Rogers Communications Inc.
Q4 2018 Earnings Call Transcript

Published: 24 Jan 2019

[Operator:]

Welcome to the Rogers Communications Inc. Fourth Quarter and Full Year 2018 Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. I would like to turn the conference over to Mr. Paul Carpino, with Rogers Communications. Please go ahead, Mr. Carpino.

[Paul Carpino:]

Thank you, Ariel. Good morning, everyone and thank you for joining us. Today I'm here with our President and Chief Executive Officer, Joe Natale; and Chief Financial Officer, Tony Staffieri. Today's discussion will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2017 annual report regarding the various factors, assumptions and risks that could cause our actual results to differ. With that, let me turn it over to Joe to begin.

[Joe Natale:]

Thank you, Paul and it’s great to have you on our team. Good morning everyone. Today I'm pleased to share our fourth quarter and full year results along with our 2019 guidance. Let me start with the fourth quarter. In Q4, the team continues to deliver another strong quarter performance. Total revenue and adjusted EBITDA were both up 6%. In wireless, we added a healthy 112,000 net additions and delivered postpaid churn of 1.23%, our best Q4 results in almost a decade. At the same time, wireless ARPU grew 2%; the team struck a good balance between delivering great value for our customers and weighing long term economics. In cable, we reported steady financial and operating performance. Despite the competitive intensity, we added 25,000 broadband customers, and grew both revenue and adjusted EBITDA. In media, we reported strong results with revenue growth of 3% and adjusted EBITDA growth of 8%. Q4 was a great finish to a strong year, and we are well positioned for 2019. Turning to the full year, we made an impressive progress in 2018, we delivered no our key financial commitments and raised guidance for the third quarter. We delivered the best financial and subscriber performance in many years. We added a combined 560,000 additional postpaid wireless and high speed internet connections; we grew total revenue by 5% and adjusted EBITDA by 9%. We grew after-tax free cash flow by 5% to $1.8 billion; we returned approximately $1 billion in dividends to shareholders. These strong results were reflected in our total shareholder return of 12.5% in 2018, an impressive 21 points above TSX Composite Index and it compares favorably to our telecom peers. We also stepped up our meaningful commitment to invest in Canada and to drive our nations’ global, competitive advantage. We invested $2.8 billion in infrastructure to maintain our global leadership in technology, we hired 1,000 additional team members to support our customers, we paid $1.1 billion in taxes and government fees, we contributed $60 million through our communities, and as a proud Canadian company we devoted $679 million to create and produce Canadian contents. Our accomplishments last year provide a view in to the strength of our vision and our team. As a team, we hit our stride delivering strong linear year results and making key long term investments, while fundamentally improving our execution engine. We also made meaningful progress on our strategic priorities. We advanced our journey to drive our customer-first mindset and ideology across the entire organization. This mindset has permeated the hearts and minds of our team, and is starting to show up in our results in our customers’ experience. In 2018, our teams delivered 10 basis points improvement in wireless postpaid churn. We saw a healthy reduction in call volume and even greater rise in digital adoption, and our customer care investments delivered strong service level improvements especially during the critical selling season. In wireless, we improved network performance and coverage across Canada. We struck a strategic and comprehensive partnership with Ericsson to bring Canadians the very best that 5G has to offer. We stepped up our efforts to deploy small cells, we signed a strategic partnership with UBC to build and test a real world 5G hub on a city like campus. We believe that the 5G will radically transform the world around us and fuel the Canadian economy. It’s critical that we partner with governments, universities and industries to shape this transformation as it sweeps our nation over the next 5 to 10 years. In cable, our internet service continued to lead the industry. We already offer 1 gigabyte speeds to all of our customers today, and in to the future our DOCSIS roadmap will support upload and download speeds of up to 10 gigabytes per second across our entire footprint. In 2018, we started a journey to accelerate the evolution of our Connected Home strategy, the reinvention of our TV business with Ignite TV was a critical step in that journey. To introduce Ignite TV, we took a new go-to-market approach that allowed us to pressure test the service before commercial rollout. Throughout the year we methodically moved from employee trial to consumer trial to full scale consumer launch. This was a great cross-company effort that has become a blue print for how we execute key company initiatives. I am proud of our team and how they brought the service to life for our customers. While it’s early days, we are seeing an impressive reduction in churn, an improvement in likelihood to recommend and ARPA. Rogers has established a competitive advantage in cable with our world class internet, our DOCSIS roadmap, our IPTV service and our Connected Home roadmap. Together we believe this gives us a winning formula to own the home. We also started to build a formidable, high-performing culture. In 2018, we achieved best-in-class engagement. We were recognized with a number of prominent awards including one of Canada’s Top 100 Employers and a Top Employers for Young People. Turning to 2019, we have solid momentum, a clear plan for growth and a disciplined capital program that will sow the seeds for the future. The macro environment continues to look favorable; we see healthy growth in the economy and our industry. The wireless subscriber market is expected to grow 5% and home internet 2%. We plan to lead this growth by delivering on our customers’ strong demand for broadband, backed up by our commitment to deliver the very best customer experience. Our 2019 guidance reflects a strong trajectory with sustained growth in both revenue and EBITDA. We announced a meaningful increase in capital expenditures that we will invest in our networks at a particular coverage in rural and remote areas. The government’s recent tax law changes will advance some of these investments. Our 2019 capital plan reflects on unprecedented level of investment in our country’s network infrastructure, the engine of Canada’s innovation agenda. As I take a step back, its’ clear that we have the right plan and the right team. We are buoyant about our future growth potential. In 2019, we will maintain our focus on our six strategic priorities, our customers, our networks, our growth, our innovation, our culture and our communities. Overall, we will take a meaningful step towards our long term vision, our vision to build a next generation, world-class technology company that is number one with our employees, our customers and our shareholders. At the center of this vision is our customer, it starts with listening to their feedback and improving their experience with Rogers. We will continue with unassailable focus to make things clear, simple and fair and as customer service improves it will drive grater cost efficiencies that we reinvest in their experience. We know we have work to do and we are fully committed to delivering on this challenge. In network, we will continue to make the right strategic investments; in wireless, we will invest and partner to bring Canadians the very best of 5G. In cable, we will future proof our customers with our DOCSIS and Connected Home roadmap. Our significant commitment to our networks will ensure Canadians have a global competitive advantage for decades to come. We will introduce new content and services like Ignite TV, while bringing our customers the home of the future. Fundamentally, we remain relentlessly focused on sparking growth in our core business, while enhancing shareholder value. Operational excellence and well timed network investments are key to our success. I’d like to express a heart-felt thank you to our team for their fierce commitment to our customers and to each other. I’m immensely proud of what we have accomplished and I’m genuinely excited what we will bring to our customers in the year ahead. And with that let me turn it over to Tony. Over to you Tony.

