Speaking notes for Suzanne Morris, Vice-President and Chief Financial Officer, at the Annual Public Meeting

September 25, 2012

(PLEASE CHECK AGAINST DELIVERY)

Thank you Hubert.

I’m pleased to be here today to provide a brief overview of CBC/Radio-Canada’s financial results for fiscal year 2011-2012 and to give you a look at how this year is shaping up.

Let’s take a quick look at our financial results from last year:

  • Total revenue increased by $26.6 million or 4% in 2011−2012. Advertising revenue were up, primarily due to a strong television schedule, strong hockey playoffs and revenue from special event coverage including the federal elections. Digital advertising revenue also increased, mostly as a result of the success of the Tou.tv platform.
  • Specialty services revenue also increased compared to the previous year, with advertising revenue growing on the strong performance of our news networks and subscriber revenues increasing.
  • Revenues from the Local Programming Improvement Fund increased with three new stations becoming eligible for funding last year.
  • Operating expenses were higher by $6.6 million or 0.4% compared to 2010−2011. This increase largely reflects one-time costs for various efficiency-generating projects and digital and local service initiatives, consistent with our Strategy 2015 plans.
  • Government funding decreased by $5.0 million, mainly due to an incremental budget reduction tied to cost-containment measures announced in the 2007 federal budget.

So far this fiscal year, CBC/Radio-Canada has been hit with significant financial challenges. On April 4, 2012, we announced that the Corporation was facing financial pressures of up to $200 million over the next three years. These pressures reflect a $115 million reduction in the Corporation’s appropriations over three years as part of the federal government’s Budget 2012. The rest amounts to what is required for us to keep pace as a modern public broadcaster through Strategy 2015.

Unfortunately, a budget reduction of this size has significant impact on our people as well as our services. 650 full-time equivalent positions are expected to be eliminated over the next three years, resulting in one-time restructuring costs, estimated at $25 million. Hubert outlined some of the measures we are taking to address these financial pressures. Let’s have a look at how this has affected our results and at how our revenues have been performing so far this year.

  • First, our revenue performance. In the first quarter of 2012-2013 overall revenues were up $2.6 million compared to the same quarter last year. Higher digital revenue and facility rentals contributed to the increase, as did growth in subscription revenue as a result of more subscribers moving from analogue transmission. These were partially offset by lower hockey playoff revenues. You’ll remember the Canucks’ 7 game playoff run back in 2011, which hit a viewership high. Advertising revenues are on track as we hit the halfway point in the year.
  • Our expenses increased in Q1, as we recorded restructuring costs in three areas:
    • We recorded $14 million in severance costs and expect to eliminate up to 475 of the planned reductions this year. We’ll incur additional costs of up to $3 million this year and $8 million in years two and three.
    • In July, The CRTC approved our plan to shutdown remaining analogue television transmitters to save $10 million annually. We depreciated $20 million book value of this equipment, which was fully written off by July 31st. Additionally, we have provided for approximately $5 million in decommissioning costs expected at these locations.
    • The shutdown of RCI shortwave transmission, scheduled for October 31, will generate up to $10 million in savings per year. It also results in a $6 million write down of our transmissions assets in Sackville, New Brunswick.
  • For both the RCI and analogue transmission, the effect of the write offs on our bottom line is partially mitigated by recognizing previously received capital funding of $23 million in the first quarter. This largely explains the increase in appropriations quarter over quarter.
  • By the end of this fiscal year, the operating appropriation recognized as revenue is expected to be $999.5 million. This reflects a $27.8 million reduction in CBC/Radio-Canada’s operating appropriation as a result of the year one impact of the Federal Budget 2012 reduction.

The other big financial story for the Corporation came in July, when the CRTC released its decision to phase out the Local Programming Improvement Fund over the next three years. The contribution rate will decrease by one third effective September 1, 2012 with a further decrease of a third on September 1, 2013 until complete elimination in September 2014. CBC/Radio-Canada received $47.1 million from this fund for the past broadcast year, which ended on August 31, 2012. We are currently developing plans to address these reductions.

To date, we are on track to our financial plans for the year. However, there are a number of risks lurking on our horizon and we continue to monitor our environment and update our contingency plans. For example:

  • The advertising revenue market in the current environment of low and fragile economic growth. Our multiplatform strategies are serving us well and we continue to develop innovative sales approaches.
  • The delay or potential cancellation of the NHL season would negatively impact advertising revenues. We have developed plans for replacement programming and cost containment.
  • CBC/Radio-Canada’s licence renewal hearings with the CRTC scheduled for November 19, 2012. The CRTC intends to consider the Corporation’s applications to introduce national advertising on Radio 2 and Espace Musique.
  • Due to our rapidly evolving ecosystem and ongoing vertical integration, we’ll look to create partnerships where possible, a priority for the Corporation as outlined in our Strategy 2015.
  • And, in the coming months, government funding decisions are expected to be made regarding salary inflation for 2013-2014 and future budget years.

As a result of all these things, it is more important than ever that we focus on the principles that were laid out in Strategy 2015 to pursue revenue growth initiatives, cost improvements and further trim our operating costs. This is critical if we are to achieve our long-term business and financial goals and plans.

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