Astral Media Inc. F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

Jul.15.10 | About: Astral Media (AAIAF)

Astral Media Inc. (OTC:AAIAF) F3Q10 (Qtr End 05/31/10) Earnings Call June 15, 2010 10:30 AM ET

Executives

Andre Bureau – Chairman

Ian Greenberg – President and CEO

Claude Gagnon – SVP and CFO

Analysts

Adam Shine – National Bank Financial

Paul Steep – Scotia Capital

Scott Cuthbertson – TD Newcrest

Tim Casey – BMO Capital Markets

David McFadgen – Cormark Securities

Juan [ph] – Canadian Press

Operator

Good morning, ladies and gentlemen. Welcome to Astral’s fiscal 2010 third quarter financial results conference call. At this time, all participants are in a listen-only mode. I would like to remind you that after the presentation, the analysts will be invited to ask questions first, followed by the members of the media. Instructions will be provided at that time for you to queue up for questions.

I would like to remind everyone, that this conference call is being recorded on Thursday, July 15, 2010 at 10:30 AM Eastern Time. (Operator Instructions)

(Foreign Language)

It is now my pleasure to introduce Mr. Andre Bureau, Chairman of the Board of Astral. Please go ahead sir.

Andre Bureau

Thank you. Good morning, everyone. (Foreign Language) I’m Andre Bureau, Chairman of the Board of Astral, and I'm joined this morning by Ian Greenberg, President and Chief Executive Officer; Claude Gagnon, Senior Vice President and Chief Financial Officer; Robert Fortier, Vice President of Finance; Jacques Parisien, Group President, Astral Radio and Astral Outdoor; and Pierre Boisseau, Assistant Vice President, Corporate Communications.

On behalf of all of us here from our new executive offices in Montreal, I would like to welcome you to this third quarter conference call for fiscal 2010. During the course of this call, Ian and Claude will give you an overview of the results, after which we will proceed with the question-and-answer period. As usual, we will take questions from analysts first followed by questions from the media. (Foreign Language)

Ian Greenberg

Merci Andre. Good morning, everyone, and thank you for joining us. I’m obviously delighted by the performance reported by the company in the third quarter. As you read in the press release issued earlier today, our overall revenues grew 9% in the third quarter, $253.6 million, while EBITDA increased 4% to $84.9 million. Net earnings and earnings per share each grew 9% over the same period last year, rising to $48.5 million or $0.86 per share.

I’m particularly pleased by the fact that this is the first time since the beginning of the recession in early fiscal 2009 that all three of our business units are reporting year-over-year increases for the quarter, each contributing strongly to the growth of our results at all level.

Now turning to the performance of each of our division. Our Television Group reported a strong third quarter with an increase of 9% in revenues. This solid performance is attributable to a 7% growth for subscriber revenues combined with an outstanding 17% of advertising revenues.

I’m particularly pleased that while the Quebec French Television advertising market was flat in the third quarter. Astral’s French TV properties delivered a robust 16% advertising revenue growth. Moreover, each of Astral’s TV properties showed growth over the corresponding period last year, a feat that we are very proud of.

On the Pay-TV side, the number of subscribers for The Movie Network and Super Écran grew by 72,000 to 1,814,000 subscribers, a solid 4% increase over the same period last year. We’ve also continue to invest strategically to further strengthen our TV offering. On July 5th we launched Playhouse Disney télé channel, a French language service offering the best of Disney’s content to pre-school kids.

We also continued to broaden our online TV offering with the launch of our HBO Canada programming through the Bell TV Online service and with the addition of over 125 hours of weekly programming from our French and English-language pay and specialty television services on Videotron's new illico web online platform launched in June.

Now turning to our Radio Group, we are pleased to see a return to growth in radio, with a solid 9% revenue increase and a 6% EBITDA growth for the third quarter. Third quarter also saw NRJ’s Les Grandes Gueules went back a number one position in the important driver [ph] segment in the Montreal market.

Other key radio investments in recent months also include the launch of the new EZ Rock station targeting women in the Ottawa-Gatineau market, as well as, the re-branding of our VIBE 98-5 station in Calgary into Astral’s fifth Virgin Radio station in Canada.

