Quebecor Inc. Holds a 54.7% Interest In Quebecor Media Inc., of Which Videotron Ltd. is a Wholly Owned Subsidiary
Quebecor Inc. ("Quebecor")(TSX:QBR.A)(TSX:QBR.B) today reported Videotron Ltd.'s ("Videotron") 2011 full-year and fourth quarter financial results.
Videotron's results are being released ahead of schedule due to certain reporting requirements in Canada and the United States. The financial year-end process and audit for Quebecor's other business segments are in progress and have not yet been completed. Quebecor plans to release its audited consolidated financial results for 2011 on March 15, 2012.
Quebecor and Videotron adopted International Financial Reporting Standards ("IFRS") on January 1, 2011. Videotron's 2011 full-year and fourth quarter consolidated financial statements have therefore been prepared in accordance with IFRS and comparative data for 2010 have been restated. Fore more information, refer to "Transition to IFRS" below.
Videotron's revenues totalled $2.43 billion, up $201.9 million (9.1%) from 2010.
Operating income(1) up $51.5 million (4.9%) to $1.10 billion.
Net income attributable to shareholder down $35.1 million (-6.9%) to $469.0 million.
Videotron recorded its largest annual customer increase since 2008, adding 375,800 revenue-generating units,(2) 39.3% more than the number added in 2010.
Net increase of 49,900 cable television customers in 2011 (34,600 in 2010), including a 181,200-subscriber increase for the digital service (135,500 in 2010), the strongest annual growth for the digital service since it was launched in 1999. Total revenues from cable television services passed the $1 billion mark.
Net increase of 80,400 customers for the cable Internet access service (81,500 in 2010).
Net increase of 91,000 customers for the cable telephony service (100,300 in 2010).
Net increase of 154,500 subscriber connections for the mobile telephony service. At December 31, 2011, Videotron's 4G network was available to nearly seven million people in Québec and eastern Ontario.
Fourth quarter 2011 highlights
Revenues up $43.6 million (7.4%) from the same quarter in 2010 to reach $634.8 million.
Operating income up $31.5 million (12.0%) to $294.7 million.
Net income attributable to shareholder up $66.0 million (68.8%) to $161.9 million.
(1) See "Operating income" under "Definitions."
(2) Revenue-generating units are the sum of cable television, Internet access and cable telephony service subscriptions, plus subscriber connections to the mobile telephony service.
2011 operating results
Revenues: $2.43 billion in 2011, an increase of $201.9 million (9.1%).
Combined revenues from all cable television services topped $1 billion for the first time, increasing by $62.0 million (6.5%) to $1.01 billion, mainly because of the higher revenue per user generated by increases in some rates, the success of high definition ("HD") packages, increased pay TV orders, and the impact of customer base growth.
Revenues from Internet access services increased $54.0 million (8.4%) to $698.2 million. The improvement was mainly due to customer growth, increases in some rates, and customer migration to upgraded service plans.
Revenues from cable telephony service increased $26.8 million (6.5%) to $436.7 million, primarily as a result of customer base growth and more lines per customer.
Revenues from mobile telephony service increased $59.6 million (112.1%) to $112.7 million, essentially due to customer growth resulting largely from the launch of the new network in September 2010.
Revenues of Videotron Business Solutions increased $3.2 million (5.4%) to $63.0 million, mainly because of higher revenues from network solutions.
Revenues from customer equipment sales decreased $4.0 million (-6.7%) to $55.9 million, mainly because of campaigns promoting cable television equipment leasing, partially offset by increased sales of mobile telephony equipment.
Revenues of Le SuperClub Vidéotron ltée ("Le SuperClub Vidéotron") decreased $1.6 million (-6.9%) to $21.6 million, mainly as a result of store closures in 2011, partially offset by higher franchise fee revenues.
Other revenues increased $1.9 million (6.8%) to $29.9 million.
Average monthly revenue per user(3) ("ARPU"): $103.28 in 2011 compared with $95.73 in 2010, an increase of $7.55 (7.9%).
Revenue-generating units - As of December 31, 2011, the total number of revenue-generating units stood at 4,689,900, an increase of 375,800 (8.7%) from the end of 2010 (Table 1). The net increase in revenue-generating units in 2011 was 39.3% greater than in 2010 and constituted the largest annual increase, in absolute terms, in three years. This solid performance was due to the effective strategy of marketing bundled services, including mobile telephony service, at a time of technological change in television broadcasting. The number of revenue-generating units had increased by 269,700 in 2010.
