DBRS Changes Trend on Rogers Communications Inc. to Positive from Stable, Confirms Ratings at BBB

DBRS Limited (DBRS) changed the trend on the Issuer Rating and Senior Unsecured Notes rating of Rogers Communications Inc. (Rogers or the Company) to Positive from Stable and confirmed the ratings at BBB. The trend change reflects Rogers’s steady and sustainable improvement in profitability combined with deleveraging over the course of 2017/2018. The ratings are supported by the Company’s role as a leading wireless and cable television (TV) operator in Canada, increasing revenue diversification and solid free cash-generating capacity. The ratings also consider intensifying competition, evolving consumer habits that negatively affect the cable TV and telephony businesses as well as risks associated with regulatory change.

Rogers’s earnings performance in terms of revenue and adjusted EBITDA results exceeded DBRS’s expectations in 2018; however, profitability has strengthened since 2017, reflecting the Company’s focus on investing in its networks to provide leading performance and reliability as well as to enhance its customer experience, despite an intensifying competitive landscape and changing consumer preferences. In 2018, consolidated revenue increased by an impressive 5.1% year over year (YOY) to $15.1 billion, driven by strong growth in Wireless and Internet services offerings, which more than offset softness in cable and telephony services. Adjusted EBITDA increased by 8.7% to $6.0 billion in 2018, reflecting profit growth in all three operating divisions.

Supported by strong operating performance, Rogers’s financial profile materially improved in 2018. DBRS notes that financial leverage (net debt-to-EBITDA, adjusted for net-debt derivative assets) decreased to 2.5 times (x) at YE2018 from 2.7x in the prior-year period, which reflects operating income growth despite a modest increase in debt. Furthermore, the Company continued to generate solid free cash flow after dividends but before working capital, despite a material increase in capex. Gross debt-to-EBITDA was 2.87x in 2018 (versus 3.02x YOY) while cash flow-to-total debt rose to 25.5% in 2018 (versus 24.6% YOY). EBITDA coverage rose to 7.95x in 2018 (versus 7.07x YOY).

In terms of outlook, DBRS changed the trend to Positive in recognition of Rogers’s stronger-than-expected operating performance over the last two years, which has resulted in reduced leverage. DBRS expects the Company’s earnings profile to continue to benefit from its investment to enhance network performance, coverage and reliability as well as its focus on creating a best-in-class customer experience. These strategic priorities should result in continued revenue growth and positive operating leverage, although not at the pace witnessed over the last two years.

DBRS expects Rogers’s financial profile to strengthen through the capital investment cycle based on its improving cash-generating ability and lower financial leverage, reflecting EBITDA growth rather than debt reduction. Nevertheless, if Rogers can maintain financial operating performance in line with the industry while sustaining its current leverage (excluding spectrum license auction activity), a rating upgrade to BBB (high) would be likely.

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

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

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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