Shaw Communications Inc. (“Shaw” or the “Company”) announces
consolidated financial and operating results for the quarter ended
November 30, 2019, including the impact of adopting IFRS 16, Leases
(IFRS 16). Consolidated revenue increased by 2.1% to $1.38 billion
and adjusted EBITDA increased 8.1% year-over-year to
$588 million. Removing the $38 million impact from IFRS 16,
adjusted EBITDA growth was approximately 1.1%.
“We continue to demonstrate consistent execution
across our business units and remain focused on our growth segments
including Wireless, Business and Broadband,” said Brad Shaw, Chief
Executive Officer. “As the competitive landscape in wireless
continues to intensify and evolve, our positioning in the market
remains strong. Freedom Mobile’s reputation of providing high
quality and affordable wireless services, not just during the
highly competitive holiday period, but every day, resonates well
with customers and through the introduction of Freedom Home
Internet, we have reinforced our dual brand strategy that enables
us to effectively segment the broadband market.”
The Company continues to grow its wireless
subscriber base, which is now over 1.7 million customers, including
approximately 67,000 postpaid net additions in the first quarter,
along with solid year-over-year ABPU and ARPU growth of 4.5% and
1.0%, respectively. Postpaid churn increased marginally in the
quarter to 1.5% compared to a year ago as Freedom Mobile
successfully began the renewal of its initial iPhone cohort from
the Christmas period in 2017, a positive outcome given the
intensity of competitive offers heading into the holiday shopping
period. Wireless network investments to improve the customer
experience continue to be a priority, with deployment of 700 MHz
spectrum now substantially complete in Western Canada and scheduled
for completion in the remaining markets in Ontario throughout
fiscal 2020.
In the Wireline segment, Consumer Internet net
additions grew by approximately 5,600 and with the launch of
BlueCurve Total, which bundles BlueCurve Internet with BlueCurve
TV, Shaw delivered its best Consumer video subscriber result in
over two years. The roll-out of IPTV across its cable footprint is
76% complete and the number of customers electing to self-install
increased to over 48% in the quarter, supporting the digital
transformation initiatives and the lower cost to serve model. Shaw
Business continues to attract customers in the small, medium and
enterprise market, delivering top-line revenue growth of 3.6%
year-over-year to $143 million, or approximately 5% growth
excluding the effect of prior year revenue from the Calgary1 data
centre sold on August 1, 2019.
Selected Financial
Highlights
Fiscal 2020 results include the impact of
adopting IFRS 16 using the modified retrospective approach. Under
the modified retrospective approach, fiscal 2019 results have not
been restated and are not comparable to fiscal 2020 results.
Supplementary information is provided in the accompanying
Management’s Discussion and Analysis (“MD&A”), under the
heading “Accounting Standards,” which discusses the changes on
adoption of the new standard.
|
Three months ended November 30, |
(millions of Canadian dollars except per share amounts) |
2019 |
2018 |
Change % |
Revenue |
1,383 |
1,354 |
2.1 |
Adjusted EBITDA(1)(2) |
588 |
544 |
8.1 |
Adjusted EBITDA margin(1)(2) |
42.5% |
40.2% |
5.7 |
Free cash flow(1) |
183 |
163 |
12.3 |
Net income |
162 |
186 |
(12.9) |
Basic and diluted earnings per share |
0.31 |
0.36 |
|
(1) See
definitions and discussion under “Non-IFRS and additional GAAP
measures” in the accompanying MD&A. In conjunction with the
adoption of IFRS 16, the Company is amending its definition of
certain non-IFRS measures more fully discussed in its
MD&A. |
(2) Adjusted
EBITDA and Adjusted EBITDA margin for the 3 months ended November
30, 2019 reflect the adoption of IFRS 16 Leases. As permitted under
IFRS 16, we have not restated amounts for the three months ended
November 30, 2018. Free cash flow was not affected by the adoption
of IFRS 16. |
In the quarter, the Company added approximately
57,900 net Wireless RGUs, consisting of 66,900 net postpaid
additions and 9,000 net prepaid losses. The increase in the
postpaid subscriber base reflects continued customer demand for the
Big Gig data centric and Absolute Zero pricing and packaging
options. The decrease in the prepaid customer base reflects higher
churn due to increased competitive activity.
Wireless service revenue for the three-month
period increased 18.1% to $196 million over the comparable period
in fiscal 2019 due to an increased subscriber base and growing
penetration of Big Gig data plans. First quarter ABPU grew by
approximately 4.5% year-over-year to $43.60 and ARPU increased 1.0%
to $38.76, reflecting the increased number of wireless customers
subscribing to higher service plans. Wireless equipment revenue for
the three-month period increased 15.1% to $122 million as more
customers acquired devices through Freedom Mobile. First quarter
Wireless adjusted EBITDA of $71 million improved 61.4%
year-over-year, partially due to decreased operating expenses of
approximately $17 million resulting from the impact of adoption of
IFRS 16 and increased service revenue. Removing the accounting
impact, Wireless adjusted EBITDA increased approximately 23% over
the prior year.
Wireline RGUs declined by approximately 57,500
in the quarter compared to a loss of approximately 52,800 in the
first quarter of fiscal 2019. The current quarter includes growth
in Consumer Internet RGUs of approximately 5,600, which is
comparable to a year ago. While the mature products within the
Consumer division, including Video, Satellite and Phone declined in
the aggregate by 72,000 RGUs, Video RGU losses of approximately
14,000 in the first quarter improved from a loss of 23,800 in the
prior year due primarily to the introduction of BlueCurve Total.
Through the launch of BlueCurve Total and Freedom Home Internet,
the Company continues to improve its customer segmentation
initiatives and remains focused on growing Internet subscribers,
primarily through two-year ValuePlans, and on attracting and
retaining high quality Video subscribers.
First quarter Wireline revenue of $1,067 million
decreased 1.5% while adjusted EBITDA of $517 million increased 3.4%
year-over-year. Wireline adjusted EBITDA growth was due primarily
to decreased operating expenses of approximately $21 million
resulting from the impact of adoption of IFRS 16. Removing the
accounting impact, Wireline adjusted EBITDA was comparable to the
prior year. Consumer revenue of $924 million decreased 2.2%
compared to the prior year as growth in Internet revenue was offset
by declines in Video, Satellite and Phone subscribers and revenue.
Excluding the effect of our disposal of the Calgary1 Data Centre on
August 1, 2019, our Business revenue increased approximately 5%
year-over-year to $143 million, reflecting continued Internet
revenue growth and demand for the SmartSuite of business
products.
Capital expenditures in the first quarter of
$260 million compared to $271 million a year ago. Wireline
capital spending was comparable to the previous year, while
Wireless spending decreased by approximately $11 million
year-over-year due to timing of expenditures and higher costs
associated with the deployment of 700 MHz spectrum and expansion of
the wireless network into new markets in the previous year.
Free cash flow for the quarter of
$183 million compared to $163 million in the prior year.
The increase was largely due to lower capital expenditures and cash
taxes.
Net income for the first quarter of fiscal 2020
of $162 million compared to $186 million in the first
quarter of fiscal 2019. The decrease of $24 million was primarily
due to $23 million in equity income recorded in the first quarter
of fiscal 2019 attributable to the Company’s investment in Corus
Entertainment Inc. This investment was disposed of in the third
quarter of fiscal 2019. The adoption of IFRS 16 did not have a
significant impact on net income.
In the first quarter of fiscal 2020,
approximately 370 employees exited the Company, bringing the total
number of employees who departed under the Voluntary Departure
Program (“VDP”) to approximately 2,700, which represents
approximately 84% of the employees that accepted the VDP package.
The Company expects to complete the VDP in fiscal 2020 and remains
on track to achieve the anticipated annualized savings of $200
million (approximately $125 million attributable to operating
expenses and $75 million attributable to capital expenditures (i.e.
labour costs that can be identified or associated with a capital
project)) in fiscal 2020. 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 confirms that it remains on track to
meet its fiscal 2020 guidance as previously disclosed:
Consolidated |
Fiscal 2020 Guidanceas reported
1 |
Fiscal 2020 Guidanceexcluding IFRS
16 1 |
Adjusted EBITDA 2 |
11% to 12% |
4% to 5% |
Capital Expenditures 3 |
Approximately $1.1 billion |
Approximately $1.1 billion |
Free Cash Flow 4 |
Approximately $700 million |
Approximately $700 million |
- Fiscal 2020 guidance reflects our preliminary estimate of the
impact of the implementation of IFRS 16. While financial results
for fiscal 2019 will not be restated, our preliminary estimate is
that 2019 consolidated adjusted EBITDA would have increased by
approximately $155 million (approximately 55% attributable to
Wireline and 45% to Wireless) to $2,309 million. When applying the
estimated IFRS 16 impact to fiscal 2019, our fiscal 2020
consolidated adjusted EBITDA represents growth of 4% to 5% as
referenced in the table above.
- In conjunction with the adoption of IFRS 16, the Company
renamed the previously disclosed “Operating income before
restructuring costs and amortization” measure as “Adjusted EBITDA”
to better align with language used by various stakeholders of the
Company.
- Capital Expenditure guidance excludes expenditures for spectrum
licenses.
- In conjunction with the adoption of IFRS 16, the Company
amended its free cash flow definition to reflect the impact of IFRS
16 to account for lease payments that are no longer classified as
operating expenses under the new standard.
As at the end of November 30, 2019, leverage
stood at 2.5x, within its target leverage range of 2.5x to 3.0x,
which was recently updated to reflect the impact of the Company’s
adoption and the application of IFRS 16 in fiscal 2020 on its
balance sheet. On December 9, 2019, the Company closed its offering
of $800 million of senior notes comprised of $500 million principal
amount of 3.30% senior notes due 2029 and $300 million principal
amount of 4.25% senior notes due 2049. The net proceeds from the
offering were used to fund the redemption of the $500 million
principal amount of senior notes due December 7, 2020 and the $300
million principal amount of senior notes due February 19, 2021.The
redemption of both of these senior notes occurred on December 24,
2019. In the month of November, the Company repurchased 919,731
Class B Non-Voting Shares under its normal course issuer bid
(“NCIB”) program at an average price of $27.18 per share.
Mr. Shaw continued, “Our focus on the execution
of our strategy, including the stabilization of our Wireline
business and capitalizing on growth opportunities within our
Wireless and Shaw Business segments, has resulted in a solid start
in the first quarter and we remain on track to meet our fiscal 2020
commitments. In addition to our strong free cash flow profile and
balance sheet position, we repurchased approximately $25 million
worth of shares through our NCIB, our first buyback since 2011,
supporting our previously announced initiatives to return
additional capital to our shareholders.”
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.
