Shaw Announces Third Quarter and Year-To-Date Fiscal 2018 Results
June 28, 2018
- Consolidated revenue and operating income before restructuring costs and amortization1 each improved 7% year-over-year due to continued growth in the Wireless and Business segments and realization of cost saving initiatives in the quarter
- Continued momentum in Wireless including strong customer demand for Big Gig data plans resulting in 27% year-over-year increase in service revenue and over 54,000 postpaid Wireless subscriber net additions in the quarter
- Company remains on track to deliver fiscal 2018 guidance
Calgary, Alberta (June 28, 2018) – Shaw Communications Inc. announces consolidated financial and operating results for the quarter ended May 31, 2018. Revenue from continuing operations for the quarter of $1.30 billion increased 6.9% over the prior year led by Wireless and Business results. Operating income before restructuring costs and amortization1 for the quarter of $547 million increased 7.0% over the third quarter of fiscal 2017. Net loss for the quarter of $91 million compared to net income of $133 million in the third quarter of fiscal 2017. The decrease substantially reflects a $284 million impairment charge this quarter relating to the Company’s investment in Corus Entertainment Inc.
“We are pleased with another strong quarter of Wireless performance as evidenced by over 54,000 postpaid net additions and ARPU growth of almost 8% compared to a year ago. Customers continue to reward us by choosing Freedom Mobile as their wireless provider due to our differentiated value proposition led by data-centric service plans,” said Brad Shaw, Chief Executive Officer. “Momentum is building and we will continue to be focused and execute on our strategic initiatives to drive greater market share by giving our customers the connectivity they want, on the devices they want.”
“We’re excited to announce our continued expansion of our Wireless retail distribution network, ensuring that more Canadians will have access to the value provided by Freedom Mobile. We’ve recently completed our successful fifteen store operational trial with Loblaws’ ‘The Mobile Shop’ and are working closely with Loblaws’ leadership on our broader launch that will reach nearly 100 stores in Ontario, Alberta and British Columbia,” said Mr. Shaw. “In addition, we’re very pleased to announce that we’ve recently signed a comprehensive distribution agreement with Walmart, which will provide for our Wireless products to be distributed in approximately 140 Walmart locations. These retail growth initiatives, both of which we expect to begin this summer, will substantially improve the accessibility of our Wireless products and help close our historical retail distribution gap. When combined with our existing corporate and dealer store network, Freedom Mobile expects to have approximately 600 retail locations operational in early 2019.”
The Company is currently focused on building out its 700 MHz spectrum, which will continue throughout fiscal 2019 and once fully deployed will enable Wireless customers with compatible devices to receive an improved service experience.
Mr. Shaw continued, “While the distribution and network improvements that we have made, and continue to make, provide significant benefits to customers today, we are also making decisions that reflect our long-term view regarding new technology that is on the horizon. The government recently announced consultations to release certain spectrum bands that will support 5G wireless network deployment. This exciting step provides further visibility into the deployment of 5G where our Wireline and Wireless networks are very well positioned. We are pleased that our initial trials have been a success and, through our partnerships with best-in-class industry leaders, we will work to better understand 5G’s strengths and capabilities while continuing to invest in our network to offer Canadians a new era of strong and sustainable competition for the next generation of wireless technologies.”
In the quarter, the Company added approximately 46,700 net Wireless revenue generating units (“RGUs”) - (postpaid +54,200/prepaid -7,500), a significant improvement over the 20,000 net additions achieved in the third quarter of fiscal 2017. The increase in the customer base reflects continued customer demand for premium smartphones combined with our device pricing and packaging options, data centric plans, and the ongoing execution of our wireless growth strategy to improve the network and customer experience.
Wireless revenue of $237 million improved 54% year-over-year as equipment revenue of $82 million compared to $32 million in the third quarter of fiscal 2017 and service revenue improved 27% to $155 million. Wireless operating income before restructuring costs and amortization of $62 million improved 48% year-over-year, primarily due to continued subscriber growth and higher average revenue per unit (“ARPU”), which increased by 7.5% to $39.84, partially offset by incremental costs from higher subscriber loading in the period including higher device sales compared to a year ago. The current quarter also benefited from a one-time recovery of approximately $13 million related to retroactive roaming rates.
