Shaw Announces Fourth Quarter and Full Year Fiscal 2017 Results
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 10/26/17 --
Shaw Communications Inc. (TSX: SJR.B)(TSX: SJR.PR.A)(TSX: SJR.PR.B)(NYSE: SJR)(TSX VENTURE: SJR.A) today announced its unaudited consolidated financial and operating results for the fourth quarter and year ended August 31, 2017. Revenue from continuing operations of $1.24 billion for the quarter and $4.88 billion for the year increased by 2.6% and 8.1%, respectively, over the comparable periods in fiscal 2016. Operating income before restructuring costs and amortization1 of $479 million for the fourth quarter and $2.0 billion for the year decreased 6.8% and increased 1.0%, respectively, over the comparable periods in fiscal 2016.
Chief Executive Officer, Brad Shaw said, "Looking back on fiscal 2017, we set out to change the trajectory of our Consumer subscriber performance and we are delighted with the results. We invested purposefully to enable this performance and all the while I am pleased to report that our full year financial results met our guidance commitments. We are in the early stages of our journey and I am excited with the progress we made in fiscal 2017. We are executing our strategic initiatives and in the year we continued to optimize our mix of core assets with the sale of ViaWest and the acquisition of 700 MHz and 2500 MHz spectrum licences in our core markets, which will enable a richer customer experience over time."
In Wireless, the Company continued to grow postpaid and prepaid wireless subscribers, gaining a combined 103,000 revenue generating units ("RGUs") in the year and 41,000 in the quarter. An expanded handset lineup, simplified packaging and pricing on the new LTE-Advanced network, and targeted seasonal promotional activity helped drive sequential and year-over-year subscriber growth. The LTE-Advanced network deployment is now complete.
Mr. Shaw continued, "We are very pleased with the trajectory and progress of our Wireless division. Revenues for the full year exceeded $600 million highlighted by a 16% year-over-year increase in the second half of fiscal 2017 and by consistent subscriber growth throughout the year. Today we announced another significant step forward as we deploy some of our recently acquired spectrum to give hundreds of thousands of customers access to increased LTE data speeds while making the vast majority of existing LTE devices compatible with Freedom Mobile''s LTE-Advanced network."
In its core Wireline business, Shaw successfully shifted to growth delivering a year-over-year turnaround in overall subscriber trends, including five consecutive quarters of robust net gains in Internet subscribers. The Consumer division added a net 25,000 RGUs in the year (21,000 in the quarter) representing a substantial turnaround over the 170,000 RGU loss in fiscal 2016. Net gains in the year included the addition of 73,000 Internet RGUs, partially offset by net losses in phone of 31,000 and 17,000 in satellite Video RGUs. Cable Video RGU performance also contributed heavily to the Consumer division''s overall RGU performance. Net positive cable Video adds in fiscal 2017 represented a significant improvement over the 93,000 of losses in fiscal 2016.
"Our successful reversal of subscriber trends has been led by WideOpen Internet 150 and compelling bundle and value plan offerings across our product lines. We have taken a segmented view of the market, and achieved our fair share of cable Video subscribers, supported by the launch of BlueSky TV," said Mr. Shaw.
WideOpen Internet 150 transformed the marketplace by offering significantly faster speeds at affordable prices, and is now available with the added benefit of unlimited data. BlueSky TV is a truly revolutionary viewing experience featuring "TV you can talk to" and most recently, Shaw introduced the integration of Netflix into BlueSky TV''s interface, a significant milestone in Shaw''s next generation Video roadmap. BlueSky TV customers who subscribe to Netflix can now watch Netflix content as easily as they watch live TV, and with BlueSky TV''s voice remote, they can access all of their favourite Netflix or live TV programming in one place.
Selected Financial Highlights
Shaw delivered full year financial results that met its revised guidance. Fiscal 2017 operating income before restructuring costs and amortization of $1,997 million, capital investments of $1,225 million and free cash flow of $438 million were all in line with revised guidance, after adjusting for the sale of ViaWest, Inc. that closed on August 1, 2017.
Operating income before restructuring costs and amortization for the three and twelve month periods of $479 million and $1,997 million, respectively, compared to $514 million and $1,978 million in fiscal 2016. Fiscal 2017 improved 1.0% over fiscal 2016 driven primarily by the Wireless division contributing $133 million over the twelve-month period as compared to $59 million in fiscal 2016 over the six-month period following the acquisition of Freedom Mobile (formerly, WIND Mobile) on March 1, 2016. The added contribution from Wireless was offset partially by reductions in operating income before restructuring costs and amortization from the Consumer division. In the fourth quarter of fiscal 2017, operating income before restructuring costs and amortization in the amount of $479 million was 6.8% lower than prior year. In keeping with our fiscal 2017 strategic objectives, the decline related primarily to an elevated level of promotional activity and marketing investments in our Consumer division, coupled with higher programming costs.
Free cash flow for the three and twelve month periods of $2 million and $438 million, respectively, compared to $9 million and $482 million in fiscal 2016. The annual decrease in free cash flow was largely due to higher planned capital expenditures and by the loss of free cash flow generated in the prior year by the former Media division which was sold on April 1, 2016, partially offset by lower cash taxes and higher dividends from equity accounted associates.
Net income for the three and twelve month periods of $481 million and $851 million, respectively, compared to $154 million and $1.24 billion in fiscal 2016. The increase in the quarter reflects a $330 million gain on the sale of ViaWest Inc. On a full year basis, net income was lower primarily due to higher net income from discontinued operations in fiscal 2016, including the gain on the sale of the former Media division, partially offset by higher non-operating gains in fiscal 2017.
Mr. Shaw continued, "Our focus as we embark on fiscal 2018 is to execute on and invest in our strategic agenda of building a best-in-class converged network, with particular focus in our key markets. This includes investing in enabling the recently acquired 700 MHz and 2500 MHz spectrum, leveraging the strength of our wireline infrastructure and continuing our targeted investments in fibre. In addition, our capital investments will support the continued evolution of our X1 product roadmap and enhanced back office capabilities. Regarding the fiscal 2018 operating plan, our focus reflects balanced growth in both operating income before restructuring costs and amortization, and subscribers. Further, we will continue the pursuit of securing ongoing operational efficiencies within our business."
