Corus Entertainment CEO Discusses F1Q2011 Results – Earnings Call Transcript

Jan.12.11 | About: Corus Entertainment, (CJREF)

Corus Entertainment Inc. (OTCPK:CJREF) F1Q2011 Earnings Call Transcript January 11, 2011 4:00 PM ET

Executives

John Cassaday – President and CEO

Doug Murphy – EVP and President, Corus Television

Tom Peddie – EVP and CFO

Chris Pandoff – EVP and President, Corus Radio

Analysts

Adam Shine – National Bank Financial

Drew McReynolds – RBC Capital Markets

Paul Steep – Scotia Capital

Robert Bek – CIBC

David McFadgen – Cormark Securities

Scott Cuthbertson – TD Newcrest

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Corus Entertainment's Q1 analyst call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. (Operator instructions) As a reminder, this conference is being recorded, Tuesday, January 11, 2011.

I would now like to turn the conference over to John Cassaday, President and Chief Executive Officer. Please go ahead sir.

John Cassaday

Thank you, operator. Good afternoon everyone. I am John Cassaday and welcome to Corus Entertainment's Fiscal 2011 First Quarter Report and Analyst Call. Thank you for joining us today.

Before we read the cautionary statement, we'd like to remind everyone that there are a series of PowerPoint slides that accompany this call. The slides can be found on our website at corusent.com in the Investor Relations section. We will now run through the standard cautionary statement.

This discussion contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Some of these statements may involve risks and uncertainties. Actual results may materially differ from those contained in such forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's filing with the U.S. Securities and Exchange Commission.

Now I would like to introduce you to the Corus Entertainment team joining me on the call today. First of all, Executive Vice President and Chief Financial Officer, Tom Peddie; next Doug Murphy, Executive Vice President and President of our Television division; and finally Chris Pandoff, our newly appointed Executive Vice President and President of our Radio division.

Turning to slide three of the Power Point presentation, we are extremely pleased with our strong results for the first quarter of fiscal 2011. We finished the quarter with consolidated revenues of $241 million, up 8% from a year ago, and consolidated segment profit of $92 million, up 11% demonstrating the exceptional results that can be achieved with strong top line growth coupled with disciplined cost controls.

The ongoing economic recovery helped drive our growth with increases in ad spending both specialty TV and our Ontario Radio group achieved significant ad revenue growth in the first quarter. As noted earlier, strong revenue growth and cost control initiatives also enabled us to leverage segment profit growth of 11% for the quarter.

Moving to slide four, and our Radio division, Radio performed well in the first quarter achieving revenue increases of 3% reflecting the ongoing recovery of the radio ad market. Radio segment profit was up 2% for the quarter despite having to absorb the cost of the new copyright tariffs and the reintroduction of pension contributions Corus employees.

Ontario drove the division's growth with EBITDA up 12% and revenue increases of 9% led by the Toronto market. Revenues in the rest of Canada was stable with a modest 2% increase in Quebec offsetting the West, which was down slightly. Although, Calgary's ad revenues were up 11%, an encouraging sign of recovery in the West.

According to TRAM results, Corus Radio is outperforming in key markets including Calgary, London, Toronto, Montreal, and Quebec City. Key growth categories that helped drive ad sales for the division this quarter were domestic auto and telecommunications, up by 29% and 50% respectively followed closely by foreign auto, which increased by 12% over the previous year.

In the retail category, Radio saw the biggest gains from home electronics, up over 30%.

Moving to slide five in our Television division, TV achieved exceptional growth in Q1 with revenues up 11% and segment profit up 16%. A buoyant specialty advertising marketplace paved the way for continued advertising growth in the quarter. Our success in monetizing the co-view audience in our Kids portfolio led to strong double digit growth of 17% in ad revenues. Our subscriber revenues also grew significantly, up 9% compared to year ago on the strength of our new services. The division's strong segment profit gains were achieved by effectively managing program costs, and as a result of various cost control initiatives, which we've spoken to you about in the past.