Finally, our Out-of-Home Group reported a 10% revenue increase and 11% EBITDA growth in the third quarter. These results were fueled by particularly strong performance of our Toronto street furniture program, as well as, the contribution of our digital outdoor advertising network, which expanded into a national platform over the past few months.

This is an illustration that the deployment of our innovative Out-of-Home product is rapidly bearing fruit. But the recent addition of two new phases in Toronto, our network now consist of 23 phases in Canada’s top three advertising markets.

Before I close, I would like to highlight a major milestone reached in last quarter. On May 27th, we proudly launched Astral’s new corporate identity. Our new brand is a vibrant demonstration of our company’s evolution over the years, as it reflects the attribute of our unique culture focused on providing innovative and tailored advertising solutions to the clients, as well as, on delivering rich and exciting content to consumers through a variety of platforms across the country.

As already mentioned at the beginning of the call, we have also brought together some 400 employees and more to come into our new Maison Astral offices right in the heart of downtown Montréal on McGill College Avenue.

In conclusion, I’m very pleased with the performance in the third quarter and that our strategic investments during very challenging time are now allowing us to benefit from the economic recovery. Returning to the future confidence in our ability to continue to be a leader in the sectors in which we operate by applying the same principles of discipline and rigor that enables us to report Astral’s 55th consecutive quarter of profitable growth today.

I will now ask my colleague Claude Gagnon to give you a brief overview of other relevant financial information for the quarter.

Claude Gagnon

Thanks a lot, Ian. I’ll just make a couple of quick points. With regards to the cash generated by Astral, you’ll see in our cash flow statement, that in Q3 we reimbursed another $55 million of our bank debt, which brings a total on a year-to-date basis to $95 million and our debt balance at the end of Q3 stood at $600 million, which means that we repaid a total of $225 million since we incurred the debt when we bought the Standard Radio asset at the end of October of 2007.

So our debt to EBITDA ratio or net debt to EBITDA ratio stands at a pretty comfortable $1.9. We repaid another $10 million post the end of Q3 and I guess, I’d expect another solid $20 million or so to be repaid before year-end.

We’ve changed the guidance a little bit on the capital expenditures for the year, we’ve twisted down to about $65 million, some of that is timing issues and you know it’ll be pushed into fiscal ’11, still quite early for us to pin down at ’11, but if I have eventually the number right now it probably be around $55 to $60 million for fiscal 2011.

And if you’re looking at updating our Q4 numbers, I’ll just send out a caution to you with regards to our outdoor margin, if you are using fiscal ’09 as of comp. You’ll see that our outdoor margin last year was a little bit north of 50%, obviously we had some one-time numbers in there and I’d say going forward for Q4 this year, that our year-to-date margin of 33% is a better indication of what’s going to happen in Q4 give or take a couple of percent given the sensitivity of the number.

By now you’re probably aware of the decision that came down from a copyright board last Friday, you’ll find some detail as to how it effect Astral in note 14th to our financial statement on 25 of MD&A.

In summary, we’re going to have to book a retroactive charge and when I say retroactive, it’s retroactive to at the end of Q3, May 31st, retroactive charge of around $9 million that would be booked in Q4 and the annualized impact of the extra royalties we have to pay is little bit north of $4 million, we’ve guided around $4.3 right now, but we’re still working out the details of this pretty complicated calculation.

That’s about it for now. I’ll hand it over for – to Andre to begin the question period.

Andre Bureau

Thank you, Ian and thank you, Claude. I would now like to open up the call for questions from analyst first.

Question-and-Answer Session

Operator

(Foreign Language) (Operator Instructions) Your first question comes from Adam Shine of National Bank Financial. Please go ahead.

Andre Bureau

Good morning, Adam.

Adam Shine – National Bank Financial

Good morning. Thank you. And first question, I guess, relates to the cost in television, I think, Ian, you’re very clear heading into the back half of this year, back on the April Q2 call that we should expect cost to be building higher. But you beat pretty handedly at the topline and cost did come a lot higher. Can you talk a little about that dynamic and what to expect turning into Q4.