Wireline RGUs declined by approximately 14,400 in the quarter compared to a gain of approximately 44,400 in the third quarter of 2017. The current quarter includes seasonally strong Satellite RGU gains of 9,600 which were more than fully offset by Internet, Video and Phone RGU losses. Internet RGU results in the quarter were impacted by the usual seasonal disconnect activity from students as well as the transition of two previous bulk accounts in Consumer (2,900 RGUs) to Business. Continued market dynamics including attractive promotions by our competition and Shaw’s pricing discipline also contributed to lower gross additions in the quarter.
Third quarter Wireline revenue and operating income before restructuring costs and amortization of $1.06 billion and $485 million remained flat and increased 3.4% year-over-year, respectively. Consumer revenue of $923 million declined by $7 million as Video and Phone revenue declines offset Internet growth. Business revenue increased 6% year-over-year to $141 million, reflecting continued demand for the SmartSuite of products. The year-over-year improvement in Wireline operating income before restructuring costs and amortization was primarily driven by costs savings of approximately $16 million related to the voluntary departure program (“VDP”).
“We remain focused on driving profitable subscriber growth through disciplined pricing and promotions. Internet revenue continues to grow despite the marginal net RGU loss this quarter and our strategy is to compete based on product innovation, service and value,” said Mr. Shaw. “The strength of our network, products and people will drive results in our Wireline division and our partnership with Comcast provides an exciting roadmap that encompasses broadband in addition to Video. We are deploying the latest DOCSIS 3.1 modem (XB6) which enables faster internet speeds and our BlueSky platform continues to improve and now integrates YouTube seamlessly with live TV, video-on-demand and recorded content.”
Capital expenditures in the third quarter of $293 million increased by $3 million compared to a year ago. A decline of $7 million in Wireline capital spending, primarily due to lower success-based capital, was offset by increased spending in Wireless of $10 million as the Company continues to invest in its network, including spectrum deployment.
Free cash flow1 for the quarter of $191 million compared to $132 million in the prior year. The increase for the quarter was largely due to higher operating income before restructuring costs and amortization and lower cash taxes.
Net loss for the quarter of $91 million compared to net income of $133 million in the third quarter of fiscal 2017. The decrease substantially reflects a $284 million impairment from the Company’s investment in Corus Entertainment Inc. offset partially by the prior year loss from discontinued operations in the amount of $31 million.
In the second quarter of fiscal 2018, the Company introduced Total Business Transformation (“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, a VDP was offered to eligible employees. The outcome of the program had approximately 3,300 Shaw employees accepting the VDP package, 1,200 of which will exit before the end of fiscal 2018, driving in-year cost reductions of approximately $48 million (approximately $40 million attributed to operating expenses and approximately $8 million attributed to capital expenditures).
In the third quarter of fiscal 2018, a total of approximately 850 employees exited the Company which led to operating cost reductions of approximately $16 million and capital cost reductions of approximately $3 million relating to the VDP. The Company is substantially on track to meet the expected cost reductions for fiscal 2018. 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.
In connection with various other TBT activities, Shaw has incurred an additional restructuring charge of $13 million in the third quarter for a total of $430 million in fiscal 2018, primarily related to severance and other employee related costs, as well as additional costs directly associated with the TBT initiative. The Company does not anticipate the full-year TBT restructuring costs to exceed $450 million.
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 savings); roaming cost reductions of approximately $13 million that have been 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.
Mr. Shaw concluded, “We have a tremendous opportunity in front of us to deliver on our growth commitments. Our Wireless business is expected to continue its strong performance as we drive further network improvements and grow our market share. We are several months into our TBT initiative and I am excited about the transition that is unfolding in our Wireline business. It will enable us to serve all aspects of our customers better, which is the ultimate driver of our decisions, while also significantly reducing costs.”
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 further information, please contact:
Shaw Investor Relations