[Tony Staffieri:]

Thank you Joe and good morning everyone. Overall we are very pleased with our operating performance, not only for this quarter, but for the full year as well. During the past several quarters, we communicated a number of goals we had set for ourselves across various key fundamentals which included stronger guidance for adjusted EBITDA and free cash flow, and I’m proud to say that we delivered on all of them. On a consolidated basis, we continue to produce strong total revenue growth of 6% and adjusted EBITDA growth of 6% this quarter. Our cost efficiency program delivered another 10 basis points of margin expansion this quarter, and over a span of two years, we have over achieved our goal of 100 to 200 basis points margin improvement with cumulative margin expansion of 210 basis points. Over the past two years, we’ve gone after much of the low hanging fruit in terms of cost efficiency. We continue to see more opportunities on this front, but margin expansion will be at a more gradual phase. Looking at our wireless business, we reported strong service revenue growth of 5% this quarter, which reflected a combination of meaningful subscriber and ARPU growth. Despite a highly competitive quarter, our focus on subscriber economics delivered a combination of 112,000 postpaid net subscriber additions which was improvement of 40,000 year-over-year along with growth of 2% in blended ARPU and 3% in blended ABPU. As you will recall, we had set ourselves a goal of 2% to 4% ARPU growth and 3% to 5% growth on ABPU on a full year basis for 2018. I’m again pleased to say that we met these goals with full year revenue growth of 3% on ARPU and 4% on ABPU. Our focus on base management and customer experience also produced churn of 1.23% this quarter, which is an improvement of 25 basis points year-on-year and improvement of 12 basis points when compared to two years ago. Our commitment to balancing subscriber growth at the right economic value lead to a strong flow to our top line revenue and we delivered 7% growth on adjusted EBITDA. While our year-on-year wireless margin contracted this quarter as a result of higher front line investments in the quarter. We delivered margin expansion of 100 basis points for the full year. In cable, this quarter we grew revenue by 1% and adjusted EBITDA by 3%. Our internet product continues to be the driver of growth in our cable business. Internet revenue grew 6% this quarter, reflecting our ability to monetize the increase in consumer demand for data. Internet remains the anchor in the customer home and our ability to offer Ignite gigabyte internet across our entire cable footprint continues to attract customers. This quarter we reported 25,000 net subscriber additions, an improvement of 5,000 year-on-year. Our adjusted EBITDA, we expanded cable margins by 80 basis points this quarter, due to a combination of cost efficiencies and continued product mix shift to higher margin internet. We achieved our two year goal on margin improvement with cumulative margin expansion of 180 basis points. In media, this quarter revenue grew 3% given higher advertising and sports revenue and adjusted EBITDA grew 8% due to our continued focus on cost of efficiencies. Turning back to our consolidated figures, and I’ll go through some additional details on our financial results. We invested $828 million in CapEx for the quarter and $2.79 billion for the year, which was near the high end of our guidance. We’ve always invested in our networks in cable and wireless, and will continue to do so in the future. In wireless, we are paving the way for 5G, with our 4.5G rollout while being efficient with our assets by strategically and prudently investing in fiber backhaul only where necessary. In cable, we are investing in integrating Ignite TV in to our network and pulling forward node segmentation to recognize economies of scale, while remaining well ahead of consumer demand for data. With respect to our financial flexibility, we generated free cash flow of 275 million this quarter, which was an increase of 20% year-over-year, while delivering dividends of $247 million to shareholders. We ended the quarter with a debt leverage ratio of 2.5 times, which