Ian Greenberg

Well, I think, it’s a philosophy that we have is our paranoid is to grow the subscriber base and you do that by offering the best content for the consumers and that cost money. And frankly, we have continued and will continue to increase the quality and quantity of programming for the pay offering to consumers. And frankly, it will effects the margin by a point or two that’s not going to get us all bothered, where our paranoid is to grow the amount of net dollars we produce in profit in each segment.

And so, in TV the fact is the dollars are going up and the net profit and both of course the topline and so, on the margins if you look at it compared to last year, it’s hard to think of quarter, but if you look at the last year, we are ahead of last year with the growth we have to say. So as long as we’re able to continue to increase our subscriber base and produce more net dollars in the segment that will be our philosophy.

Those of you who have been following Astral and I guess, more precisely the Pay-TV model over the years will understand this. We grow our revenues and – I'm afraid, here for instant, to the impact of an HBO Canada, as you grow your topline, the following year, you will get a catch up on Cancon that will hit your margin a little bit. And furthermore, just the addition of an HBO Canada, for instant, has increased the overall content that’s available on Astral station. So, there is a cost to that but at the end of the day, it brings – it increases the topline and increases the number of subscribers to a new subscribers and it reduces churn.

Adam Shine – National Bank Financial

Okay. Let me try again because, you know, I didn’t ask about margins and I know your philosophy on the margins or on the growing the topline, TELETOON [ph] grow with that. That’s not the issue. The issue is twofold, I guess, one is are there perhaps specific channels that are getting extra commitment in terms of programming to improve their underlying ratings beyond on what Claude was talking about in terms of Cancon per PayTV and the incremental HBO and two, should we assume a similar type of cost increase here in the Q4?

Ian Greenberg

Well, I don’t know what your comparison as we are only comparing quarter by quarter, I don’t see as to why whether that may suggest that to address it. You got to look at year-to-date and year-to-date, the margin and television is up. So you can’t look at just one quarter.

Adam Shine – National Bank Financial

Okay. Okay, well. Let me move on because I’m not talking about a fair base on the margin. I’m just talking about the fact that each quarter, obviously the timing of cost increases vary and I’m just wondering if we’d like to see to close out the year a similar level of cost increase or whether there were any timing issues in Q3 that would otherwise suggest a variation?

Ian Greenberg

First off that you understand there are two components to the costing on programming. There is first, the Canadian content….

Adam Shine – National Bank Financial

Yeah.

Ian Greenberg

…which owing that to, in fact, a year at so obviously the gain in content expenditures in fiscal ‘10 are substantially more than a fiscal ‘09.

Adam Shine – National Bank Financial

Okay. Let me move on to – I'm sorry to interrupt and wait for this.

Ian Greenberg

Okay. Go ahead.

Adam Shine – National Bank Financial

Okay. Sorry. Let me move onto, I guess, the balance sheet and the leverage picture, I mean, correlated to the fact that there has been a significant amount of delivering post standard, you are now sitting at, I guess, just below 1.9 times. Can you talk about sort of obviously, historically, sort of prepare the balance sheet for M&A? We have seen the Shaw Communications looking to gobble up the care with TV asset. Are we looking at sort of leverage, just moving down towards zero or is there likely to be something from you perhaps in the next few quarters. We are talking about dividend increases and more aggressive buyback.

Ian Greenberg

You know, those higher decisions obviously are made at the board level. Our job is to have the discipline in the result to make sure we keep our financing cost down – now our financing in place now is at the very low percentage, below 4% and that enables us to bring a lot of the growth on top of just the bottomline. And so far as acquisitions, frankly, we still continue on hard look at every acquisition, that possibly came about for many different reasons whether it is Canada’s top leader [ph] whether transaction have taken place, it didn’t work out for us because it didn’t fit or for other reasons but we still continue to examine every acquisition possibility. That being said, we will continue on our normal December meeting, board meeting to discuss the issue of our share buyback and possible dividend increase.

