Shaw Announces Fourth Quarter and Full Year Fiscal 2019 Results and Introduces Fiscal 2020 Financial Guidance
October 25, 2019
- Record Wireless net subscriber additions of 90,700 in the fourth quarter resulting in over 266,000 new customers during the year
- Wireless revenue exceeds $1 billion in fiscal 2019 and Wireless operating income before restructuring and amortization grows 45% year-over-year to over $205 million
- Continued growth in Broadband customers, including 11,400 Consumer Internet additions in the fourth quarter, and delivery of efficiency initiatives, lead to solid Wireline results for the year and a 90-basis point improvement in operating margin to 45.5%
- Adjusted fiscal 2019 results in line with guidance, including consolidated operating income before restructuring costs and amortization growth of 6.3% year-over-year and free cash flow of approximately $570 million
- Company releases fiscal 2020 guidance, including consolidated operating income before restructuring costs and amortization growth to range between 11% - 12%, capital investment of approximately $1.1 billion and free cash flow of approximately $700 million
Calgary, Alberta (October 25, 2019) – Shaw Communications Inc. (“Shaw” or the “Company”) announces consolidated financial and operating results for the quarter ended August 31, 2019, reported in accordance with the IFRS 15 accounting standard, Revenue from contracts with customers (IFRS 15). Consolidated revenue increased by 1.9% to $1.35 billion and operating income before restructuring costs and amortization decreased 3.4% year-over-year to $537 million.
Fiscal 2019 consolidated revenue increased by 3.0% to $5.35 billion and operating income before restructuring costs and amortization increased 5.1% year-over-year to $2.16 billion. Adjusting for certain items including the $15 million payment to address certain intellectual property (IP) licensing matters in the third quarter of fiscal 2019 and a $10 million charge related to CRTC regulatory matters in the fourth quarter, consolidated operating income before restructuring costs and amortization decreased 1.6% in the quarter and increased 6.3% for the full year.
“In all areas across our organization, we made significant progress in fiscal 2019. We have firmly established Freedom Mobile as the industry innovator and recognized champion of wireless affordability for Canadians. Through years of thoughtful and strategic capital investing, we have built a high quality, facilities-based wireless network that is capable of meeting the evolving needs of our customers and continuing to fuel Freedom’s momentum,” said Brad Shaw, Chief Executive Officer. “In our Wireline business, we have cemented our status as a technology leader with our BlueCurve and SmartSuite products. Throughout our digital transformation, we have made it easier to interact with our customers and to self-install our services. We also continue to work hard to streamline and simplify manual processes that improve the customer experience and day-to-day operations for our employees. This focus has played an instrumental role in executing our overall VDP program, which is approximately 70% complete as at the end of fiscal 2019.”
In the fourth quarter, Freedom Mobile delivered the strongest period of customer growth in company history, adding a record 90,700 new customers during the highly competitive back-to-school season. Subscriber momentum is attributable to the continued success of our Big Gig data plans, further complemented by the newly launched Big Gig Unlimited and Absolute Zero campaigns. Throughout the year, the Company continued to materially improve the customer network experience with the deployment of 700 MHz spectrum, with approximately 70% of the build complete in Western Canada, resulting in significant postpaid churn improvement of 22-basis points to 1.32% in fiscal 2019. In addition, Freedom Mobile launched 19 new wireless markets in Alberta, British Columbia and Ontario covering an additional population of 1.4 million Canadians.
In the Wireline segment, Consumer added approximately 35,000 Internet customers in fiscal 2019, including 11,400 net additions in the fourth quarter. The Company continues to expand its IPTV service, which is now available in approximately 70% of its footprint, and expects to complete the roll out over the next several months. Business segment revenue grew approximately 5% for the year to nearly $600 million primarily due to continued growth of SmartSuite services and the launch of new products in fiscal 2019. Effective August 1, 2019 Shaw Business sold its Calgary-1 data center and will continue to focus on growing its market share.
Mr. Shaw continued, “In an industry that remains competitive, with increasing regulatory uncertainty, we delivered solid fiscal 2019 results and improved execution. On an adjusted basis we achieved our targets for the year, including strong free cash flow, underpinning our overall strategy to deliver long term, sustainable growth.”
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 90,700 net Wireless RGUs, consisting of 75,900 postpaid and 14,800 prepaid additions. The increase in the postpaid subscriber base reflects the seasonally active back-to-school period and continued customer demand for our Big Gig data-centric pricing and packaging options. The increase in the prepaid customer base reflects the success of the new plans that were launched in early April.
Wireless service revenue for the three and twelve-month periods increased 19.1% and 24.3% respectively, to $187 million and $701 million over the comparable periods in fiscal 2018 due to an increased subscriber base and growing penetration of our Big Gig data plans. Wireless equipment revenue for the three and twelve-month periods increased 14.3% and 4.7% respectively, to $96 million and $353 million as more customers secure a device through Freedom Mobile. Fourth quarter ABPU grew approximately 3.9% year-over-year to $42.58 and ARPU grew 0.5% to $38.59 reflecting the back-to-school promotions, including Absolute Zero, and prepaid customer growth.
Fourth quarter Wireless operating income before restructuring costs and amortization of $54 million improved 38.5% year-over-year due primarily to increased service revenue. For the twelve-month period, Wireless operating income before restructuring costs and amortization increased 45.1% to $206 million.
Wireline RGUs declined by approximately 54,400 in the quarter compared to a loss of approximately 59,200 in the fourth quarter of fiscal 2018. The current quarter includes growth in Consumer Internet RGUs of approximately 11,400 whereas the mature products within the Consumer division, including Video, Satellite and Phone declined in the aggregate by 69,300 RGUs. The Company remains focused on growing Internet subscribers, primarily through two-year ValuePlans, and on attracting and retaining high quality Video subscribers which supports its Consumer profitability objectives.