Shaw is introducing 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 flow of approximately $375 million. We expect the majority of the growth in consolidated operating income before restructuring costs and amortization to occur in the back half of the fiscal year.
"As our customers spend more of their time in a digital environment, we are committed to meeting their demands and expectations for an always-on, seamless connectivity experience through the creation of a robust, best-in-class converged network. Our long-term growth-oriented strategy is built with our customers'' needs at the heart of every decision we make and every point of execution is designed to serve the future connectivity needs of Canadians. We have the financial resources and balance sheet strength to continue to purposefully invest with the view to delighting our customers and delivering value for all our stakeholders," Mr. Shaw said.
Mr. Shaw concluded, "We are focused on consistent and successful execution of our strategic plan. I would like to personally thank our 14,000 dedicated employees who have worked tirelessly to deliver an exceptional customer experience on our leading integrated network. Shaw''s business performance, coupled with the recent optimizing of our core asset mix, showcase an unwavering commitment to our growth strategy."
Shaw Communications Inc. is an enhanced connectivity provider. Our Consumer division serves consumers with broadband Internet, Shaw Go WiFi, Video and digital phone. Our Wireless division provides wireless voice and data services through an expanding and improving mobile wireless network infrastructure. The Business Network Services division provides business customers with Internet, data, WiFi, telephony, and Video services.
Shaw is traded on the Toronto and New York stock exchanges and is included in the S&P/TSX 60 Index (TSX: SJR.B)(TSX: SJR.PR.A)(TSX: SJR.PR.B)(NYSE: SJR)(TSX VENTURE: SJR.A). For more information, please visit
The accompanying Management''s Discussion and Analysis ("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.
Advisories
The following Management''s Discussion and Analysis ("MD&A"), dated October 26, 2017, should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes thereto for the quarter ended August 31, 2017 and the 2016 Annual Consolidated Financial Statements, the Notes thereto and related MD&A included in the Company''s 2016 Annual Report. The financial information presented herein has been prepared on the basis of International Financial Reporting Standards ("IFRS") for interim financial statements and is expressed in Canadian dollars unless otherwise indicated. References to "Shaw", the "Company", "we", "us" or "our" mean Shaw Communications Inc. and its subsidiaries and consolidated entities, unless the context otherwise requires.
Caution concerning forward-looking statements
Statements included in this MD&A that are not historic constitute "forward-looking statements" within the meaning of applicable securities laws. Such statements include, but are not limited to:
They can generally be identified by words such as "anticipate", "believe", "expect", "plan", "intend", "target", "goal" and similar expressions (although not all forward-looking statements contain such words). All of the forward-looking statements made in this report are qualified by these cautionary statements.
Forward-looking statements are based on assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances as of the current date. The Company''s management believes that its assumptions and analysis in this MD&A are reasonable and that the expectations reflected in the forward looking statements contained herein are also reasonable based on the information available on the date such statements are made and the process used to prepare the information. These assumptions, many of which are confidential, include but are not limited to:
You should not place undue reliance on any forward-looking statements. Many factors, including those not within the Company''s control, may cause the Company''s actual results to be materially different from the views expressed or implied by such forward-looking statements, including but not limited to:
The foregoing is not an exhaustive list of all possible factors.
Should one or more of these risks materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein.
The Company provides certain financial guidance for future performance as the Company believes that certain investors, analysts and others utilize this and other forward-looking information in order to assess the Company''s expected operational and financial performance and as an indicator of its ability to service debt and pay dividends to shareholders. The Company''s financial guidance may not be appropriate for this or other purposes.
Any forward-looking statement speaks only as of the date on which it was originally made and, except as required by law, the Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect any change in related assumptions, events, conditions or circumstances. All forward looking statements contained in this MD&A are expressly qualified by this statement.
Non-IFRS and additional GAAP measures
Certain measures in this MD&A do not have standard meanings prescribed by IFRS and are therefore considered non-IFRS measures. These measures are provided to enhance the reader''s overall understanding of our financial performance or current financial condition. They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures are not in accordance with, or an alternative to, IFRS and do not have standardized meanings. Therefore, they are unlikely to be comparable to similar measures presented by other entities.
Please refer to "Non-IFRS and additional GAAP measures" in this MD&A for a discussion and reconciliation of non-IFRS measures, including operating income before restructuring costs and amortization and free cash flow.
Introduction
Strategic update
Our focus is connecting customers to the world through a best-in-class seamless connectivity experience and delivering long term sustainable growth for our shareholders. We are in the early stages of our journey and thrilled with the progress we made in fiscal 2017. We are executing our strategic initiatives and in the year continued to optimize our mix of core assets with the sale of ViaWest, Inc. and the acquisition of 700 MHz and 2500 MHz spectrum licences in our core markets which will enable a richer customer experience over time. In fiscal 2017, we also set out to change the trajectory of our Consumer subscriber performance and achieved the desired results. We invested purposefully to enable this performance and all the while met our full year financial guidance commitments.
Fiscal 2017 performance
In Wireless, the Company continued to grow postpaid and prepaid wireless subscribers, gaining a combined 103,000 revenue generating units ("RGUs") in the year and 41,000 in the quarter. An expanded handset lineup, simplified packaging and pricing on the new LTE-Advanced network, and targeted seasonal promotional activity helped drive sequential and year-over-year subscriber growth. We continued to improve our network performance with the rollout of Freedom Mobile''s LTE-Advanced network to all our existing markets, on schedule and on budget, as of the end of fiscal 2017.
