Shaw Announces Second Quarter and Year-To-Date Fiscal 2019 Results
April 09, 2019
- Consolidated operating income before restructuring costs and amortization1 improved 13.7% year-over-year due to continued growth in the Wireline and Wireless segments
- Strong Wireless operating income before restructuring costs and amortization performance supported by postpaid subscriber net additions of approximately 65,000 and continued average billing per subscriber unit (“ABPU”) 2 growth of 7.5% to $41.34
- Focus on Wireline execution and broadband growth resulted in Consumer Internet net additions of approximately 11,100 and a 280-basis points year-over-year increase in Wireline operating margin to over 46% in the quarter
Calgary, Alberta (April 9, 2019) - Shaw Communications Inc. ("Shaw" or the "Company") announces consolidated financial and operating results for the quarter ended February 28, 2019, reported in accordance with the newly adopted IFRS 15 accounting standard, Revenue from contracts with customers (IFRS 15). Consolidated revenue decreased by 1.0% to $1.32 billion compared to the second quarter in fiscal 2018 and operating income before restructuring costs and amortization increased 13.7% year-over-year to $549 million.
"We continue to make progress on our strategic priorities and journey to a modern Shaw. Second quarter results include stable Wireline performance, improved broadband execution and solid subscriber growth in our Wireless business. While we still have lots of work ahead of us, our second quarter and year-to-date results reflect improvement on all these initiatives, combined with a meaningful reduction in our cost structure that resulted in strong margin performance in the quarter," said Brad Shaw, Chief Executive Officer.
Wireless results include postpaid net subscriber additions of approximately 65,000, bringing the total Freedom Mobile customer base to over 1.5 million as of the end of February. As part of its network expansion plans in fiscal 2019, the Company launched wireless services in several new markets including Victoria and Red Deer on February 8 and an additional six communities in Eastern Ontario in early March. Freedom Mobile will continue to launch in new markets throughout fiscal 2019, primarily in Western Canada. Continuous network enhancements, including the deployment of 700 MHz spectrum, remain a priority as network quality contributes to the significant postpaid churn reduction, which improved approximately 30 basis points year-over-year to 1.36% in the quarter. Subsequent to the quarter end, the Company finalized an agreement with its third national retail partner, Mobilinq, and expects to launch prepaid services throughout the 50 additional locations beginning in April.
"Our Wireless subscriber and financial performance in fiscal 2019 reflects the execution of our strategic priorities. We continued to attract high quality subscriber growth in the second quarter against the backdrop of a less active market compared to a year ago, when we saw record subscriber performance for the Company as the iPhone became available for Freedom Mobile customers and we launched our Big Gig data plans. We delivered ABPU growth, up 7.5% in the quarter compared to a year ago, as more Canadians purchase our value-based offerings that focus on bigger data buckets. At the same time that we are growing our subscriber base, we are also improving the profitability of our Wireless business, with operating income before restructuring and amortization improving to $52 million this quarter. Our network investments are clearly paying off and, while our focus remains on growing our postpaid subscriber base, we have recently introduced refreshed prepaid plans to participate more effectively in this competitive segment of the market," Mr. Shaw said.
Second quarter Wireline performance reflects improved Consumer Internet subscriber growth of approximately 11,100 RGUs, offset by continued Video RGU losses, resulting in stable year-over-year Consumer revenue while the Business segment delivered consistent top-line growth with revenue increasing 5.7% in the quarter. Combined with reduced operating expenses, primarily due to the voluntary departure program ("VDP"), Wireline margin of approximately 46% improved 280 basis points over the second quarter fiscal 2018, as the Company continues to focus on profitable and stable growth.
The Company has announced several significant Wireline enhancements related to its broadband service. In late November, Shaw doubled Internet speeds of its top residential tiers, and more recently, introduced a new brand platform to support the launch of additional broadband services - Shaw BlueCurve - which launched on April 4.
Shaw BlueCurve is a simple and powerful new technology that gives customers more coverage and greater control over their home Wi-Fi experience while helping redefine their relationship with in-home connected devices. The BlueCurve Home app is the latest innovative in-home consumer product that Shaw has brought to market through its partnership with Comcast, and is available with Shaw's BlueCurve Gateway modem - the hub of customers' in-home content and connectivity experience. Shaw BlueCurve Pods expand in-home coverage by creating a mesh Wi-Fi network that reduces the challenges of Wi-Fi dead spots. Shaw BlueCurve Pods are easily self-installed, plug directly into indoor electrical outlets, and can be easily moved to meet customers' distinct coverage needs.
Mr. Shaw continued, "We are capitalizing on the network investments that we have made, and continue to make, in pursuit of providing customers with a superior connectivity experience. The broadband technology that we offer completely changes the conversation with our customers from just speed - to speed, coverage and control. Through this enhanced customer experience, we can more effectively differentiate ourselves from the competition, while building upon our journey to a modern Shaw."
In addition to the improved residential broadband services, Shaw Business customers will also benefit from speed increases that are now available on eligible Business Internet and SmartWiFi 150 and 300 plans moving to 300Mbps and 600Mbps, respectively. In March, Shaw Business also announced the launch of gigabit download speeds for customers that need to keep up with the demands of their growing business.