For more information, please contact:Shaw
Investor Relations Investor.relations@sjrb.ca
__________________________________1. See definitions and
discussion under “Non-IFRS and additional GAAP measures” in the
accompanying MD&A.2. See definitions and discussion of ABPU,
ARPU, RGUs and Wireless Postpaid Churn under “Key Performance
Drivers” in the accompanying MD&A.
MANAGEMENT’S DISCUSSION AND ANALYSISFor
the three months ended November 30, 2019
January 13, 2020
Contents |
|
|
Introduction |
9 |
Selected financial and operational highlights |
12 |
Overview |
15 |
Outlook |
17 |
Non-IFRS and additional GAAP measures |
17 |
Discussion of operations |
20 |
Supplementary quarterly financial information |
23 |
Other income and expense items |
24 |
Financial position |
26 |
Liquidity and capital resources |
27 |
Accounting standards |
30 |
Related party transactions |
34 |
Financial instruments |
34 |
Internal controls and procedures |
35 |
Risks and uncertainties |
35 |
Government regulations and regulatory developments |
35 |
Advisories
The following Management’s Discussion and
Analysis (“MD&A”) of Shaw Communications Inc. is dated January
13, 2020 and should be read in conjunction with the unaudited
interim Consolidated Financial Statements and Notes thereto for the
quarter ended November 30, 2019 and the 2019 Annual Consolidated
Financial Statements, the Notes thereto and related MD&A
included in the Company’s 2019 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 information” within the
meaning of applicable securities laws. 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).
Forward looking statements in this MD&A include, but are not
limited to statements related to:
- future capital expenditures;
- proposed asset acquisitions and
dispositions;
- expected cost efficiencies;
- financial guidance and expectations
for future performance;
- business and technology strategies
and measures to implement strategies;
- expected growth in subscribers and
the products/services to which they subscribe;
- competitive strengths;
- expected project schedules,
regulatory timelines, completion/in-service dates for the Company’s
capital and other projects;
- the expected number of retail
outlets;
- the expected impact of new
accounting standards, recently adopted or expected to be adopted in
the future;
- the expected impact of government
regulations or regulatory developments on the Company’s business,
operations, and/or financial performance;
- timing of new product and service
launches;
- the deployment of: (i) network
infrastructure to improve capacity and coverage and (ii) new
technologies, including but not limited to next generation wireless
and wireline technologies such as 5G and IPTV, respectively;
- the expected growth in the
Company’s market share;
- the cost of acquiring and retaining
subscribers and deployment of new services;
- the total restructuring charges
(related primarily to severance and employee related costs as well
as additional costs directly associated with the Company’s Total
Business Transformation (“TBT”) initiative);
- the anticipated annual cost
reductions related to the Voluntary Departure Program (“VDP”)
(including reductions in operating and capital expenditures) and
the timing of realization thereof;
- the impact that employee exits will
have on Shaw’s business operations;
- the outcome of the TBT initiative,
including the timing thereof and the total savings at completion;
and
- the expansion and growth of the
Company’s business and operations and other goals and
plans.
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 management
expectations with respect to:
- general economic conditions;
- future interest rates;
- previous performance being
indicative of future performance;
- future income tax rates;
- future foreign exchange rates;
- technology deployment;
- future expectations and demands of
our customers;
- subscriber growth;
- incremental costs associated with
growth in Wireless handset sales;
- pricing, usage and churn
rates;
- availability of devices;
- content and equipment costs;
- the completion of proposed
transactions;
- industry structure, conditions and
stability;
- government regulation and
legislation (and its impact or projected impact on the Company’s
business);
- access to key suppliers and
third-party service providers required to execute on its current
and long term strategic initiatives on commercially reasonable
terms;
- retention of key employees;
- the Company being able to
successfully deploy: (i) network infrastructure required to improve
capacity and coverage and (ii) new technologies, including but not
limited to next generation wireless and wireline technologies such
as 5G and IPTV, respectively;
- the TBT initiative being completed
in a timely and cost-effective manner and yielding the expected
results and benefits, including: (i) resulting in a leaner, more
integrated and agile company with improved efficiencies and
execution to better meet Shaw’s consumers’ needs and expectations
(including the products and services offered to its customers) and
(ii) realizing the expected cost savings;
- the Company being able to complete
the employee exits pursuant to the VDP with minimal impact on
business operations within the anticipated timeframes and for the
budgeted amount;
- the cost estimates for any
outsourcing requirements and new roles in connection with the
VDP;
- the Company being able to gain
access to sufficient retail distribution channels;
- the Company being able to access
the spectrum resources required to execute on its current and long
term strategic initiatives; and
- the integration of
acquisitions.
You should not place undue reliance on any forward-looking
statements. Many risk 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:
- changes in general economic, market
and business conditions;
- changes in interest rates, income
taxes and exchange rates;
- changes in the competitive
environment in the markets in which the Company operates and from
the development of new markets for emerging technologies;
- changing industry trends,
technological developments, and other changing conditions in the
entertainment, information and communications industries;
- changes in laws, regulations and
decisions by regulators that affect the Company or the markets in
which it operates;
- technology, privacy, cyber security
and reputational risks;
- disruptions to service, including
due to network failure or disputes with key suppliers;
- the Company’s ability to execute
its strategic plans and complete capital and other projects by the
completion date;
- the Company’s ability to grow
subscribers;
- the Company’s ability to grow
market share;
- the Company’s ability to close any
transactions;
- the Company’s ability to have the
spectrum resources required to execute on its current and long-term
strategic initiatives;
- the Company’s ability to gain
sufficient access to retail distribution channels;
- the Company’s ability to access key
suppliers and third-party service providers required to execute on
its current and long-term strategic initiatives on commercially
reasonable terms;
- the Company’s ability to retain key
employees;
- the Company’s ability to achieve
cost efficiencies;
- the Company's ability to complete
the deployment of: (i) network infrastructure required to improve
capacity and coverage and (ii) new technologies, including but not
limited to next generation wireless and wireline technologies such
as 5G and IPTV, respectively;
- the Company’s ability to implement
the TBT initiative as planned and realize the anticipated benefits
therefrom, including: (i) TBT resulting in a leaner, more
integrated and agile company with improved efficiencies and
execution to better meet Shaw’s consumers’ needs and expectations
(including the products and services offered to its customers) and
(ii) the ability to realize the expected cost savings;
- the Company’s ability to complete
employee exits pursuant to the VDP with minimal impact on
operations;
- technology, privacy, cyber
security, and reputational risks;
- opportunities that may be presented
to and pursued by the Company;
- the Company’s ability to recognize
and adequately respond to climate change concerns or public and
governmental expectations on environmental matters;
- the Company’s status as a holding
company with separate operating subsidiaries; and
- other factors described in this
MD&A under the heading “Risks and Uncertainties” and in the
MD&A for the year ended August 31, 2019 under the heading
“Known events, Trends, Risks, and Uncertainties.”
The foregoing is not an exhaustive list of all
possible risk 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.
This MD&A provides certain future-oriented
financial information or financial outlook (as such terms are
defined in applicable securities laws), including the financial
guidance and assumptions disclosed under “Outlook,” and the
expected annualized savings to be realized from the VDP and the TBT
for fiscal 2020. Shaw discloses this information because it
believes that certain investors, analysts and others utilize this
and other forward-looking information to assess Shaw's expected
operational and financial performance, and as an indicator of its
ability to service debt and pay dividends to shareholders. The
Company cautions that such financial information 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.
Additional Information
Additional information concerning the Company,
including the Company’s Annual Information Form, is available
through the Internet on SEDAR which may be accessed at
www.sedar.com. Copies of such information may also be obtained on
the Company’s website at www.shaw.ca, or on request and without
charge from the Corporate Secretary of the Company, Suite 900,
630 – 3rd Avenue S.W., Calgary, Alberta, Canada T2P 4L4,
telephone (403) 750-4500.
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 adjusted EBITDA, free cash flow, and
the net debt leverage ratio.
Introduction
After undergoing a period of significant and
transformational change, our focus has shifted to driving
operational efficiency and executing on our strategic priorities
through the delivery of an exceptional customer experience and a
more agile operating model. Our strategic priorities include
growing our wireless and broadband customers, identifying
sustainable cost savings in our core Wireline business, and making
the appropriate investments to capitalize on future growth. In
fiscal 2019, we disposed of our entire equity investment in Corus
Entertainment Inc. (“Corus”) which further solidified our balance
sheet and allows us to continue our transformation into an agile,
lean and digital-first organization that is focused on providing a
seamless connectivity experience that meets the needs of its
customers now and into the future. With our successful acquisition
of 600 MHz spectrum across our wireless operating footprint, we can
continue to improve our LTE experience, provide affordable options
for our customers, and lay the foundation for 5G services.
Wireless
We made significant progress in our Wireless
business and 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 continue to expand and improve our facilities-based
wireless network that is capable of meeting the evolving needs of
our customers and continuing to fuel Freedom Mobile’s momentum. In
fiscal 2019, we launched 19 new wireless markets in Alberta,
British Columbia, and Ontario covering an additional population of
1.4 million. Our footprint now covers approximately 18 million
people in some of Canada’s largest urban centres, or almost half of
the Canadian population.
In the first quarter of fiscal 2020, Freedom
Mobile continued to grow its customer base, adding 67,000 new
postpaid customers. Freedom’s total wireless customer base has
increased to over 1.7 million customers and the positive 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 all of which continue to
attract high quality customers to Freedom Mobile. The growth and
retention of our subscriber base and financial performance reflect
the appeal of our differentiated value proposition. In addition,
our Wireless service is accessible to more Canadians through the
addition of national retail partners including Loblaws’ “The Mobile
Shop”, Walmart and Mobilinq. When combined with our existing
corporate and dealer store network, Freedom Mobile had over 700
locations distributing our products and services.
Supporting our Wireless revenue growth are the
significant investments in our network and customer service
capabilities. We are executing on our operating plan to improve our
network and deploy spectrum in the most efficient way. Since the
acquisition of Freedom Mobile, the Company continues to materially
improve the customer network experience with the deployment of our
Extended Range LTE, leveraging our 700 MHz spectrum, which provides
customers with improved in-building service and extends service at
the edge of the current coverage area. At the end of the first
quarter, the build is substantially complete in Western Canada,
with the remaining deployment of our 700 MHz spectrum expected to
continue throughout fiscal 2020. While the network improvements
have contributed to a trend of improving postpaid churn results,
the increased competitive activity, including the launch of
Unlimited and other aggressive offers in the market, have resulted
in postpaid churn of 1.5% in the first quarter of fiscal 2020,
which is a 22-basis point increase over the previous year but in
line with the fourth quarter of fiscal 2019 results.