compares to 2.7 times a year ago. The improvement is due to both higher adjusted EBITDA and lower net debt. Our balance sheet remained healthy, with a solid investment grade credit ratings, stable outlook and attractive rates on our outstanding debt. With a backdrop of our strong fundamentals and solid balance sheet, along with significant investment in our network, we’ve raised the dividend from a $1.92 to $2 per share. Turning to our guidance, we look forward to continued growth in key fundamentals in 2019, while still investing in our core businesses. We’ve provided revenue guidance in the range of 3% to 5% growth and for adjusted EBITDA; we expect growth in the 7% to 9% range. Free cash flow is expected to increase in the range of $200 million to $300 million, even with our CapEx investment expected to be in the $2.85 billion to $3.05 billion range. A few comments that will help you interpret these guidance ranges. Firstly, the definition of free cash flow is being simplified to adjusted EBITDA plus CapEx, interest and cash taxes. This will bring the metric more in line with standard practice across the industry. Secondly, our guidance ranges reflect the adoption of IFRS 16 lease accounting commencing in Q1 of this year. This standard will be applied on a prospective basis. As a result, year-on-year adjusted EBITDA comparisons will be higher as lease payments that were previously reported as an operating expense will now move to the interest and depreciation lines. This translates to three points of adjusted EBITDA growth which flows through to free cash flow. This new lease accounting standard also increases our assets and liabilities by approximately $1.5 billion. I would highlight that IFRS 16 does not change the underlying economics of our business. In closing, we executed and delivered on our goals in 2018 and are excited with our path we’ve set for ourselves in 2019. The guidance we have provided reflects confidence in our execution and our ability to deliver from the fundamentals in order to achieve sustainable growth. With that I’ll ask the operator to open the lines of questions.

[Operator:]

[Operator Instructions] our first question comes from Vince Valentini of TD Securities.

[Vince Valentini:]

I’m just trying to understand the guidance from a couple of perspectives, the 174 million back from IFRS 16 in 2018, is that expected to be virtually identical in 2019 or does it change from year-to-year?

[Tony Staffieri:]

Obviously the 174 million adjustments that would have related to 2018 is going to be approximately the same in 2019, and you can think about it as roughly evenly spread throughout the year.

[Vince Valentini:]

And in the media segment you got some pretty one-time items from the major league baseball the past two years. Is it fair to say, your growth in EBITDA in 2019 in this guidance does not assume a recurrence of that, so you’re growing despite that one-time disappearing?

[Tony Staffieri:]

That’s correct.

[Vince Valentini:]

And lastly for Joe maybe, this dividend increase, nice to see it, thank you for doing that, but do you guys still think of dividend as a once a year in January event or is it possible that we could have this reviewed more frequently depending on how results shake out over the course of the year. Thanks.

[Joe Natale:]

Let me just take a step back for a second. Number one priority for our cash is investing in the future of our business, and primary philosophy is that we want to keep the financial flexibility to invest in the things that give us core advantage and to propel and sustain our growth. If our networks, tools and services could serve our customers, the innovation agenda that we have in front of us. So that is sort of the primary focus of the organization. From time to time, we may deem there to be the excess cash and we will take a look at that excess and figure out how we best return it to shareholders during that period of time. What you will see from us is a bias more towards share buybacks in the future overall. What we don’t want to do is be stuck in a cycle of annual dividend increase commitments. We are being very thoughtful about this, but our primary focus is the future of the business.

