Business News

Quebecor Inc. Reports Fourth Quarter and Full-Year 2012 Consolidated Results

Friday 15. March 2013 - Quebecor Inc. ("Quebecor" or the "Corporation") (TSX:QBR.A)(TSX:QBR.B) today reported its fourth quarter and full-year consolidated financial results for 2012. Quebecor consolidates the financial results of its Quebecor Media Inc. ("Quebecor Media") subsidiary.

The Corporation’s interest in Quebecor Media increased from 54.7% to 75.4% on October 11, 2012 as a result of the repurchase of part of the interest held by CDP Capital d’Amérique Investissement inc. (“CDP Capital”), a subsidiary of Caisse de dépôt et placement du Québec.
Highlights
2012 financial year
Revenues up $145.2 million (3.5%) to $4.35 billion in 2012, mainly because of the 8.4% revenue growth in the Telecommunications segment.
Operating income(1) up $61.9 million (4.6%) from 2011 to $1.40 billion.
Net income attributable to shareholders: $167.7 million ($2.65 per basic share), down $33.3 million ($0.49 per basic share) from $201.0 million ($3.14 per basic share) in 2011.
Adjusted income from continuing operations(2): $196.1 million ($3.10 per basic share) in 2012, up $4.6 million ($0.11 per basic share) from $191.5 million ($2.99 per basic share) in 2011.
Revenues of Videotron Ltd. (“Videotron”) up in 2012 for all major services: Internet access (up $74.3 million or 10.6%), cable television ($66.7 million or 6.6%), mobile telephony ($58.9 million or 52.3%), and cable telephony ($18.2 million or 4.2%).
Videotron’s revenue generating units(3) up 221,800 in 2012 compared with an increase of 379,100 in 2011, which was bolstered by the discontinuation of the over-the-air analog television broadcasting in Canada.
Despite aggressive competition in its footprint, Videotron recorded in 2012 the largest growth in revenue generating units, in absolute terms, of all Canadian cable operators.
Videotron has added 402,600 subscriber connections to its mobile telephony service since it was launched in September 2010.
Videotron’s operating income up $126.2 million (11.5%) in 2012 and average monthly revenue per user(4)(“ARPU”) up $8.29 (8.0%) to $111.57.
Quebecor optimized its capital structure in 2012 through transactions aimed at creating value for shareholders, including extension of debt maturities by means of financing at more advantageous interest rates and the repurchase of part of CDP Capital’s interest in Quebecor Media, increasing the Corporation’s interest from 54.7% to 75.4%.
A total non-cash charge of $187.0 million for impairment of goodwill and intangible assets, in accordance with International Financial Reporting Standards (“IFRS”) accounting valuation principles, reflected continuing weak market conditions in the newspaper and music industries.
(1) See “Operating income” under “Definitions.”
(2) See “Adjusted income from continuing operations” under “Definitions.”
(3) The sum of cable television, cable and mobile Internet access, cable telephony service subscriptions and subscriber connections to the mobile telephony service.
(4) See “Average monthly revenue per user” under “Definitions.”
Fourth quarter 2012
Revenues down $5.6 million (-0.5%) from the fourth quarter of 2011 to $1.14 billion.
Operating income up $1.6 million (0.4%) to $370.8 million. Videotron’s operating income up $15.7 million (5.3%).
Net income attributable to shareholders: $9.2 million ($0.15 per basic share), down $76.2 million ($1.19 per basic share) from $85.4 million ($1.34 per basic share) in the fourth quarter of 2011.
Adjusted income from continuing operations: $56.0 million in the fourth quarter of 2012 ($0.89 per basic share), up $0.4 million ($0.02 per basic share) from $55.6 million ($0.87 per basic share) in the same quarter of 2011.
Videotron’s revenue generating units up 59,400 in fourth quarter 2012, also the largest increase among Canadian cable operators.
On November 13, 2012, Sun Media Corporation announced new restructuring initiatives designed to streamline its organizational structure to support better execution of business processes while improving cost effectiveness. These initiatives are expected to yield total annual savings exceeding $45.0 million.