Claude Gagnon

Okay. We see, erratically, Adam, we should going forward be buying back a few more shares, going back to the last 18 months, we suddenly put the brakes on that. It was – given the situation out there and the liquidity crisis, it was, I guess, it was priority for us to reimburse debt given the cost of money, should we have to borrow more. So certainly, we are far more open to buying back shares at opportune times. And so when you get back to your previous comment with regards to the cost of programming, if we had to make a statement then there were increases in Q3 and there will be increases in Q4 year-over-year for the same reasons. Is it going to be to the same extent, it’s difficult to say because of timing issues but the landscape is the same. We have more content, we have more Cancon and therefore we will have higher programming cost.

Adam Shine – National Bank Financial

Okay. Great. Thanks a lot.

Operator

Okay. Next question comes from Paul Steep with Scotia Capital. Please go ahead.

Paul Steep – Scotia Capital

Hi. Good morning guys.

Ian Greenberg

Good morning.

Paul Steep – Scotia Capital

Ian, may be, just to follow up on Adam’s capital allocation question, let’s take up one different way. We think, you know, Claude gave very, very rough CapEx numbers. In the 2011 and beyond, are there key projects or initiative which should indeed be broadly thinking of that might consume more of that free cash flow that would sort of offset that balance versus people getting ahead of themselves on the debt through the dividend, through the buyback or is that actually, directional where the cash likely posted?

Ian Greenberg

There is no new projects. We’ve got commitments on the Toronto street furniture program that we have to fulfill. We are also pursuing the expansion of our outdoor form digital network. As you know, we are strongly positioned in Montreal and since last December, in Vancouver and we are now working on expanding the Toronto Network to make ourselves be predominant player in that particular outdoor nation or country. Those are the two key ones. I mean, there are other issues. We talked about the MS project and the investment in our interactive business, particularly on the radio side and there is going to be some other moves, some other office moves, we’ll look out phase two of the moves in fiscal 2011 but other than that, the two larger project over the – oriented towards the outdoor business.

Claude Gagnon

The bottomline is there is not going to be an increase CapEx spending for the foreseeable future unless you do an acquisition.

Paul Steep – Scotia Capital

Got it, very much for that side. I guess, lastly and actually but somewhat related to flag the interactive bid on radio, maybe it’s worth talking about the other common self evident that are on TV, things to be a bid of a renewed focus here. Is there an upcoming of investments to come there or refocusing on the TV side, obviously the Videotron’s deal of the quarter.

Ian Greenberg

Are you referring to interactive or …

Paul Steep – Scotia Capital

Interactive or closing your online presence instead of renewing investment in that area, instead of come out of the recession here?

Ian Greenberg

Well, from the point of view of investment on the CapEx basis, it’s not relevant.

Paul Steep – Scotia Capital

Okay. Fair enough. That’s exactly what I needed. Okay. I guess, the last one is just on radio, may be any commentary you have at least in less churn in Canada and how that seems to be playing out in terms of, sort of, market recovery there, what you’ve seen, over the last quarter or so?

Ian Greenberg

I’ll ask Jacques to pipe in here.

Jacques Parisien

So what we’ve seen in the last quarter and the trend that is still deploying, looking forward is that BC is doing fairly well and recovering. Alberta is still soft and not coming back as quickly as the other markets. Toronto, as a matter of fact, is coming back in a better way than Alberta generally. The prairies are doing well. So as far as west is concern, overall it’s much better than it was but Alberta here still needs more time to recover totally from where it was before the recession.

Paul Steep – Scotia Capital

Okay. Fair enough. I will leave it there. Thanks guys.

Ian Greenberg

Thank you.

Operator

The next question comes from Scott Cuthbertson of TD Newcrest. Please go ahead.

Ian Greenberg

Good morning Scott.

Scott Cuthbertson – TD Newcrest

Yes Good morning. Yeah, some nice, nice uptick on a topline for sure. Just wanted, what’s the outlook for that? Is it, we will just finally get some tranche, you think it’s sustainable or is there market has been a little jittery. What’s kind of tone is there?

Ian Greenberg

I guess, you are trying to Q4 stock.

Scott Cuthbertson – TD Newcrest

Yeah. Q4 and just generally, whatever visibility you have and also on great [ph] radio but just looking to drop on your perspective?

