Corus Entertainment Inc. (CJRB) Earnings Call Transcript & Summary

Welcome to Corus Entertainment 2019 Annual Meeting of Shareholders.

Thank you, and welcome, everybody. I'm Heather Shaw, Executive Chair of Corus Entertainment, and we will now proceed to the official business of the meeting. I call to order this Annual Meeting of Shareholders. In accordance with the bylaws of the corporation, I will ask Dale Hancocks to act as secretary of the meeting, and I will chair the meeting. AST Trust Company (Canada) will act as scrutineers. The corporation has adopted the notice and access method of delivering materials to both registered and nonregistered shareholders. As such, Corus mailed a notice to all shareholders of record as of November 22, 2019, to each director and the auditors. Corporation has posted copies of the notice and management information circular and the corporation's 2019 annual report on its website and on SEDAR. Copies of the management information circular, together with the diversity disclosure report required by the Canadian Business Corporations Act, are available at the registration desk for this meeting. We have received a statutory declaration from the company's transfer agent attesting to the proper mailing of the notice of this meeting and the accompanying materials. A copy of these documents will be kept as part of the records of this meeting. The scrutineers' report can now be read.

I'm pleased to read that the scrutineers, AST Trust Company (Canada), report that there are 29 shareholders holding 3,277,611 Class A voting shares represented in person or by proxy at this meeting. This total represents 96.05% of the 3,412,392 issued and outstanding Class A voting shares.

A quorum is present, and I now declare the meeting duly called and properly constituted. The minutes of the last AGM of the company were available for review at the registration desk prior to this meeting and are with the secretary and available for review following the meeting. We will now move to the formal business of the meeting. Certain of these items will be subject to a vote by the Class A voting shareholders. All matters before this meeting must be approved by not less than a majority of the votes cast by Class A shareholders present in person at this meeting or voting by proxy. In accordance with the statute and bylaws governing Corus, voting will be conducted by a show of hands or ballots as appropriate. However, any Class A shareholder or proxy holder present in person at this meeting has the right to demand a written ballot being conducted on any resolution either before or following the vote by a show of hands. I now present to the meeting the audited consolidated financial statements of Corus Entertainment for the year ended August 31, 2019, and the report of the auditors on them. Copies of these documents are included in the annual report made available to shareholders and posted on the company's website and on SEDAR, and no further approval is necessary. We shall now proceed to -- with the election of directors of the company. The first item relating to the election of directors is for shareholders to consider and, if deemed advisable, to pass the resolution to allow the Board of Directors of Corus to fix the number of directors of the company within the minimum and maximum number provided for in its articles of the company. May I have such a motion?

I move that the Board of Directors of Corus be authorized to fix the number of directors of the company within the minimum and maximum provided for the article in the -- for the maximum provided in the company's articles.

Thank you.

I second the motion.

Okay. Thank you, [ Janet ]. Is there any discussion? I'm seeing none. You have heard the motion, and as there is no discussion, I now ask all those in favor of the motion to raise your hand. [Voting]

Thank you. Contrary, if any? [Voting]

Thank you. That's carried. The next item of business is the election of the directors of the company. The company did not receive notice of any director nominations in connection with this meeting within the time prescribed by the advanced notice requirements in the company's bylaws. Accordingly, at this meeting, the only persons eligible to be nominated for election to the Board are the persons nominated by management as set out in the management information circular. Class A shareholders are being asked to elect the directors of the company to serve until the next Annual Meeting of Shareholders or until their successors are elected or appointed or until they otherwise cease to hold office. I call now for someone to propose the nominees named in the company's management information circular to be elected as directors of the company.

Madam Chair, I nominate as directors of the company for the ensuing year those persons described in the management information circular that was sent with the notice of this meeting, namely, Fernand Bélisle; Michael Boychuk; Michael D'Avella; Mark Hollinger; Barry James; Doug Murphy; Catherine Roozen; Heather Shaw; and Julie Shaw.

