Shaw Announces Fourth Quarter and Full Year Fiscal 2018 Results
October 25, 2018
- Fourth quarter consolidated revenue improved 7% and operating income before restructuring costs and amortization1 improved 17% year-over-year due to strong financial results from all business segments
- Wireless postpaid net additions of 85,000 in the quarter and average revenue per unit (“ARPU”) growth of 9% year-over-year
- Wireline operating income before restructuring costs and amortization1 improved 15.7% in the quarter primarily due to continued revenue growth in Business and Internet combined with approximately 9% lower operating costs year-over-year
- Full year 2018 consolidated operating income before restructuring costs and amortization1 of $2.09 billion in line with guidance of approximately $2.1 billion and Free Cash Flow of $411 million exceeds guidance of $375 million
Calgary, Alberta (October 25, 2018) – Shaw Communications Inc. announces consolidated financial and operating results for the quarter ended August 31, 2018. Revenue from continuing operations increased by approximately 7% both in the fourth quarter and on a full year fiscal 2018 basis to $1.34 billion and $5.24 billion respectively, compared to the same periods in fiscal 2017. Operating income before restructuring costs and amortization1 of $560 million for the quarter and $2.09 billion for the year increased 16.9% and 4.6% respectively, over the comparable periods in fiscal 2017.
Chief Executive Officer, Brad Shaw said, “Fiscal 2018 was an exciting year for our Wireless business. In a short amount of time, we have created a stronger, high quality network and are delivering an improved customer experience. Our impressive Wireless results in the quarter and throughout 2018 reflect our ongoing Wireless investments (including spectrum deployment), device parity, data-centric Big Gig plans, and a significantly expanded retail distribution network. We are executing against our operating strategy which has enabled us to rationally grow our market share and ARPU, both in the quarter and throughout the year. In the fourth quarter, we added 85,000 postpaid Wireless subscribers bringing our postpaid customer base to over 1 million and total customers of approximately 1.4 million, a 22.3% improvement from the end of fiscal 2017. Fourth quarter ARPU was particularly strong, increasing by 9% year-over-year, fueled by customer demand for larger data plans. Our fiscal 2018 Wireless results are a true testament to Freedom Mobile delivering a differentiated and sustainable value proposition to customers and we have significant momentum as we enter fiscal 2019.”
During the quarter, the Company began distributing Freedom Mobile in approximately 100 locations with Loblaws ‘The Mobile Shop’ and has all of the approximate 140 Walmart locations throughout Ontario, Alberta and British Columbia in operation as of the end of September 2018. In addition, the Company has introduced a new format to its corporate stores which it will continue to roll out and expand into new markets in fiscal 2019. Over recent months the Company also launched Voice over LTE (“VoLTE”) across its network on a wide range of devices and expects that over 800,000 Freedom customers will be able to use VoLTE before the end of 2018.
Mr. Shaw continued, “Wireless network investments remain our top priority and in the fourth quarter we increased spending related to the deployment of our 700 MHz spectrum, which was recently enabled in Calgary, and deployment will continue through fiscal 2019. This spectrum materially improves network coverage and provides customers with enhanced indoor LTE coverage and combined with VoLTE capability, we are closing the gap between our wireless network and the incumbents’.”
In the Wireline segment, revenue growth from Consumer and Business, combined with cost savings primarily related to the Voluntary Departure Program (“VDP”), resulted in strong operating income before restructuring costs and amortization1 growth over the prior year and prior quarter. Consumer subscriber losses reflect the Company’s continued discipline in the quarter, focusing on profitability in a highly competitive market. Consumer Internet revenue generating units (“RGUs”) declined modestly in the quarter, however increased by approximately 16,000 in fiscal 2018 as broadband remains an important growth driver for the Company over the long-term.
“We are pleased with our fiscal 2018 consolidated results, including strong Wireless growth and stable Wireline operations supported by our focus on profitability, realization of VDP savings and disciplined cost control across the organization. The solid execution of our operating plan generated operating income before restructuring costs and amortization of $2,089 million, capital investments of $1,367 million and free cash flow of $411 million. These key metrics are in-line with our fiscal 2018 guidance,” Mr. Shaw said.
In the quarter, the Company added approximately 85,000 net Wireless RGUs, which were substantially all postpaid customers, a significant improvement over the 41,000 net additions achieved in the fourth quarter of fiscal 2017. The increase in the customer base reflects continued customer demand for premium smartphones combined with device pricing and packaging options, data centric plans, and the ongoing execution of the wireless growth strategy to improve the network and customer experience.
Consolidated Wireless revenue for the three and twelve month periods improved by 45.3% and 57.2%, respectively, to $250 million and $951 million over the comparable periods in fiscal 2017. In the quarter, service revenue increased 31.5% to $167 million and equipment revenue of $83 million compared to $45 million in the fourth quarter of fiscal 2017. Growth in Wireless revenue is due primarily to continued subscriber growth and ARPU improvement which increased by 9%, to $41.00, compared to the fourth quarter of fiscal 2017.
Fourth quarter Wireless operating income before restructuring costs and amortization of $44 million improved 33.3% year-over-year despite Wireless margin compression due primarily to incremental costs from higher subscriber loading in the period including higher device sales compared to a year ago. For the twelve month period, Wireless operating income before restructuring costs and amortization increased 32.3% to $176 million.