Furthermore, the deployment of Freedom Mobile''s recently acquired 2500 MHz spectrum and refarming of a portion of its existing AWS-1 spectrum will enhance its customers'' access to LTE data speeds. The work is already underway and expected to be completed through fiscal 2018. These network upgrades will make it easier for Canadians to bring their own devices to Freedom Mobile and enjoy the full benefit of our LTE -Advanced network. In particular, these enhancements will improve Freedom Mobile''s LTE-Advanced network performance, especially in dense urban areas.
In our Wireline business, we successfully shifted to growth delivering a year-over-year turnaround in overall subscriber trends, including five consecutive quarters of robust net gains in Internet subscribers. The Consumer division added a net 25,000 RGUs in the year (21,000 in the quarter) representing a substantial turnaround over the 170,000 RGU loss in fiscal 2016. Net positive cable Video adds in fiscal 2017 represented a significant improvement over the 93,000 of losses in fiscal 2016.
Looking ahead to fiscal 2018
Our focus as we embark on fiscal 2018 is to execute on and invest in our strategic agenda of building a best-in-class converged network, with particular focus in our key markets. This includes investing to enable the recently acquired 700MHz and 2500MHz spectrum, leveraging the strength of our wireline infrastructure and continuing our targeted investments in fibre. In addition, our capital investments will support the continued evolution of our X1 product roadmap and enhanced back office capabilities. Our fiscal 2018 operating plan reflects a focus on balanced growth in both operating income before restructuring costs and amortization, and subscribers. Further, we will continue the pursuit of securing ongoing operational efficiencies within our business.
As our customers spend more of their time in a digital environment, we are committed to meeting their demands and expectations for an always-on, seamless connectivity experience through the creation of a robust, best-in-class converged network. Our long-term growth-oriented strategy is built with our customers'' needs at the heart of every decision we make and every point of execution is designed to serve the future connectivity needs of Canadians. We have the financial resources and balance sheet strength to continue to purposefully invest with the view to delighting our customers and delivering value for all our stakeholders while maintaining our commitment to investment grade.
Shaw''s world-class converged network
Shaw''s wireline broadband network strategy provides flexibility, cost efficiency and a speed advantage that continues to support the success of its Internet offerings, including WideOpen Internet 150, the fastest widely available Internet speed provided in nearly every neighborhood across Shaw''s wireline footprint now available with the added benefit of unlimited data. The combination of the WideOpen Internet 150 offering with the tremendous value and pricing stability offered through value plans has had a positive impact on customer retention.
Shaw''s wireline and wireless network roadmap continued to progress in the year. At the end of fiscal 2017, DOCSIS 3.1 ready infrastructure was running in Shaw''s major systems. All remaining systems are expected to be running DOCSIS 3.1 ready infrastructure by the end of fiscal 2018. Our next generation mobile wireless network upgrade, LTE-Advanced, was completed in fiscal 2017 and available to customers in Ontario, Alberta and British Columbia. LTE-Advanced is the latest standard of cellular technologies available in the marketplace today.
Global technology leader
BlueSky TV is available everywhere Shaw offers cable Video. Western Canadians are now able to enjoy a revolutionary TV experience made possible by Shaw''s strategic partnership with Comcast. The Company''s partnerships with global technology leaders, such as Comcast, will allow it to continue to access leading-edge technology in the global communications industry.
The BlueSky TV experience is more than just a new guide and set-top-box, it is an elegant system that listens, learns and curates content to provide an exceptional viewing experience. Most recently, Shaw introduced the integration of Netflix into BlueSky TV''s interface, a significant milestone in Shaw''s next generation Video roadmap. Available only from Shaw, BlueSky TV customers who subscribe to Netflix can now watch Netflix content as easily as they watch live TV, and with BlueSky TV''s voice remote, they can access all of their favourite Netflix or live TV programming in one place.
We are optimistic that BlueSky TV combined with WideOpen 150 and flexible TV packages will provide a compelling reason for consumers to switch and stay with Shaw.
Selected financial and operational highlights
Basis of presentation
On August 1, 2017, the Company sold 100% of its wholly owned subsidiary ViaWest, Inc. ("ViaWest"), previously reported under the Business Infrastructure Services division, to an external party.
On May 31, 2017, the Company entered an agreement to sell a group of assets comprising the operations of Shaw Tracking, a fleet tracking operation reported within the Company''s Business Network Services ("BNS") segment, to an external party. The Company determined that the assets and liabilities of the Shaw Tracking business met the criteria to be classified as a disposal group held for sale for the period ended August 31, 2017. The transaction closed on September 15, 2017, subsequent to the reporting period.
On April 1, 2016, Shaw sold 100% of its wholly owned subsidiary Shaw Media Inc. to Corus Entertainment Inc.
Accordingly, the operating results and operating cash flows for the previously reported Business Infrastructure Services division, Shaw Tracking business (an operating segment within the Business Network Services divison) and Media division are presented as discontinued operations separate from the Company''s continuing operations. The Business Infrastructure Services division was comprised primarily of ViaWest. The remaining operations of the previously reported Business Infrastructure Services segment and their results are now included within the Business Network Services segment. This MD&A reflects the results of continuing operations, unless otherwise noted.
Financial Highlights
Subscriber (or revenue generating unit ("RGU")) highlights
In the quarter, the Company continued its momentum of improving subscriber trends with consolidated RGU net gains of 66,366 and 136,281 for the full fiscal year highlighted by a second consecutive quarter of cable Video RGU growth and a year-over-year turnaround in overall RGU trends, including five consecutive quarters of robust net gains in Internet RGUs.
Shaw successfully shifted its core wireline business to growth. The Consumer division added a net 25,321 RGUs in the year representing a substantial turnaround over the 170,032 RGU loss in fiscal 2016. Net gains in the year included the addition of 73,367 Internet RGUs partially offset by net losses in phone of 31,232 and 17,032 in satellite Video RGUs.
In the quarter, the Consumer division added 21,794 RGUs as compared to the 37,104 RGU loss in the fourth quarter of fiscal 2016. Net gains in the quarter included the addition of 22,045 Internet RGUs, 7,567 cable Video RGUs partially offset by net losses in phone of 4,535 and 3,283 in satellite Video RGUs. The successful reversal of subscriber trends has been led by WideOpen Internet 150, our Video portfolio led by BlueSky TV, and compelling bundle and value plan offerings across all product lines.