I declare the nominations closed, and we will now move to the individual election of our directors by ballot. Class A shareholders who have not already voted by proxy were provided with a ballot at the registration desk so that they could cast their votes for each director. Are there any outstanding ballots that need to be collected or any Class A shareholders who require a ballot? I see none. Our scrutineers have confirmed that all ballots have been counted and that all 9 persons named in the management information circular and nominated at this meeting have been individually elected as directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed.

The percentage of votes for or withheld will be available at the end of the meeting. The exact numbers for each director will be disclosed in the press release, which will be filed on SEDAR.

The next item of business is the appointment of auditors and the authorization for the directors to fix their remuneration. May I please have such a motion?

I move that Ernst & Young LLP be appointed auditors of the company to hold office until the next Annual Meeting of Shareholders or until a successor is appointed and that the directors be authorized to fix the remuneration.

I second the motion.

Thank you. You've heard the resolution. Is there any discussion? Hearing none, I would ask that all those in favor of the motion to please signify by raising their hands. [Voting]

Thank you. Contrary, if any? [Voting]

And that's passed. The final item of business is to consider and, if deemed advisable, to approve a resolution ratifying and approving the unallocated entitlements under the company's stock option plan for the next 3 years in accordance with the requirements of the Toronto Stock Exchange, all as more particularly described in the management information circular. May I have a motion that the resolution relating to the option plan ratification of unallocated entitlements be approved?

I move that the resolution approving the ratification of the company's stock option plan entitlements, this full text, which is set out in the management information circular be approved.

I second the motion.

Thank you. You have heard the resolution. Is there any discussion? Hearing none, I would ask all those in favor of the motion to please signify by raising their hands. [Voting]

Thank you. Contrary, if any? [Voting]

That's passed. Before we conclude the formal business of the meeting, we'd like to take this opportunity to recognize the contributions of our departing Board member, John Frascotti. He has made an incredible contribution to Corus, and we are very thankful. I now declare the formal part of this meeting terminated, and thank you for your time and attention. And I now turn it over to Doug.

Good afternoon, everybody, and welcome to Corus Entertainment's 2019 Annual General Meeting of the Shareholders. I'd like to thank our shareholders, directors, team members and guests for being here today as well as those of you who are assembled live via our webcast. Before we begin, I'd like to remind you of our standard cautionary statement currently on the screen as well as in the webcast presentation, which is provided for your review and consideration. Today, I'd like to highlight a few significant accomplishments for 2019 and the continued progress we are making as we position Corus for success in 2020 and beyond. Our industry continues to evolve at a rapid pace and so does Corus as we meet challenges head-on while finding new opportunities for growth. This was particularly evident in our 2019 financial results. We delivered record consolidated revenue and segment profit performance as well as strong free cash flow that enabled us to do what we said we were going to do, and that is pay down our bank debt, invest in the future and return value to our shareholders with an attractive dividend. We had a solid start to the year as evidenced by our Q1 results announced last Friday. We remain confident in our long-term plan as we continue to build for the future. As Canada's leading pure-play and media content company, our team has a disciplined focus on what we call our first principles: to maximize our audiences, to monetize those audiences and to continuously rationalize and evolve our operating model. Our many accomplishments across each of our 3 strategic priorities last year underscore the successful execution of that strategy to optimize our core business and build for the future while making progress as we diversify our revenue base. And we will apply this same discipline in fiscal 2020 as we advance these important growth initiatives and create new opportunities. Let's now take a look at our incredible portfolio in action. [Presentation]