The Company also continues to deploy small cell
technology (low-powered wireless transmitters and receivers with a
range of 100 meters to 200 meters), designed to provide network
coverage to smaller areas. As tall high-power macro towers keep the
network signal strong across large distances, small cells suit more
densely developed areas like city centres and popular venues by
providing LTE/voice-over-LTE (“VoLTE”) quality, speed, capacity and
coverage improvements in these high traffic areas. These network
investments support continued growth in our Wireless business by
significantly enhancing the customer experience while consistently
reducing churn and are the building blocks for emerging
technologies, such as 5G.
Wireline
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 84% complete as at the end of the first quarter of
fiscal 2020.
Our focus remains on the execution and delivery
of stable and profitable Wireline results. Through improved
customer segmentation, the Company remains focused on growing
Internet subscribers, primarily through two-year ValuePlans, and on
attracting and retaining high quality Video subscribers. In the
quarter, Shaw launched BlueCurve Total and Freedom Home Internet to
address various segments of the market.
Our team is modernizing several aspects of our
operations as we work to better meet the needs of today’s customer.
We are leveraging insights from data to help us better understand
customer preferences and provide them with the services they want,
including the Shaw BlueCurve Gateway (DOCSIS 3.1 modem), Home App,
and Pods. We are shifting customer interactions to digital
platforms and driving more self-help, self-install and
self-service. During the first quarter of fiscal 2020, over 48% of
customers elected to self-install their services.
Shaw BlueCurve is a simple and powerful new
technology that provides customers more coverage and greater
control over their home Wi-Fi experience while at the same time
helping redefine their relationship with in-home connected devices.
The BlueCurve Home App is the latest innovative product that Shaw
has introduced to market through its partnership with Comcast, and
it is available with Shaw’s BlueCurve Gateway modem – the hub of
our customers’ in-home content and connectivity experience. Shaw
BlueCurve Pods expand in-home coverage by creating a mesh Wi-Fi
network which blankets your home with wireless coverage and reduces
the challenges of Wi-Fi dead spots. In the first quarter of fiscal
2020, Shaw launched BlueCurve Total, bundling a premium Internet
and Video experience for high value customers.
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 continues to expand
this service, which is now available in approximately 76% of its
Western Canadian footprint. The Company expects to complete the
roll out over the next several months.
Due to these enhancements and our focus on
improving execution, our Consumer division added approximately
5,600 Internet customers in the first quarter of fiscal 2020 and
significantly improved video subscriber losses. As we continue on
our journey towards a modern Shaw, we are encouraged by the
progress we have made as we improve upon the fundamentals of our
Wireline business, further supporting the delivery of our broadband
strategy throughout fiscal 2020.
We are capitalizing on the network investments
that we have made, and continue to make, in pursuit of providing
customers with an enhanced connectivity experience. 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, through this enhanced customer
experience, we can more effectively differentiate ourselves from
the competition and drive broadband growth, while building upon our
journey to a modern Shaw.
Our Wireline Business division contributed solid
results, leveraging our SmartSuite products that deliver
enterprise-grade services to small and medium size businesses. Our
SmartSuite products can scale to larger businesses, giving us
opportunities to deliver services across Canada. Shaw Business
customers also benefit from speed increases from Business Internet
and SmartWiFi 150 and 300 plans moving to 300Mbps and 600Mbps,
respectively. Shaw Business also provides download speeds of up to
one gigabit, which will help customers keep up with the demands of
their growing businesses.
Effective August 1, 2019 Shaw Business sold its
Calgary-1 data center and will continue to focus on growing its
market share. As previously disclosed, beginning September 1, 2019
Wholesale Third Party Internet Access (“TPIA”) Services and
Broadcast Services, which were previously reported under Business
revenue, are now reported under Consumer.
Fiscal 2020
The year ahead represents a significant
inflection point in our free cash flow profile and a testament that
the significant transformation undertaken in the past few years is
yielding meaningful results. Our foundation is solid, and we will
continue to drive growth across our Wireless, Broadband and
Business segments which should translate into long-term sustainable
free cash flow growth.
Selected financial and operational
highlights
Basis of presentation
Fiscal 2020 results are reported in accordance
with the newly adopted IFRS 16, Leases (“IFRS 16”). Supplementary
information is provided in "Accounting Standards", reflecting the
previous leases policy and the changes from the adoption of the new
standard. The adoption of IFRS 16 had a significant effect on our
reported results. We adopted IFRS 16 using a modified retrospective
approach whereby the financial statements of prior periods
presented were not restated and continue to be reported under
International Accounting Standard (IAS) 17 – Leases, as permitted
by the specific transition provisions of IFRS 16. The cumulative
effect of the initial adoption of IFRS 16 was reflected as an
adjustment to the impacted balance sheet accounts as at September
1, 2019.
In conjunction with the adoption of IFRS 16, we
also updated certain of our non-IFRS and additional GAAP measures
including renaming the previously disclosed “Operating income
before restructuring costs and amortization” measure as “Adjusted
EBITDA” to better align with language used by various stakeholders
of the Company. We also amended our free cash flow definition to
reflect the impact of IFRS 16 to account for lease payments that
are no longer classified as operating expenses under the new
standard. See the definitions and discussion under “Non-IFRS and
additional GAAP measures” for more details.
Financial
Highlights |
|
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars except per share amounts) |
2019 |
2018 |
Change % |
Operations: |
|
|
|
Revenue |
1,383 |
1,354 |
2.1 |
Adjusted EBITDA(1)(2) |
588 |
544 |
8.1 |
Adjusted EBITDA margin(1)(2) |
42.5% |
40.2% |
5.7 |
Funds flow from continuing operations(3) |
450 |
438 |
2.7 |
Free cash flow(1) |
183 |
163 |
12.3 |
Net income(2) |
162 |
186 |
(12.9 |
Per share
data: |
|
|
|
Earnings per share |
|
|
|
Basic and diluted |
0.31 |
0.36 |
|
Weighted average participating shares for basic earnings per share
outstanding during period (millions) |
518 |
507 |
|
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures.” (2) Fiscal 2020
figures reflect the impact of the adoption and application of IFRS
16 while Fiscal 2019 figures do not. See “Accounting Standards.”
(3) Funds flow from operations is before changes in non-cash
balances related to operations as presented in the unaudited
interim Consolidated Statements of Cash Flows.
Key Performance Drivers
Shaw measures the success of its strategies
using a number of key performance drivers which are defined and
described under “Key Performance Drivers - Statistical Measures” in
the 2019 Annual MD&A and in this MD&A below, which includes
a discussion as to their relevance, definitions, calculation
methods and underlying assumptions. The following key
performance indicators are not measurements in accordance with
IFRS, should not be considered alternatives to revenue, net income
or any other measure of performance under IFRS and may not be
comparable to similar measures presented by other issuers.
Subscriber (or revenue generating unit
(“RGU”)) highlights |
|
|
|
|
|
|
|
|
Change |
|
|
|
Three months ended |
|
November 30,2019 |
August 31,2019 |
November 30,2019 |
November 30,2018 |
Wireline – Consumer |
|
|
|
|
Video – Cable |
1,464,423 |
1,478,371 |
(13,948 |
) |
(23,768 |
) |
Video – Satellite |
671,348 |
703,223 |
(31,875 |
) |
(28,893 |
) |
Internet |
1,917,351 |
1,911,703 |
5,648 |
|
5,606 |
|
Phone |
741,567 |
767,745 |
(26,178 |
) |
(15,957 |
) |
Total Consumer |
4,794,689 |
4,861,042 |
(66,353 |
) |
(63,012 |
) |
Wireline – Business |
|
|
|
|
Video – Cable |
43,465 |
41,843 |
1,622 |
|
(254 |
) |
Video – Satellite |
37,989 |
35,656 |
2,333 |
|
558 |
|
Internet |
174,380 |
173,686 |
694 |
|
1,248 |
|
Phone |
383,687 |
379,434 |
4,253 |
|
8,649 |
|
Total Business |
639,521 |
630,619 |
8,902 |
|
10,201 |
|
Total Wireline |
5,434,210 |
5,491,661 |
(57,451 |
) |
(52,811 |
) |
Wireless |
|
|
|
|
Postpaid |
1,380,693 |
1,313,828 |
66,865 |
|
86,067 |
|
Prepaid |
335,403 |
344,357 |
(8,954 |
) |
(20,452 |
) |
Total Wireless |
1,716,096 |
1,658,185 |
57,911 |
|
65,615 |
|
Total Subscribers |
7,150,306 |
7,149,846 |
460 |
|
12,804 |
|
In Wireless, the Company continued to add
subscribers, adding a net combined 57,911 postpaid and prepaid
subscribers in the quarter, consisting of 66,865 postpaid additions
offset by 8,954 prepaid losses. The increase in the postpaid
subscriber base reflects continued customer demand for the Big Gig
data centric and Absolute Zero pricing and packaging options. The
decrease in the prepaid customer base reflects higher churn due to
increased competitive activity.
Wireline RGUs declined by 57,451 in the quarter
compared to a loss of 52,811 RGUs in the first quarter of 2019. The
current quarter includes growth in Consumer Internet RGUs of 5,648
whereas the mature products within the Consumer division, including
Video, Satellite and Phone declined in the aggregate by 72,001
RGUs. Through improved customer segmentation, the Company remains
focused on growing Internet subscribers, primarily through two-year
ValuePlans, and on attracting and retaining high quality Video
subscribers.
Wireless Postpaid Churn
Wireless postpaid subscriber or RGU churn
(“postpaid churn”) measures success in retaining subscribers.
Wireless postpaid churn is a measure of the number of postpaid
subscribers that deactivated during a period as a percentage of the
average postpaid subscriber base during a period, calculated on a
monthly basis. It is calculated by dividing the number of Wireless
postpaid subscribers that deactivated (in a month) by the average
number of postpaid subscribers during the month. When used or
reported for a period greater than one month, postpaid churn
represents the sum of the number of subscribers deactivating for
each period incurred divided by the sum of the average number of
postpaid subscribers of each period incurred.
Postpaid churn of 1.50% in the first quarter of
fiscal 2020 compares to 1.28% in the first quarter of fiscal 2019
as a result of the aggressive competitive offers available in the
market during the quarter.
Wireless average billing per subscriber
unit (“ABPU”)
Wireless average billing per subscriber per
month (“ABPU”) is an industry metric that is useful in assessing
the operating performance of a wireless entity. We use ABPU as a
measure that approximates the average amount the Company invoices
an individual subscriber unit on a monthly basis. ABPU helps us to
identify trends and measures the Company’s success in attracting
and retaining higher lifetime value subscribers. Wireless ABPU is
calculated as service revenue (excluding the allocation of the
device subsidy attributable to service revenue under IFRS 15) plus
the monthly re-payments of the outstanding device balance owing
from customers on contract, divided by the average number of
subscribers on the network during the period and is expressed as a
rate per month.