On to slide six, our Kids business was a key contributor to the division's success, delivering exceptional ad revenue growth of 21%, with YTV and TELETOON capitalizing on strong ratings growth and increased demand over our co-view audiences. As well, we saw gains from the international broadcast launches of two of our key Nelvana brands, Babar and BEYBLADE, positioning us for strong growth on the merchandising front in the future.

For our Specialty and Pay assets, our subscribe revenue saw a substantial 11% increase for the quarter, driven by the addition of our two new offerings, W Movies and Sundance Channel, and the positive response to CosmoTV, which continues to generate strong paid subscriber growth.

Advertising revenues for these assets continued to grow as a result of pricing gains and strong market endorsement of our newest services – W Movies, CosmoTV, as well as CMT.

CMT's double-digit prime time's rating growth resulted in exceptional ad revenue increases this quarter, up 26% compared to last year. Some of the key categories that helped to drive increases in our specialty portfolio include pharmaceutical, food and retail.

On our pay business, Movie Central finished the quarter with 976,000 subscribers, up 2% from the same period last year, benefiting from a program lineup that included the premier of the highly anticipated HBO drama Boardwalk Empire from Martin Scorsese, and the new season of Showtime's Dexter.

Moving to slide seven and our outlook for the next quarter, overall, the ad markets are tracking well and we are forecasting that the momentum from Q1 will continue into Q2. We anticipate another strong quarter for Television and we expect double-digit growth in specialty advertising revenues driven by strong growth on the Kids portfolio, specifically from YTV and TELETOON.

We are forecasting a robust Kids market and an increasing demand for co-view inventory. We are also anticipating double-digit ad growth from our Women's portfolio and CMT.

We are forecasting additional growth for our Radio division with mid-to-high single-digit revenue increases in Second quarter, led once again by our Toronto and Calgary clusters, and improvement in both Edmonton and Vancouver.

Company-wide, we will leverage our new Corus Quay facility to seamlessly process our content for today's multi-platform environment. As we continue to work with our distribution partners to advance the availability of non-linear content to consumers, we expect to see gains from the deployment of new digital offerings of our core services.

In October, we launched Movie Central High Definition 2, and we will continue to rollout more HD offerings this quarter starting with YTV which we introduced in high definition just this week.

For our Radio division, on December 7, 2010, the CRTC approved the divestiture of our Quebec Radio assets. Since the sale will be completed on February 1, 2011, our Quebec Radio results will be retroactively restated as a discontinued operation commencing in the second quarter of this fiscal year.

Despite the sale of Quebec Radio, our annual guidance targets for consolidated segment profit of $285 million to $295 million and free cash flow of $100 million remain unchanged.

In Q1, we announced the appointment of Chris Pandoff as the new President of Radio and made changes to the radio executive team that will translate into an even more efficient structure moving forward.

For Q2, Ontario Radio sales are pacing well ahead of last year, up low double-digits. Toronto and Hamilton are leading the growth in this region, specifically 102.1 The Edge in Toronto and Vinyl 95.3 in Hamilton as a result of the stations' recent format switch. We are also forecasting mid single-digit revenue increases for the West, driven by strong growth in Calgary.

Turning to slide eight and Corus Kids, with YTV's consistent rating success, the service has reprised its position as Canada's number one specialty channel with kids and we're confident YTV will sustain this rating's run. Co-view momentum on YTV and TELETOON continues to build, providing us with long-term growth opportunities.

Movies are big pull for our co-view audience and create a great destination for family viewing, and this month, YTV launched another movie block Big Fun Movies on Sundays featuring a lineup of back to back films. As well in Q2, YTV will be adding more Co-View series to its schedule including the live action comedy Mr. Young and a new medieval-themed game show Splatalot.

Internationally, we continue to unlock the value of our Nelvana Studio content, the re-launch of our BEYBLADE and Babar brands is gaining traction. BEYBLADE became a break out hit over the holiday season and the broadcast launch is well underway across all major international territories. The stage is set for an aggressive roll out of our global merchandising campaigns which will drive our merchandising revenues.

