CJREF Corus Entertainment Inc (PK)

• Consolidated revenues up 11% for the quarter and for the fiscal year
• Consolidated segment profit up 15% for the quarter and for the fiscal year
• Net income attributable to shareholders of $150.4 million, down 6% for the fiscal year
• Adjusted net income attributable to shareholders of $150.3 million, up 8% for the fiscal year
• Adjusted basic earnings per share of $1.77 per share, up 7% for the fiscal year
• Free cash flow of $175.3 million, up 13% for the fiscal year

TORONTO, Oct. 23, 2014 /CNW/ - Corus Entertainment Inc. (TSX: CJR.B) announced its fourth quarter and year-end financial results today.

"In fiscal 2014, with the successful integration of our newly acquired assets, Corus delivered double-digit revenue and segment profit growth, matching our best ever earnings and margin performance.  These acquisitions were immediately accretive to earnings per share and contributed to our record-setting free cash flow in the year, significantly enhancing shareholder value," said John Cassaday, President and Chief Executive Officer of Corus Entertainment.  "Looking ahead, although we have lowered our segment profit guidance for fiscal 2015, we are encouraged that with the recent repositioning of key large market Radio stations, ongoing ratings strength on our core TV networks and our entry into new markets, we are well positioned to deliver growth and increase the value of our strong brands."

Consolidated Results from Operations

For fiscal 2014, the operating results of TELETOON Canada Inc. ("TELETOON"), as well as its assets and liabilities, have been fully consolidated effective September 1, 2013 as a consequence of meeting the definition of control under IFRS 10 - Consolidated Financial Statements. Accordingly, a business combination had occurred in accordance with IFRS 3 – Business Combinations and as a result, TELETOON must be accounted for by applying the acquisition method.  On December 20, 2013, the Company received Canadian Radio-television and Telecommunications Commission ("CRTC") approval to complete the acquisition of the remaining 50% interest in TELETOON that it did not already own as well as the acquisition of Historia and Séries+, s.e.n.c. ("H&S").  These acquisitions closed on January 1, 2014. On January 24, 2014, the CRTC approved the Company's acquisition of the Ottawa-based radio stations (CKQB-FM and CJOT-FM) and the transaction closed on January 31, 2014.  As a result of these business combinations, the Company's consolidated results for fiscal 2014 reflect 100% interest in TELETOON effective September 1, 2013, 100% interest in H&S effective January 1, 2014, and 100% interest in the two Ottawa-based radio stations effective January 31, 2014 (refer to note 17 of the interim condensed consolidated financial statements for further details on all acquisitions). 

For fiscal 2013, as a result of retroactive application of IFRS 11 - Joint Arrangements, the Company is no longer permitted to proportionately consolidate its 50% equity interest in the operations of TELETOON up to August 31, 2013 (i.e. prior to the business combination on September 1, 2013) and is required to account for its investment using the equity method of accounting.  As a consequence, the Television revenues and segment profit for the fourth quarter of fiscal 2013 were reduced by $11.7 million and $3.5 million, respectively and instead, Corus' share of TELETOON's net income of $1.1 million was reported as Other expense (income) in the Consolidated Statements of Income and Comprehensive Income.  For the year ended August 31, 2013, the Television revenues and segment profit were reduced by $52.0 million and $19.0 million, respectively, and Corus' share of TELETOON's net income of $12.1 million was reported as Other expense (income) in the Consolidated Statements of Income and Comprehensive Income. The restatement did not change reported net income for fiscal 2013. 

Consolidated revenues for the three months ended August 31, 2014 were $201.6 million, up 11% from $181.9 million last year.  Consolidated segment profit was $58.3 million, up 15% from $50.9 million last year.  Net income attributable to shareholders for the quarter was $23.7 million ($0.28 per share basic and diluted), compared to net income of $11.9 million ($0.14 per share basic and diluted) last year.  Net income attributable to shareholders for the fourth quarter includes business acquisition, integration and restructuring costs of $5.6 million and an investment impairment recovery of $1.0 million.  Removing the impact of these items results in an adjusted net income attributable to shareholders of $26.8 million ($0.31 per share) in the quarter.  Net income attributable to shareholders for the prior year quarter includes charges related to broadcast license impairments of $5.7 million, business acquisition, integration and restructuring costs of $5.2 million and asset impairment charges of $7.1 million.  Removing the impact of these items results in an adjusted basic earnings per share attributable to shareholders of $0.31 per share in the prior year quarter.