ABPU of $43.60 in the first quarter of fiscal
2020 compares to $41.73 in the first quarter of fiscal 2019. ABPU
growth reflects the increased number of customers that are
subscribing to higher value service plans and purchasing a device
through Freedom Mobile.
Wireless average revenue per
subscriber unit (“ARPU”)
Wireless ARPU is calculated as service revenue
divided by the average number of subscribers on the network during
the period and is expressed as a rate per month. This measure is an
industry metric that is useful in assessing the operating
performance of a wireless entity. ARPU also helps to identify
trends and measure the Company’s success in attracting and
retaining higher-value subscribers.
ARPU of $38.76 in the first quarter of fiscal
2020 compares to $38.39 in the first quarter of fiscal 2019. ARPU
growth reflects the increased number of customers that are
subscribing to higher value service plans.
Overview
For detailed discussion of divisional
performance see “Discussion of operations”. Highlights of the
consolidated first quarter financial results are as
follows:
Revenue
Revenue for the first quarter
of fiscal 2020 of $1.38 billion increased $29 million or 2.1%
from $1.35 billion for the first quarter of fiscal 2019,
highlighted by the following:
- The year-over-year increase in
revenue was primarily due to a $46 million or 16.9% increase in the
Wireless division. Higher service revenues contributed an
incremental $30 million to consolidated revenue, while
equipment revenue increased $16 million or 15.1% compared to the
first quarter of fiscal 2019.
- The Business division contributed
$5 million or 3.6% growth over the first quarter of fiscal
2019 to consolidated revenue reflecting continued Internet revenue
growth and demand for the SmartSuite of business products.
Excluding the effect of the disposal of the Calgary1 Data Centre on
August 1, 2019, Business revenue increased approximately 5%
year-over-year.
- Consumer division revenue for the
quarter decreased $21 million or 2.2% compared to the first quarter
of fiscal 2019 as growth in Internet revenue were offset by
declines in Video, Satellite and Phone subscribers and
revenue.
Compared to the fourth quarter
of fiscal 2019, consolidated revenue for the quarter increased 2.5%
or $34 million. The increase in revenue over the prior quarter
relates to an increase of $12 million in service revenue in the
Wireless division, higher ABPU (up from $42.05 in the fourth
quarter of fiscal 2019 to $43.60 in the current quarter), higher
ARPU (up from $38.06 in the fourth quarter of fiscal 2019 to $38.76
in the current quarter) and a $26 million increase in Wireless
equipment revenues partially offset by a $4 million decrease in
Wireline revenues.
Adjusted EBITDA
Adjusted EBITDA for the first
quarter of fiscal 2020 of $588 million increased by
$44 million or 8.1% from $544 million for the first
quarter of fiscal 2019, highlighted by the following:
- The year-over-year improvement in
the Wireless division of $27 million, or 61.4%, reflects an
increase in underlying performance of $10 million, or 22.8%, and an
increase of $17 million, or 38.6%, relating to the impact of the
adoption of IFRS 16.
- The year-over-year increase in the
Wireline division of $17 million, or 3.4%, reflects a $21
million, or 4.2%, improvement due to the impact of the adoption of
IFRS 16 while underlying performance was comparable with the prior
year.
Adjusted EBITDA margin for the first
quarter of 42.5% increased 230-basis points compared to
40.2% in the first quarter of fiscal. Excluding the impact of IFRS
16, adjusted EBITDA margin would have been essentially flat, at
40.2%.
Compared to the fourth quarter
of fiscal 2019, adjusted EBITDA for the current quarter increased
$54 million, or 10.1%, and primarily reflects the impact of
the adoption of IFRS 16 in the current quarter, which contributed
$38 million, or 7.1%, of the increase while the remainder of the
increase was primarily due to an increase in the Wireline division
as a result of the impact of the $10 million charge related to the
CRTC decision related to wholesale broadband rates available to
third party internet providers as well as an increase in the
Wireless division, primarily due to higher revenues.
Free cash flow
Free cash flow for the first
quarter of fiscal 2020 of $183 million increased
$20 million from $163 million in the first quarter of
fiscal 2019, mainly due to an $11 million decrease in capital
expenditures and lower cash taxes. The $44 million increase in
adjusted EBITDA was partially offset by the $30 million increase in
payments relating to lease liabilities and the additional $11
million in interest on lease liabilities recorded in the quarter,
all of which reflect the impact of the adoption of IFRS 16.
Net income (loss)
Net income of $162 million for the three
months ended November 30, 2019 compared to a net income of $186
million for the same period in fiscal 2019. The changes in net
income are outlined in the following table.
|
|
|
|
November 30, 2019 net income compared to: |
|
Three months ended |
(millions of Canadian dollars) |
August 31, 2019 |
November 30, 2018 |
Increased adjusted EBITDA(1)(2) |
54 |
|
44 |
|
Decreased (increased)
restructuring costs |
(10 |
) |
1 |
|
Increased amortization
(2) |
(53 |
) |
(41 |
) |
Change in net other costs and
revenue(2)(3) |
(10 |
) |
(35 |
) |
Decreased income taxes |
16 |
|
7 |
|
|
(3 |
) |
(24 |
) |
(1) See
definitions and discussion under “Non-IFRS and additional GAAP
measures” |
(2) Fiscal 2020
figures reflect the impact of the adoption and application of IFRS
16 while comparative Fiscal 2019 figures do not. See “Accounting
Standards” |
(3) Net other
costs and revenue include equity income (loss) of an associate or
joint venture, business acquisition costs, accretion of long-term
liabilities and provisions, debt retirement costs, realized and
unrealized foreign exchange differences and other losses as
detailed in the unaudited Consolidated Statements of Income |
|
The increase in adjusted EBITDA in the first
quarter of fiscal 2020 primarily reflects the impact of adoption of
IFRS 16 and is partially offset by the increase in amortization for
the quarter which reflects an additional $35 million in
amortization related to the newly recognized right of use assets
under IFRS 16.
The increase in restructuring costs reflects the
impact of the $10 million recovery of restructuring costs recorded
in the fourth quarter of fiscal 2019 as a result of approximately
90 employees either rescinding their acceptance of the VDP package
with the approval of the Company or forgoing their package to
expedite their departure date.
Outlook
The Company confirms that it remains on track to
meets its fiscal 2020 guidance, as follows:
Consolidated |
Fiscal 2020 Guidanceas reported
1 |
Fiscal 2020 Guidanceexcluding IFRS
16 1 |
Adjusted EBITDA 2 |
11% to 12% |
4% to 5% |
Capital Expenditures 3 |
Approximately $1.1 billion |
Approximately $1.1 billion |
Free Cash Flow 4 |
Approximately $700 million |
Approximately $700 million |
- Fiscal 2020 guidance reflects our preliminary estimate of the
impact of the implementation of IFRS 16. While financial results
for fiscal 2019 will not be restated, our preliminary estimate is
that 2019 consolidated adjusted EBITDA would have increased by
approximately $155 million (approximately 55% attributable to
Wireline and 45% to Wireless) to $2,309 million. When applying the
estimated IFRS 16 impact to fiscal 2019, our fiscal 2020
consolidated adjusted EBITDA represents growth of 4% to 5% as
referenced in the table above.
- In conjunction with the adoption of IFRS 16, the Company
renamed the previously disclosed “Operating income before
restructuring costs and amortization” measure as “Adjusted EBITDA”
to better align with language used by various stakeholders of the
Company.
- Capital Expenditure guidance excludes expenditures for spectrum
licenses.
- In conjunction with the adoption of IFRS 16, the Company
amended its free cash flow definition to reflect the impact of IFRS
16 to account for lease payments that are no longer classified as
operating expenses under the new standard.
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 “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 revenue, 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.
Adjusted EBITDA
Adjusted earnings before interest, taxes,
depreciation and amortization (“EBITDA”) (previously referred to as
“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
items such as restructuring costs, equity income/loss of an
associate or joint venture, amortization (a non-cash expense),
taxes and interest. Adjusted EBITDA is one measure used by the
investing community to value the business.
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Operating
income(1) |
285 |
|
281 |
|
Add back (deduct): |
|
|
Restructuring costs |
- |
|
1 |
|
Amortization: |
|
|
Deferred equipment revenue |
(4 |
) |
(6 |
) |
Deferred equipment costs |
18 |
|
24 |
|
Property, plant and equipment, intangibles and other(1) |
289 |
|
244 |
|
Adjusted EBITDA |
588 |
|
544 |
|
(1) Fiscal 2020 figures reflect the impact
of the adoption and application of IFRS 16 while Fiscal 2019
figures do not. See “Accounting Standards”
Adjusted EBITDA margin
Adjusted EBITDA margin (previously referred to
as “Operating margin”) is calculated by dividing adjusted EBITDA by
revenue. Adjusted EBITDA margin is also one of the measures used by
the investing community to value the business.
|
Three months ended November 30, |
|
2019 |
2018 |
Change %(1) |
Wireline |
48.5 |
% |
46.2 |
% |
5.0 |
Wireless |
22.3 |
% |
16.2 |
% |
37.7 |
Combined Wireline and Wireless |
42.5 |
% |
40.2 |
% |
5.7 |
(1) Fiscal 2020 figures reflect the impact
of the adoption and application of IFRS 16 while Fiscal 2019
figures do not. See “Accounting Standards”
Net debt leverage ratio
The Company uses this ratio to determine its
optimal leverage ratio. Refer to “Liquidity and capital resources”
for further detail.
Free cash flow
The Company utilizes this measure to assess the
Company’s ability to repay debt and pay dividends to
shareholders.
In conjunction with the adoption of IFRS 16, we
have amended our definition of free cash flow to remove the
increase to adjusted EBITDA attributable to IFRS 16 to ensure a
consistent focus on free cash flow generation.
