Shaw Announces Second Quarter and Year-To-Date Fiscal 2018 Results
April 12, 2018
- Record Wireless subscriber performance highlighted by postpaid net additions of 93,500 driven by strong customer demand for the iPhone and Big Gig data plans
- Consolidated revenue increased 12.4% year-over-year due to breakout performance in Wireless
- Company reports second quarter restructuring charge of $417 million related to Total Business Transformation initiative
Calgary, Alberta (April 12, 2018) – Shaw Communications Inc. announces consolidated financial and operating results for the quarter ended February 28, 2018. Revenue from continuing operations for the quarter of $1.36 billion increased 12.4% over the comparable period led by Wireless and Business results. Operating income before restructuring costs and amortization1 for the quarter of $501 million was consistent with results in the second quarter of fiscal 2017.
“Our strong second quarter results clearly show that Canadians have a demand for a truly competitive wireless option,” said Brad Shaw, Chief Executive Officer. “Our strategy to grow our Wireless business has been simple: create a wireless provider that offers fairness and value to Canadians and that respects people’s desire to connect when they want, how much they want, and on the iconic devices they want.”
“We are successfully executing our Wireless plan. This quarter, which included a very busy holiday season, we set a record with more than 93 thousand net postpaid subscriber additions. The confidence that new and existing customers have in our service has only strengthened our resolve to continue investing in our network while growing our market share through pricing and packaging options, such as our Big Gig data plans,” said Brad Shaw.
Shaw continues to improve the Wireless experience for its customers including an expanded distribution platform through our first agreement with a national retailer. Launching in April, Loblaws’ ‘The Mobile Shop’ will sell Freedom Mobile handsets and service plans in approximately 100 of their locations across Canada. In addition, another significant network milestone has been achieved with the refarm of 10 MHz of AWS-1 spectrum now complete across Freedom Mobile’s footprint. The Company continues to actively roll out its 2500 and 700 MHz spectrum which further improves the network quality and will enable additional features such as VoLTE.
Brad Shaw continued: “We commend the federal government on its support for strong and sustainable competition, as reflected in the recent announcement of a set-aside for the upcoming 600 MHz auction. This decision will help ensure a future for wireless competition in Canada and is a significant win for all Canadians, who deserve more from their wireless services.”
“In the two years since we acquired our Wireless business, we have made significant investments and improvements to our network and our service. We are excited by the tremendous growth potential of this business, and, as shown by our results this quarter, we are committed to delivering a strong and competitive wireless alternative that will benefit all Canadians,” said Brad Shaw.
Net loss for the quarter of $164 million compared to net income of $147 million in the second quarter of fiscal 2017. The decrease substantially reflects $417 million restructuring related costs recorded during the second quarter of 2018 in respect to the Total Business Transformation (“TBT”) initiative and related Voluntary Departure Program (“VDP”) accepted by eligible employees, as further described below.
Free cash flow1 for the quarter of $135 million compared to $147 million in the prior year. The decrease for the quarter was largely due to planned higher capital spending.
Total Wireless revenue of $290 million improved 106% year-over-year as equipment revenue of $148 million compared to $24 million in the second quarter of fiscal 2017 and service revenue improved 21% to $142 million. Wireless operating income before restructuring costs and amortization of $36 million improved 24% year-over-year primarily due to the growth in subscribers and higher average revenue per unit (“ARPU”), partially offset by incremental costs from higher subscriber loading in the period and margin pressure from significantly higher equipment sales.
In the quarter, the Company added approximately 89,700 net Wireless revenue generating units (“RGUs”) - (postpaid +93,500/prepaid -3,800), an increase of more than 2.5 times the 33,400 net additions achieved in the second quarter of fiscal 2017. The increase in the customer base reflects customer demand for the iPhone combined with our device pricing and packaging options and the ongoing execution of our wireless growth strategy to improve the network and customer experience.
Second quarter Wireline revenue and operating income before restructuring costs and amortization of $1.07 billion and $465 million remained flat and declined 1.9%, respectively. While revenue held flat, the year-over-year decline in Wireline operating income before restructuring costs and amortization continues to be impacted by a challenging Consumer video environment, including a declining customer base and a general shift into lower priced video packages. The decline in Video and Phone subscribers more than offset the positive impact of continued Internet growth. Shaw Business delivered another solid quarter, with second quarter revenue up 5.3% year-over-year to $140 million.
Wireline RGUs declined by approximately 25,600 in the quarter compared to a loss of approximately 6,900 in the second quarter of 2017. Internet gains of approximately 5,500 in the quarter were more than fully offset by video, phone and satellite RGU losses.