We're also anticipating continuing momentum from our pay TV business in Q2 with a line-up of great exclusive content from HBO, Showtime in the major Hollywood studios. Upcoming premium content on HBO Canada includes the fifth and final season of Big Love and live broadcasts of HBO World Championship Boxing. First on Showtime programming slated for the quarter includes season 4 of Californication, the debut of the comedy series Shameless starring William H. Macy and Joan Cusack, the comedy series episode starring Matt LeBlanc, as Matt LeBlanc and from Starz, Spartacus; Gods of the Arena.

We also expect CMT strong rating growth to continue building on its highly successful family-focused prime time schedule that includes main stays like According to Jim and America's Funniest Home Videos, as well as a new and extremely well received block of pet-themed [ph] program.

We forecast the W Network's social viewing strategy will continue to drive tune in with more couple friendly movie premiers being added to the schedule as well as returning series was strong, built-in following like Love It or List It and the brand new series including Candice Tells All, the real estate renovation series Property Brothers, and the popular Australian competitive cooking show My Kitchen Rules. Both W and Viva will also nest the best of the Oprah Winfrey Network to drive viewership and build awareness for the upcoming launch of OWN.

We take great pride in being the new home to OWN. Corus has become recognized internationally as both the builder of brands and a trusted steward of name brands and Oprah is one of the most influential global brands in television.

The addition of OWN to our line-up of uniquely defined channels for women will contribute significantly to our leadership position in the women's arena. OWN will launch this quarter in over six million Canadian households with an extensive line-up of new and exclusive original programming.

There is enormous pent-up audience demand for the channel. We're getting calls from viewers daily and we have a number of charter advertisers already on board for the launch. We're thrilled by the excitement OWN is generating south of the border, and with the massive amount of media attention, the network is already generating, combined with our aggressive marketing campaigns. We have great confidence this service will more than deliver with our advertisers, distributors and audiences when it premiers on March 1. We are looking forward to building a powerhouse brand for the company with the Oprah Winfrey Network.

We hope that you have found our comments on our outlook helpful, and now we will take any questions that you have. Operator, over to you.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Adam Shine with National Bank Financial.

Adam Shine – National Bank Financial

Can you remind me in terms of the free preview that occurred with Movie Central and any incremental tidbits that you can highlight in terms of how the marketing effort evolved?

John Cassaday

Well, the free preview has just concluded. We view it as having been very, very successful and now the secret for us is to be able to retain as many of those subscribers who had a chance to experience the Movie Central HBO programming as possible. So, in terms of expectations, you saw that we had good growth of 2% in this quarter. We would expect we would be down somewhat in Q2 as these new subscribers were receiving the service for free and then begin to see the service uptick in Q3 and then into Q4. While I know we made strong overtures that we'd get over a million subscribers last year, we are extremely confident that on the strength of the sampling that we got during the free preview period that we will, in fact, meet and exceed the one million target by the end of this year.

Adam Shine – National Bank Financial

In terms of like when we look at the strength, especially television advertising as well as subscriber revenue, and alluded to this in your remarks John that you obviously saw some benefit in terms of the two new assets that were picked up a year ago in this timeframe and one could also acknowledge the launch Nickelodeon in Canada. Nevertheless heading into Q2 there still seems to be some pretty strong momentum in both metrics. Could you talk at all to that? I mean this is no longer M&A plus organic, this becomes more purely organic going forward, correct?

John Cassaday

I think that's true. We pretty much work through the impact of the price increase on a year-over-year basis. Most of the gains that we were hoping to achieve on Sundance have been realized. I do think that there is considerable opportunity to improve our position on W Movies. We have been somewhat constrained because of the linkage rules with Shaw in Western Canada, but they believe very strongly in that brand and we've had excellent rating success, so I think there is good upside on W Movies from a subscriber point of view. Of course, we've just been on a trial run with Rogers for increased penetration of Nickelodeon and we're hopeful that that will result in a nice uptick of that brand.

So, I think there is more than just normal organic growth on at least W Movies and Nickelodeon Canada, I think there is some genuine opportunity from the initiatives that we have underway with our partners. Then on the advertising side, we are seeing good organic growth on the strength of strong ratings driven by excellent programming and scheduling, and we are obviously, like everyone else on the business have selling advertising dependent to a significant degree on sustained economic recovery and certainly all indications are through the end of Q2 that things look very good.