In Wireless, the Company continued to grow postpaid and prepaid wireless subscribers, gaining a combined 103,885 RGUs in the year and 41,014 in the quarter. An expanded handset lineup, simplified packaging and pricing on the new LTE-Advanced network, and targeted seasonal promotional activity helped drive sequential and year-over-year subscriber growth while collectively contributing to the compelling value proposition of Freedom Mobile''s offering to thousands of value-conscious Canadians.
Overview
Shaw delivered full year fiscal 2017 financial results that met its revised guidance. Operating income before restructuring costs and amortization of $1,997 million in fiscal 2017 was within the target range of $1,989 - $2,014 million after adjusting for discontinued operations ($2,135 - $2,160 million before adjustments for discontinued operations). Capital investments, adjusted to exclude capital investments from discontinued operations, of $1,225 million were in line with revised guidance of $1,236 million ($1,350 million before adjustments for discontinued operations) and free cash flow of $438 million exceeded the target of $400 million. For further discussion of divisional performance see "Discussion of operations."
Highlights of the fourth quarter and fiscal 2017 financial results are as follows:
Revenue
Revenue for the fourth quarter of $1.24 billion increased $32 million or 2.6% from $1.21 billion for the fourth quarter of 2016, highlighted by the following:
Compared to the third quarter of fiscal 2017, consolidated revenue for the quarter increased 2.3% or by $28 million. The increase in revenue over the prior quarter relates primarily to growth in the Wireless division driven by higher handset sales, added RGUs and slightly higher ARPU.
Revenue for the twelve-month period of $4.88 billion increased $364 million or 8.1% from $4.52 billion for the comparable period in fiscal 2016, highlighted by the following:
Operating income before restructuring costs and amortization
Fourth quarter operating income before restructuring costs and amortization of $479 million decreased by $35 million or 6.8% from $514 million for the fourth quarter of 2016, highlighted by the following:
Compared to the third quarter of fiscal 2017, operating income before restructuring costs and amortization for the current quarter was down $32 million or 6.3% driven by decreases in the Consumer division, the result of higher programming costs, planned marketing investments, and in the Wireless division, commercial costs associated with onboarding new subscribers.
For the twelve-month period, operating income before restructuring costs and amortization of $2.0 billion increased $19 million or 1.0% from $1.98 billion for the comparable period, highlighted by the following:
Free cash flow
Free cash flow in the quarter of $2 million decreased $7 million from $9 million in the fourth quarter of 2016, highlighted by the following:
For the twelve-month period, free cash flow of $438 million decreased $44 million from $482 million in fiscal 2016, highlighted by the following:
Net income
Net income of $481 million and $851 million for the three and twelve months ended August 31, 2017, respectively, compared to $154 million and $1.24 billion for the same periods in fiscal 2016. The changes in net income are outlined in the following table.
Change in net other costs and revenue in the fourth quarter had a $9 million favourable impact on net income compared to the third quarter of fiscal 2017 primarily due to the impact of realized and unrealized foreign exchange gains.
Change in net other costs and revenue in the fourth quarter had a $44 million favourable impact on net income compared to the fourth quarter of fiscal 2016 primarily due to a decrease in year-over-year non-operating costs including the following: i) prior year write-down of assets of $9 million, ii) prior year loss of $5 million on disposal of a private portfolio investment, and iii) prior year write-down of $4 million in respect of a private portfolio investment. Also, in the current quarter, the company recorded a $10 million provision reversal related to the wind down of shomi and a $11 million gain on foreign exchange.
Outlook
Shaw''s focus in fiscal 2018 is to execute on and invest in its strategic agenda of building a best-in-class converged network, with particular focus in its key markets. This includes investing to enable the recently acquired 700MHz and 2500MHz spectrum, leveraging the strength of its wireline infrastructure and continue its targeted investments in fibre. In addition, Shaw''s capital investments will support the continued evolution of the X1 product roadmap and enhanced back office capabilities. The Company''s fiscal 2018 operating plan reflects a focus on balanced growth in both operating income before restructuring costs and amortization and subscribers while continuing the pursuit of securing ongoing operational efficiencies within the business.
Shaw is introducing 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 flow of approximately $375 million. The majority of the growth in consolidated operating income before restructuring costs and amortization is expected to occur in the back half of the fiscal year.
See "Caution concerning forward-looking statements."
Non-IFRS and additional GAAP measures
The Company''s continuous disclosure documents may provide discussion and analysis of non-IFRS financial measures. These financial measures do not have standard definitions prescribed by IFRS and therefore may not be comparable to similar measures disclosed by other companies. The Company''s continuous disclosure documents may also provide discussion and analysis of additional GAAP measures. Additional GAAP measures include line items, headings, and sub-totals included in the financial statements.
The Company utilizes these measures in making operating decisions and assessing its performance. Certain investors, analysts and others utilize these measures in assessing the Company''s operational and financial performance and as an indicator of its ability to service debt and return cash to shareholders. The non-IFRS financial measures and additional GAAP measures have not been presented as an alternative to net income or any other measure of performance required by IFRS.
Below is a discussion of the non-IFRS financial measures and additional GAAP measures used by the Company and provides a reconciliation to the nearest IFRS measure or provides a reference to such reconciliation.
Operating income before restructuring costs and amortization
Operating income before restructuring costs and amortization is calculated as revenue less operating, general and administrative expenses. It is intended to indicate the Company''s ongoing ability to service and/or incur debt, and is therefore calculated before one-time items such as restructuring costs, amortization (a non-cash expense) and interest. Operating income before restructuring costs and amortization is also one of the measures used by the investing community to value the business.
Operating margin
Operating margin is calculated by dividing operating income before restructuring costs and amortization by revenue.