[Operator:]

Our next question comes from Jeff Fan of Scotiabank.

[Jeff Fan:]

First, just on the clarification on free cash flow guidance, so if we were to take what you guided to for 2019 to compare it to the report, what we need to do is adjust the IFRS impact of 170 million, and also adjust for the contract asset, is that the right way to think about it to make it comparable to the 2018 actual results?

[Tony Staffieri:]

That’s right Jeff, and improve it and convert that to once you work through that math to be helpful to convert it to percentage increases on a like-for-like basis free cash flow growth in the 1% to 5% range which is consistent with the free cash flow growth we had provided in 2018.

[Jeff Fan:]

Next question is just on ARPU, so your ARPU growth is very healthy. Wondering if you can talk about this shift from prepaid to postpaid and that as a driver, and also if you can just get some direction on what’s happening with your postpaid ARPU, whether that’s growing, maybe, a little bit on usage growth or usages right now on your postpaid side, just to give us a sense as to how we should think about that for 2019?

[Joe Natale:]

Why don’t I start Tony and then you can kind of add to it. We believe that fundamentally there is room for continued [ABPU] growth in to the future on a longer term basis for sure. We’re not going to attach a number to it Jeff, just to be absolutely clear about that, but we do see some fluctuations in the short term. In terms of what’s propelling our ARPU up is still continued strong demand for data. You’ve heard me say time and time again that smartphones have become the remote control for our lives and that sort of dedication from our customers will continue and we see strong demand growth on a really organic and substantial basis. Second thing is that we continue to focus our efforts around base management. As churn moderates for the industry, which we think is a good thing; there will be less available [nets] in the market place as a whole. So managing the base appropriately and looking after the quality of incoming customers and helping the base of customers upgrade appropriately is a very important skillset, the team has worked hard to create over the last year and will still kind of develop kind of a muscle for the organization. We also do believe there’s opportunity to cheer up customers, as they kind of go from less capable smartphones to more capable smartphones as they extend that portfolio of capabilities across to family etcetera. The thing we’re watching closely around a factor that’s having a moderating impact on ARPU is the fact that data buckets have grown substantially and will last for a while. In fact I would say the data buckets have grown faster than the rate of growth of usage or consumption. So it’s that headroom in the data bucket that we’re seeing as interim parts of our base taking time to catchup to. The demand is still great, but occupying that headspace given data add-on on data buckets is the moderating impact that will reflect on ARPU as a whole. We do feel confident longer term, as some of the initiatives we have are the right initiatives, it will take some time to keep focusing on them. If you look very carefully at our guidance you can see that we’re feeling confident about the growth prospect of the wireless business and it’s reflected very clearly in the guidance we’ve put.

[Tony Staffieri:]

And to in fact answer that, just to answer a few of your more specific questions. In terms of postpaid ARPU and ABPU growth, well we don’t disclose that. What we can tell you is that the growth in each of those and commensurate with what you see on a combined blended basis, and so we’re feeling pretty good about the growth we’re seeing there. In terms of pre to post, it’s been a natural part of moving our customers up the value chain. If we are to look at and dissect our net adds of 112,000 this quarter, you can see that’s pretty consistent gross add momentum. But materially it’s part of the churn reduction that you’re seeing contributing to the net add. So while it’s a healthy part of our postpaid growth and industry growth, it continues to be relatively consistent but not a majority of that growth.

[Operator:]

Our next question comes from David Barden of Bank of America/Merrill Lynch.

[David Barden:]

The first question would be Tony for you on the CapEx. I think for most of the year last year, we were talking about a stable wireless CapEx investment and falling cable CapEx investment. So I guess that’s not happening now, so if you could kind of elaborate a little bit on the pivot on the capital spending where that’s going, that will be helpful. And then the second question would be with the higher spending and the 600 megahertz options coming and leverage slightly going up. I guess Tony or maybe Joe, why was now the right time to raise the dividend, given that I think specifications were necessary there if you had to do that. And then finally on the Ignite TV if you could kind of give us the latest on where that stands in terms of deployment, take-up and kind of other details will be helpful?