Ian Greenberg

We expect to see increases in radio and television in Q4. It may not be the same extent you saw in Q3. I think I had to take a guess and the reason I had to guess – as an example, I gave the guess in the Q2 but with the last minute buying which is the pattern now for advertisers, we surpassed my prediction in Q3. So it’s hard to predict the size but that being said, I think they may – at this point, we’re looking for somewhere in the mid-single digit increases and in TV, we’re looking at low double digit.

Scott Cuthbertson – TD Newcrest

Great. Good stuff. The other thing, just wondered about, can you give a little bit of color on the investment in the radio interactive? Two things, just kind of wondered, how it’s going so far and whether you’re seeing some good benefits from that initiative and also just wanted to confirm what you told this last quarter which was that, just probably an expense rate of about $2.5 million per quarter or roughly $10 million for next year that will be devoted to that project.

Claude Gagnon

Yeah. I’ll address the latter question right now. Those estimates haven’t change, Scott. The project is ongoing. We think it’s being rolled out on schedule and as to the impact of that, I’ll let Jacques Parisien comment on that matter.

Jacques Parisien

So we’re deploying as we talk and we have about half the stations done. The other half we’ll follow, it will be completed by Q1 next year. So it won’t really demonstrating [ph] and there is a baffling to it and time tuning in everything else, so I’ll probably won’t kick in until the latter part of next year.

Scott Cuthbertson – TD Newcrest

Okay. Great. And then Andre, I was hoping to pick a way little bit on any potential implications for broadcasters, the government announce intention to liberalize the foreign ownership restriction. I mean, we heard some interesting comments from the chairman. Obviously, the hot topic in the BDU space, just wanted where your perspective was in that, realizing that you don’t want a second guess to mention but, I think a lot of people are wondering what the long-term implication for your industry might be?

Andre Bureau

Well, you probably know our position on that. We had always located that we are established broadcast, I think, just in Canada that is a very excellent system that is providing Canadians with a lot of their choice. As a matter of fact, they will be probably asking more choice in Canada here than anywhere else in the world except in United States. We have (inaudible) programming. People watch those program and this is done by Canadians and we seek broadcasters those need additional access to foreign money. If the telecom guides need come, let's look at it and let's look at how we will arrange it because of the integration that we carry on this broadcasting and hence we assure that there is no impact on broadcasting. Broadcasting is doing very well and we don’t want to lose control of this part of the business.

Scott Cuthbertson – TD Newcrest

What do you think will grow more clarity on the potential direction of the government on this issue?

Andre Bureau

Excuse me.

Scott Cuthbertson – TD Newcrest

I’m just wondering, when do you think we’ll get more clarity, I mean, Claude [ph] made some interesting comments, you know, obviously, it’s still in process. When do you think we’ll get more clarity on what they actually intend to do for the broadcast?

Andre Bureau

Well, as you know it’s in the hands of the government, they are conducting a consultation at the present time. We don’t know if they will find that the consultation is enough to go ahead with one or the other options that we have proposed or additional ones that we presented. We have vacates for we are trying to convince them that this should establish what we have done for the telecommerce review panel, what we have done for the Competition Bureau that we should establish a panel to look at the impact of changing the rules and see what sort of condition, what sort of measures could be taken to make sure that it does not affect the quality of the system.

Scott Cuthbertson – TD Newcrest

Okay. Thanks for that. And Claude, just lastly I just wanted if you could give us some help for where you think corporate expenses will end up this year and next?

Claude Gagnon

Well, looking ahead to Q4 we haven’t quite pin down a number yet, but it will probably be a little bit higher than what you’ve seen in Q3. I’d say stock based compensation will probably be about the same, but the regular corporate cost might be a little bit higher than the 5.4 that we experienced this year. For various reasons we’ve got some of the branding cost coming in, some cost related to the move. We’ve got our famous IFRS project going on in transitions, so we think additional consulting fees as compare to last year, so somewhere between 5.5 and 6 and going forward the next year, I think overall it’s just a pretty good running rate.

Scott Cuthbertson – TD Newcrest

Thanks very much.

Operator

The next question comes from Tim Casey of BMO Capital Markets.

Ian Greenberg

Good morning.

Tim Casey – BMO Capital Markets

Good morning. Couple of things. Ian, is there any ability across the radio group to offset the increased copyright fees or should we assume that’s just going to be something like the factor in the model? And then for Claude, basically housekeeping question. Depreciation jumped a couple of million bucks from Q2 to Q3? Can you talk a little bit about what happened there and what the outlook is going forward?