Income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items
Income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items is calculated as revenue less operating, general and administrative expenses from discontinued operations. This measure is used in the determination of free cash flow.
Free cash flow
The Company utilizes this measure to assess the Company''s ability to repay debt and pay dividends to shareholders. Free cash flow is calculated as free cash flow from continuing operations and free cash flow from discontinued operations.
Free cash flow from continuing operations is comprised of operating income before restructuring costs and amortization adding dividends from equity accounted associates, changes in receivable related balances with respect to customer equipment financing transactions as a cash item and deducting capital expenditures (on an accrual basis and net of proceeds on capital dispositions) and equipment costs (net), interest, cash taxes paid or payable, dividends paid on the preferred shares, recurring cash funding of pension amounts net of pension expense and adjusted to exclude share-based compensation expense.
Free cash flow from continuing operations has not been reported on a segmented basis. Certain components of free cash flow from continuing operations, including operating income before restructuring costs and amortization continue to be reported on a segmented basis. Capital expenditures and equipment costs (net) are reported on a combined basis for Consumer and Business Network Services due to the common infrastructure and separately for Wireless. Other items, including interest and cash taxes, are not generally directly attributable to a segment, and are reported on a consolidated basis.
Free cash flow from discontinued operations is comprised of income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items after deducting capital expenditures (on an accrual basis and net of proceeds on capital dispositions), interest, cash taxes paid or payable, program rights amortization on assets held for sale, cash amounts associated with funding CRTC benefit obligations related to media acquisitions, recurring cash funding of pension amounts net of pension expense and excludes non-controlling interest amounts that are included in the income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items.
Free cash flow is calculated as follows:
Discussion of operations
Consumer
Consumer RGUs in the fourth quarter increased by 21,794, a substantial improvement over the 37,104 RGU loss in the fourth quarter of fiscal 2016. The successful reversal of subscriber trends has been led by WideOpen Internet 150, our cable Video portfolio led by BlueSky TV, and compelling bundle and value plan offerings across all product lines.
Revenue highlights include:
Operating income before restructuring costs and amortization highlights include:
Business Network Services
Revenue highlights include:
Operating income before restructuring costs and amortization highlights include:
Wireless
The Wireless division added 41,014 RGUs in the quarter as compared to 39,800 RGUs gained in the fourth quarter of fiscal 2016. The continued trend of robust RGU growth was driven by an expanded handset lineup, simplified packaging and pricing on the new LTE-Advanced network, and targeted seasonal promotional activity
Revenue highlights include:
Operating income before restructuring costs and amortization highlights include:
Capital expenditures and equipment costs
Fourth quarter capital investment was $398 million, a $61 million or 18.1% increase over the comparable period, driven by an incremental $22 million in network infrastructure and broadband capacity expansion expenditures, $14 million in success based customer equipment, $9 million in growth and upgrade equipment related to residential and business customer acquisition and $9 million in the Wireless division''s LTE-Advanced network expansion.
Consumer and Business Network Services highlights include:
Wireless highlights include:
Discontinued operations
ViaWest, Inc.
On August 1, 2017, Shaw sold 100% of its wholly owned subsidiary ViaWest, Inc to an external party for net cash proceeds of $1.90 billion (US$1.53 billion net of transaction costs and other closing adjustments). Accordingly, the operating results and operating cash flows for the previously reported Business Infrastructure Services segment relating to ViaWest are presented as discontinued operations separate from the Company''s continuing operations. The remaining operations of the previously reported Business Infrastructure Services segment and their results are now included within the Business Network Services segment.
Shaw Tracking
On May 31, 2017, the Company entered an agreement to sell a group of assets comprising the operations of Shaw Tracking, a fleet tracking operation reported within the Company''s Business Network Services segment. The Company determined that the assets and liabilities of the Shaw Tracking business met the criteria to be classified as a disposal group held for sale. Accordingly, the assets and liabilities of the Shaw Tracking business are classified in the consolidated statement of financial position at August 31, 2017 as current assets held for sale or current liabilities held for sale, respectively, as the sale of these assets and liabilities is expected to be completed within one year. In addition, the operating results and operating cash flows of the business are presented as discontinued operations separate from the Company''s continuing operations. The transaction closed on September 15, 2017, subsequent to year end.
Shaw Media
On April 1, 2016, Shaw sold 100% of its wholly owned subsidiary Shaw Media Inc. to Corus, a related party subject to common voting control for $2.65 billion, comprised of $1.85 billion in cash and 71,364,853 Corus Class B non-voting participating shares. Accordingly, the operating results and operating cash flows for the previously reported Media division are presented as discontinued operations separate from the Company''s continuing operations.
Supplementary quarterly financial information
In the fourth quarter of fiscal 2017, net income increased $348 million compared to the third quarter of fiscal 2017 mainly due to the gain on divestiture, net of tax, of ViaWest, and lower current quarter restructuring costs. The increase was partially offset by a decrease in operating income before restructuring costs and amortization, higher amortization, lower equity income from our investment in Corus and higher income taxes. See "Other income and expense items" for further detail on non-operating items.
In the third quarter of fiscal 2017, net income decreased $14 million compared to the second quarter of fiscal 2017 mainly due to current quarter restructuring costs and losses on discontinued operations, net of tax, as well as increased amortization. The decrease was partially offset by an increase in operating income before restructuring costs and amortization and lower income taxes. Net other costs and revenue changed primarily due to a $16 million increase in income from an equity accounted associate and a $15 million provision reversal related to the wind down of shomi in the quarter.
In the second quarter of fiscal 2017, net income increased $57 million compared to the first quarter of fiscal 2017 mainly due to a non-recurring provision related to the wind down of shomi operations recorded in the first quarter, partially offset by an increase in amortization and income taxes. Also contributing to the increased net income were lower restructuring costs, partially offset by lower equity income from our investment in Corus. Net other costs and revenue changed primarily due to a provision of $107 million recorded in the prior quarter relating to shomi operations partially offset by a $17 million decrease in income from an equity accounted associate in the quarter.