[Tony Staffieri:]

If you look at our guidance range for CapEx for 2019, you will see that bottom end is slightly higher or about the same as where we’d left 2018 with room to grow that within our adjusted EBITDA growth and free cash flow. So we thought about the envelope in terms of giving us what we need, as Joe referred to in his comments, what we need investing in our core networks first and foremost. If you split those out on the wireless side, don’t see much of a change in terms of capital intensity there and things continue to be consistent. On the cable side, we have said that we expected capital extensity to be at about and may slightly declining levels. As we got in to the 2019 and 2020 we still see that to be the case. We wanted it for the right room, within our CapEx envelope to capture the Ignite TV migrations depending on the volumes that we execute on during the quarter. So think about it as giving us the flexibility to do that, but first and foremost that will be on network spend in both wireless and cable.

[Joe Natale:]

David on the dividends question, I’ve been here now for 20 months, we’ve been asked the dividend question, it feels like in most section and discussion with investors. And after some thinking and reflection and discussion on the Board, we felt it was appropriate at this stage given the strength of our results, given the confidence we have in our future to underline that confidence with dividend increase and then very directly including state or policy and our philosophy going forward around the use of cash and that’s all we are trying to do here is just kind of lay that out fundamentally and reinforce the fact that the primary use of cash will be for the future of this business and investing and sustained both in our competitive advantage and going forward as I said earlier more of a bias towards share buybacks, and we will look at dividend increases as we deem appropriate but not on some sort of annual increase in cycle. So it helps us be more clear and specific is the short answer to the question. On Ignite TV we’re really pleased with where we are on Ignite TV. It is early days. We are not going to disclose some of the specific metrics at this point for a number of reasons including competitive and sensitive reasons. But we are seeing a very impressive reduction in early life cycle churn, something that I know and you know we measure very specifically in early lifecycle of adoption for any new product. We’re looking very carefully and likely to recommend and we’re seeing a material step up in terms of the reaction from our customers. And those people that use the product for a while have really kind of come back in many different forums to say this is an incredible product and it really has strong appeal in terms of finding content, discovering content, taking content with you, with the cloud TV or the use of the voice command function and all the things we talked about. So we’re seeing that materialize, and its showing up fundamentally in the ARPA Average Revenue Per Account for houses [sold] metrics. As you imagine the more discoverable video on demand content and the more variety we keep adding, the more consumption of that content and the higher loyalty metrics that we see around it. Very pleased with it, but at the end of the day we spent a big part of last year’s sweating the details around Ignite TV and we’re playing the long game. This is not just about Ignite TV, it’s about the Connected Home roadmap that follows and you’ll continue to see capability drops from us on a regular basis through this year and the years to come. And as we are ready to talk about the capability drafts, we will certainly give you every ability to see them, understand them and hopefully share our enthusiasm and what they do for our business and what they do for our customer loyalty and economics as a whole. But we couldn’t be more pleased from what we are seeing from the product.

[Operator:]

Our next question comes from Tim Casey of BMO Capital Market.

[Tim Casey:]

A couple of from me on the free cash flow guide, Tony just a clarification, is there any other one-times in there we should think about? Would cash taxes be impacted and flow-through on that line? And just a comment Joe on market competitiveness on wireless, you mentioned, in fact you expected the market to grow 5% this year, just wondering if you could maybe add a little color on how you get there and what broad competitive thrust you expect next year.

[Tony Staffieri:]

I lead up with the first part of your question. The short answer is there aren’t any one-time items in free cash flow, you might be referring to the upcoming legislative changes and accelerated depreciation. That is not going to have an impact on our 2019 free cash flow. That will start to come in in 2020 and later years, but not an impact for this year. On the competitive market place on wireless, I would say that, Q4 once again was an intensive competitive period for the industry. It started earlier in the quarter and it just kept going on a regular and consistent basis in terms of competition and competitive offer stepping up. Really proud of the team in terms of where we landed as an organization; 112,000 postpaid nets for the year, we are up a 100,000 nets over the previous year at 453 and the best number of all home mix is our churn metric, 10 basis points improvement in churn you get to 1.1% for the year, while gross has been up 2%, it is a very powerful combination for us. We don’t see the competitive intensity changing or relenting at all in the year ahead. We do believe that there’s still penetration growth available on the Canadian market, you’ve heard me say before in the past that we’re sitting at about 87% penetration or so, vise-a-vise the US at 119 or 120, there’s no structural reason for the penetration being remarkably or structurally different north or south of the border. So we’re going to continue to march along the top of the penetration growth. The key is making sure that we focus on quality and managing our based appropriately. We’re not going to be chasing subscribers at any cost, it’s a very important part of our mindset. (inaudible) deliver very strong margin expansion, 100 basis points from wireless in the past year and 110 in 2017 in wireless. You’d have seen the type of ARPU and ABPU growth that we’ve achieved in 2018 and we talked a few minutes ago about what we see in the future and are feeling around ARPU and ABPU growth. So, we’re going to continue to do well in the market place, while making sure we manage the long term economics of the business, continue to offer affordability for customers and give them great service, while managing the obligation to shareholders around these economics.