Free cash flow is comprised of adjusted EBITDA,
adding dividends from equity accounted associates, changes in
receivable related balances with respect to wireline 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, interest on lease liabilities and payments
relating to lease liabilities, 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 has not been reported on a
segmented basis. Certain components of free cash flow from
continuing operations, including adjusted EBITDA continue to be
reported on a segmented basis. Capital expenditures and equipment
costs (net) are also reported on a segmented basis. 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 is calculated as follows: |
|
|
|
|
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Change % |
Revenue |
|
|
|
Consumer |
924 |
|
945 |
|
(2.2 |
) |
Business |
143 |
|
138 |
|
3.6 |
|
Wireline |
1,067 |
|
1,083 |
|
(1.5 |
) |
Service |
196 |
|
166 |
|
18.1 |
|
Equipment |
122 |
|
106 |
|
15.1 |
|
Wireless |
318 |
|
272 |
|
16.9 |
|
|
1,385 |
|
1,355 |
|
2.2 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
100.0 |
|
|
1,383 |
|
1,354 |
|
2.1 |
|
Adjusted
EBITDA(1)(3) |
|
|
|
Wireline |
517 |
|
500 |
|
3.4 |
|
Wireless |
71 |
|
44 |
|
61.4 |
|
|
588 |
|
544 |
|
8.1 |
|
Capital expenditures
and equipment costs (net):(2) |
|
|
|
Wireline |
205 |
|
205 |
|
– |
|
Wireless |
55 |
|
66 |
|
(16.7 |
) |
|
260 |
|
271 |
|
(4.1 |
) |
Free cash flow before
the following |
328 |
|
273 |
|
20.1 |
|
Less: |
|
|
|
Interest on debt |
(58 |
) |
(62 |
) |
(6.5 |
) |
Interest on lease liabilities(3) |
(11 |
) |
- |
|
>(100.0 |
) |
Cash taxes |
(42 |
) |
(50 |
) |
(16.0 |
) |
Lease payments relating to lease liabilities(3) |
(30 |
) |
- |
|
>(100.0 |
) |
Other
adjustments: |
|
|
|
Non-cash share-based compensation |
- |
|
1 |
|
(100.0 |
) |
Pension adjustment |
(2 |
) |
3 |
|
>(100.0 |
) |
Preferred share dividends |
(2 |
) |
(2 |
) |
– |
|
Free cash flow |
183 |
|
163 |
|
12.3 |
|
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures”(2) Per Note 3 to
the unaudited interim Consolidated Financial
Statements(3) Fiscal 2020 figures reflect the impact of the
adoption and application of IFRS 16 while Fiscal 2019 figures do
not. See “Accounting Standards”
Discussion of operations
Wireline
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
2018 |
Change % |
Consumer(1) |
924 |
945 |
(2.2 |
) |
Business(1) |
143 |
138 |
3.6 |
|
Wireline revenue |
1,067 |
1,083 |
(1.5 |
) |
Adjusted EBITDA(2)(3) |
517 |
500 |
3.4 |
|
Adjusted EBITDA margin(2)(3) |
48.5% |
46.2% |
5.0 |
|
(1) As a
result of a realignment of management responsibilities, revenues
relating to the Wholesale TPIA Services and Broadcast Services
operations, previously reported under the Business division are now
reported as part of the Consumer division. Fiscal 2019 results have
been restated to reflect this change. |
(2) Fiscal
2020 figures reflect the impact of the adoption and application of
IFRS 16 while Fiscal 2019 figures do not. See “Accounting
Standards” |
(3) See
definitions and discussion under “Non-IFRS and additional GAAP
measures” |
|
In the first quarter of fiscal
2020, Wireline RGUs decreased by 57,451 compared to a 52,811 RGU
loss in the first quarter of fiscal 2019. The current quarter
includes growth in Consumer Internet RGUs of approximately 5,648
whereas the mature products within the Consumer division, including
Video, Satellite and Phone declined in the aggregate by 72,001
RGUs. Through improved customer segmentation, the Company remains
focused on growing Internet subscribers, primarily through two-year
ValuePlans, and on attracting and retaining high quality Video
subscribers.
Revenue highlights include:
- Consumer revenue for the
first quarter of fiscal 2020 decreased by $21
million or 2.2%, compared to the first quarter of fiscal 2019 as
growth in Internet revenue were offset by declines in Video,
Satellite and Phone subscribers and revenue.
• As compared to the fourth quarter of
fiscal 2019, the current quarter revenue decreased by
$6 million or 0.6%.
- Business revenue of
$143 million for the first quarter of fiscal
2020 was up $5 million or 3.6% over the first quarter of
fiscal 2019, reflecting continued Internet revenue growth and
demand for the SmartSuite of business products. Excluding the
effect of the disposal of the Calgary1 Data Centre on August 1,
2019, Business revenue increased approximately 5%
year-over-year. • As compared to the
fourth quarter of fiscal 2019, the current quarter revenue
increased $2 million or 1.4%.
Adjusted EBITDA highlights include:
- Adjusted EBITDA for the
first quarter of fiscal 2020 of $517 million
increased 3.4% or $17 million from $500 million in the
first quarter of fiscal 2019. The increase primarily reflects
the impact of the adoption of IFRS 16, which contributed $21
million, or 4.2%, to the increase, and lower operating costs,
mainly due to retroactive costs of $7.4 million related to the
Copyright Board of Canada’s notice on rates payable for the Distant
Signal Retransmission Tariff recorded in the prior year quarter,
partially offset by the decrease in revenue in the current
quarter. • As compared to the fourth
quarter of fiscal 2019, Wireline adjusted EBITDA for the
current quarter increased by $34 million, or 7.0%, mainly as a
result of the impact of the adoption of IFRS 16, which contributed
$21 million, or 4.3%, to the increase as well as the impact of the
$10 million charge related to the CRTC decision to reduce wholesale
broadband rates available to third party internet providers
recorded in the fourth quarter of fiscal 2019.
Wireless |
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Change % |
Service |
196 |
|
166 |
|
18.1 |
Equipment and other |
122 |
|
106 |
|
15.1 |
Wireless revenue |
318 |
|
272 |
|
16.9 |
Adjusted EBITDA(1)(2) |
71 |
|
44 |
|
61.4 |
Adjusted EBITDA margin(1)(2) |
22.3% |
|
16.2% |
|
37.7 |
(1) Fiscal 2020 figures reflect the impact
of the adoption and application of IFRS 16 while Fiscal 2019
figures do not. See “Accounting Standards”(2) See definitions
and discussion under “Non-IFRS and additional GAAP measures”
The Wireless division added 57,911 RGUs in the
first quarter of fiscal 2020 as compared to 65,615
RGUs gained in the first quarter of fiscal 2019. The net additions
in the quarter consisted of 66,865 postpaid additions offset by
8,954 prepaid losses. The increase in the postpaid subscriber base
reflects continued customers demand for the Big Gig data centric
and Absolute Zero pricing and packaging options. The decrease in
the prepaid customer base reflects higher churn due to increased
competitive activity.
Revenue highlights include:
- Revenue of $318 million for
the first quarter of fiscal 2020 increased
$46 million or 16.9% over the first quarter of fiscal 2019.
The increase was driven mainly by higher service revenues which
contributed an incremental $30 million or 18.1% to
consolidated revenue primarily due to higher postpaid RGUs
(approximately 265,000 since November 30, 2018) and a 4.5% and 1.0%
year-over-year increase in ABPU to $43.60 and ARPU to $38.76,
respectively. Equipment revenue also increased $16 million or 15.1%
over the previous year. • As compared to
the fourth quarter of fiscal 2019, the current quarter
revenue increased $38 million or 13.6%, while ABPU increased
by $1.55 or 3.7% (ABPU of $42.05 in the fourth quarter of fiscal
2019), and ARPU increased by $0.70 or 1.8% (ARPU of $38.06 in the
fourth quarter of fiscal 2019). The quarter-over-quarter
increase in both ABPU and ARPU reflect the growing penetration of
the Big Gig data plans as well as the impact of our expanding and
improving network.
Adjusted EBITDA highlights include:
- Adjusted EBITDA of $71 million
for the first quarter of fiscal 2020 improved by
$27 million, or 61.4% over the first quarter of fiscal 2019.
The increase reflects the impact of the adoption of IFRS 16, which
contributed $17 million, or 38.6%, to the increase while the
remaining increase was mainly due to postpaid RGU growth and the
1.0% increase in ARPU. • As compared
to the fourth quarter of fiscal 2019, adjusted EBITDA for the
current quarter increased $20 million or 39.2%, of which $17
million, or 33.3%, can be attributed to the impact of the adoption
of IFRS 16.
|
|
|
|
Capital expenditures
and equipment costs |
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
2018 |
Change % |
Wireline |
|
|
|
New housing development |
35 |
30 |
16.7 |
|
Success-based |
62 |
69 |
(10.1 |
) |
Upgrades and enhancements |
80 |
65 |
23.1 |
|
Replacement |
8 |
6 |
33.3 |
|
Building and other |
20 |
35 |
(42.9 |
) |
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
205 |
205 |
- |
|
Wireless |
|
|
|
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
55 |
66 |
(16.7 |
) |
Consolidated total as per Note 3 to the unaudited interim
consolidated financial statements |
260 |
271 |
(4.1 |
) |
In the first quarter of fiscal
2020, capital investment of $260 million decreased $11 million
from the comparable period in fiscal 2019. Total Wireline capital
spending of $205 million remained consistent with the prior year
period. Wireless spending decreased by approximately $11 million
year-over-year primarily due to the timing of expenditures and
lower planned investment in the quarter.
Wireline highlights include:
- For the quarter, investment in
combined upgrades, enhancements and replacement categories was $88
million, a $17 million or 23.9% increase over the prior year driven
by higher planned Wireline spend on system network
infrastructure.
- Investments in new housing
development was $35 million, a $5 million or 16.7% increase over
the prior year, driven by residential and commercial customer
network growth and acquisition.
- Success-based capital for the
quarter of $62 million was $7 million lower than the first quarter
of fiscal 2019.