“Quebecor’s results for the 2012 financial year reflect the reliability of the investment strategy we have been pursuing in recent years, primarily entailing capital expenditures for mobile telephony, modernizing Videotron’s network, and developing attractive new products, including illico TV new generation, which was launched in 2012,” said Pierre Karl Péladeau, President and Chief Executive Officer of Quebecor. “Despite continuing strong competition in most of its lines of business, the Corporation ended 2012 with a revenue increase of 3.5% compared with 2011, and an operating income increase of 4.6%. The Telecommunications segment continued to be a powerful driver of growth.”
“Videotron had a solid year in 2012,” said Robert Dépatie, President and Chief Executive Officer of Videotron. “Revenues were up for all of our main services, generating overall revenue growth of 8.4% in the segment. Operating income grew by $126.2 million, an 11.5% increase over the previous year. Videotron recorded a net increase of 221,800 revenue generating units and an $8.29 or 8.0% increase in average monthly revenue per user, compared with 2011. Subscriber additions to the mobile network launched in September 2010, which totalled 154,500 in 2011 and 112,000 in 2012, contributed to the customer growth and the increase in profitability. Meanwhile, the cable Internet access and cable telephony services added 55,200 and 59,600 customers respectively in 2012, and the illico TV new generation service passed the half-million subscriber mark, reflecting the success of our business strategy based on marketing bundled services and satisfying customer needs with respect to product development and service quality.
“Also, at the end of February 2013, Videotron launched illico Club Unlimited, a new subscription video on demand service that carries the largest selection of unlimited on-demand French-language titles in Canada. It is a product developed by Quebecers to meet customer needs, in keeping with Videotron’s commitment to continuously improve the customer experience it provides.”
“The News Media segment’s results were down significantly in 2012 compared with the previous year,” said Pierre Karl Péladeau. “The upheavals in the traditional print media industry, combined with a stagnant economy, negatively affected the profitability of our publications. The impact of the investments made to generate new revenue streams and the large fixed component of the segment’s operating costs were also important factors. The News Media segment needs to adapt its business model and streamline its cost structure. To continue meeting this challenge, the segment launched another reorganization of its newsgathering, editorial, advertising and industrial operations in 2012, with the goal of streamlining its organizational structures and accelerating decision-making. The organizational changes are expected to yield estimated annual savings of $45.0 million.”
In the Broadcasting segment, some of TVA Group Inc.’s (“TVA Group”) hit shows, such as the 2012 edition of Star Académie and the new show La Voix, which has been on the air since the beginning of 2013, have posted exceptional ratings and market shares, with average audiences of 2.2 million for the weekly Star Académie galas and 2.7 million for the weekly La Voix specials, and market shares of 54.5% and 57.5% respectively, demonstrating once again the success of Quebecor’s convergence strategy in creating value-added multiplatform content around high-quality television products for the benefit of all of Quebecor’s media properties.
Jean-François Pruneau, Chief Financial Officer of Quebecor, noted that no summary of Quebecor’s 2012 highlights would be complete without mentioning a major financial event: the repurchase of part of CDP Capital’s interest in Quebecor Media for $1.50 billion. “This mutually advantageous transaction increased the Corporation’s interest in Quebecor Media from 54.7% to 75.4%, while respecting the Corporation’s fundamental financial objectives of maintaining a sufficient level of operational and financial flexibility.”
For Quebecor, 2012 was therefore a year that saw solid consolidated financial results, one of the largest financial transactions in the Corporation’s history, and continued restructuring and adaptation efforts in all its segments. Quebecor is thus pursuing its goals of growth, profitability, business development, and shareholder value creation.
2012/2011 financial year comparison
Revenues: $4.35 billion, an increase of $145.2 million (3.5%).
Revenues increased in Telecommunications ($204.4 million or 8.4% of segment revenues), Interactive Technologies and Communications ($24.6 million or 20.3%) and Broadcasting ($15.6 million or 3.5%).