In the quarter, the Company introduced TBT, a multi-year initiative designed to reinvent Shaw’s operating model to better meet the evolving needs and expectations of consumers and businesses by reducing staff, optimizing the use of resources and maintaining and ultimately improving customer service. Three key elements of the transformation are to: 1) shift customer interactions to digital platforms; 2) drive more self-install and self-serve; and, 3) streamline the organization that builds and services the networks. As part of the TBT initiative, the Company also plans to reduce input costs, consolidate functions, and streamline processes, which is expected to create operational improvements across the business allowing it to evolve into a more efficient organization.
As a first step in the TBT, the VDP was offered to eligible employees. The outcome of the program had approximately 3,300 Shaw employees accepting the VDP package representing approximately 25% of all employees. As part of the program design, the majority of customer-facing employees (i.e., Customer Care, Retail, Sales) were not eligible to participate in the VDP. A large portion of employees who elected to participate in the VDP are in functions that will be addressed through the aforementioned key elements of the TBT and Shaw has control over the timing of employee departures across the Company through an actively managed, orderly transition over the next 18 months. In select functions, the Company determined that some employees will transition over a 24-month period, an extension from the 18-month period initially expected. Approximately 1,200 employees will be exiting before the end of fiscal 2018.
In connection with various TBT activities, including the VDP, Shaw has incurred a restructuring charge of $417 million in the second quarter of fiscal 2018, primarily related to severance and other employee related costs, as well as additional costs directly associated with the TBT initiative. While the restructuring charge has been recognized in the second quarter of fiscal 2018 results, the actual timing of employee payments related to the charge will occur over a 24-month period, starting March 29, 2018. The Company does not anticipate the full-year TBT restructuring costs to exceed $450 million.
The anticipated annualized savings, which include reductions in operating expenses and capital expenditures (i.e. labour costs that can be identified or associated with a capital project), related to the VDP, are expected to be approximately $215 million and will be fully realized in fiscal 2020. Shaw expects these cost reductions to be weighted 60% to operating expenses, being approximately $130 million, and 40% to capital expenditures, being approximately $85 million (compared to the $225 million equally weighted estimate of 50% operating expenses and 50% capital expenditures initially estimated at the end of the VDP). VDP related cost reductions in fiscal 2018 are expected to be approximately $48 million, of which approximately $40 million will be attributed to operating expenses and approximately $8 million attributed to capital expenditures. See also “Introduction”, “Other Income and Expense Items”, “Caution Concerning Forward Looking Statements” and “Risks and Uncertainties” in the accompanying Management’s Discussion and Analysis (“MD&A”) for a discussion of the TBT, the VDP and the risks and assumptions associated therewith.
The Company confirms that it remains on track to meet its fiscal 2018 guidance which includes consolidated operating income before restructuring costs and amortization growing to approximately $2.1 billion – an increase of approximately 5% over fiscal 2017; capital investments of approximately $1.38 billion; and free cash flow1 of approximately $375 million. Shaw’s guidance confirmation includes assumptions related to cost reductions that will be achieved through TBT initiatives (specifically the VDP); roaming cost reductions of approximately $12 million expected to be realized in the third quarter of fiscal 2018 associated with the CRTC finalizing wholesale mobile wireless roaming rates; and short-term incremental costs associated with growth in Wireless handset sales. See also “Caution Concerning Forward Looking Statements” in the accompanying MD&A.
Brad Shaw concluded, “Our company is at a pivotal moment and we are solidly committed to our long-term growth strategy to capitalize on efficiencies, streamline processes and improve our business through the Total Business Transformation initiative. Our teams of dedicated people are working every day to enhance our customers’ experiences – by building on the strengths and potential of our Wireless operations while creating an operating model in our Wireline business that allows us to improve and streamline our service.”
Shaw Communications Inc. is a leading Canadian connectivity company. The Wireline division consists of Consumer and Business services. Consumer serves residential customers with broadband Internet, Shaw Go WiFi, video and digital phone. Business provides business customers with Internet, data, WiFi, digital phone and video services. The Wireless division provides wireless voice and LTE-Advanced data services through an expanding and improving mobile wireless network infrastructure.
Shaw is traded on the Toronto and New York stock exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX - SJR.B, SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For more information, please visit www.shaw.ca
The accompanying MD&A forms part of this news release and the “Caution concerning forward-looking statements” applies to all the forward-looking statements made in this news release.
For more information, please contact:
Shaw Investor Relations
Shaw Communications Inc. is a leading Canadian connectivity company. The Wireline division consists of Consumer and Business services. Consumer serves residential customers with broadband Internet, Shaw Go WiFi, video and digital phone. Business provides business customers with Internet, data, WiFi, digital phone, and video services. The Wireless division provides wireless voice and data services through an expanding and improving mobile wireless network infrastructure..
Shaw is traded on the Toronto and New York stock exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX - SJR.B, SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For more information, please visit www.shaw.ca.
For further information, please contact:
Shaw Investor Relations