Wireless highlights include:
- Capital investment of
$55 million in the first quarter decreased relative to the
first quarter of fiscal 2019 by $11 million, primarily due to the
planned decrease in Wireless spending in the current year. In
fiscal 2020, the Company continues to focus on investment in the
Wireless network and infrastructure, specifically the deployment of
700 MHz spectrum, LTE and small cells as well as enhancements to
the back-office systems, including the billing system and digital
transformation projects.
|
|
|
|
|
|
Supplementary quarterly financial
information |
Quarter |
Revenue |
Adjusted EBITDA(2) |
Net
income (loss)attributableto equityshareholders |
Net income(loss)(3) |
Basic andDilutedearnings(loss) pershare |
(millions of
Canadian dollars except per share amounts) |
|
2020 |
|
|
|
|
|
First(1) |
1,383 |
588 |
162 |
|
162 |
|
0.31 |
|
2019 |
|
|
|
|
|
Fourth |
1,349 |
534 |
165 |
|
165 |
|
0.31 |
|
Third |
1,322 |
528 |
226 |
|
228 |
|
0.44 |
|
Second |
1,315 |
548 |
154 |
|
154 |
|
0.30 |
|
First |
1,354 |
544 |
186 |
|
186 |
|
0.36 |
|
2018 |
|
|
|
|
|
Fourth |
1,326 |
556 |
196 |
|
196 |
|
0.38 |
|
Third |
1,289 |
538 |
(99 |
) |
(99 |
) |
(0.20 |
) |
Second |
1,329 |
483 |
(175 |
) |
(175 |
) |
(0.35 |
) |
(1) Fiscal 2020 figures reflect the impact of the adoption and
application of IFRS 16 while Fiscal 2018 and Fiscal 2019 figures do
not. See “Accounting Standards ”(2) See definition and discussion
under “Non-IFRS and additional GAAP measures.”(3) Net income
attributable to both equity shareholders and non-controlling
interests |
|
|
F20 Q1vs F19 Q4 |
In the first quarter of fiscal 2020, net income decreased $3
million compared to the fourth quarter of fiscal 2019 mainly due to
a $23 million decrease in deferred taxes in the first quarter. This
was partially offset by a $7 million increase in current taxes in
the first quarter as well as the net impact of the adoption of IFRS
16 which resulted in a decrease to operating, general and
administrative costs that was more than offset by increases to
amortization of property, plant and equipment, intangibles and
other and interest expense. |
F19 Q4vs F19 Q3 |
In the fourth quarter of fiscal 2019, net income decreased $63
million compared to the third quarter of fiscal 2019 mainly due to
a $21 million increase in current taxes in the fourth quarter, a
$41 million gain on the disposal of property, plant and equipment
to a related party, a $15 million gain on the sale of a portfolio
investment, and the $102 million impact of a tax rate change on
deferred taxes partially offset by a $109 million loss on the
disposal of the Company’s entire equity investment in Corus all
recorded in the third quarter. |
F19 Q3vs F19 Q2 |
In the third quarter of fiscal 2019, net income increased $74
million compared to the second quarter of fiscal 2019 mainly due to
a $41 million gain on the disposal of property, plant and equipment
to a related party, a $15 million gain on the sale of a portfolio
investment and the $102 million impact of a tax rate change on
deferred taxes partially offset by a $109 million loss on the
disposal of the Company’s investment in Corus all recorded in the
third quarter. |
F19 Q2vs F19 Q1 |
In the second quarter of fiscal 2019, net income decreased
$32 million compared to the first quarter of fiscal 2019
mainly due to a $20 million decrease in equity income related to
the Company’s investment in Corus in the quarter and higher income
taxes. |
F19 Q1vsF18 Q4 |
In the first quarter of fiscal 2019, net income decreased
$10 million compared to the fourth quarter of fiscal 2018
mainly due to a $12 million decrease in adjusted EBITDA and a
decrease in other gains mainly related to a $16 million gain on the
sale of certain wireless spectrum licenses in the fourth quarter of
fiscal 2018. These decreases were partially offset by a $10 million
increase in equity income related to the Company’s investment in
Corus in the first quarter. |
F18 Q4 vs F18 Q3 |
In the fourth quarter of fiscal 2018, net income improved by $295
million compared to the third quarter of fiscal 2018 primarily due
to an impairment charge of $284 million related to the
Company’s equity investment in Corus recorded in the third
quarter. |
F18 Q3 vs F18 Q2 |
In the third quarter of fiscal 2018, the net loss decreased
$76 million compared to the second quarter of fiscal 2018
mainly due to a decrease in third quarter restructuring costs of
$404 million and an increase in adjusted EBITDA. The increase
was partially offset by an impairment charge of $284 million
related to the Company’s investment in Corus and higher income
taxes in the third quarter. |
Other income and expense items
Restructuring costs
Restructuring costs generally include severance,
employee related costs and other costs directly associated with a
restructuring program. For the three months ended November 30,
2019, no additional restructuring charges related to the Company’s
TBT initiative have been recorded, although a total of
$437 million has been recorded since the beginning of the
program in March 2018, of which $331 million has been paid up to
and including November 30, 2019.
As a first step in the TBT, the VDP was offered
to eligible employees in the second quarter of fiscal 2018. The
outcome of the program had approximately 3,300 Shaw employees
accepting the VDP package, representing approximately 25% of all
employees at that time. In fiscal 2019, approximately 90 employees
have either rescinded their acceptance of the VDP package with the
approval of the Company or declined their package in order to
expedite their departure date.
In the first quarter of fiscal 2020,
approximately 370 employees exited the Company, bringing the total
number of employees who have departed under the VDP to
approximately 2,700 employees.
|
|
|
|
Amortization |
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Change % |
Amortization revenue
(expense) |
|
|
|
Deferred equipment revenue |
4 |
|
6 |
|
(33.3 |
) |
Deferred equipment costs |
(18 |
) |
(24 |
) |
(25.0 |
) |
Property, plant and equipment, intangibles and other(1) |
(289 |
) |
(244 |
) |
18.4 |
|
(1) Fiscal 2020 figures reflect the impact of
the adoption and application of IFRS 16 while Fiscal 2019 figures
do not. See “Accounting Standards”
Amortization of property, plant and equipment,
intangibles and other increased $45 million, or 18.4% for the three
months ended November 30, 2018. The increase in amortization
reflects the impact of the adoption of IFRS 16 which resulted in an
additional $35 million in amortization related to the newly
recognized right of use assets as well as the amortization of new
expenditures exceeding the amortization of assets that became fully
amortized during the period.
|
|
|
|
Amortization of
financing costs and interest expense |
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
2018 |
Change % |
Amortization of financing
costs – long-term debt |
1 |
1 |
- |
Interest expense(1) |
71 |
62 |
14.5 |
(1) Fiscal 2020 figures reflect the impact of
the adoption and application of IFRS 16 while Fiscal 2018 and
Fiscal 2019 figures do not. See “Accounting Standards”
Interest expense for the three months ended
November 30, 2019 was higher than the comparable periods primarily
due to the impact of the adoption of IFRS 16, which resulted in an
additional $11 million in interest expense related to lease
liabilities partially offset by the lower average outstanding debt
balances in the current period.
Equity income of an
associate
For the three months ended November 30, 2019,
the Company recorded equity income of $nil related to its
interest in Corus, compared to equity income of $23 million
for the comparable period. The Company disposed of 100% of its
equity interest in Corus on May 31, 2019.
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.
Income taxes
Income taxes are lower in the quarter compared
to the first quarter of fiscal 2019 mainly due to the decrease in
net income.
Financial position
Effective September 1, 2019, the Company adopted
IFRS 16 and IFRIC 23 and has not restated comparatives for fiscal
2019. For the purposes of this analysis, the Company will therefore
use September 1, 2019 figures for comparative purposes. See
“Accounting Standards” for more information.
Total assets were $15.7 billion at November 30,
2019, compared to $17.0 billion at September 1, 2019. The following
is a discussion of significant changes in the consolidated
statement of financial position since September 1, 2019.
Current assets decreased $1,301 million
primarily due to decreases in cash of $1,314 million and
receivables of $4 million. These decreases were partially offset by
increases in inventory of $5 million and current portion of
contract assets of $11 million. Cash decreased primarily due to the
repayment of $1.25 billion of senior notes and other financing
activities as well as cash outlays for investing activities
partially offset by funds flow from operations. Refer to “Liquidity
and capital resources” for more information.
The current portion of contract assets increased
over the period mainly due to an increase in Wireless subscribers
participating in the Company’s discretionary wireless handset
discount program, MyTab. Under IFRS 15, the portion of this
discount relating to the handset is applied against equipment
revenue at the point in time that the handset is transferred to the
customer while the portion relating to service revenue is recorded
as a contract asset and amortized over the life of the contract
against future service revenues.
Property, plant and equipment decreased
$26 million as the amortization of capital and right of use
assets exceeded the capital investments and additions to
right-of-use assets in the quarter.
Current liabilities decreased
$1,315 million during the period primarily due to a decrease
in the current portion of long-term debt of $1.25 billion due to
the repayment of senior notes in October 2019, a decrease in
accounts payable and accrued liabilities of $101 million, a
decrease in current provisions of $36 million and a $9 million
decrease in the current portion of contract liabilities. This was
partially offset by an increase in short-term borrowings of $80
million.
Accounts payable and accruals decreased due to
the timing of payment and fluctuations in various payables
including capital expenditures, interest and programming costs. The
decrease in current provisions was mainly due to the payment of
restructuring costs related to the TBT. In connection with the VDP,
the Company recorded a total of $437 million in restructuring
charges in fiscal 2018 and 2019 primarily related to severance and
other related costs, of which $331 million has been paid,
$105 million is included in current provisions and
$1 million is included in long-term provisions.
Short-term borrowings increased due to the draw
of additional $80 million under the Company’s accounts receivable
securitization program.
Shareholders’ equity increased $24 million
mainly due to an increase in share capital of $32 million and
a decrease in accumulated other comprehensive loss of $5 million
partially offset by a decrease in retained earnings of $10 million.
Share capital increased due to the issuance of 1,593,402 Class B
Non-Voting Shares under the Company’s stock option plan and
Dividend Reinvestment Plan (“DRIP”). This was partially offset by
the impact of 919,731 shares that were re-purchased under the terms
of the Company’s normal course issuer bid program. Retained
earnings decreased due to current period income of
$162 million more than fully offset by dividends of
$155 million and the impact of shares re-purchased under the
normal course issuer bid program of $17 million. Accumulated other
comprehensive loss decreased due to the re-measurement recorded on
employee benefit plans.
As at December 31, 2019, there were 494,299,430
Class B Non-Voting Shares, 10,012,393 Series A Shares, 1,987,607
Series B Shares and 22,372,064 Class A Shares issued and
outstanding. As at December 31, 2019, 8,032,723 Class B Non-Voting
Shares were issuable on exercise of outstanding options. Shaw is
traded on the Toronto and New York stock exchanges and is included
in the S&P/TSX 60 Index (Trading Symbols: TSX – SJR.B,
SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For more
information, please visit www.shaw.ca.
Liquidity and capital
resources
In the three-month period ended November 30,
2019, the Company generated $183 million of free cash flow. Shaw
used its free cash flow along with cash of $1.3 billion, $80
million net proceeds from its accounts receivable securitization
program, and proceeds from the issuance of Class B Non-Voting
Shares of $3 million to fund the net working capital change of $123
million, pay common share dividends of $116 million, repay at
maturity $1.25 billion 5.65% senior notes, repurchase $25 million
in shares under the Company’s NCIB program, and pay $36 million in
restructuring costs.
Debt structure and financial
policy
The Company issued Class B Non-Voting Shares
from treasury under its DRIP and incremental Class B Non-Voting
Shares of $37 million during the three-month period ending
November 30, 2019. On October 25, 2019, and in accordance with the
terms of its Dividend Reinvestment Plan (the “DRIP”), the Company
announced that in lieu of issuing shares from treasury, it will
satisfy its share delivery obligations under the DRIP by purchasing
Class B Non-Voting Shares on the open market. In addition, the
Company reduced its discount from 2% to 0% for the Class B
Non-Voting Shares delivered under the DRIP. These changes to the
DRIP were first applied to the dividends payable on November 28,
2019 to shareholders of record on November 15, 2019.