Revenues decreased in News Media ($58.4 million or -5.7%) and Leisure and Entertainment ($20.4 million or -6.5%).
Operating income: $1.40 billion, an increase of $61.9 million (4.6%).
Operating income increased in Telecommunications ($126.2 million or 11.5% of segment operating income) and Interactive Technologies and Communications ($1.9 million or 24.1%).
Operating income decreased in News Media ($35.0 million or -23.3%), Leisure and Entertainment ($13.5 million or -50.8%), Broadcasting ($12.4 million or -24.6%), and Head Office ($5.3 million). The decrease at Head Office mainly reflects the unfavourable variance in the fair value of stock options.
The change in the fair value of Quebecor Media stock options resulted in a $10.4 million unfavourable variance in the consolidated stock-based compensation charge in 2012 compared with 2011. The fair value of the options increased in 2012, whereas it decreased in 2011. The change in the fair value of Quebecor stock options resulted in an $11.3 million unfavourable variance in the Corporation’s consolidated stock-based compensation charge in 2012.
Net income attributable to shareholders: $167.7 million ($2.65 per basic share), down $33.3 million ($0.49 per basic share) from $201.0 million ($3.14 per basic share) in 2011.
The decrease was mainly due to:
$201.5 million charge for impairment of goodwill and intangible assets recorded in 2012;
$88.1 million increase in amortization charge;
$61.1 million unfavourable variance in loss on debt refinancing;
$11.7 million increase in financial expenses.
Partially offset by:
$142.9 million favourable variance in gain on valuation and translation of financial instruments;
$61.9 million increase in operating income.
Adjusted income from continuing operations: $196.1 million in 2012 ($3.10 per basic share), compared with $191.5 million ($2.99 per basic share) in 2011, an increase of $4.6 million ($0.11 per basic share).
2012/2011 fourth quarter comparison
The fourth quarter of the 2011 financial year contained an additional week in the News Media, Broadcasting, Leisure and Entertainment, and Interactive Technologies and Communications segments.
Revenues: $1.14 billion, a decrease of $5.6 million (-0.5%).
Revenues decreased in News Media ($31.1 million or -11.3% of segment revenues), Leisure and Entertainment ($16.7 million or -15.7%) and Broadcasting ($2.7 million or -2.1%).
Revenues increased in Telecommunications ($43.5 million or 6.9%).
Operating income: $370.8 million, an increase of $1.6 million (0.4%).
Operating income increased in Telecommunications ($15.7 million or 5.3% of segment operating income) and Interactive Technologies and Communications ($0.9 million or 36.0%).
Operating income decreased in News Media ($8.4 million or -17.9%), Broadcasting ($3.4 million or -16.5%), and Leisure and Entertainment ($2.6 million or -34.2%).
The change in the fair value of Quebecor Media stock options resulted in a $3.1 million unfavourable variance in the consolidated stock-based compensation charge in the fourth quarter of 2012 compared with the same period of 2011. The change in the fair value of Quebecor stock options resulted in a $3.7 million unfavourable variance in the Corporation’s consolidated stock-based compensation charge in the fourth quarter of 2012.
Net income attributable to shareholders: $9.2 million ($0.15 per basic share) compared with $85.4 million ($1.34 per basic share) in the fourth quarter of 2011, a decrease of $76.2 million ($1.19 per basic share).
The unfavourable variance was due primarily to:
$126.5 million unfavourable variance in gains and losses on valuation and translation of financial instruments;
recognition of a $60.4 million loss on debt refinancing;
$29.2 million increase in amortization charge;
$17.7 million increase in financial expenses.
Partially offset by:
$10.6 million decrease in charge for restructuring of operations, impairment of assets and other special items.
Adjusted income from continuing operations: $56.0 million in the fourth quarter of 2012 ($0.89 per basic share) compared with $55.6 million ($0.87 per basic share) in the same quarter of 2011, an increase of $0.4 million ($0.02 per basic share).
Financing
A number of financial transactions were carried out during 2012.