Our pacing for Q3 is also very good but our percentage of total booking as a percent of our budgets for the quarter is still little light. We got work to do there, but we're pacing well which is just an indication that advertisers are continuing to make their bookings a little bit later than they have historically like everyone else on the planet waiting to see how sustainable this economic recovery is. But all indications that we are seeing right now are very, very positive.

Adam Shine – National Bank Financial

If I can ask one last question and just with respect to radio heading into or on your Q4 call back in late October, you indicated the expectations of mid-to-high single-digit growth in Radio, and we do quite see that. Was there anything that maybe surprised you as the quarter concluded because you seem to be still talking about nevertheless renewed momentum perhaps heading through Q2?

John Cassaday

Yes, we were surprised, Adam. The November results were much softer than we anticipated and that was a significant contributor. The other thing that I think happened is that we were enjoying great momentum in Quebec and I must say that our Quebec employees have done a fabulous job, but not surprisingly having waited weeks and months for approval, it was getting harder and harder to maintain the focus through the end of the quarter. So we had a bit of a slowdown in Quebec at quarter end relative to what our expectation was. So what I can say is that the results in Ontario continued to move ahead at the pace that we saw when we last talked to you, but we did see a bit of a slowdown in Quebec and in Vancouver in particular.

Operator

Your next question comes from the line of Drew McReynolds with RBC Capital Markets.

Drew McReynolds – RBC Capital Markets

I guess starting with OWN, and obviously you're not going to give specific financial metrics on this, but just wondering, John or Doug, if you can just speak to positioning OWN financially up against the W Network for example and just maybe talking in broad strokes how we should look at the potential here?

John Cassaday

Well, I will start off and certainly Doug can add value here, but one thing that I think you should assume for at least this fiscal year is that we will be able to offset the incremental costs of Oprah Winfrey relative to VIVA with the additional revenue that Oprah Winfrey Network will generate. So there will be no 'investment cost' associated with the launch of this exciting new brand in year one, which is quite amazing I think. Certainly, we're benefiting from the fact that this is such a powerful brand with such great advertiser and viewer acceptance from day one. So that's very positive.

The second thing, as it relates to its position relative to W, ultimately it will depend on the ratings that we achieve. But at least in the early going, there is a receptivity amongst the advertisers to price this channel, this network at or around the same cost per point as W. So from a modeling point of view, simple answer to your question is, given the fact that we are starting out with a parity pricing situation to W, if we can achieve a level of rating similar to W, and given the fact that the subscriber revenue is somewhat better than W, that should help you get some sense of dimension for the potential of this brand. Doug, do you have anything to add?

Doug Murphy

I think that. Right on, John. It's a long journey. It's a first step in an exciting opportunity, that's what (inaudible) has been saying down in the U.S. marketplace. We have to kind of read each quarter-to-quarter, look at the audience generation. There's no doubt that the brand has resonated enormously well with our clients and agencies, and we just started with – (inaudible) promotion just last Friday. So it's really too early to give you any kind of a ratings read, but all signs are very, very favorable. Clearly, it's our intention to make this very large service and pair it with W, but I'll remind you that it had taken us a number of years to build W to its current level. So let's wait and see how the business comes in, but everything is green light right now.

Drew McReynolds – RBC Capital Markets

Two follow-ups. Little bit more housekeeping here. Just noticed in the back of the think financial disclosure, your Quebec division or the Quebec assets that were sold, there is a little bit of a difference between your segmented Quebec results and what's being divested. Can you just remind me what the difference is on that one?

Tom Peddie

We had some other operations, CBS, some corporate stuff that's in that particular number, so I think that when you look at our results for fiscal 2010, EBITDA was about $8 million for Quebec and the revenue was about $68 million, and so, that's the comparison for last year, and as John said in his opening remarks, what will happen is that the EBITDA results of a little more than $3 million for the first quarter this year will be removed from EBITDA when we restate.