Ian Greenberg

Well, depreciation were not simply because we’ve been ruling out both street furniture in Toronto and as you know the outdoor digital networks, so.

Tim Casey – BMO Capital Markets

It’s all worked out. I’m just worried about your CapEx.

Ian Greenberg

Most of it is outdoor.

Tim Casey – BMO Capital Markets

Okay.

Ian Greenberg

Now, with regards to offsetting the increased cost pertaining to the copyright board decision, it’s always an objective in each one of our divisions to try to offset increased costs. Whether we’ll be able to fully offset it, we don’t know yet but certainly they will do it. They will try to alleviate the extra charge which is really out of our control. I think the guys do a great job in running an efficient shop. Could they make it more efficient? There’s always better things we could do that’s why we are here for. But to what extend are we going to be able to offset, we can’t comment on that but right now we don’t have any specific offset, but our teams are going to be working at it.

Ian Greenberg

Tim. Firstly, I surely came late by Friday afternoon and your question is a pretty valid question. And Claude just said, we are working at it. I would point that there is a bill a C-32, before the parliament now, that possibly could give us relief on a major part of this increase. That the major part of this increase are new feed, the bill before parliament would exempt radio broadcasters from this feed and if that bill passes parliament, it won’t affect the retroactive amount of money but it will affect the ongoing. In another words approximately $4 billion as ongoing. So that’s one possibility and the possibility of course is looking for ways to compensate part of the increase.

Tim Casey – BMO Capital Markets

What’s accounting on that bill, Ian?

Ian Greenberg

What’s been through stage one and Mr. Bureau talks to government every day, trying to convince them to have page two. Ironic joke. Andre, do you have any guess?

Andre Bureau

No. It’s supposed to come back to give me the fault, but if there are no elections this fall, it should be exempted, next fall. I mean, follow-up covered in 2010, correct.

Tim Casey – BMO Capital Markets

Okay. All right. Thanks for that.

Ian Greenberg

Thanks.

Operator

(Operator Instructions). Next question comes from David McFadgen of Cormark Securities. Please go ahead.

David McFadgen – Cormark Securities

Hi. Couple of questions. Could you just go over on the TV ad growth, which channels performed quite well and which ones didn’t performed so well?

Ian Greenberg

All right. This pretty well went across the board. The increase pretty well went across the board. We sell our service, our station, our channel is a cluster.

David McFadgen – Cormark Securities

Okay.

Ian Greenberg

And so when you have the kind of increase, the 16% in the French channel, particularly because the other advertise would come mostly from TELETOON markets, TELETOON and Internet. But if you look at in Quebec, it’s really been across the board on all the channel, David.

David McFadgen – Cormark Securities

Okay. And whatever MusiMax, I think that was the one channel that has sort of struggled?

Ian Greenberg

Our music place also had an excellent quarter.

David McFadgen – Cormark Securities

Okay.

Ian Greenberg

Musimax is the one that just struggled a little bit. We are looking at that, but MusiquePlus has actually made a nice comeback.

David McFadgen – Cormark Securities

Okay. So that’s the first quarter that has done that?

Ian Greenberg

Yes.

David McFadgen – Cormark Securities

Okay. So aside from Musimax then everything else is running quite well, isn’t it?

Ian Greenberg

In this quarter, absolutely.

David McFadgen – Cormark Securities

Okay. And then just on the radio business, on the expense side is what’s the outlook for that going as far because the expenses are up, that’s a fair bet in the quarters. Is that Ian, what we should expect going forward?

Ian Greenberg

Yeah. As we discussed last – at the end of Q2, David, we said that the and just before the copyright board decision that the…

David McFadgen – Cormark Securities

Yeah.

Ian Greenberg

The cost space would be up a couple of million bucks in Q3 and Q4.

David McFadgen – Cormark Securities

Okay.

Ian Greenberg

Some of that is nonrecurring, but I guess at least 50 to 75% of it is in addition to the cost based whether it’s related to content, the interactive business and so on. And I think at the end of Q2, I said that the margins will likely settle around the lower 30% range. And again that was before the copyright board decision, so there is no real change off of that those estimates, sorry.

