DBRS Confirms Rogers Communications Inc. Issuer Rating at BBB with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and the Senior Unsecured Notes rating of Rogers Communications Inc. (Rogers or the Company) at BBB with Stable trends. The confirmations reflect Rogers’ improving subscriber metrics and deleveraging efforts. Additionally, the ratings are supported by the Company’s role as a leading wireless and cable television (TV) operator in Canada, increasing revenue diversification and its sound free cash-generating capacity. The ratings also consider intensifying competition, evolving consumer habits that negatively affect the cable TV and telephony businesses and risks associated with regulatory change.

Consolidated revenues rose by 3.2% to $14.1 billion in 2017, on solid growth in wireless service and Internet offerings, reflecting strong subscriber trends, as well as modest top-line growth in the media operations related to higher sports-related revenue. In addition to solid top-line growth, adjusted operating profit increased 5.6% to $5.4 billion in 2017, reflecting profit growth in Wireless, Cable and Business Solutions. Rogers’ financial profile continues to be primarily supported by solid free cash-generating capacity. Financial leverage (as reported) decreased to 2.8 times (x) at year end from 3.0x in the year-ago period, primarily as a result of improved operating income and cash flow and very modest debt reduction. Gross debt-to-EBITDA was 3.1x in 2017 (versus 3.45x year over year (YOY)), while cash flow-to-total debt rose to 24.7% in 2017 (versus 22.6% EBITDA coverage rose to 6.91x in 2017 (versus 6.40x YOY) and strengthened toward the upper range of the rating category.

DBRS forecasts revenues to grow to between $14.5 billion and $14.7 billion in 2018. DBRS expects the competitive intensity among the wireless incumbents to remain high; however, revenues are expected to grow steadily over the near term and the launch of Rogers’ new IPTV product in H2 2018 should help reduce Cable subscriber losses. DBRS expects the consolidated adjusted EBITDA margin to migrate to slightly above 38% in 2018, primarily reflecting positive net subscriber additions and rising average revenue per user in wireless, and cost initiatives and a positive Internet mix shift in Cable. As a result, adjusted EBITDA is expected to be between $5.5 billion and $5.6 billion in 2018. Rogers’ ability to continue to generate mid-single-digit operating income growth similar to what the Company achieved in 2017 over the medium term would support a positive rating action.

DBRS expects Rogers’ financial profile to continue to improve over the near term, reflecting operating income growth and modest reduction in debt. Should Rogers’ leverage move toward gross debt-to-EBITDA of 2.5x in a sustainable manner, supported by an improving earnings profile outlook as noted above, a positive rating action could result. Despite a YOY increase in capital expenditures of approximately 17%, DBRS forecasts that the Company should generate between $325 million and $400 million of free cash flow before working capital, but after dividends, in 2018. DBRS believes Rogers will judiciously direct its free cash flow over the near term toward modest debt repayment and strategic acquisitions, but will likely look to conserve capital for the forthcoming 600 megahertz wireless spectrum auction.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Communications Industry, Rating Companies in the Television Broadcasting Industry, Rating Companies in the Radio Broadcasting Industry and Rating Companies in the Publishing Industry, which can be found on dbrs.com under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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