Drew McReynolds – RBC Capital Markets

Just while I have you, Tom, on CapEx for fiscal 2011, I think your previous guidance was in and around $35 million, Q1, a little bit higher and obviously these things are lumpy. Just, is that $35 million still a good rate for 2011, and if so, just what was behind the lumpiness in Q1?

Tom Peddie

At this particular point in time, I think that number is probably a little low. One of the things that we did was we spent a little less in Q4 than we had originally thought when we gave that particular guidance of about 35. I think the number could be higher. It could be between 40 and 45, but our overall target at the three year target that we continued to provide to the investors and analysts like yourself remains the same. Then I guess the other comment that we would make building on John's earlier comment is that we're still sticking with our cash flow guidance number of $100 million. As you know, a lot of that's influenced by program purchases, and that number would also be impacted by the fact that we would lose some of the EBITDA on Quebec, but at this particularly point in time, we believe we can manage towards that number.

Drew McReynolds – RBC Capital Markets

Tom, can you just remind me what's in the $40 million to $45 million just in terms of big buckets of spend?

Tom Peddie

I think it's just – it's not really building leasehold cost; it's technology.

Operator

Your next question comes from the line of Paul Steep with Scotia Capital.

Paul Steep – Scotia Capital

John, you touched on it a little bit I guess in your comments, but regionally on Radio with the performance there, maybe you can talk about Western Canada, if there was something unusual. It seemed like it sort to zeroed in on Vancouver or Edmonton. Is there something sort of one-time, but it sounds like you are back on track or is that an unfair characterization?

John Cassaday

I think that's a fair characterization. We have had some ratings issues in Vancouver. We are now seeing some recovery in the market which hopefully will help to offset some of the ratings issues that we have created for ourselves. So, we're working hard to get our brands repositioned and become more competitive in the marketplace. In Edmonton, one of the issues that we have, particularly with the country format is, country seems to ebb and flow more or so than many of the other formats in Radio, and we've been through a bit of soft spot on that particular part of our business. So, we are very hopeful that the Alberta economy is back on track and the BC economy is recovering as well, and then we'll start to see on some pretty soft year-over-year comp, some improvement out of our Western Canadian Radio operations.

Chris Pandoff

It's Chris here. The only thing I would add to John's comments are that, in Edmonton, there was the launch of some new radio services there, so there is a fair amount of churn in the market with regard to listenership, and an overall sort of short-term depression on rates as those younger stations that are new launches, try to monetize their launch.

Paul Steep – Scotia Capital

I guess the last one from me, just on the TV side of things in terms of content cost. Where are you in terms of I guess securing major right, let's put it that way for online streaming and sort of us seeing the costs build into the model. Obviously, you can't have the entire library but maybe just the key assets relating to some of the HBO content or some of the other pieces?

Doug Murphy

Paul, it's Doug here. Specifically, with effort to the HBO item that's already in our numbers and locked in for long-term exclusive deal across all the platforms linear and non-linear, the same is true for Showtime output deal. With regards to the major studios, we've concluded one large negotiation for tentpole feature film releases for our paid services with the successful protection against non-linear services other than ours. So, we've been able to keep our rates in that regard and we're currently negotiating with two other large studios to achieve the same outcome. So, our view as we said before is that large studios need to pay windows part of their monetization in green light [ph] strategy. We have achieved agreement in terms of discussions with them in that regard and now it just comes down to within the numbers that it's mutually acceptable. We're very confident we'll be able to achieve the outcome that we're looking for.

Paul Steep – Scotia Capital

You said, you're still working with the other two. Do you think closing it sometime obviously this fiscal or sort of…?

Doug Murphy

These are two deals Paul, that are – these deals have turns that run two and three and five years and two of them kind of us in this fiscal. So, our intention is to close the renewed deal this fiscal in both cases.

Operator

Your next question comes from the line of Bob Bek with CIBC.

Robert Bek – CIBC

Just a couple of follow-up questions on Radio to start. I guess, Chris, you had mentioned about rate compression, we continue to see in Edmonton. Are rates fairly stable across other markets, is it really just those newly competitive markets where we're seeing some pressure on rate, is that holding otherwise. I guess looking to the more positive side of things in Toronto, obviously some very strong performance there, what you are seeing from a broader skill as far the longevity of that kind of strength in the Ontario market, in Toronto particular?