Wireline RGUs declined by approximately 59,200 in the quarter compared to a gain of approximately 25,400 in the fourth quarter of fiscal 2017. The current quarter includes a decline in Consumer RGUs of approximately 71,000 due to an active competitive environment specifically relating to back-to-school offers. The Company remained disciplined with its subscriber acquisition offers resulting in lower gross RGU addition activity in Consumer, partially offset by Business RGU growth of 11,800 compared to 3,600 in the fourth quarter of fiscal 2017.
Fourth quarter Wireline revenue and operating income before restructuring costs and amortization1 of $1,087 million and $516 million increased 1.3% and 15.7%, respectively, year-over-year. Consumer revenue was flat at $942 million compared to the prior year as rate adjustments and continued growth in Internet revenue was offset by declines in Video and Phone subscribers and revenue. Business revenue increased 6.6% year-over-year to $145 million, reflecting continued demand for the SmartSuite of products. Fourth quarter Wireline results also include operating costs savings of approximately $23 million related to the VDP as well as lower marketing expenses.
For the twelve month period Wireline revenue of $4,292 million was comparable to the prior year period and operating income before restructuring costs and amortization of $1,913 million increased 2.6% resulting in a Wireline operating margin of 44.6%, an improvement of 100 basis points over fiscal 2017.
“We are transforming our Wireline business to enable an agile, digital-first company that will continue to meet the needs of our customers. In fiscal 2018, we introduced a significant amount of change and disruption that resulted in a leaner organization and a management team with clear accountabilities, direction and targets as we head into the new fiscal year. We will remain focused on delivering profitable growth and stabilizing our Consumer results by improving on our execution, leading with strong broadband services and optimizing our Video packages,” Mr. Shaw said.
Capital expenditures in the fourth quarter of $434 million increased by $36 million compared to a year ago. Wireline capital spending increased by approximately $12 million primarily due to new housing development and network upgrading. Wireless spending increased by approximately $24 million as the Company began deployment of the 700 MHz spectrum and continued to expand its retail footprint. Fiscal 2018 capital expenditures of $1,367 million increased by $142 million compared to the previous year with the majority of the increased investment aligned with growth objectives in our Wireless business.
Free cash flow1 for the quarter of $34 million compared to $2 million in the prior year. The increase for the quarter was largely due to higher operating income before restructuring costs and amortization partially offset by increased capital expenditures and cash taxes. Free cash flow for fiscal 2018 of $411 million was $27 million lower than the prior year due primarily to higher capital expenditures in fiscal 2018.
Net income for the quarter of $200 million compared to net income of $481 million in the fourth quarter of fiscal 2017. Excluding income from discontinued operations of $332 million in the prior year quarter, mainly related to the gain on the sale of ViaWest, net income was $51 million higher in current quarter driven primarily by an increase in operating income before restructuring costs and amortization.
In the fourth quarter of fiscal 2018, approximately 460 employees exited the Company, bringing the total number of employees who departed under VDP to approximately 1,300 employees. This led to operating cost reductions of approximately $23 million and capital cost reductions of approximately $5 million. The Company delivered its total expected cost reductions for fiscal 2018 of approximately $47 million in capital and operating cost savings. 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 Total Business Transformation (“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 $16 million in the fourth quarter for a total of $446 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 still expects that total restructuring costs will not exceed $450 million as the restructuring activities related to TBT initiatives have been substantially completed.
Shaw is introducing its fiscal 2019 guidance, which includes consolidated operating income before restructuring costs and amortization growing 4% to 6% over fiscal 2018; capital investments of approximately $1.2 billion; and free cash flow in excess of $500 million. The Company’s guidance also includes assumptions related to cost reductions that will be achieved through TBT initiatives (specifically the VDP savings) that are expected to amount to $140 million of operating and capital savings in fiscal 2019 (approximately $85 million attributed to operating expenses and approximately $55 million attributed to capital expenditures). See also “Caution Concerning Forward Looking Statements” in the accompanying MD&A.
Shaw’s fiscal 2019 guidance and growth range includes the expected impact of IFRS 15, Revenue from Contracts with Customers, which the Company will adopt on a fully retroactive basis beginning in the first quarter of fiscal 2019. The fiscal 2018 and expected fiscal 2019 adjustments under IFRS 15 do not have a material impact on the aforementioned fiscal 2019 guidance. The Company will provide additional details with respect to the impact of IFRS 15 when the Company files its fiscal 2018 Annual Report and with the release of its first quarter fiscal 2019 results.
Mr. Shaw concluded, “Fiscal 2019 reflects an important milestone with respect to the free cash flow profile of our Company. Since we embarked on our asset transformation back in 2015, we have made significant investments in our networks and overall business to support our growth strategy while maintaining a strong balance sheet and leverage profile. We believe our overall capital intensity will moderate, predominately in our Wireline business, as we continue to make Wireless infrastructure investments that enhance the customer experience and lay the foundation for future growth. Our fiscal 2019 plan includes new technology, tools and automation that enable us to deliver on our digital first service model and to strengthen and grow our Wireless business. We have undergone several years of significant change and have made difficult decisions along the way. However, with these changes in place, we can focus entirely on execution and continue to progress towards our goal of generating long-term, sustainable free cash flow growth.”
1 See definitions and discussion under “Non-IFRS and additional GAAP measures” in the accompanying MD&A.
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.
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