Shaw Announces Third Quarter and Year-To-Date Fiscal 2019 Results
June 27, 2019
- Consolidated operating income before restructuring costs and amortization1 improved 3.8% year-over-year, excluding certain one-time adjustments
- Strong Wireless results with approximately 62,000 total net additions and record low postpaid churn as the Company deploys spectrum and network into new markets
- Acquired 600 MHz spectrum for a total price of $492 million, or $0.78 per MHz-Pop, including 30 MHz across each of British Columbia, Alberta and Southern Ontario as well as 20 MHz in Eastern Ontario, that will be used to improve existing LTE service and lay the foundation for 5G
- Completed the sale of 80.6 million Class B non-voting participating shares of Corus Entertainment Inc. for net proceeds of approximately $526 million
Calgary, Alberta (June 27, 2019) - Shaw Communications Inc. ("Shaw" or the "Company") announces consolidated financial and operating results for the quarter ended May 31, 2019, reported in accordance with the newly adopted IFRS 15 accounting standard, Revenue from contracts with customers (IFRS 15). Consolidated revenue increased by 2.7% to $1.32 billion compared to the third quarter in fiscal 2018 and operating income before restructuring costs and amortization decreased 1.5% year-over-year to $530 million. Excluding adjustments related to a $13 million retroactive roaming benefit in the third quarter of fiscal 2018 and a $15 million payment to address certain intellectual property (IP) licensing matters in the third quarter of fiscal 2019, consolidated operating income before restructuring costs and amortization increased 3.8% to $545 million in the quarter.
"Freedom Mobile maintained its strong momentum in the quarter, growing wireless subscribers and operating margin. We are reaching more Canadians with our affordable data-centric plans, expanded retail and consumer friendly practices, all of which are changing the competitive landscape. The deployment of low band spectrum is significantly enhancing the customer experience and consistently reducing churn. With our successful acquisition of 600 MHz spectrum across our entire wireless operating footprint, we can continue to improve our network experience and provide affordable options for our customers," said Brad Shaw, Chief Executive Officer.
Wireless results for the third quarter include postpaid net subscriber additions of approximately 61,000, and prepaid net additions of approximately 800. In April, the Company launched new prepaid service plans that are better aligned with current market offers to attract new subscribers and grow this customer segment. Third quarter prepaid subscriber results demonstrate the significant improvement from prepaid losses in both the prior year and prior quarter. The Company continues to focus on improving its customer experience through the deployment of 700 MHz spectrum, resulting in an 18-basis point reduction year-over-year in postpaid customer churn to a record low 1.18%.
Third quarter Wireline performance reflects improved Consumer Internet subscriber growth of approximately 6,600 RGUs, offset by continued Video and Phone RGU losses, resulting in stable year-over-year Consumer revenue. The Business division delivered consistent top-line growth with revenue increasing 6.4% in the quarter as the penetration of the SmartSuite of services continues to grow.
On April 4th, the Company unveiled Shaw BlueCurve, a technology that provides customers greater control over their home Wi-Fi experience through the BlueCurve Home app and Pods. The launch of Shaw BlueCurve technology is aligned with the Company's strategic initiative regarding a more agile, innovative, and customer-centric approach to modernizing all aspects of its operations, including a more efficient delivery of products and services. Building on the BlueCurve gateway modem, the Company launched IPTV in Calgary in May and will continue to make this service available to additional markets over the coming months.
During the quarter, we entered into a multi-year IP agreement with a large IP licensing company. With this agreement, we will gain broader access to next-generation video IP offerings across all our platforms. In conjunction with this agreement, we paid approximately $15 million to address certain licensing matters. Excluding the $15 million payment, Wireline operating income before restructuring costs and amortization increased 1.0% compared to the third quarter fiscal 2018 results.
"Our Wireline division is delivering solid and consistent financial and subscriber performance in fiscal 2019. We continue to improve Consumer broadband net additions through increased speeds and innovative new products. The launch of Shaw BlueCurve is the latest way in which we are delivering more value to our customers with speed, coverage and control. Our BlueCurve platform is the foundation on which we will continue to introduce more innovations and drive broadband growth," said Mr. Shaw.
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.
In the quarter, the Company added approximately 62,000 net Wireless RGUs, consisting of 61,300 postpaid and 800 prepaid additions. The continued increase in the postpaid subscriber base reflects customer demand for the Big Gig data-centric pricing and packaging options. The increase in the prepaid customer base reflects the new plans that were launched in the market in early April.