Last year, we made purposeful investments to advance our own more content strategy, significantly growing our Nelvana and Corus Studios' content slates for sale in the global content marketplace. The Corus Advantage is a pillar of our own more content strategy wherein we take the money, we maximize the CRTC required spending on Canadian programming expenditures, which we call CPE, to build an ever-growing slate of programming that drives ratings on our networks here in Canada and is for sale the world over. In fact, Nelvana and Corus Studios series are now sold in more than 160 countries around the world. To support this approach, a year ago, we reorganized our executive leadership team to bring an intensified managerial focus on our content business. Corus Studios and Nelvana both increased their production slates in 2019. Nelvana delivered 206 half-hour episodes, up from 122 the year prior. We have built a powerful integrated kids content ecosystem to leverage this Corus Advantage. A great example of this is our new series, The Remarkable Mr. King. Based on a best-selling Kids Can Press book title, The Mr. King Book Series, which has sold more than 350,000 units the world over, this property has been reimagined as an animated series within our Nelvana animation studio, created using our proprietary animation software from Toon Boom in Montreal and set to broadcast on Canada's powerhouse preschool network, Treehouse. By leveraging all of these assets, we have built a kids content engine in our company that we believe can build franchise IP for sale in Canada and around the world. Further, we have embarked on a new live-action series, I'm sure many of you in the room have this close to your heart, the fan-favorite Hardy Boys, which has already been sold to U.S. premium streaming service, Hulu. This is yet another example of taking beloved owned IP to create new opportunities for Corus. Building scale through partnerships is a key strategy in our content business. And we are scaling our production frameworks, these are partnerships with key partners, with second seasons of Corn & Peg, that's with Nickelodeon; Emmy-nominated Esme & Roy with Sesame Workshop; Nelvana and Discovery's joint venture, redknot, greenlit its first 2 new animated preschool series, The Dog & Pony Show and Agent Binky: Pets of the Universe, also a Kids Can Press title, I'll have you know; while Sumitomo and Nelvana announced the development of their first series, GEKI DRIVE. Increasing our slate at Nelvana will continue to diversify our revenue base through international sales and support our future merchandising revenue growth. Further, building on the successful premiere of Bakugan: Battle Planet on Cartoon Network in the U.S. and TELETOON in Canada, we have successfully succeed -- achieved worldwide distribution of the series in partnership with Spin Master and TMS Entertainment from Japan to support the launch of this powerhouse merchandising property. These partnerships, all of them, will enable further expansion of our global animated children's business and grow our own more content strategy. At Corus Studios, we are making waves in the global content marketplace as well. Our shows are widely available on virtually every continent, and we're currently focused on expanding our footprint deep into the U.S. market. We announced the production of 21 series for fiscal 2020 as compared to 11 series last year, providing an impressive slate of original programming to grow this emerging business in the international marketplace. This includes new seasons of Backyard Builds, $ave My Reno and Home to Win, to name a few. From the launch of Corus Studios in 2015, that's only 4 short years ago, our impressive catalog of content has now grown to more than 500 episodes for sale, including HGTV Canada's highest-rated series ever, the Island of Bryan, great show. I recommend you tune to that one. Let's take a look at some of these series fueled by the Corus Advantage. [Presentation]