[Operator:]

Our next question comes from [Philip] of Barclays.

[Unidentified Analyst:]

Tony you mentioned continued margin expansion in 2019, albeit more gradual. Was wondering where you see the greatest opportunity within the business in the wireless versus cable. And also quick one on prepaid, obviously a lower value segment, but I was wondering what the drivers were behind the bigger net loss in subs this quarter, not sure if I missed something in the release?

[Tony Staffieri:]

In terms of margin expansion, as I said, very pleased with the performance over the last year and two years, with over 200 basis points margin expansion. As we look through this year, I want to get in to the specifics of margin expansion by category, but we see opportunities in both wireless and cable in terms of margin expansion. As I said it will be more gradual than what you would have seen over the last year or two years, but as we continue to invest in customer service, what we’ll see is more long term return on that. And so still delivering margin expansion and that’s captured in our EBITDA growth ranges, adjusted EBITDA growth ranges that we have for the full year. And your second question relates to prepaid and level of churn that we saw in the fourth quarter, which really relates to two things; one is the number of pre and post migrations that we saw not only for us, but for the industry, and we think that’s contributing to the bottom end of postpaid for all the players in the industry. And two, its competitive intensity that’s heating up in the prepaid space, as we saw in the fourth quarter.

[Operator:]

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

[Aravinda Galappatthige:]

Thanks for taking my question, I have one for Joe and one for Tony. So Joe, I was wondering if you can talk a little bit about the progress that you’re achieving on the enterprise side including SME. Obviously enterprise becomes even more significant as you kind of enter the 5G application. I was wondering if you can talk about the progress thus far and the strategy going forward to kind of get a stronger grip for that segment. And then for Tony, just going back to IFRS 16, if you just give us a sense of how that impact breaks down on a segment basis, if those are the three segments?

[Joe Natale:]

On the enterprise side, 2018 was a good year for building and investing in the future of the enterprises. We built products and capabilities and reshaped the engineering and sale force efforts really to kind of get ready for continued growth and momentum in 2019 and 2020 and beyond. We just see some good early results in terms of the strength of our small business portfolio. Inherent in our results for both wireless and broadband is a component that relates to the work that the enterprise team is doing. We won’t get in to disclosing any of that specifically for sensitive reasons, but the team meeting up we think there’s a big opportunity in that space. As I mentioned here in the past, we are under indexed especially in the middle and large part of the enterprise space and it’s really nothing more than get reasonable share of the market commensurate prevalent to what some of the other cable [of course] have done in North America that will continue to provide benefit and growth in prosperity for our business and that’s what we’re focused on and that’s what the team is focused on through 2019 and 2020. And as that marches along, we will talk about it during some of these calls, but we’re feeling very confident and bullish about what that team is doing.

[Tony Staffieri:]

Coming on your question of IFRS 16, if we’re look at the amount of the adjustment that would related to 2018, the 174 and as I said it would be above the same for 2019. Think about it as the majority being related to the wireless business, as you would expect much of our lease program revolves around two things in wireless, one is space for wireless powers and secondarily our distribution network. And so that’s why you’d see a majority of that (inaudible) if you will of being related to a wireless business.

[Operator:]

Our next question comes from Maher Yaghi of Desjardins.

[Maher Yaghi:]

I wanted to just to dig a little bit in to these accounting changes that you guys are going under. So in the note that you published on IFRS 16, we have the estimated impact on EBITDA for Rogers was going to be around 174 million, which is what you guys have reported today, but we had estimated that the impact on free cash flow was going to be around 111. I’m kind of surprised by how the split between interest cost and debt repayment in your calculation of free cash flow. Can you tell me what your discount rates you’re using in assessing the proportion of interest cost that goes in to the calculation free cash flow versus the portion that goes in to debt repayment?

[Tony Staffieri:]

Maher just a couple of comments to be helpful, I’m not sure whether 1 or 11 number you’re quoting has come from, this is the first disclosure we’ve made of the impact of IFRS 16. So as I said to be helpful we’re trying to provide and be transparent with a year-on-year changes. The amounts will move as I said in my opening comments, total lease payments that were otherwise as operating expense in to both interest and depreciation. And in due course we can follow-up with you and trying to help you between those two categories. But I will reiterate it does not have an impact on cash flow, and so the cash payments being what they are.