Chris Pandoff

I think you've got it correct. NHM [ph] is the new entrant in the market you're going to look to see short-term compression of the rates as a result of that. The good news is that the Alberta economy and Edmonton and Calgary are in the first quarter of this year on TRAM growing, and the exact opposite in Toronto in that the same number of radio stations are participating against the larger pool of ad dollars, so the rates are actually going up in Toronto for sure.

Robert Bek – CIBC

Where we stand as far as the competitive landscape on reformatting, I know it's always constant in radio, anything disruptive. I know there is an article in the paper today, but perhaps TSN Radio in Toronto. Just your thoughts on where we stand as far as any disruptive potential in some markets from formatting?

Chris Pandoff

What I know of the operators across the country that we would not be looking for anything dramatic to happen. I would suggest that there is more disruption in music format changes rather than talk or sports. Certainly, the rumor that you are talking about has existed for a while, but I can't really say that it will have a short-term impact on any of the stations in Toronto for that matter.

Robert Bek – CIBC

Just a couple of housekeeping ones. I guess radio as well, I think John you mentioned in your preamble about some pension costs finding its way into radio. Can you just remind us what kind of level that is? I don't recall that in my notes.

John Cassaday

Sorry for the feedback there. What we did about 18 months ago is we initiated a pension hiatus at Corus as part of our cost saving initiative as we were trying to maintain firm climate. So, this particular fiscal we put the employee pensions back in to our P&L. So what you are looking at there is just a previous expense that has come back after having been on hiatus for approximately 18 months. It's about $600,000.

Robert Bek – CIBC

Just lastly, I guess, for Tom. The Quebec Radio, that depreciation is just as long as we're backing it out next quarter. Just any help you can give us on backing out depreciation so we can get an apples-to-apples with last year?

Tom Peddie

Depreciation last year for the year was about $2.5 million.

Robert Bek – CIBC

So, we can work through the quarter.

Tom Peddie

So, say, $500,000 a quarter.

Operator

Your next question comes from the line of David McFadgen with Cormark Securities.

David McFadgen – Cormark Securities

Couple of questions. First of all, just a clarification, when you issued your 2011 guidance in September $285 million to $295 million, I think that included the $8 million in EBITDA for the Quebec Radio assets that are being sold, so that when you sold them you were then lowered by $8 million, is that correct?

John Cassaday

It is correct that when we gave our guidance of $285 million to $295 million that that included a full year of Quebec and that is what we advised everyone at the Investor Day presentation. So what we are saying today is given our first quarter results and given the outlook that we have for Q2 that we still believe it is possible to deliver results within our stated guidance despite the fact that we will be taking Quebec out for the entire year as of Q2.

David McFadgen – Cormark Securities

Then when you had talked about the Radio market, you said November was a bit soft. Was that a Corus specific issue or was that an industry issue?

Chris Pandoff

I would say that was more. It was a relationship throughout the industry. October was a very large month. First two weeks of November were very strong, but it began to slow near the end of November, but when you see the TRAM numbers come out in December, I think you'll see that it picked up again in December.

David McFadgen – Cormark Securities

So the industry has slowed temporarily in November and now it's come right back and looks pretty good for Q2?

Chris Pandoff

So far and I've only received a couple of markets TRAM reports this week, but that's the preliminary indication.

John Cassaday

One of the hypothesis we have is that there was a very important book that came out, Chris correct me if I am wrong, on December 8 and everybody was waiting to see what the rating results were of that because that basically gave everyone a picture for the competitive position for the fall. It was though we just felt things dry up as agencies in particular waited to see what the outcome of that book would be.

David McFadgen – Cormark Securities

Can you give us a sense of for the Oprah Winfrey Network? You're obviously in touch with advertisers. You said you have a couple of charter advertisers lined up. Can you give us a sense of what the ad commitments are to-date on the channel for your 2011 year?