[Audio Gap] our audiences. But the core of our business is a strong national, conventional television network, Global, and of course, our powerful suite of specialty television channels. Global Television is a powerhouse in Canada. This year, we have 16 hours of simulcast and the right balance of new and returning series, including many of them on the screen here but some of the ones I'd note, New Amsterdam, 911, Survivor, continues to be at the top of the charts; and some new series, Global's original, Nurses, FBI, Evil and Prodigal Son, which is one of the hit shows this year. Our 34 specialty television channels include many of Canada's biggest brands with a great lineup of programming. In 2019, W Network, Showcase, HISTORY, HGTV, YTV and Food Network were 6 of the top 10 specialty entertainment channels among both adults and women 25 to 54. Seven of the top 10 channels among kids were in the Corus family. These results reflect our expertise in engaging high-value audiences, and we remain steadfast in our pursuit of smart opportunities to strengthen these channels and grow our audiences. And we continue to optimize our television portfolio with fewer, bigger channels that stand out in this crowded content marketplace and attract valuable audiences. We are investing in winning content to grow these audiences on these bigger specialty television channels and providing increased value to our distribution partners. Last year, we deepened our partnership with WarnerMedia, striking a multi-year, multi-platform deal to bring the world's first 24-hour Adult Swim channel to Canada. This is a great example of portfolio optimization in Canada, and we rebranded an existing legacy channel, which is called ACTION, to Adult Swim and attracted these great younger audiences and established Corus as a leader in specialty entertainment. In fact, Adult Swim is now the #1 audience in Canada for adults 18 to 34. I would like to highlight the ongoing success of our innovative partnership also between W Network and Hallmark. As the exclusive Canadian TV partner for Crown Media Network's iconic Hallmark Channel, we acquired the multi-platform licensing rights to all movies and series produced for Hallmark. And I'm certain many of you over the Christmas holidays binged on those Hallmark movies on W, especially during the Hallmark Channel's Countdown to Christmas. And complementing our leading and conventional network and specialty channels are our portfolio of 39 radio stations in Canada's major radio markets, an important part of our portfolio. They enhance our presence in communities across Canada. They build on our strength in news and support our relationships with local advertisers, particularly in those markets where Global TV and Corus Radio are both present. In today's world of choice, Corus is making investments to provide audiences with more flexibility when it comes to how, when and where they want to watch a premium content and engage with our brands. In 2019, we launched STACKTV. It's available in Canada via a virtual distributor, Amazon Prime Videos Channels, and it's the first offering of its kind. STACKTV is an example of how we will deliver our diverse portfolio of premium broadcast content and brands to new audiences and the growing segment of the population that are turning to streaming platforms. STACKTV offers access to 12 of our most popular broadcast networks, providing an array of lifestyle, drama and kids content as well as global, both live and on-demand. Long-form ad-supported video-on-demand, that's a mouthful, AVOD, premium video content online, is in high demand by advertisers, that's television and feature film content online. And we have a variety of strategies in play to monetize this demand. Global TV, for example, is available on mobile, web and connected televisions, and it's another way we reach audiences on a multitude of platforms. This year, in addition to our presence on Comcast, iOS and Apple TV, we expanded on to Amazon Fire, Android TV, and we were the first Canadian broadcaster to launch on Roku, the leader in U.S. connected TV streaming market. Globalnews.ca also continues to grow, now reaching 13.3 million unique visitors on average each month and is the #1 private news broadcaster online in Canada. As demand for great video content grows, we are creating also new types of short-form content as we follow our audiences into these emerging digital and social markets. Our social digital agency, so.da, is building on the many emerging opportunities in custom, short-form video. And this offers advertisers new ways to engage with audiences on social platforms. This year, so.da announced the launch of so.da originals, which is premium short-form content series that run on and across Corus' powerful brands and platforms, featuring many of our talent. We have also deepened our partnership with Twitter with the launch of Twitter Originals, fueled with so.da. This next phase of our strategic partnership sees custom content audiences and advertisers built exclusively for Twitter. Our first series from this partnership with Twitter was #PowerUp, produced for Samsung and featuring Canada's Director X, and it was the #1 branded content series in Twitter Canadian history. And Corus also extended our reach this year by embarking on a new comprehensive partnership with global media company, Complex Media, considered to be one of the biggest youth culture brands in the world. Complex offers a portfolio of premium digital- and video-first brands, delivering Corus significant reach within millennials and Gen Z and reaches more males 18 to 34 in Canada than Sportsnet, ESPN and the NHL Network. As the exclusive ad sales partner for Complex Networks in Canada, Corus licenses content from their diverse library for distribution on both linear television and on-demand. Corus also acquired the Canadian operations of Kin Community. And this provides us with a social media creator network on YouTube where we can further leverage our desire to build more great short-form content. Let's now take a look at some of the ways we are following our audiences into these growing digital and social markets. [Presentation]