David McFadgen – Cormark Securities

Okay. And then just on that 9 million charge, you expect for fourth quarter. Does that all relate to 2010 or if there is some previous years as well?

Ian Greenberg

The decision was retroactive to January 1, 2008.

David McFadgen – Cormark Securities

Okay.

Ian Greenberg

So it’s therefore part of fiscal ’08 for us. All of fiscal ’09 and of course three quarters of fiscal ’10.

David McFadgen – Cormark Securities

So with some of 9 million then is still below the EBITDA line, given it's kind of unusual one time charge?

Ian Greenberg

We haven’t decided where it’s going to go. We are concerned. All we can tell you that it affects the bottom-line. We are going to show at EBITDA below above the line and in the middle we are not quite sure. It affects the bottom-line and we will see how it’s going to be presented when we come out with our annual results.

David McFadgen – Cormark Securities

Okay.

Ian Greenberg

But let's call a spade a spade, it is EBITDA. I stated in the presentation but it is EBITDA. It’s a one shot deal.

David McFadgen – Cormark Securities

It just about relates to prior year.

Ian Greenberg

And now it’ll be fully explained.

David McFadgen – Cormark Securities

Yeah.

Ian Greenberg

So that the reader of our disclosure gets the true picture what the normal level of earnings are.

David McFadgen – Cormark Securities

Yeah. Okay.

Ian Greenberg

I guess in a way it’s going to offset the gain we had on the (inaudible) part two feature, David.

David McFadgen – Cormark Securities

Okay.

Ian Greenberg

But with similar amounts.

David McFadgen – Cormark Securities

Okay. And then just lastly, if you are looking at returning some free cash flows to shareholders over and above the current dividend policy. What is your preference? Is it to increase your dividend or it's buyback stocks?

Ian Greenberg

Again, I will give you my personal because this is all my decision on as the Board of Directors. Frankly, I think we paid buyback stock.

David McFadgen – Cormark Securities

Okay. Thank you.

Operator

Ladies and gentlemen, we will now take questions from the media. (Operator Instructions) First question comes from Juan [ph], Canadian Press. Please go ahead.

Juan – Canadian Press

Hi. I would like to ask you about the pay TV services, subscriber services and if you see in the coming quarters or the coming years that subscribers could reach 2 million plus, and if Astra Media will pursue increasing content either with more channels that we can subscribe to or may be buy – we have HBO Canada, but maybe having Showtime Canada or in FX Canada. I’m just wondering what the potential is for your Pay-TV services?

Ian Greenberg

Well, as you know we have about 4% now and we expect by year end to remain at 4%. So unless you figure out that we continue that kind of increases to what our plans call for it. How long it will take us to get (inaudible)? As far as new channels, we are always looking at the possibilities for new channels in the case that you said, we launched the new channel, Disney Playhouse, Disney in French. There are other possible fresh new channels. So far on the pay side specifically, and in Showtime that’s a possibility for the future except in order to launch a new channel similar to HBO Canada, you need many, many hours to have a full time channel. And I think Showtime would need few more years, with increase production sites that they have in order to have that kind of inventories.

So it’s possible for the future I don’t see in the short-term to short-term in the next year or two, simply because there is not enough programming that dedicate a full time channel to Showtime.

Juan – Canadian Press

Could there be another movie channel though like I mean if you get the full package, you have I believe what is it seven, could there be an eight, ninth or tenth channel or?

Ian Greenberg

There’s possibilities to grow. It’s a matter of the consumer’s desire and also how it affects the retail price. But we always look at all these opportunities. In the short-term and as far as another pay channel that is not in the plan for the next year or two.

Juan – Canadian Press

Okay. Thank you.

Operator

(Foreign Language)

Ian Greenberg

Thank you. I would like to remind those needing more details on financials information that they will complete unaudited consolidated financial statements with the related notes and the MD&A are available on our website at www. Astral.com and if members of the media have any further questions, please contact Pierre Boisseau at 514-939-5000 following this call. (Foreign Language)

Operator

(Foreign Language) Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.

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