Doug Murphy

Yeah, I can tell you, Dave, it's Doug here, that the plan that we put in place back when we successfully negotiated our (inaudible) with Oprah Winfrey. We've hit the numbers basically spot on. So I am not sure we are going to provide incremental revenue guidance at this juncture, but we are certainly very pleased with how we've been able to generate charter sponsor interest in these last few months.

David McFadgen – Cormark Securities

I would imagine that the advertising dollars for Oprah would be a lot more than VIVA, no?

Doug Murphy

The cost per 1000 CPM rate as John noted in his comments are equal to what we have in W, which obviously is an increase to what we had in VIVA. So we're getting better pricing no doubt at this point in time. The key variable of course is audience generation, which we won't know until we launch this service, and get some audience results in.

David McFadgen – Cormark Securities

Yeah. So when you talk about the delta W versus VIVA, what is it, is it 25% higher, 50% higher, what's that delta?

Doug Murphy

I would say it's on the factor twice, two times.

Operator

Your next question comes from the line of Scott Cuthbertson with TD Newcrest.

Scott Cuthbertson – TD Newcrest

Just a couple question left. Just kind of wondered, Tom, we're modeling some cost savings driven by the new premises didn't really seem to show up that much in the quarter. Just wondered if you could revisit that and could you just remind me of the savings and the timing expected and then how is it going to show up?

Tom Peddie

At the Investor Day, we had given guidance that we were looking at catching about $15 million in cost savings, the cost save system. We're still sticking with that particular number. You won't see that as a one line item on any of the P&Ls. Where you'll see it is in improved margins. Once again, to your particular point, you will get some quarterly fluctuation in that particular number. We did have, as John noted earlier, we did have additional cost coming back in Radio, and in Television, for some of the cost that we had eliminated before. So you just don't really see it but we are tracking, and we have a policy in place or procedure in place where we track this monthly, and that we still are on track.

John Cassaday

Just to remind everyone, in fiscal 2009, we achieved earnings of around $252 million, I guess, $251 million to be specific, which was virtually identical to what we achieved in fiscal 2008. We did that through a number of aggressive cost initiatives including unpaid vacation days, wage freezes, hiring freezes, the pension hiatus. Needless to say as the economy began to recover, the contract if you will that we had with our employees was that we would reinstitute those costs. We were able to capitalize on the efficiencies of our new facility here to be able to capture some substantial savings and essentially offset these costs coming back on to our P&L. So that's really the magic that we were able to do, hold our earnings through the economic downturn through aggressive cost initiatives. Then go after the cost efficiencies possible through the new technology that we put into our building here and allow those costs to come back in without again having us to take a step back.

Scott Cuthbertson – TD Newcrest

Tom, is it possible just to, maybe just for the quarter, maybe to give some rough indication of tracking on the savings from the new premises against some of these cost which came back in the P&L?

Tom Peddie

Could you repeat the first part of your question? I didn't catch it?

Scott Cuthbertson – TD Newcrest

Sure. I was just saying, it sounds like a great concept and I understand what you're doing. It's an intelligent approach I think. I just wondered if you could sort of provide us with some gives and takes on that in the quarter, i.e. how much did you realize from the cost savings stemming from the new facility, and how much of these other cost came back on the P&L as you had to sort of pay back the employees for their patience during the tough times?

Tom Peddie

I don't think it's possible for us to get into that particular granularity. As we said, we set a target for ourselves of $15 million on an annual run rate, and as we integrate and go through the changes here, you'll capture some of the savings right away, some of the other savings you know are going to take place, say in Q2, as you're are able to take advantage of some of the technological changes that we've put in place, so, we can't really tell you that we took $5 million worth of cost out last year and took out $4 million worth of cost, added $4 million back in. I think the important thing is to look at the Television margins for the quarter, and they were up over last year. You look at the Radio margins, how they are improving, and we also had indicated that our Radio margins for the year would finish in excess of 30%. So, all of those particular numbers are still tracking on plan.

Scott Cuthbertson – TD Newcrest

Maybe just a little bit on the timing you alluded to, some greater realization in the quarters ahead. Is that something that we should look for?