In the first quarter of fiscal 2017, net income decreased $64 million compared to the fourth quarter of fiscal 2016 mainly due to a non-recurring provision related to the wind down of shomi operations included in net other costs and revenue for the current quarter. Also contributing to the decreased net income was lower operating income before restructuring costs and amortization, higher restructuring charges and lower income from discontinued operations, partially offset by lower income taxes. Net other costs and revenue changed primarily due to a $107 million impairment of the Company''s joint venture investment in shomi and a $27 million increase in income from an equity accounted associate in the quarter.
In the fourth quarter of fiscal 2016 net income decreased $550 million compared to the third quarter of fiscal 2016 mainly due to lower income from discontinued operations, net of tax, relating primarily to the gain on the divestiture of the former Media division recorded in the third quarter, decreased operating income before restructuring costs and amortization, and higher income taxes. Partly offsetting the decrease in net income were decreases in net other costs and revenue and restructuring costs. Net other costs and revenue changed primarily due to non-recurring charges recorded in the third quarter, including a $54 million impairment of the Company''s joint venture investment in shomi, a $20 million write-down of a private portfolio investment, $12 million acquisition related costs and a $10 million loss from an equity accounted associate
Net income for the third quarter of fiscal 2016 increased $540 million compared to the second quarter of fiscal 2016 mainly due to higher income from discontinued operations, net of tax, relating primarily to the gain on the divestiture of the former Media division, increased operating income before restructuring costs and amortization and lower income taxes. Partly offsetting the net income improvement in the quarter were: i) decreased net other costs and revenue; ii) increased restructuring charges; and iii) increased amortization. Net other costs and revenue changed primarily due to a $54 million impairment of the Company''s shomi joint venture investment, a $20 million write-down of a private portfolio investment and a $10 million loss from an equity accounted associate.
In the second quarter of fiscal 2016, net income decreased $54 million compared to the first quarter of fiscal 2016 mainly due to decreased income from discontinued operations, net of tax, of $30 million, primarily due to the seasonality of the Media business reflected in income from discontinued operations, net of tax, and net other costs and revenue of $13 million. Net other costs and revenue changed primarily due to an additional $8 million of costs recorded in the quarter related to the acquisition of Freedom Mobile (formerly, WIND Mobile).
In the first quarter of fiscal 2016, net income decreased $58 million compared to the fourth quarter of 2015 mainly due to a change in net other costs and revenues of $140 million and decrease in operating income before restructuring costs and amortization of $17 million offset by an increase in income from discontinued operations, net of tax, of $47 million and a decrease in income taxes of $50 million. Net other costs and revenue changed primarily due to a fourth quarter fiscal 2015 gain on the sale of wireless spectrum of $158 million less the impact of a $27 million write-down of a private portfolio investment in the same period offset by an increase in the equity loss of a joint venture interest in shomi of $5 million in the first quarter of fiscal 2016.
Other income and expense items
Amortization
Amortization of property, plant and equipment, intangibles and other increased 11.3% and 14.2% for the three and twelve months ended August 31, 2017, respectively, over the comparable periods due to amortization of new expenditures exceeding the amortization of assets that became fully amortized during the periods, and only six months of the Wireless division''s amortization included in the prior year subsequent to the acquisition of Freedom Mobile (formerly WIND Mobile) on March 1, 2016.
Amortization of financing costs and Interest expense
Interest expense for the three and twelve month periods ended August 31, 2017 was lower than the comparable periods due to lower average outstanding debt balances in the current year.
Equity income (loss) of an associate or joint venture
For the three and twelve month periods ended August 31, 2017 the Company recorded equity income of $11 million and $73 million, respectively, related to its interest in Corus, compared to equity losses of $nil million and $10 million for the comparable periods. In the comparable periods, the Company also recorded equity losses of $nil million and $51 million, respectively, related to its interest in shomi.
Other gains/losses
This category generally includes realized and unrealized foreign exchange gains and losses on U.S. dollar denominated current assets and liabilities, gains and losses on disposal of property, plant and equipment and minor investments, and the Company''s share of the operations of Burrard Landing Lot 2 Holdings Partnership. For the twelve months ended August 31, 2017, the category also includes a net $82 million provision in respect of the Company''s investment in shomi which announced a wind down of operations during the first quarter. In the comparable year, the category includes a write-down of $54 million in respect of the Company''s investment in shomi, a write-down of $20 million in respect of a private portfolio investment and asset write-downs of $16 million.
Income taxes
Income taxes are slightly higher in the current year mainly due to an increase in net income from continuing operations and the impact of other adjustments.
Financial position
Total assets were $14.4 billion at August 31, 2017. The following is a discussion of significant changes in the consolidated statement of financial position since August 31, 2016.
Current assets increased $242 million due to increases in cash of $102 million, accounts receivable of $18 million, inventories of $44 million, other current assets of $17 million and assets held for sale of $61 million. Cash increased as the cash outlay for financing activities was exceeded by the funds provided by operations and investing activities mainly relating to the ViaWest disposition. Inventories increased due to the acquisition of additional customer equipment to support the newly-launched BlueSky TV service. Other current assets increased due to the timing of payments related to prepaid expenses. Assets held for sale include the assets of the Shaw Tracking business which was completed subsequent to year end, on September 15, 2017.
Investments and other assets increased $84 million primarily due to equity income and other comprehensive income of associates related to the Company''s investment in Corus. Property, plant and equipment decreased $263 million due to the disposition of $491 million of ViaWest assets partially offset by capital investment in excess of amortization. Intangibles and goodwill decreased $1.1 billion due to the disposition of ViaWest assets of $1.4 billion and Shaw Tracking goodwill of $24 million reclassified as held for sale partially offset by spectrum additions of $430 million and net software intangible additions.