The Company has established an accounts
receivable securitization program with a Canadian financial
institution which allows it to sell certain trade receivables into
the program. As at November 30, 2019, the proceeds of the sales
were committed up to a maximum of $200 million (with
$120 million drawn under the program as at November 30,
2019). The Company continues to service and retain
substantially all of the risks and rewards relating to the trade
receivables sold, and therefore, the trade receivables remain
recognized on the Company’s Consolidated Statement of Financial
Position and the funding received is recorded as a current
liability (revolving floating rate loans) secured by the trade
receivables. The buyer’s interest in the accounts receivable ranks
ahead of the Company’s interest and the program restricts it from
using the trade receivables as collateral for any other purpose.
The buyer of the trade receivable has no claim on any of our other
assets.
As at November 30, 2019, the net debt leverage
ratio for the Company was 2.5x. Considering the prevailing
competitive, operational and capital market conditions, the Board
of Directors has determined that having this ratio in the range of
2.5x to 3.0x would be optimal leverage for the Company in the
current environment. Should the ratio fall below this, other than
on a temporary basis, the Board may choose to recapitalize back
into this optimal range. The Board may also determine to increase
the Company’s debt above these levels to finance specific strategic
opportunities such as a significant acquisition or repurchase of
Class B Non-Voting Shares in the event that pricing levels were to
drop precipitously. This target was updated from 2.0x to 2.5x in
November 2019 based on the expected impact of IFRS 16.
The
Company calculates net debt leverage ratio as follows(1): |
|
|
|
|
|
(millions of Canadian dollars) |
November 30, 2019 |
August 31, 2019(3) |
Short-term borrowings |
120 |
|
40 |
|
Current portion of long-term debt |
1 |
|
1,251 |
|
Current portion of lease liabilities |
113 |
|
- |
|
Long-term debt |
4,058 |
|
4,057 |
|
Lease liabilities |
1,193 |
|
- |
|
50% of outstanding preferred shares |
147 |
|
147 |
|
Cash |
(132 |
) |
(1,446 |
) |
(A) Net debt(2) |
5,500 |
|
4,049 |
|
Adjusted EBITDA |
2,198 |
|
2,154 |
|
Corus dividends |
10 |
|
10 |
|
(B) Adjusted EBITDA including Corus
dividends(2) |
2,208 |
|
2,164 |
|
(A/B) Net debt leverage ratio |
2.5 |
x |
1.9 |
x |
(1) The following contains a description of
the Company’s use of non-IFRS financial measures, provides a
reconciliation to the nearest IFRS measure or provides a reference
to such reconciliation.(2) These financial measures do not
have standard definitions prescribed by IFRS and therefore may not
be comparable to similar measures disclosed by other companies and
have not been presented as an alternative to liquidity prescribed
by IFRS. (3) Fiscal 2020 figures reflect the impact of the
adoption and application of IFRS 16 while Fiscal 2019 figures do
not. See “Accounting Standards”.
On October 29, 2019, the Company announced that
it had received approval from the Toronto Stock Exchange (“TSX”) to
establish a NCIB program. The program commenced on November 1, 2019
and will remain in effect until October 31, 2020. As approved by
the TSX, the Company has the ability to purchase for cancellation
up to 24,758,127 Class B Shares representing 5% of all of the
issued and outstanding Class B Shares as at October 18, 2019.
During the three months ended November 30, 2019,
the Company has purchased 919,731 Class B Non-Voting Shares for
cancellation for a total cost of approximately $25 million under
the NCIB. From December 1, 2019 to December 31, 2019, the Company
purchased an additional 938,273 Class B Non-Voting Shares for
cancellation for a total cost of approximately $25 million under
the NCIB.
On October 1, 2019, the Company repaid the $1.25
billion of 5.65% senior notes at maturity with cash on hand.
On December 9, 2019 the Company issued $800
million of senior notes, comprised of $500 million principal amount
of 3.30% senior notes due 2029 and $300 million principal amount of
$4.25% senior notes due 2049. The net proceeds of the offering of
$792 million, along with cash on hand, were used to fund the
redemption of the $500 million principal amount of 5.50% senior
notes due 2020 and the $300 million principal amount of 3.15%
senior notes due 2021 as noted below.
On December 24, 2019, the Company redeemed the
$500 million principal amount of 5.50% senior notes due December 7,
2020 and the $300 million principal amount of 3.15% senior notes
due February 19, 2021. In conjunction with the redemption, the
Company paid make whole premiums of $17 million and accrued
interest of $5 million.
Shaw’s credit facilities are subject to
customary covenants which include maintaining minimum or maximum
financial ratios.
|
|
|
Covenant Limit |
Shaw Credit Facilities |
|
Total Debt to Operating Cash Flow(1) Ratio |
< 5.00:1 |
Operating Cash Flow(1) to Fixed Charges(2) Ratio |
> 2.00:1 |
(1) Operating Cash Flow, for the purposes of the
covenants, is calculated as net earnings before interest expense,
depreciation, amortization, restructuring, and current and deferred
income taxes, excluding profit or loss from investments accounted
for on an equity basis, less payments made with regards to lease
liabilities for the most recently completed fiscal quarter
multiplied by four, plus cash dividends and other cash
distributions received in the most recently completed four fiscal
quarters from investments accounted for on an equity basis.(2)
Fixed Charges are defined as the aggregate interest expense,
excluding the interest related to lease liabilities, for the most
recently completed fiscal quarter multiplied by four.
As at November 30, 2019, 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 which currently mature in December of 2024.
Based on the aforementioned financing
activities, available credit facilities and forecasted free cash
flow, the Company expects to have sufficient liquidity to fund
operations, obligations, working capital requirements, 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.
As at November 30, 2019, the Company had $132
million of cash on hand, its $1.5 billion bank credit facility was
fully undrawn and there was an additional $80 million available to
draw under its accounts receivable securitization program.
Subsequent to quarter-end, on December 12, 2019,
the Company drew an additional $80 million under its accounts
receivable securitization program, bringing the total amount drawn
under the program to $200 million. The program is now fully
drawn.
Cash Flow |
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Change % |
Funds flow from
operations |
450 |
|
438 |
|
2.7 |
Net
change in non-cash balances related to operations |
(111 |
) |
(147 |
) |
24.5 |
|
339 |
|
291 |
|
16.5 |
For the three months ended November 30, 2019,
funds flow from operating activities increased over the comparable
period in fiscal 2019 primarily due to an increase in the funds
flow from operations which reflects the impact of the adoption of
IFRS 16 where payments related to lease liabilities are reflected
under financing activities for the current period and an increase
in the net change in non-cash balances related to operations. The
net change in non-cash balances related to operations fluctuated
over the comparative period due to changes in accounts receivable,
inventory and other current asset balances, and the timing of
payment of current income taxes payable and accounts payable and
accrued liabilities.
Investing Activities |
|
|
|
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Decrease |
Cash used in investing activities |
(310 |
) |
(379 |
) |
(69 |
) |
For the three months ended November 30, 2019,
the cash used in investing activities decreased over the comparable
period in fiscal 2019 due primarily to lower net additions of
property, plant and equipment during the current period.
Financing Activities |
|
|
|
|
|
The changes in
financing activities during the comparative periods were as
follows: |
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Increase in short-term
borrowings |
80 |
|
- |
|
Net (repayment) issuance of
long-term debt |
(1,250 |
) |
993 |
|
Bank facility arrangement
costs |
(1 |
) |
(2 |
) |
Payment of lease
liabilities |
(30 |
) |
- |
|
Issue of Class B Non-Voting
Shares |
3 |
|
2 |
|
Purchase of Class B Non-Voting
Shares for cancellation |
(25 |
) |
- |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(116 |
) |
(98 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
(2 |
) |
Payment
of distributions to non-controlling interests |
(2 |
) |
- |
|
|
(1,343 |
) |
893 |
|
The increase in the payment of lease liabilities
for the three months ended November 30, 2019 reflects the impact of
the adoption of IFRS 16 in the current year with these outflows
reflected in operating activities in fiscal 2019. See “Accounting
standards” for further detail.
Contractual Obligations
There has been no material change in the Company’s contractual
obligations, including commitments for capital expenditures,
between August 31, 2019 and November 30, 2019.
Accounting standards
The MD&A included in the Company’s
August 31, 2019 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. See “Critical Accounting Policies and Estimates” in the
Company’s MD&A for the year ended August 31, 2019. 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.
a) New accounting
standards
We adopted the following new accounting
standards effective September 1, 2019.
- IFRS 16 Leases was issued on January 2016 and replaces IAS 17
Leases. The new standard requires entities to recognize lease
assets and lease obligations on the balance sheet. For lessees,
IFRS 16 removes the classification of leases as either operating
leases or finance leases, instead requiring that leases be
capitalized by recognizing the present value of the lease payments
and showing them as lease assets (right-of-use assets) and
representing the right to use the underlying leased asset. If lease
payments are made over time, the Company would recognize a lease
liability representing its obligation to make future lease
payments. Certain short-term leases (less than 12 months) and
leases of low-value may be exempted from the requirements and may
continue to be treated as operating leases if certain elections are
made. Lessors will continue with a dual lease classification model.
Classification will determine how and when a lessor will recognize
lease revenue, and what assets would be recorded.As a result of
adopting IFRS 16, the Company recognized a significant increase to
both assets and liabilities on our Consolidated Statements of
Financial Position as well as a decrease to operating costs, as a
result of removing the lease expense, an increase to depreciation
and amortization, due to the depreciation of the right-of-use
asset, and an increase to finance costs, due to the accretion of
the lease liability. Relative to the results of applying the
previous standard, although actual cash flows are unaffected, the
Company’s statement of cash flows will reflect increases in cash
flows from operating activities offset equally by decreases in cash
flows from financing activities.ImplementationWe adopted IFRS 16
using a modified retrospective approach whereby the financial
statements of prior periods presented are not restated. We
recognized lease liabilities at September 1, 2019 for leases
previously classified as operating leases, measured at the
present-value of the lease payments using our incremental borrowing
rate at that date, with the corresponding right-of-use asset
generally measured at an equal amount, adjusted for any prepaid or
accrued rent outstanding as at August 31, 2019.As permitted by IFRS
16, we applied certain practical expedients to facilitate the
initial adoption and ongoing application of IFRS 16 including the
following: • not separate fixed non-lease components
from lease components for certain classes of underlying assets.
Each lease component and any associated non-lease components will
be accounted for as a single lease component;
• apply a single discount rate to a portfolio of leases
with similar characteristics; • exclude initial
direct costs from measuring the right-of-use asset as at September
1, 2019; and • use hindsight in determining the
lease term where the contract contains purchase, extension, or
termination options.