Tom Peddie

Yes, one of the things that you'll see is, we've talked about a strong Q2, but Q2 is a small quarter for us as a percentage of our overall EBITDA. One of the things you'll also see is that when you look at our corporate costs this year compared to last year, you know, there's about $7.9 million in the quarter; this year there's about $5.6 million. When you look at Q2 last year, I think our corporate costs were about $6.5 million, so we were about $12 million in corporate costs for the first half of last year but wound up at $28 million, so we were $16 million in the back half of the year. The guidance that we gave at our October call was that corporate overhead would be in the $30 million range split probably about 20 corporate and 10 on stock-based compensation. So, all of those particular numbers are consistent with we've said, so that we have some comps in Q3 and Q4 which will be a little easier for us to beat compared to this year.

Scott Cuthbertson – TD Newcrest

A last thing, at the risk of beating this question to death, the last thing is, I know that there was some revenue related cost increases in the quarter due to the great success you had in TV for example, but other than that, was this a relatively normal quarter with respect to the way you're seeing these costs flow through?

Tom Peddie

We had only one abnormal cost which we referred to earlier, was the impact of the new radio tariff, which we had outlined in our shareholder report. It costs us about $1 million in Q1 for Radio. So, Radio, would have looked better compared to last year had we not had that cost, and the guidance that we'd given was that that number would be about $3 million for the year.

Scott Cuthbertson – TD Newcrest

A question for John, just I can't help it wonder and I think a lot of other people wonder as well. I mean there seems to be some great potential to either trade assets or share responsibilities or get together on programming or otherwise cooperate with other companies within the Shaw family group of companies generally speaking. Can you comment at all on if there is any potential there or could we expect anything in that area, in the months ahead?

John Cassaday

I won't comment on Shaw, specifically. I will say that we have for some period of time indicated to all of our competitors that we have an appetite to swap assets where we can increase competitive advantage. We believe that there are assets that we have that could be – create greater value in the hands of others as there are assets in the hands of others that could create greater value in our hand. So, we're very open to looking at optimizing the assets that we have, we've also been very public in our interest in securing service company work. We believe that we have made an investment in technology here and have the capacity to be a tremendous service provider to many in our industry whether it's for their entire suite of assets or simply certain specific assets.

We think that it makes no sense in a country our size for everyone to move ahead and make the investments that we've made in IP-based technology and digital rights management software and we're hoping that over time we will be able to interest many players in the Canadian system and taking advantage of the non-proprietary but valuable investments that we've made in technology and that we're hoping that we can share our expertise and our investments with others and create additional income for Corus, and reduce costs for our competitors.

Scott Cuthbertson – TD Newcrest

Last question. Just if you were going to enter into some asset trades, what's your appetite for maximum leverage for an attractive asset on a short-term basis these days?

John Cassaday

Well, we have said that we think that the comfortable spot for us to be is in the 3 to 3.5 times leverage and that we would go as high as 4 times for short period of time to do a deal of significant strategic value to us, so those metrics still apply. As it relates to multiples for various properties, again that has to be determined based what we think the revenue and cost synergies are, but we're certainly well aware of where we're trading from a multiple point of view and we're certainly well aware of what that would entail in terms of our ability to pay a higher multiple for someone else's assets that we might like. So we think we've got great momentum right now.

We're seeing tremendous results of our co-view activities on our kids brands and our social viewing initiatives on our women's brands. We're riding a nice wave with the interest that HBO is creating with their outstanding program. We're hugely enthusiastic about Oprah Winfrey. We think we've got the possibility of a nice recovery in Western Canada just riding up with that tide as the western economy recovers. So, net-net, we feel we're in pretty good shape here for some period of time to continue to grind out, pretty exciting organic growth with the assets that we have.

Operator

At this time, I am showing no further questions from the phone lines. Mr. Cassaday, I'll turn the conference back to you to continue with the presentation or closing remarks.

John Cassaday

Thank you, operator, and thanks to all of you who participated in the call today and for those of you who participated in our annual general meeting earlier. We certainly value your continued interest in Corus. Have a good evening. Bye for now.

Operator

Thank you. And ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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