Current liabilities decreased $427 million during the year due to decreases in current portion of long-term debt of $410 million, accounts payable and accrued liabilities of $31 million and income taxes payable of $34 million, partially offset by increases of $13 million in current provisions and $39 million in liabilities held for sale. Current portion of long-term debt decreased due to the repayment of $400 million 5.7% senior note at maturity on March 2, 2017. Accounts payable and accruals decreased mainly due to the disposition of ViaWest partially offset by the timing of payment and fluctuations in various payables including capital expenditures and interest. Income taxes payable decreased due to tax installment payments, partially offset by the current period provision. Current provisions increased primarily due to unpaid amounts relating to network fees and higher asset retirement obligations.
Long-term debt decreased $902 million primarily due to the repayment of USD $846 million in bank loans related to the sale of ViaWest and the disposition of ViaWest partially offset by the issuance of $300 million fixed rate senior notes at a rate of 3.80% due March 1, 2027. The $300 million proceeds from the issuance of the fixed rate senior notes, together with cash on hand, was used to repay the $400 million senior note due on March 2, 2017.
Shareholders'' equity increased $456 million primarily due to an increase in share capital of $291 million and an increase in retained earnings of $256 million partially offset by an increase in accumulated other comprehensive loss of $79 million. Share capital increased due to the issuance of 10,523,349 Class B non-voting participating shares ("Class B Non-Voting Shares") under the Company''s option plan and Dividend Reinvestment Plan ("DRIP").
As at October 13, 2017, share capital is as reported at August 31, 2017 with the exception of the issuance of a total of 509,450 Class B Non-Voting Shares upon exercise of options under the Company''s stock option plan. Retained earnings decreased due to dividends of $397 million, partially offset by current year earnings of $851 million. Accumulated other comprehensive loss increased due to the net effect of reclassifying the accumulated exchange differences arising on the translation of ViaWest and U.S. dollar denominated debt designated as a hedge of the Company''s net investment in those foreign operations to net income due to the sale of ViaWest as well as re-measurements recorded on employee benefit plans partially offset by the Company''s share of other comprehensive income of associates.
Liquidity and capital resources
In the twelve-month period ended August 31, 2017, the Company generated $438 million of free cash flow, including $7 million of free cash flow from discontinued operations. Shaw used its free cash flow along with $1.9 billion net proceeds on the sale of ViaWest, $300 million proceeds from a senior note issuance, borrowings of $350 million under its credit facilities, borrowings of $40 million under ViaWest''s credit facility and proceeds on issuance of Class B Non-Voting Shares of $77 million to repay at maturity $400 million 5.7% senior notes, repay $824 million borrowings under its credit facilities, repay $588 million borrowings under ViaWest''s credit facilities, fund the net working capital change of $160 million, pay common share dividends of $385 million, make $180 million in financial investments, purchase $430 million in spectrum licences, and pay $54 million in restructuring costs.
As at August 31, 2017, the Company had $507 million of cash on hand and its $1.5 billion fully undrawn bank credit facility. On December 15, 2016, the Company amended the terms of this bank credit facility to extend the maturity date from December 2019 to December 2021. The facility is used for working capital and general corporate purposes.
The Company issued Class B Non-Voting Shares from treasury under its DRIP which resulted in cash savings and incremental Class B Non-Voting Shares of $198 million during the twelve months ending August 31, 2017. On December 16, 2016, the Company amended its DRIP to permit eligible shareholders who are residents of the United States to enroll their Class A Participating Shares and Class B Non-voting Participating Shares in the DRIP. Prior to this amendment, the DRIP was only available to eligible shareholders who were residents of Canada.
Shaw''s credit facilities are subject to customary covenants which include maintaining minimum or maximum financial ratios.
At August 31, 2017, Shaw is in compliance with these covenants and based on current business plans, the Company is not aware of any condition or event that would give rise to non-compliance with the covenants over the life of the borrowings.
Based on the aforementioned financing activities, available credit facilities and forecasted free cash flow, the Company expects to have sufficient liquidity to fund operations and obligations, including maturing debt, during the upcoming fiscal year. On a longer-term basis, Shaw expects to generate free cash flow and have borrowing capacity sufficient to finance foreseeable future business plans and refinance maturing debt.
Cash Flow from Operations
Operating Activities
For the three months ended August 31, 2017, funds flow from operating activities decreased over the comparable periods primarily due to a lower net change in non-cash balances related to operations, lower operating income of discontinued operations, and lower operating income before restructuring costs and amortization partially offset by lower income tax expense, lower write-downs of assets and investments and higher other revenue. For the twelve months ended August 31, 2017, funds flow from operating activities decreased over the comparable periods primarily due to a lower net change in non-cash balances related to operations, higher restructuring costs in the current year, higher income tax expense and lower operating income of discontinued operations partially offset by higher operating income before restructuring costs and amortization, higher equity income on investees and lower business acquisition costs. For the twelve month period, funds flow from operations also included the impact of lower pension funding during the current year. The net change in non-cash working capital balances related to operations fluctuated over the comparative periods due to changes in accounts receivable and other current asset balances and the timing of payment of current income taxes payable and accounts payable and accrued liabilities.
Investing Activities
The cash used in investing activities decreased over the comparable periods due primarily to the $1.9 billion in proceeds received on the sale of ViaWest partially offset by the $245 million net impact of the acquisition of Freedom Mobile (formerly, WIND Mobile) and sale of Media in the prior year, the purchase of $430 million in spectrum licences in the current year and higher cash outlays for inventory and capital expenditures in the current year. The twelve-month period also includes the $223 million acquisition of INetU in the prior year which was included as part of the sale of ViaWest in the current year.
Financing Activities
The changes in financing activities during the comparative periods were as follows:
Accounting standards
The MD&A included in the Company''s August 31, 2016 Annual Report outlined critical accounting policies, including key estimates and assumptions that management has made under these policies, and how they affect the amounts reported in the Consolidated Financial Statements. The MD&A also describes significant accounting policies where alternatives exist. The condensed interim consolidated financial statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements except as described below.
Standards and amendments to standards issued but not yet effective
The Company has not yet adopted certain standards and amendments that have been issued but are not yet effective. The following pronouncements are being assessed to determine their impact on the Company''s results and financial position.