Corus' commitment to innovation is on full display in our work to fundamentally transform how television is sold. Audience-based buying is an example of how targeted investments and operating discipline generate great results at Corus. We were the first broadcaster in Canada to offer audience-based buying and has proven to be a clear differentiator for Corus in the marketplace. In Q1 of fiscal 2020, audience-based buying accounted for 26% of English television advertising revenue as compared to 17% the year prior. Meaningful progress is being made as we further build out CYNCH. CYNCH is our automated audience-based buying platform. CYNCH provides a new platform for advertisers to buy our audience segments in the brand-safe and trusted environment of television while, at the same time, providing many more timely reports on the performance of their campaigns and improving transactional efficiency, making it easier than ever to buy television. This is what our customers, agency and client partners alike have been asking for so that TV can better compete with massive digital media players. As this platform further scales throughout the year, we will continue to add inventory and expand our user base. Corus has and will continue to be an advocate for the need to work together as an industry solution in Canada. And this includes the adoption of common audience segments amongst all broadcasters, improving the viewer experience and value proposition of both linear and on-demand television content, creating more revenue opportunities such as ad insertion on VOD and others. These initiatives will create a more robust and effective ecosystem for advertisers and agencies to target audiences for maximum campaign impact. Turning to our financial performance. Our annual consolidated revenue of $1.69 billion was up 2% for the year. We delivered 4 quarters of consecutive television advertising revenue growth with an increase of 7% for the year. This is an outstanding achievement and a direct result of the successful execution of our strategy to reach audiences new ways and evolve the way television is sold. We delivered annual consolidated segment profit of $585 million. That's up 2% for the year as well. Our annual consolidated segment profit margin of 35% was equal to last year's results. And last week, we announced a solid start to our new fiscal year with slightly increased overall revenue of $468 million driven by television advertising revenue growth of 1% and double-digit growth in our content business with a segment profit result of $184 million. Our strong free cash flow of $310 million in fiscal 2019 demonstrates the powerful ability of our portfolio to generate cash, and we use this cash very, very wisely. Our capital allocation policy delivered its intended results, enabling us to pay down a significant $250 million in bank debt last year and decrease our leverage to 2.82x net debt to segment profit in the fiscal year. This ever-improving financial flexibility funds the investments we are making in our business in the pursuit of revenue growth, and we pay, as you know, an attractive dividend. In Q1, we delivered $53 million of free cash flow, enabling us to pay down a notable $49 million of bank debt. And we announced a quarterly dividend of $0.06 per Class B share and $0.05875 per Class A share. We believe that our yield of 4.5% is appropriate and highly competitive in today's market. Last November, we made a notable change to our capital allocation policy, introducing a share buyback program for the repurchase of up to 5% of our public float of Class B shares as yet another way to increase value for our shareholders. At the end of December 2019, we have repurchased nearly 1.7 million shares. Standing before you here today reminds me that it's been 4 years since we first announced the acquisition -- the transformational acquisition of Shaw Media. We made a commitment at that time to focus on deleveraging, and the results are evident, with significant reduction in our bank debt year after year after year. Before I conclude today's remarks, let me briefly comment on the year ahead. We have a lot to be excited about as we accelerate our 20th anniversary with a record result and we embark on an exciting new year and a new decade. We are faithfully executing our operating plan, which we characterize as Optimize the Core. And building for the future, we expect our strong portfolio of businesses to contribute to the pursuit of consistent, albeit modest, consolidated revenue growth quarter after quarter after quarter. We have a solid plan in place for fiscal '20 and beyond, and we will apply the same disciplined approach as we did this year and provide value for our audiences, partners, clients and shareholders. I would like to extend my thanks to Heather Shaw, our Executive Chair, and our Board of Directors for their continued support and guidance over the year. I would also like to thank our team members throughout the company who, this year, demonstrated impressive commitment and resiliency as we embraced the challenges we faced and delivered great results. Finally, our entire team would like to thank all of you, our shareholders, for your support of Corus as we work to deliver on our long-term plan and build for the future. Thank you. Before we conclude, are there any questions from the crowd? Seeing none, thank you again for joining us today, and have a great rest of your day. Stay warm out there, everybody. Thank you.