Cable television - The combined customer base for all of Videotron's cable television services increased by 49,900 (2.8%) in 2011 (Table 1), compared with an increase of 34,600 in 2010. As of December 31, 2011, Videotron had 1,861,500 customers for its cable television services, a household penetration rate of 70.1% (number of subscribers as a proportion of total homes passed by Videotron's network, i.e., 2,657,300 homes, as of the end of December 2011), compared with 69.3% a year earlier.
The customer base for the Digital TV service stood at 1,400,800 as at December 31, 2011, an increase of 181,200 (14.9%) during the year, compared with a 135,500 increase in 2010 (Table 1). It was the largest annual customer growth for Digital TV since the service was launched in 1999. As of December 31, 2011, illico Digital TV had a household penetration rate of 52.7% versus 46.7% a year earlier.
Migration from analog to digital service was the main reason for the 131,300 (-22.2%) decrease in the customer base for analog cable television services in 2011. By comparison, the number of subscribers to analog cable services decreased by 100,900 in 2010.
Cable Internet access - The number of subscribers to cable Internet access services stood at 1,332,500 as at December 31, 2011, an increase of 80,400 (6.4%) from year-end 2010, compared with an increase of 81,500 in 2010 (Table 1). As at December 31, 2011, Videotron's cable Internet access services had a household penetration rate of 50.1%, compared with 47.9% a year earlier.
Cable telephony service - The number of subscribers to cable telephony service stood at 1,205,300 as at the end of December 2011, an increase of 91,000 (8.2%) from year-end 2010, compared with an increase of 100,300 in 2010 (Table 1). As at December 31, 2011, the IP telephony service had a household penetration rate of 45.4%, compared with 42.7% a year earlier.
Mobile telephony service - As of December 31, 2011, the number of subscriber connections to the mobile telephony service stood at 290,600, an increase of 154,500 (113.5%) from year-end 2010, compared with an increase of 53,300 connections in 2010 (Table 1). At December 31, 2011, there were 3,100 connections to the MVNO network.
(3) The average monthly revenue per user is defined under "Definitions."
Operating income: $1.10 billion, an increase of $51.5 million (4.9%).
The increase in operating income was mainly due to:
impact of higher revenues;
reduction in the stock-based compensation charge.
Partially offset by:
increases in operating expenses, among them costs related to the roll-out of the 4G network, including acquisition costs of approximately $489 per subscriber addition (direct costs, including selling, advertising and marketing expenses and equipment subsidies) and site overhead costs;
capitalization of some operating expenses during the build-out of the new mobile network, which also explains the unfavourable variance in operating expenses in 2011 compared with 2010.
Net income attributable to shareholder: $469.0 million, a $35.1 million (-6.9%) decrease.
The decrease was mainly due to:
$116.4 million increase in amortization charge;
$4.8 million increase in financial expenses;
$1.2 million increase in charge for restructuring of operations and other special items.
Partially offset by:
$51.5 million increase in operating income;
$31.8 million favourable variance in gain on valuation and translation of financial instruments;
$4.1 million decrease in income tax expense.
Fourth quarter 2011 operating results
Revenues: $634.8 million, an increase of $43.6 million (7.4%), essentially due to the same factors as those noted above under "2011 operating results."
Combined revenues from all cable television services increased $15.9 million (6.5%) to $261.8 million.
Revenues from Internet access services increased $16.9 million (10.2%) to $183.2 million.
Revenues from cable telephony service increased $4.6 million (4.3%) to $111.5 million.
Revenues from mobile telephony service increased $17.4 million (103.0%) to $34.3 million.
Revenues of Videotron Business Solutions increased $0.5 million (3.1%) to $16.6 million.
Revenues from customer equipment sales decreased $11.2 million (-45.0%) to $13.7 million.
Revenues of Le SuperClub Vidéotron decreased $0.5 million (-7.1%) to $6.0 million.
Other revenues were flat at $7.7 million.
ARPU: $106.90 in the fourth of quarter 2011, compared with $98.85 in the same period of 2010, an increase of $8.05 (8.1%).
Revenue-generating units - 101,800 (2.2%) unit increase in the fourth quarter of 2011, 20.0% more than the 84,800 unit increase in the same period of 2010.
Cable television - 17,300 (0.9%) increase in the combined customer base for all cable television services in the fourth quarter of 2011, compared with an increase of 9,600 in the same quarter of 2010.
Digital TV: 52,700 (3.9%) subscriber increase in the fourth quarter of 2011, compared with 37,300 in the same period of 2010.
Analog cable TV: 35,400 (-7.1%) subscriber decrease in the fourth quarter of 2011, compared with a decrease of 27,700 in the same period of 2010.
Cable Internet access - 26,100 (2.0%) increase in the fourth quarter of 2011, compared with 18,300 in the same period of 2010.