On December 17, 2012, Quebecor Media prepaid the balance outstanding under its term loan “B” credit facility for a cash consideration of $153.9 million.
On October 11, 2012, the Corporation increased its interest in Quebecor Media further to the closing of the following transactions:
Quebecor Media repurchased 20,351,307 of its common shares held by CDP Capital for an aggregate purchase price of $1.0 billion, paid in cash. All the repurchased shares were cancelled;
Quebecor purchased 10,175,653 common shares of Quebecor Media held by CDP Capital. To evidence the obligation of the Corporation to pay the purchase price of such shares, the Corporation issued to CDP Capital $500.0 million aggregate principal amount of subordinated debentures, bearing interest at 4.125% and maturing in 2018, which are convertible into Class B Subordinate Voting Shares (“Class B shares”) of Quebecor.
Further to the completion of these transactions, Quebecor’s interest in Quebecor Media increased from 54.7% to 75.4% and CDP Capital’s interest decreased from 45.3% to 24.6%.
To carry out the repurchase of 20,351,307 of its common shares for an aggregate purchase price of $1.0 billion, Quebecor Media was able to take advantage of favourable conditions on the debt markets. The following financial operations were carried out by Quebecor Media as part of this major transaction:
Issuance, on October 11, 2012, of US$850.0 million aggregate principal amount of Senior Notes bearing interest at 5.75% and maturing in 2023, and $500.0 million aggregate principal amount of Senior Notes bearing interest at 6.625% and maturing in 2023, the latter being one of the largest single-tranche high-yield offerings ever completed in Canada;
Quebecor Media increased the size of the offering as a result of oversubscription and favourable financing terms, which provided an opportunity to extend the maturities of its credit instruments by redeeming, in November 2012, US$320.0 million in aggregate principal amount of its 7.75% Senior Notes issued in 2007 and maturing in 2016.
In March 2012, Videotron issued US$800.0 million aggregate principal amount of 5.0% Senior Notes maturing in 2022.
In March 2012, Videotron redeemed all of its 6.875% Senior Notes maturing in January 2014 in the aggregate principal amount of US$395.0 million.
In March and April 2012, Quebecor Media redeemed US$260.0 million principal amount of its 7.75% Senior Notes maturing in March 2016 and settled the related hedging contracts.
Quebecor Media and TVA Group amended their bank credit facilities to extend the maturity dates to 2016 and 2017 respectively and to increase Quebecor Media’s revolving credit facility maturing in 2016 by $200.0 million.
The Corporation amended its $150.0 million revolving credit facility to extend the maturity from November 2014 to November 2015 and modify certain terms and conditions of the facility.
Finally, Sun Media Corporation repaid the $37.6 million balance on its term loan credit facility and cancelled all its credit facilities.
Dividends
On March 13, 2013, the Board of Directors of Quebecor declared a quarterly dividend of $0.05 per share on its Class A Multiple Voting Shares (“Class A shares”) and Class B shares, payable on April 22, 2013 to shareholders of record at the close of business on March 28, 2013. This dividend is designated to be an eligible dividend, as provided under subsection 89(14) of the Canadian Income Tax Act and its provincial counterpart.
Normal course issuer bid
On August 9, 2012, the Corporation filed a normal course issuer bid for a maximum of 980,357 Class A shares, representing approximately 5% of the issued and outstanding Class A shares, and for a maximum of 4,351,276 Class B shares, representing approximately 10% of the public float of the Class B shares as of July 31, 2012. Purchases can be made from August 13, 2012 to August 12, 2013 at prevailing market prices, on the open market, through the facilities of the Toronto Stock Exchange. All shares purchased under the bid have been or will be cancelled.
In 2012, the Corporation purchased and cancelled 1,058,800 Class B shares for a total cash consideration of $38.3 million (928,100 Class B shares for a total cash consideration of $30.2 million in 2011). The excess of $30.3 million of the purchase price over the carrying value of Class B shares repurchased was recorded in reduction of retained earnings in 2012 ($23.1 million in 2011).