[Maher Yaghi:]

For sure. I mean because when you look at EBITDA impact, you say it’s going to be the same on free cash flow. So implicit in your assumption here that there is a very little assumed in your (inaudible) of free cash flow, while the debt repayment portion which is going to be the bigger portion of that calculation is below the free cash flow line. So my question was trying to assess your discount rate, so that I understand how you split that rent item. And we can take it offline. But in terms of free cash flow, when I look at 2018 and I had the 174 million of some IFRS 16 adjustment and I add 360 million of definitional change that you just announced today on how you got free cash flow. Basically the new free cash flow number for 2018 is 30% higher than how it would have been calculated under old IFRS and old definition assumption with your calculation of free cash flow. So can you talk about the usefulness of this metric now, given how much is now far from natural cash flow generation of the company?

[Tony Staffieri:]

I think a couple of things I would say Maher, as you work through the year-on-year want to try and be very clear, transparent and simple about what the big metrics are that impact free cash flow. We’ll continue to provide the additional metrics which you’ll see on our balance sheet if you’re referring to the contract asset, for example and the changes in that. And so what we’re finding is different groups will have different ways of looking at free cash flow, and so at the very core of it we’re trying to provide something that’s very simple. When you look at the growth rates and back all of them out, because of some of the changes and in particular because of the IFRS changes, you end up with growth rates that end up being double digits and beyond. So that’s why this year we decided to provide more of a range in dollar amount be more helpful. And as I said all the pieces that make up that beyond CapEx, interest and cash taxes, we’ll be transparent with. So, again, we’ll be available, Paul and team are available after the call to sort of help you through that and thinking about the pieces of it.

[Operator:]

Our next question comes from Drew McReynolds of RBC.

[Drew McReynolds:]

Tony not to beat a dead horse here on free cash flow, you did 1% to 5% growth, can you just remind me what that’s in context. And I guess specifically we just go under the old accounting, old definition did you meet your 5% to 7% free cash flow for ’18 and whatever that number is, what’s the growth off that same apples-to-apples in ’19 is kind of my question. And just secondly on internet, if you can comment the impact of internet resellers, just what that competitive dynamic is relative to prior quarters, prior years that would be helpful?

[Tony Staffieri:]

I’ll start with the first one, thanks for the opportunity to continue to help clarify it. When you look at 2018, we ended the year with free cash flow growth of just over 5% relative to the updated guidance of 5% to 7% that we provided in October, so pleased with not only the rate of growth, but within the guidance ranges that we provided. If you look at 2019 guidance and back out those items now that we’ve been talking about, so on a like-for-like basis, that5% growth in 2018, our guidance this year would be in the range of 1% to 5% for 2019 on a like-for-like basis. Drew on the internet, broadband economics question and the competitive in to the – all of last year was a very competitively and intense period for that business. We saw a significant price discounting from our major competitor throughout the course of the year. In terms of third party resellers, I think they are all in the market and the approach that they took was aggressive, but consistent throughout the course. We didn’t see anything sort of changing dramatically from that perspective to that specific question. I’ll say to you, despite that competitive intensity we have now grown in internet penetration for 14 straight quarters. In fact last year grew by 118 basis points as a whole. In the same spirit as wireless we’re working hard to bolster our capability around base management. It’s even doing a much better job around base management. There’s a continued demand for broadband data to the tune of 30% growth per year, so it’s a very strong demand across the board. We’ve got a great advantage with DOCSIS roadmap and the Connected Home roadmap that I mentioned earlier. One step that might be useful is, if you go back five years ago we had about 4% of our base on 100 megabyte per second tier or greater. If you look at that today, its roughly 60% of our base on a 100 megabyte per second or greater. So that continued growth was a natural part of what we’re seeing and with the DOCSIS roadmap we have the headroom and capacity with a 1 gig footprint right now and whatever will follow in the time to come as a whole. If you look back at the last five years, our internet ARPU has had a (inaudible) of roughly about 7% over that period of time as we’ve obviously heard. I believe there’s still lots of room to monetize that growth on the path forward and we’ve done very well and absolute and lots of churns to our major competitor in terms of customer addition and improving the economics of the business as a whole. As 1 gig mature on DOCSIS to 10 gig we’ll continue to kind of meet and satisfy the growing data demands of the household and count it up.

[Paul Carpino:]

Thanks Drew. Ariel we have time for two more questions.