Consolidated revenues for the year ended August 31, 2014 were $833.0 million, up 11% from $751.5 million last year.  Consolidated segment profit was $289.6 million, up 15% from $251.0 million last year.  Net income attributable to shareholders for the year ended August 31, 2014 was $150.4 million ($1.77 per share basic and $1.76 per share diluted)  compared to $159.9 million ($1.91 per share basic and $1.90 per share diluted) last year.  Net income attributable to shareholders for the year ended August 31, 2014 includes a non-cash gain of $127.9 million resulting from the remeasurement to fair value of the Company's 50% interest in TELETOON which was held prior to consolidation on September 1, 2013, radio broadcast license and goodwill impairment charges of $83.0 million, capital asset impairment charges of $1.2 million, business acquisition, integration and restructuring costs of $46.8 million, an increase in the purchase price obligation of $3.3 million, and investment impairment related charges of $2.3 million.  Removing the impact of these items results in an adjusted net income attributable to shareholders of $150.3 million ($1.77 per share basic) for the current year.  Prior year net income includes a pre-tax charge for debt refinancing of $25.0 million, the gain related to the sale of the Company's non-controlling interest in Food Network Canada of $55.4 million, broadcast license impairments of $5.7 million, business acquisition, integration and restructuring costs of $7.3 million and investment impairment charges of $7.1 million.  Removing the impact of these items results in an adjusted net income attributable to shareholders of $138.6 million ($1.65 per share) in the prior year.  Free cash flow for the year ended August 31, 2014 was $175.3 million compared to $154.7 million in the prior year.

Operational Results - Highlights

Television

• Fiscal 2014 reflects consolidation of 100% interest in TELETOON effective September 1, 2013 and 100% interest in Historia and Séries+ effective January 1, 2014. Fiscal 2013 was retroactively restated to apply IFRS 11 – Joint Arrangements, resulting in equity accounting for Corus' 50% economic interest in TELETOON (i.e. prior to the business combination on September 1, 2013).
• Segment revenues increased 16% in both Q4 2014 and for the fiscal year
• Specialty advertising revenues increased 26% in Q4 2014 and 36% for the fiscal year
• Subscriber revenues increased 26% in Q4 2014 and 21% for the fiscal year
• Merchandising, distribution and other revenues declined 16% in Q4 2014 and 28% for the fiscal year
• Segment profit⁽¹⁾ increased 8% in Q4 2014 and 19% for the fiscal year
• Segment profit margin⁽¹⁾ of 36% in Q4 2014 and 41% for the fiscal year

Radio

• Fiscal 2014 reflects consolidation of 100% interest in two Ottawa-based radio stations, CKQB-FM and CJOT-FM, effective January 31, 2014
• Segment revenues decreased 5% in Q4 2014 and 6% for the fiscal year
• Segment profit⁽¹⁾ decreased 19% in Q4 2014 and 18% for the fiscal year
• Segment profit margin⁽¹⁾ of 23% in Q4 2014 and 26% for the fiscal year
• Non-cash broadcast license and goodwill impairment charges of $83.0 million for the fiscal year

Corus Entertainment Inc. reports in Canadian dollars.

The unaudited consolidated financial statements and accompanying notes for the three months and year ended     August 31, 2014 and Management's Discussion and Analysis are available on the Company's website at www.corusent.com in the Investor Relations section.

A conference call with Corus senior management is scheduled for October 23, 2014 at 2:30 p.m. ET.  While this call is directed to analysts and investors, members of the media are welcome to listen in. The dial-in number for the conference call for local and international callers is 416.641.6680 and for North America is 1.800.750.5845.  PowerPoint slides for the call will be posted 15 minutes prior to the start of the call and can be found on the Corus Entertainment website at www.corusent.com in the Investor Relations section.

Use of Non-GAAP Financial Measures

This press release includes the non-GAAP financial measures of adjusted net income, adjusted basic earnings per share and free cash flow that are not in accordance with, nor an alternate to, generally accepted accounting principles ("GAAP") and may be different from non-GAAP measures used by other companies.  In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on the Company's reported results and, therefore, should not be relied upon as the sole financial measures to evaluate the Company's financial results. The non-GAAP financial measures are meant to supplement, and to be viewed in conjunction with, GAAP financial results.  A reconciliation of the Company's non-GAAP measures is included in the Company's most recent Report to Shareholders, which is available on Corus' website at www.corusent.com, as well as in the Management's Discussion and Analysis filed on SEDAR.

Caution Concerning Forward-Looking Statements

This press release contains forward-looking information and should be read subject to the following cautionary language:

To the extent any statements made in this report contain information that is not historical, these statements are forward-looking statements and may be forward-looking information within the meaning of applicable securities laws (collectively, "forward-looking statements").  These forward-looking statements relate to, among other things, our objectives, goals, strategies, intentions, plans, estimates and outlook, including advertising, distribution, merchandise and subscription revenues, operating costs and tariffs, taxes and fees, and can generally be identified by the use of the words such as "believe", "anticipate", "expect", "intend", "plan", "will", "may" and other similar expressions.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.  Although Corus believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties and undue reliance should not be placed on such statements.  Certain material factors or assumptions are applied in making forward-looking statements, including without limitation factors and assumptions regarding advertising, distribution, merchandise and subscription revenues, operating costs and tariffs, taxes and fees and actual results may differ materially from those expressed or implied in such statements.  Important factors that could cause actual results to differ materially from these expectations include, among other things: our ability to attract and retain advertising revenues; audience acceptance of our television programs and cable networks; our ability to recoup production costs, the availability of tax credits and the existence of co-production treaties; our ability to compete in any of the industries in which we do business; the opportunities (or lack thereof) that may be presented to and pursued by us; conditions in the entertainment, information and communications industries and technological developments therein; changes in laws or regulations or the interpretation or application of those laws and regulations; our ability to integrate and realize anticipated benefits from our acquisitions and to effectively manage our growth; our ability to successfully defend ourselves against litigation matters arising out of the ordinary course of business;  and changes in accounting standards. Additional information about these factors and about the material assumptions underlying such forward-looking statements may be found in our Annual Information Form.  Corus cautions that the foregoing list of important factors that may affect future results is not exhaustive.  When relying on our forward-looking statements to make decisions with respect to Corus, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Unless otherwise required by applicable securities laws, we disclaim any intention or obligation to publicly update or revise any forward-looking statements whether as a result of new information, events or circumstances that arise after the date thereof or otherwise.

Change to Fiscal 2015 Financial Guidance

At its annual Investor Day on January 29, 2014, the Company provided fiscal 2015 financial guidance of $340.0 million to $360.0 million in consolidated segment profit, and free cash flow in excess of $170.0 million.  The segment profit guidance assumed a starting point of $330.0 million, which was based on the proforma fiscal 2013 results of the Company's core business, assuming a full year of segment profit from the recently completed acquisitions (refer to note 17 of the interim condensed consolidated financial statements for further details) and projected synergies of $12.0 million. It also assumed growth scenarios of a 2%, 3% and 4% compound annual growth rate off the $330.0 million base segment profit and the Company's ability to successfully integrate the acquisitions to achieve targeted synergies within its expected timelines.  The growth scenarios assumed the Canadian economy (GDP) would increase by 2% to 3% for 2015 to support the discretionary nature of advertising expenditures. The Company also assumed minimal subscriber growth based on historical subscriber trending and minimal growth in merchandising, distribution and other revenues based on timing of the launches of Corus' new merchandise brands.  Free cash flow guidance for fiscal 2015 of $170.0 million plus was based on the Company's recent historical working capital run-rates, annual capital expenditures of $15.0 million to $20.0 million, inclusion of free cash flow from the acquisitions noted above and the Company's ability to meet its segment profit guidance for fiscal 2015 of $340.0 million to $360.0 million.

The actual fiscal 2014 financial results were below the Company's expectations, primarily due to a weak advertising market, lower than anticipated Pay Television subscribers, and slower actual Canadian economic growth than anticipated. Although the Company exceeded its annual acquisition synergies target of $12.0 million, the proforma starting point for its fiscal 2015 earnings based on actual fiscal 2014 results is closer to $300.0 million and not the previously stated $330.0 million. As a result, the Company is adjusting its fiscal 2015 consolidated segment profit guidance to a revised range of $300.0 million to $320.0 million. The lower end of the Company's revised guidance range is based on fiscal 2014 financial results, continued softness in the economy and its impact on the discretionary nature of advertising expenditures, minimal subscriber growth and minimal growth in merchandising, distribution and other revenues. The upper end of the Company's revised guidance range is based on a stronger economy and advertising expenditures while Corus focuses on delivering continued strong ratings on its Television properties and recovering its Radio ratings in the key advertising markets of Toronto and Vancouver. The Company has considerable operating leverage to achieve the upper end of its guidance range due to the fixed cost nature of its business and the conversion rate of its incremental revenue.

Free cash flow continues to be a key strength for the Company.  Corus delivered fiscal 2014 free cash flow of $175.3 million and, as a result, fiscal 2015 free cash flow guidance will be increased to $180.0 million plus.  The revised free cash flow guidance is based on achieving the Company's revised forecasted segment profit guidance of $300.0 million to $320.0 million, the Company's historical working capital run rates and a capital expenditures target of $20.0 million to $25.0 million. The Company will hold its annual Investor Day on November 20, 2014.

About Corus Entertainment Inc.

Corus Entertainment Inc. is a Canadian-based media and entertainment company that creates, broadcasts and licenses content across a variety of platforms for audiences around the world. The Company's portfolio of multimedia offerings encompasses specialty television and radio with additional assets in pay television, television broadcasting, children's book publishing, children's animation and animation software. Corus' brands include YTV, TELETOON, ABC Spark, W Network, OWN: Oprah Winfrey Network (Canada), HBO Canada, Historia and Séries+, as well as Nelvana, Kids Can Press, Toon Boom and 39 radio stations including CKNW AM 980, 99.3 The FOX, Country 105, 630 CHED, Fresh FM London, JUMP! 106.9, Q107 and 102.1 the Edge. A publicly traded company, Corus is listed on the Toronto Stock Exchange (CJR.B). Experience Corus on the web at www.corusent.com.