Selected Financial Highlights
Fiscal 2019 and restated fiscal 2018 results are reported in accordance with IFRS 15. Supplementary information is provided in the accompanying Management's Discussion and Analysis ("MD&A"), under the heading "Accounting Standards," which discusses our previous revenue recognition policies and the changes on adoption of the new standard.
- Fiscal 2018 reported figures have been restated applying IFRS 15 and also reflect a change in accounting policy related to the treatment of digital cable terminals ("DCTs") to record as property, plant and equipment where under the previous policy DCTs were initially recorded as inventory upon acquisition. See "Accounting Standards" in the accompanying MD&A.
- See definitions and discussion under "Non-IFRS and additional GAAP measures" in the accompanying MD&A.
In the quarter, the Company added approximately 47,800 net Wireless RGUs, consisting of 64,700 postpaid additions and 16,900 prepaid losses. The continued increase in the postpaid subscriber base reflects customer demand for premium smartphones combined with affordable device pricing and packaging options. The decrease in the prepaid customer base reflects migrations to higher value postpaid plans as well as an increasingly competitive environment targeting the prepaid segment.
Wireless service revenue for the three-month period increased by 26% to $169 million over the comparable period in fiscal 2018 due to the growing penetration of Big Gig data plans. Wireless equipment revenue decreased by 40% to $78 million as the comparable period included record subscriber performance, the majority of whom purchased a device through Freedom Mobile. Second quarter ABPU grew approximately 7.5% year-over-year to $41.34 reflecting the increased number of customers that are subscribing to higher service plans and purchasing a device through Freedom Mobile.
Wireless operating income before restructuring costs and amortization of $52 million improved 189% year-over-year due primarily to increased service revenue and a more significant impact in the second quarter of fiscal 2018 related to the impact of the accounting treatment of handset discounts under IFRS 15.
Wireline RGUs declined by approximately 44,600 in the quarter compared to a loss of approximately 25,600 in the second quarter of fiscal 2018. The current quarter includes growth in Consumer Internet RGUs of approximately 11,100 whereas the mature products within the Consumer division, including Video, Satellite and Phone declined in aggregate by 59,500 RGUs. The Company remains focused on growing broadband subscribers and on attracting and retaining high quality video subscribers which supports our consumer profitability objectives.
Second quarter Wireline revenue and operating income before restructuring costs and amortization of $1,071 million and $497 million increased by 0.5% and 6.9% year-over-year, respectively. Consumer revenue remained flat at $923 million compared to the prior year as contributions from rate adjustments and growth in Internet revenue were offset by declines in Video, Satellite and Phone subscribers and revenue. Business revenue increased 5.7% year-over-year to $148 million, reflecting continued demand for the SmartSuite of business products. Wireline results also include operating costs savings of approximately $27 million related to the VDP, favorable provision releases of approximately $5 million as well as lower marketing and other costs compared to the second quarter of fiscal 2018.
Capital expenditures in the second quarter of $279 million was comparable to a year ago. Wireline capital spending decreased by approximately $30 million primarily due to lower network investments. Wireless spending increased by approximately $28 million year-over-year due to continued deployment of 700 MHz spectrum and expansion of the wireless network into new markets.
Free cash flow for the quarter of $160 million compared to $124 million in the prior year. The increase for the quarter was largely due to higher operating income before restructuring costs and amortization, offset in part by higher cash taxes and lower dividends received from equity accounted associates.
Net income for the quarter of $155 million compared to a net loss of $175 million in the second quarter of fiscal 2018 driven primarily by an increase in operating income before restructuring costs and amortization and restructuring costs in the second quarter of fiscal 2018 in the amount of $417 million related to the Total Business Transformation ("TBT") initiative (primarily VDP).
In the second quarter of fiscal 2019, approximately 200 employees exited the Company, bringing the total number of employees who departed under the VDP to over 1,700 since the program commenced in March 2018. This led to operating cost savings of approximately $27 million and capital cost savings of approximately $6 million in the quarter. See also "Introduction," "Other Income and Expense Items," and "Caution Concerning Forward Looking Statements," in the accompanying 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 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 expected growth rate of 4% to 6% in consolidated operating income before restructuring costs and amortization is based on adjusted fiscal 2018 results that include the impact of IFRS 15. The Company's guidance includes assumptions related to cost savings that will be achieved through the TBT initiative (specifically the VDP savings) that are expected to amount to a combined $140 million 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.
Mr. Shaw concluded, "We have delivered solid financial performance in the first half of fiscal 2019 and while growth in the second half of the year will be tempered by reinvestments back into the business and more difficult year-over-year comparable results, I continue to believe we have many opportunities ahead that support our strategy of delivering long-term, sustainable growth. For the remainder of the year we will stay focused on our Wireless network expansion and subscriber growth through a more balanced approach to both the postpaid and prepaid segments of the wireless market and in our Wireline business we are committed to deliver consistent and stable results. Our growth drivers and the successful transition through VDP remain our top priorities as we progress through the remainder of fiscal 2019 and beyond."
- See definitions and discussion under "Non-IFRS and additional GAAP measures" in the accompanying MD&A.
- See definitions and discussion of ABPU, ARPU, RGUs and Wireless Postpaid Churn under "Key Performance Drivers" 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 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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Shaw Investor Relations