Change in accounting policy
In November 2016, the IFRS Interpretations Committee ("the Committee") published a summary of its meeting discussion regarding a request to clarify how an entity determines the expected manner of recovery of an intangible asset with an indefinite useful life for the purposes of measuring deferred tax in accordance with IAS 12 Income Taxes. Although the Committee decided not to add this issue to its agenda, the Committee noted that an intangible asset with an indefinite useful life is not a non-depreciable asset because a non-depreciable asset has an unlimited (or infinite) life, and that indefinite does not mean infinite. Consequently, the fact that an entity does not amortize an intangible asset with an indefinite useful life does not necessarily mean that the entity will recover the carrying amount of that asset only through sale and not through use. As such, the Company changed retrospectively its accounting policy for the accounting of deferred tax on intangible assets with indefinite useful lives to be in line with the Committee discussions.
The following table summarizes the impact of this change of accounting policy on previously reported consolidated statements of financial position. The change of accounting policy did not have an impact on the previously reported consolidated statements of income or consolidated statements of cash flows.
Increase (decrease) to previously reported amounts:
Related Party Transactions
The Company''s transactions with related parties are discussed in its Management''s Discussion and Analysis for the year ended August 31, 2016 under "Related Party Transactions" and under Note 27 of the Consolidated Financial Statements of the Company for the year ended August 31, 2016. There has been no material change in the Company''s transactions with related parties between August 31, 2016 and August 31, 2017.
Financial Instruments
There has been no material change in the Company''s risk management practices with respect to financial instruments between August 31, 2016 and August 31, 2017. See "Known Events, Trends and Uncertainties - Interest Rates, Foreign Exchange Rates and Capital Markets" in the Company''s Management''s Discussion and Analysis for the year ended August 31, 2016 and the section entitled "Risk Management" under Note 28 of the Consolidated Financial Statements of the Company for the year ended August 31, 2016.
Risks and Uncertainties
The significant risks and uncertainties affecting the Company and its business are discussed in the Company''s August 31, 2016 Annual Report under "Known Events, Trends, Risks and Uncertainties" in Management''s Discussion and Analysis.
See accompanying notes.
See accompanying notes.
See accompanying notes.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
August 31, 2017 and 2016
(all amounts in millions of Canadian dollars, except share and per share amounts)
1. CORPORATE INFORMATION
Shaw Communications Inc. (the "Company") is a diversified Canadian connectivity company whose core operating business is providing: Cable telecommunications and Satellite Video services to residential customers ("Consumer"); data networking, Cable telecommunications, and Satellite Video services to businesses and public sector entities ("Business Network Services"); and wireless services for voice and data communications ("Wireless"). The Company''s shares are listed on the Toronto Stock Exchange ("TSX"), TSX Venture Exchange and New York Stock Exchange.
2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Statement of compliance
These condensed interim consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") and in compliance with International Accounting Standard ("IAS") 34 Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB").
The condensed interim consolidated financial statements of the Company for the three and twelve months ended August 31, 2017 were authorized for issue by the Board of Directors on October 25, 2017.
Basis of presentation
These condensed interim consolidated financial statements have been prepared primarily under the historical cost convention except as detailed in the significant accounting policies disclosed in the Company''s consolidated financial statements for the year ended August 31, 2016 and are expressed in millions of Canadian dollars unless otherwise indicated. The condensed interim consolidated statements of income are presented using the nature classification for expenses.
The notes presented in these condensed interim consolidated financial statements include only significant events and transactions occurring since the Company''s last fiscal year end and are not fully inclusive of all matters required to be disclosed by IFRS in the Company''s annual consolidated financial statements. As a result, these condensed interim consolidated financial statements should be read in conjunction with the Company''s consolidated financial statements for the year ended August 31, 2016.
The condensed interim consolidated financial statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements except as noted below.
Standards and amendments to standards issued but not yet effective
The Company has not yet adopted certain standards and amendments that have been issued but are not yet effective. The following pronouncements are being assessed to determine their impact on the Company''s results and financial position.
Discontinued operations
The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs when the disposal of a component or a group of components of the Company represents a strategic shift that will have a major impact on the Company''s operations and financial results, and where the operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
The results of discontinued operations are excluded from both continuing operations and business segment information in the interim consolidated financial statements and the notes to the interim consolidated financial statements, unless otherwise noted, and are presented net of tax in the statement of income for the current and comparative periods. Refer to Note 3 Discontinued Operations for further information regarding the Company''s discontinued operations.
Change in accounting policy
In November 2016, the IFRS Interpretations Committee ("the Committee") published a summary of its meeting discussion regarding a request to clarify how an entity determines the expected manner of recovery of an intangible asset with an indefinite useful life for the purposes of measuring deferred tax in accordance with IAS 12 Income Taxes. Although the Committee decided not to add this issue to its agenda, the Committee noted that an intangible asset with an indefinite useful life is not a non-depreciable asset because a non-depreciable asset has an unlimited (or infinite) life, and that indefinite does not mean infinite. Consequently, the fact that an entity does not amortize an intangible asset with an indefinite useful life does not necessarily mean that the entity will recover the carrying amount of that asset only through sale and not through use. As such, the Company changed retrospectively its accounting policy for the accounting of deferred tax on intangible assets with indefinite useful lives to be in line with the Committee discussions.
The following table summarizes the impact of this change of accounting policy on previously reported consolidated statements of financial position. The change of accounting policy did not have an impact on the previously reported consolidated statements of income or consolidated statements of cash flows.
3. DISCONTINUED OPERATIONS
ViaWest
In the fourth quarter of fiscal 2017, the Company announced it had entered into an agreement to sell 100% of its wholly owned subsidiary ViaWest, Inc. ("ViaWest") for proceeds of approximately USD $1.68 billion. Accordingly, the operating results and operating cash flows for the previously reported Business Infrastructure Services segment are presented as discontinued operations separate from the Company''s continuing op
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