Rogers ups outlook after Shaw merger

Rogers Communications says it’s ahead of the game in the integration process with Shaw, and its second quarter financials seem to suggest that things are indeed going well.

The Canadian operator’s Q2 numbers are its first since it closed the C$20.5 billion purchase of rival Shaw back in April. As such, a number of news outlets have focused on the fact that the telco’s bottom line took a hit as a result of depreciation and amortisation charges linked to the takeover. But that 73% slide in net income to C$109 does not tell the whole story.

Far from it, in fact; Roger’s results for the three months to the end of June were pretty solid.

For one thing, the operator raised its full-year guidance on earnings and free cash flow, in its own words, “as a result of strong execution in the first half of the year” and its faith in its ability to deliver cost synergies from the Shaw deal. While it is sticking by its expectations of a 26%-30% uplift in service revenues for the full year, it is now guiding for EBITDA growth of 33%-36%, an increase of one percentage point on the top level of its previous range, and free cash flow of C$2.2 billion-C$2.5 billion; its outlook from March this year was C$2 billion-C$2.2 billion.

“We delivered strong results in the second quarter and continued to demonstrate solid momentum in our core businesses,” said Tony Staffieri, President and CEO. “We upgraded our financial guidance for the year and I am pleased to share the integration with Shaw is tracking ahead of plan.”

Rogers added 170,000 postpaid mobile customers in Q2, an increase of 39% on the year-earlier quarter, and posted high single-digit growth in mobile revenue and earnings. With regard to the merged business – Shaw had to sell its Freedom Mobile operation to get the merger over the line – growth is recovering in the cable and Internet markets, Rogers said.

It reiterated that it expects to realise at least C$200 million of merger synergies this year and annualised cost synergies of at least C$600 million by the end of the first quarter of next year.

Naturally debt is an issue in the wake of the takeover. Rogers is keen to point out that its 5.1x debt-to-leverage ratio is a slight improvement on the figure at the closing of the Shaw deal, but nonetheless it’s something it needs to address. It aims to reach 4.9x by the end of the year and has previously stated its intention to get back to 3.5x within 36 months of the closure of the deal.

Part of that delivering process will see Rogers sell off around C$1 billion worth of non-core assets over the next year, mainly in real estate.

Essentially, Rogers is battling with the usual financial issues in the wake of a major M&A deal. But it had a long time to consider the financial implications of the deal while waiting for – and indeed fighting for – regulatory approvals, and everything seems to be going as planned, thus far.

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