[Operator:]

Certainly, our next question comes from Simon Flannery of Morgan Stanley.

[Simon Flannery:]

Joe you’ve talked in the past about surfacing value in to asset monetization. So I was just wondering if there’s any progress on those or is that something that’s now been put on the shelf for a later date. And then on the TV market, you gave guidance for the wireless and both the internet growth. How are you thinking about the overall TV video ads for the industry in 2019, do you think the pace of core cutting going to comparable to 2018?

[Joe Natale:]

Sure. In terms of surfacing values Simon, still very much focused on all opportunities and surface value for the organization in line with the overall strategies and priorities of the company. But no new news to report there on any front, when there’re issues of any consequence, rest assured that we will update our shareholders and give you specifics around what’s happening. On the TV front, first talk a bit about what we view the role of TV to be. TV increasingly is becoming an important feature set, the entertainment feature set of the broadband connection. Our focus is very much at the broadband connection, owning the household and the average revenue per household and per account that manifests itself. We’ll continue to find innovative ways of delivering entertainment, innovative ways of packaging entertainment and offering choice and service to our customers to do so. We have not seen any remarkable wholesale shift in TV core cutting, it’s kind of been running at the same rate more or less that we’ve seen for the last little while, and the sort of 1% to 2% range is what we’ve been seeing which is substantially better than the US as a reminder. US is running a far better core cutting rate largely because of a couple of reasons, one is, they’ve got much higher ARPU and prices around the new entertainment, and the proliferation of individual streaming service is set around the US as kind of advance core cutting combination of things. Our goal is to continue to leverage the power of Ignite to offer our customers the choice and help them manage the whole home around that and not just make it a standalone product, but make it part of the whole ecosystem. So you’ll see further capability drops coming from us. Entertainment is just one step of the journey, but the other capability drops around the Internet of Things around using voice for a smart home for monitoring and managing the home, around managing the Wi-Fi in the home, things of that nature that we’ve talked about in the past and these will all be service sets and features that will continue to add to the value of that broadband connection. And we’ll continue to manage the individual content economics of that business, but rest assured we’re really focused on broadband and as the primary strategy behind our residential business.

[Operator:]

Our final question comes from Richard Choe of JPMorgan.

[Richard Choe:]

Just wanted to ask a little bit about the CapEx increase? Can we get a little bit more detail on what is going to be spent on and till the increase what gives you the confidence that between the CapEx increase and the dividend increase that the business is doing well enough where you can do both?

[Joe Natale:]

Sure. Joe you want to start?

[Tony Staffieri:]

Sure. But why don’t I start with the CapEx question. Richard as we said before, the envelope we’ve had which is absolute dollars gives us a step up relative to the current year. I think when you translate it to capital intensity (inaudible) keep in mind (inaudible) the capital intensity ranges you saw for us on a consolidated basis with the wireless as a continuing trend, and so no surprises. And on the cable side, flats is slightly declining, but the biggest variable there is going to be the number of migrations to new platform in the year. So I don’t think there’s anything there that’s ought to be much of a surprise. And then the second question related to the dividend increase. The dividend increase as Joe said is in the context of our view of cash flow, not only on what we’ve executed but how we see it, translating out in the near term being this year and beyond. And so our casual guidance for this year continues to have good, solid cash flow growth on the dividend increases commensurate with that cash flow growth.

[Joe Natale:]

Richard if you look forward at the growth prospect of our industry, I really believe that our industry would continue to be a very important part of the economic landscape in what matters to customers across the country. The macro numbers in terms of GDP growth, in terms of penetration growth, in terms of household growth, integration growth are all propelling the industry on an overall basis. As I look at our competitive advantages with respect to network, with respect to distribution and the penetration growth available in wireless we’ll be able to do very well in that context. Look at our residential business and the DOCSIS advantage, the Connected Home roadmap, and the importance of broadband. Overall, we continue to see long term growth prospects in that business, enterprising you heard me say a few minutes ago were under-indexed and therefore there’s growth opportunity there. And then you get to media in a world where media is going through a major transformation. We have a great mix of assets between sports and local content in the form of radio and local TV. Those are two great asset bases from which to grow and propel our media business. So we feel we’ve got a strong mix of assets, great focus on the customer and a good management team to drive in to the future and that’s gives us the confidence overall. That’s underpinned by the guidance we just laid down today, and underpinned by our results from last year.

[Paul Carpino:]

Thanks Richard, and thanks everyone for joining us on our call. If there’s any follow-up please feel free to reach us to the IR team as well. Thank you.

[Operator:]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.