-market value” for more information about our equity derivatives.

Mark-to-market value
We record our derivatives using an estimated credit-adjusted, mark-to-market valuation, calculated in accordance with IFRS.

Critical Accounting Policies and Estimates

IFRS 15, Revenue from contracts with customers
We adopted IFRS 15, Revenue from contracts with customers (IFRS 15), on January 1, 2018. IFRS 15 supersedes previous accounting standards for revenue, including IAS 18, Revenue (IAS 18) and IFRIC 13, Customer loyalty programmes (IFRIC 13).

The application of this new standard has significant impacts on our reported Wireless results, specifically with regards to the timing of recognition and classification of revenue, and the treatment of costs incurred in acquiring customer contracts. The timing of recognition and classification of revenue is affected because, at contract inception, IFRS 15 requires the estimation of total consideration over the contract term and the allocation of that consideration to all performance obligations in the contract based on their relative stand-alone selling prices. This affects our Wireless arrangements that bundle equipment and service together into monthly service fees, which results in an increase to equipment revenue recognized at contract inception and a decrease to service revenue recognized over the course of the contracts as the device subsidy recovery component of our revenue is largely removed from our service revenue. The application of IFRS 15 does not affect our cash flows from operations or the methods and underlying economics through which we transact with our customers.

We have retrospectively applied IFRS 15 to all contracts that were not complete on the date of initial application. We have made a policy choice to restate each prior period presented and have recognized the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity as at January 1, 2017, subject to certain practical expedients we adopted. We have separately provided supplementary financial information at investors.rogers.com that provides our results under the prior accounting basis.

Effect of transition to IFRS 15
Below is a summary of the IFRS 15 adjustments on our key financial information for the three and twelve months ended December 31, 2017, all of which pertain to our Wireless segment.

¹ Amounts calculated on a basis consistent with our previous revenue recognition accounting policies prior to adopting IFRS 15. Certain amounts presented under prior accounting basis have been retrospectively amended as a result of our use of adjusted EBITDA in 2018.
²  As defined. See “Key Performance Indicators”.
³  Adjusted EBITDA 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” for information about these measures, including how we calculate them.
⁴ Operating expenses have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Below is a summary of the IFRS 15 adjustments on certain key financial metrics from our Consolidated Statements of Financial Position as at January 1, 2017 and December 31, 2017.

The application of IFRS 15 did not affect our cash flow totals from operating, investing, or financing activities.

IFRS 16, Leases (IFRS 16)
Effective January 1, 2019, we will adopt IFRS 16. Our first quarter 2019 interim financial statements will be our first financial statements issued in accordance with IFRS 16. IFRS 16 supersedes the current accounting standards for leases, including IAS 17, Leases (IAS 17) and IFRIC 4, Determining Whether an Arrangement Contains a Lease (IFRIC 4).

IFRS 16 introduces a single accounting model for lessees unless the underlying asset is of low value. A lessee will be required to recognize, on its statement of financial position, a right-of-use asset, representing its right to use the underlying leased asset, and a lease liability, representing its obligation to make lease payments. As a result of adopting IFRS 16, we will recognize a significant increase to both assets and liabilities on our Consolidated Statements of Financial Position, as well as a decrease to operating costs (and therefore an increase to adjusted EBITDA) to remove lease rent, an increase to depreciation and amortization (due to depreciation of the right-of-use asset), and an increase to finance costs (due to accretion of the lease liability). The accounting treatment for lessors will remain largely the same as under IAS 17.

We will adopt IFRS 16 with the cumulative effect of initial application recognized as an adjustment to retained earnings within shareholders’ equity on January 1, 2019. We will not restate comparatives for 2018.

Key Performance Indicators

We measure the success of our strategy using a number of key performance indicators that are defined and discussed in our 2017 Annual MD&A and this earnings release. We believe these key performance indicators allow us to appropriately measure our performance against our operating strategy and against the results of our peers and competitors. The following key performance indicators are not measurements in accordance with IFRS and should not be considered alternatives to net income or any other measure of performance under IFRS. They include:

• subscriber counts;
  • Wireless;
  • Cable; and
  • homes passed (Cable);
• subscriber churn (churn);
• blended average billings per user (ABPU);
• blended average revenue per user (ARPU);
• capital intensity; and
• total service revenue.

Non-GAAP Measures

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

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

Reconciliation of adjusted EBITDA

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of adjusted EBITDA margin

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of adjusted net income

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of adjusted earnings per share

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of free cash flow

¹ Includes “net change in contract asset balances” and the net change in deferred commission cost asset balances in “other” in operating activities on the Interim Condensed Consolidated Statements of Cash Flows.

Reconciliation of adjusted net debt and debt leverage ratio

¹  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Other Information

Consolidated financial results – quarterly summary
Below is a summary of our consolidated results for the past eight quarters.