Fourth quarter Wireline revenue and operating income before restructuring costs and amortization of $1,071 million and $483 million decreased 1.5% and 6.6%, respectively, year-over-year. Consumer revenue of $923 million decreased 2.0% 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 2.1% year-over-year to $148 million, reflecting continued demand for the SmartSuite of business products. Excluding the impact of the $10 million charge related to CRTC regulatory matters in the fourth quarter, Wireline operating income before restructuring costs and amortization decreased 4.6%.
For the twelve-month period, Wireline revenue of $4,300 million was comparable to the prior year and operating income before restructuring costs and amortization of $1,955 million increased 2.1% resulting in a Wireline operating margin of 45.5%, an improvement of 90-basis points over fiscal 2018. Excluding both the $15 million IP license payment to address certain IP licensing matters in the third quarter and the $10 million charge related to CRTC regulatory matters in the fourth quarter, full year Wireline operating income before restructuring costs and amortization increased 3.4% year-over-year.
Capital expenditures in the fourth quarter of $382 million compared to $433 million a year ago. Wireline capital spending decreased by approximately $96 million primarily due to lower network investments. Wireless spending increased by approximately $45 million year-over-year due to continued deployment of 700 MHz spectrum and expansion of the wireless network into new markets. Consolidated fiscal 2019 capital expenditures of $1,212 million decreased by $149 million compared to the previous year mainly due to a decrease of $191 million in Wireline partially offset by a $42 million increase in Wireless.
Free cash flow for the quarter of $45 million compared to $31 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. Free cash flow for fiscal 2019 of $545 million was $160 million higher than the prior year due to growth in operating income before restructuring costs and amortization and lower capital expenditures in fiscal 2019.
Net income for the fourth quarter of fiscal 2019 of $167 million compared to $196 million in the fourth quarter of fiscal 2018. The decrease of $29 million was primarily due to lower equity income associated with the investment in Corus and gains on the dispositions of certain assets in fiscal 2018 partially offset by a decrease in restructuring costs in fiscal 2019. Net income for fiscal 2019 of $738 million was $705 million higher than the prior year primarily due to the $446 million restructuring charge recorded in fiscal 2018 and a $137 million decrease in losses relating to the Company’s investment in Corus.
In the fourth quarter of fiscal 2019, approximately 300 employees exited the Company, bringing the total number of employees who departed under the Voluntary Departure Program (“VDP”) to approximately 2,300 since the program commenced in March 2018. In fiscal 2019, the Company achieved operating cost savings of approximately $98 million and capital cost savings of approximately $37 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 introducing its fiscal 2020 guidance which includes our preliminary estimate of the impact of IFRS 16, Leases (IFRS 16). Financial results for fiscal 2019 will not be restated with the impact of IFRS 16; however, we estimate that our operating income before restructuring costs and amortization for 2019 would have been approximately $155 million higher under IFRS 16 (approximately 55% attributable to Wireline and approximately 45% to Wireless). With the adoption of IFRS 16, our definition of free cash flow will be adjusted to remove the increase to operating income before restructuring costs and amortization attributable to IFRS 16 to ensure a consistent focus on free cash flow generation.
The Company’s guidance also includes assumptions related to cost savings that will be achieved through the TBT initiative (specifically VDP savings) and are expected to amount to a combined $200 million in fiscal 2020 (approximately $125 million attributable to operating expenses and $75 million attributable to capital expenditures) which is materially in line with the original estimate of $215 million. See also “Caution Concerning Forward Looking Statements” in the accompanying MD&A.
“As we continue to make progress on our transformation initiatives, we are improving the customer experience across both Wireline and Wireless and, at the same time, we are removing significant operating and capital expenses from the business. Our foundation is solid, and we will continue to drive growth across our Wireless, Broadband and Business segments which we believe will translate into long-term sustainable free cash flow growth. Fiscal 2020 represents a significant inflection point in our free cash profile, growing to an expected $700 million compared to $545 million in fiscal 2019 and $385 million in fiscal 2018, and a testament that the significant transformation undertaken in the past few years is yielding meaningful results that are flowing to the bottom line,” said Brad Shaw.
As at the end of fiscal 2019, leverage stood at 1.9x compared to its target leverage range of 2.0 to 2.5x. On October 1, 2019, the Company repaid $1.25 billion of maturing senior notes with cash on hand and has no debt maturities in the next 12 months. Considering the current leverage position along with strengthening free cash flow profile, Shaw is pleased to announce that it intends to implement a normal course issuer bid (“NCIB”) program to purchase up to 24,758,127 Class B Non-Voting Shares (“Class B Shares”) representing 5% of all of the issued and outstanding Class B Shares. The NCIB program has been approved by the Board of Directors but remains subject to approval by the Toronto Stock Exchange (“TSX”) and, if accepted, will be conducted in accordance with the applicable rules and policies of the TSX and applicable Canadian securities law.
In accordance with the terms of the Dividend Reinvestment Plan (“DRIP”), the Company is also announcing that, in lieu of issuing shares, it will satisfy its share delivery obligations under the DRIP by purchasing Class B Shares on the open market thus avoiding future equity dilution and creating synergies with the contemplated NCIB program. In addition, Shaw will reduce the DRIP discount from 2% to 0% for shares delivered under the DRIP. These changes to the DRIP will apply to the dividends payable on November 28, 2019 to shareholders of record on November 15, 2019.
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