Wireless service revenue for the three-month period increased by 22% to $178 million over the comparable period in fiscal 2018 due to the growing penetration of Big Gig data plans. Wireless equipment revenue decreased by 9% to $73 million as a higher proportion of customers elected the Bring Your Own Device ("BYOD") option compared to the prior period. Third quarter ABPU grew approximately 6.2% year-over-year to $42.30 reflecting the increased number of customers that are subscribing to higher service plans and have purchased a device through Freedom Mobile. Wireless ARPU grew 2.2% to $38.36 reflecting the promotions in the market and increase in prepaid customers.
Wireless operating income before restructuring costs and amortization of $55 million improved 3.8% year-over-year. Excluding the $13 million benefit from retroactive roaming rates recognized in the third quarter of fiscal 2018, operating income before restructuring costs and amortization grew 38% due primarily to increased service revenue and improved efficiencies from additional scale.
Wireline RGUs declined by approximately 35,100 in the quarter compared to a loss of approximately 14,400 in the third quarter of fiscal 2018. The current quarter includes growth in Consumer Internet RGUs of approximately 6,600 whereas the mature products within the Consumer division, including Video, Satellite and Phone declined in the aggregate by 42,600 RGUs. The Company remains focused on growing broadband subscribers, primarily through two-year ValuePlans, and on attracting and retaining high quality video subscribers which supports its consumer profitability objectives.
Third quarter Wireline revenue and operating income before restructuring costs and amortization of $1,075 million and $475 million increased by 1.0% and decreased 2.1% year-over-year, respectively. Excluding the $15 million licensing payment, Wireline operating income before restructuring costs and amortization increased 1.0% to approximately $490 million. Consumer revenue remained flat at $925 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 6.4% year-over-year to $150 million, reflecting continued demand for the SmartSuite of business products.
Capital expenditures in the third quarter of $280 million compared to $308 million a year ago. Wireline capital spending decreased by approximately $47 million primarily due to lower network investments and success-based customer premise equipment. Wireless spending increased by approximately $19 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 $176 million compared to $167 million in the prior year. The increase was largely due to lower capital expenditures and lower cash taxes, offset in part by lower operating income before restructuring costs and amortization and lower dividends received from equity accounted associates.
Net income for the third quarter of fiscal 2019 of $229 million compared to a net loss of $99 million in the third quarter of fiscal 2018. The increase of $328 million was primarily due to a lower loss associated with the investment in Corus, a deferred tax benefit associated with the future reduction in Alberta's corporate tax rate announced in May 2019, and gains on the dispositions of certain real estate holdings and minor investments in fiscal 2019.
In the third quarter of fiscal 2019, approximately 350 employees exited the Company, bringing the total number of employees who departed under the Voluntary Departure Program ("VDP") to approximately 2,060 since the program commenced in March 2018. On a year-to-date basis, the Company has achieved operating cost savings of approximately $73 million and capital cost savings of approximately $25 million. See also "Introduction," "Other Income and Expense Items," and "Caution Concerning Forward Looking Statements," in the accompanying MD&A for a discussion of the Total Business Transformation ("TBT"), the VDP and the risks and assumptions associated therewith.
The Company is refining its fiscal 2019 guidance which excludes the $15 million payment to address certain IP licensing matters. It expects consolidated operating income before restructuring costs and amortization growth of approximately 6% over fiscal 2018; capital investments of approximately $1.2 billion; and free cash flow of approximately $550 million. The Company's guidance includes assumptions related to cost savings that will be achieved through the TBT initiative (specifically the VDP savings) that have also been refined and are expected to amount to a combined $135 million in fiscal 2019 which is materially in line with the $140 million original estimate. The savings during the fiscal year are now expected to be approximately $95 million attributed to operating expenses and approximately $40 million attributed to capital expenditures, which represents a minor shift from original guidance. See also "Caution Concerning Forward Looking Statements" in the accompanying MD&A.
Mr. Shaw concluded, "We continue to deliver results that are consistent with our overall plan for fiscal 2019. Through our unwavering focus on execution, we are growing our wireless and broadband customers, managing through the VDP exits and making the appropriate investments to capitalize on future growth. During the quarter, we also completed two significant transactions that are aligned with our strategic focus, including the purchase of 600 MHz spectrum and the sale of our Corus investment. Considering both of the transactions, our balance sheet continues to be strong with leverage at the low end of our target range."
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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