Cable telephony - 25,900 (2.2%) subscriber increase in the fourth quarter of 2011, compared with 16,200 in the same period of 2010.
Mobile telephony service - 32,500 (12.6%) increase in subscriber connections in the fourth quarter of 2011, compared with 40,700 in the same period of 2010.
Operating income: $294.7 million, an increase of $31.5 million (12.0%).
The increase in operating income was mainly due to:
impact of higher revenues.
Partially offset by:
increases in operating costs, including costs related to the roll-out of the 4G network.
Net income attributable to shareholder: $161.9 million, an increase of $66.0 million (68.8%).
The increase was due mainly to:
$86.4 million favourable variance in gains and losses on valuation and translation of financial instruments in the fourth quarter 2011, compared with the same period of 2010;
$31.5 million increase in operating income;
$8.9 million decrease in the charge for restructuring of operations and other special items.
Partially offset by:
$39.4 million increase in income tax expense;
$18.0 million increase in amortization charge;
$3.4 million increase in financial expenses.
On July 20, 2011, Videotron amended its $575.0 million revolving credit facility to extend the expiry date from April 2012 to July 2016 and modify some of the terms and conditions.
On July 5, 2011, Videotron issued 6 7/8% Senior Notes maturing in 2021 in the aggregate principal amount of $300.0 million, for a net principal amount of $294.8 million. The net proceeds were used to finance the early repayment and withdrawal of US$255.0 million principal amount of Videotron's 6 7/8% Senior Notes maturing in 2014, and settlement of the related hedges.
Detailed financial information
For a detailed analysis of Videotron's 2011 full year and fourth quarter results, please refer to the Management Discussion and Analysis and consolidated financial statements of Videotron, available on Quebecor's website at www.quebecor.com/en/.
Transition to IFRS
On January 1, 2011, Canadian Generally Accepted Accounting Principles ("GAAP"), as used by publicly accountable enterprises, were fully converged into IFRS. Prior to the adoption of IFRS, for all periods up to and including the year ended December 31, 2010, Videotron's consolidated financial statements were prepared in accordance with Canadian GAAP. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences related to recognition, measurement and disclosures.
The date of the opening balance sheet under IFRS and the date of transition to IFRS is January 1, 2010. The financial data for 2010 have therefore been restated. Videotron is also required to apply IFRS accounting policies retrospectively to determine its opening balance sheet, subject to certain exemptions. However, Videotron is not required to restate figures for periods prior to January 1, 2010 that were previously prepared in accordance with Canadian GAAP.
The new significant accounting policies under IFRS are disclosed in Note 1 to Videotron's consolidated financial statements for the year ended December 31, 2011. Note 27 describes the adjustments made by Videotron in preparing its IFRS opening consolidated balance sheet as of January 1, 2010 and in restating its previously published Canadian GAAP consolidated financial statements for the year ended December 31, 2010. Note 27 also provides details on exemption choices made by Videotron with respect to the general principle of retrospective application of IFRS.
In its analysis of operating results, Quebecor defines operating income, as reconciled to net income under IFRS, as net income before amortization, financial expenses, gain (loss) on valuation and translation of financial instruments, charge for restructuring of operations and other special items, and income tax. Operating income as defined above is not a measure of results that is consistent with IFRS. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Management believes that operating income is a meaningful measure of performance. Quebecor uses operating income in order to assess the performance of its investment in Quebecor Media. Quebecor's management and Board of Directors use this measure in evaluating its consolidated results as well as the results of its operating segments. This measure eliminates the significant level of depreciation and amortization of tangible and intangible assets and is unaffected by the capital structure or investment activities of Quebecor and its segments. Operating income is also relevant because it is a significant component of the Quebecor's annual incentive compensation programs. A limitation of this measure, however, is that it does not reflect the periodic costs of tangible and intangible assets used in generating revenues in Quebecor's segments. In addition, measures like operating income are commonly used by the investment community to analyze and compare the performance of companies in the industries in which Quebecor is engaged. Quebecor's definition of operating income may not be the same as similarly titled measures reported by other companies.
Average Monthly Revenue per User
ARPU is an industry metric that Videotron uses to measure its monthly cable television, Internet access, cable telephony and mobile telephony revenues per average basic cable customer. ARPU is not a measurement that is consistent with IFRS and the Videotron's definition and calculation of ARPU may not be the same as identically titled measurements reported by other companies. Videotron calculates ARPU by dividing its combined cable television, Internet access, cable telephony and mobile telephony revenues by the average number of basic customers during the applicable period, and then dividing the resulting amount by the number of months in the applicable period.