On transition, we have not elected the
recognition exemptions on short-term leases or low-value leases;
however, we may choose to elect these recognition exemptions on a
class-by-class basis for new classes and lease-by-lease basis,
respectively, in the future.
There was no significant impact for contracts in
which we are the lessor.
- IFRIC 23 Uncertainty over Income Tax Treatments was issued in
2017 to clarify how to apply the recognition and measurement
requirements in IAS 12 when there is uncertainty over income tax
treatments. It was required to be applied for annual periods
commencing January 1, 2019, which for the Company was the annual
period commencing September 1, 2019. The cumulative effect of the
initial application of the new standard has been reflected as an
adjustment to retained earnings at September 1, 2019. Refer to
“Transition adjustments” below for details.
b) Transition
adjustments
Below is the effect
of transition to IFRS 16 and the adoption of IFRIC 23 on our
condensed consolidated Statement of Financial Position as at
September 1, 2019.
(millions of Canadian dollars) |
As reported as at August 31,
2019 |
Effect of IFRS 16 transition |
Effect of IFRIC 23 transition |
Subsequent to transition as at September 1,
2019 |
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash |
1,446 |
- |
|
- |
|
1,446 |
Accounts receivable |
287 |
- |
|
- |
|
287 |
Inventories |
86 |
- |
|
- |
|
86 |
Other current assets |
291 |
(16 |
) |
- |
|
275 |
Current portion of contract assets |
106 |
- |
|
- |
|
106 |
|
2,216 |
(16 |
) |
- |
|
2,200 |
Investments and other
assets |
37 |
- |
|
- |
|
37 |
Property, plant and
equipment |
4,883 |
1,338 |
|
- |
|
6,221 |
Other long-term assets |
195 |
- |
|
- |
|
195 |
Deferred income tax
assets |
4 |
- |
|
- |
|
4 |
Intangibles |
7,979 |
- |
|
- |
|
7,979 |
Goodwill |
280 |
- |
|
- |
|
280 |
Contract assets |
52 |
- |
|
- |
|
52 |
|
15,646 |
1,322 |
|
- |
|
16,968 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
Current |
|
|
|
|
Short-term borrowings |
40 |
- |
|
- |
|
40 |
Accounts payable and accrued liabilities |
1,015 |
- |
|
- |
|
1,015 |
Provisions |
224 |
- |
|
(5 |
) |
219 |
Income taxes payable |
82 |
- |
|
(11 |
) |
71 |
Current portion of contract liabilities |
223 |
- |
|
- |
|
223 |
Current portion of long-term debt |
1,251 |
- |
|
- |
|
1,251 |
Current portion of lease liabilities |
- |
113 |
|
- |
|
113 |
|
2,835 |
113 |
|
(16 |
) |
2,932 |
Long-term debt |
4,057 |
- |
|
- |
|
4,057 |
Lease liabilities |
- |
1,211 |
|
- |
|
1,211 |
Other long-term
liabilities |
75 |
(2 |
) |
- |
|
73 |
Provisions |
79 |
- |
|
- |
|
79 |
Deferred credits |
425 |
- |
|
- |
|
425 |
Contract liabilities |
15 |
- |
|
- |
|
15 |
Deferred income tax liabilities |
1,875 |
- |
|
38 |
|
1,913 |
|
9,361 |
1,322 |
|
22 |
|
10,705 |
Shareholders'
equity |
|
|
|
- |
Common and preferred
shareholders |
6,282 |
- |
|
(22 |
) |
6,260 |
Non-controlling interests in subsidiaries |
3 |
- |
|
- |
|
3 |
|
6,285 |
- |
|
(22 |
) |
6,263 |
|
15,646 |
1,322 |
|
- |
|
16,968 |
Prior to adopting IFRS 16, our total minimum
operating lease commitments as at August 31, 2019 was $919 million.
The weighted average discount rate applied to the total lease
liabilities was 3.50% at September 1, 2019. The difference between
the total of the minimum lease payments set out in Note 27 in our
2019 Audited Financial Statements and the total lease liability
recognized on transition was a result of:
- the inclusion of lease payments beyond minimum commitments
relating to reasonably certain renewal periods or extension options
that had not yet been exercised as at August 31, 2019;
- the effect of discounting on the minimum lease payments;
and
- certain costs to which we are contractually committed under
lease contracts but which do not qualify to be accounted for as a
lease liability, such as variable lease payments not tied to an
index or rate.
c) Fiscal 2019 Accounting Policies Updated
for IFRS 16
Leases
The following accounting policy applies as of
September 1, 2019 following the adoption of IFRS 16. Prior to
September 1, 2019, IAS 17 was applied as disclosed in the Company’s
2019 annual consolidated financial statements, as permitted by
transition provisions of IFRS 16.
Leases are typically entered into for network
infrastructure and equipment, including transponders, and land and
buildings relating to the Company’s wireless and wireline networks,
office space and retail stores. At inception of a contract, the
Company assesses whether the contract contains a lease. A lease
contract conveys the right to control the use of an identified
asset for a period in exchange for consideration. To assess whether
a contract conveys the right to control the use of an identified
asset, the Company assesses whether:
- the contract involves the use of an identified asset;
- the Company has the right to obtain substantially all of the
economic benefits from use of the asset throughout the period of
use; and
- the Company has the right to direct the use of the identified
asset.
Lease liabilities are initially measured at the
present value of future lease payments at the commencement date,
discounted using the interest rate implicit in the lease or, if not
readily determinable, the Company’s incremental borrowing rate. A
single incremental borrowing rate is applied to a portfolio of
leases with similar characteristics.
Lease payments included in the measurement of
the lease liability are comprised of:
- Fixed payments, including in-substance fixed payments;
- Variable lease payments that depend on an index or rate;
- Amounts expected to be payable under a residual value
guarantee; and
- Payments relating to purchase options and renewal option
periods that are reasonably certain to be exercised, or periods
subject to termination options that are not reasonably certain to
be exercised.
The initial lease term included in the
measurement of the lease liability is comprised of:
- The non-cancellable period of the lease;
- Periods covered by options to extend the lease, where the
Company is reasonably certain to exercise the option; and
- Periods covered by options to terminate the lease, where the
Company is reasonably certain not to exercise the option.
Lease liabilities are subsequently measured at
amortized cost using the effective interest method. Lease
liabilities are remeasured when there is a lease modification, and
a corresponding adjustment is made to the carrying amount of the
right-of-use asset or is recorded in profit or loss if the carrying
amount of the right-of-use asset has been reduced to zero. The
interest expense for lease liabilities is recorded in Interest
expense in the Consolidated Statements of Income.
Variable lease payments that do not depend on an
index or rate are not included in the measurement of lease
liabilities and right-of-use assets. The related payments are
expensed in Operating, general and administrative expenses in the
period in which the event or condition that triggers those payments
occurs.
Right-of-use assets are initially measured at
cost, which comprises the initial amount of the lease obligation
adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred, plus an estimate of
costs to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located, less any
lease incentives received. The Company presents right-of-use assets
in Property, plant and equipment.
If we obtain ownership of the leased asset by
the end of the lease term or the costs of the right-of-use asset
reflects the exercise of a purchase option, we depreciate the
right-of-use asset from the lease commencement date to the end of
the useful life of the underlying asset. Otherwise, right-of-use
assets are depreciated on a straight-line basis from the
commencement date to the earlier of the end of the useful life or
the end of the lease term. Right-of-use assets are periodically
reduced by impairment losses, if any, and adjusted for certain
remeasurements on the related lease liability. The depreciation
charge for right-of-use assets is recorded in Amortization –
Property, plant and equipment.
Significant Judgments and
Estimates
The application of IFRS 16 requires the Company
to make judgments that affect the valuation of the lease
liabilities and the valuation of right-of-use assets. These include
determining whether a contract contains a lease, determining the
contract term, including whether or not to exercise renewal or
termination options, and determining the interest rate used for
discounting future cash flows.
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, 2019 under “Related Party Transactions”
and under Note 29 of the Consolidated Financial Statements of
the Company for the year ended August 31, 2019.
There has been no material change in the
Company’s transactions with related parties between August 31,
2019 and November 30, 2019.
Financial instruments
There has been no material change in the
Company’s risk management practices with respect to financial
instruments between August 31, 2019 and November 30, 2019.
See “Known Events, Trends, Risks 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, 2019 and the section entitled “Financial
Instruments” under Note 30 of the Consolidated Financial
Statements of the Company for the year ended August 31,
2019.
Internal controls and
procedures
Details relating to disclosure controls and
procedures, and internal control over financial reporting (“ICFR”),
are discussed in the Company’s Management’s Discussion and Analysis
for the year ended August 31, 2019 under “Certification.” Other
than the items described below, there have been no changes in the
Company’s ICFR in fiscal 2020 that have materially affected, or are
reasonably likely to materially affect, the Company’s ICFR.
On September 1, 2019, the Company adopted IFRS
16 Leases and implemented a new lease accounting system that
enabled it to comply with the IFRS 16 requirements. As a result,
certain additions and modifications have been made to the Company’s
ICFR. Notably, the Company has:
- updated its policies and procedures
related to leases; and
- implemented controls surrounding
the recently implemented lease accounting system to ensure the
inputs, processes, and outputs are accurate.
We continue to review the design of these
controls and do not expect significant changes to our ICFR due to
the adoption of the new standard in fiscal 2020.
Risks and uncertainties
The significant risks and uncertainties
affecting the Company and its business are discussed in the
Company’s MD&A for the year ended August 31, 2019 under “Known
Events, Trends, Risks and Uncertainties.”
Government regulations and regulatory
developments
See our MD&A in the Annual Report for the
year ended August 31, 2019 for a discussion of the significant
regulations that affected our operations as of November 27, 2019.
The following is a list of the significant regulatory developments
since that date.
Broadcasting Act
Licensing and Ownership
On August 31, 2018, the Company submitted
renewal applications for its Direct-to-Home Undertaking and its
Satellite Relay Distribution Undertaking licenses. On November 29,
2019 the Commission renewed both licenses for 7-year terms ending
on August 31, 2026.
Potential for new or increased fees
On December 13, 2019, the Federal Government
issued the Ministers’ mandate letters. The Minister of Canadian
Heritage and the Minister of Innovation, Science and Industry have
been directed to:
- “modernize the Broadcasting Act and Telecommunications Act,
examining how best to support Canadian content in English and
French […]”; and
- “introduce legislation by the end of 2020 that will take
appropriate measures to ensure that all content providers,
including internet giants, offer meaningful levels of Canadian
content in their catalogues, contribute to the creation of Canadian
content in both Official Languages, promote this content and make
it easily accessible on their platforms.”
Any of the foregoing mandates could result in
legislative changes or the introduction of new regulatory measures
that results in new fees payable by the Company’s cable,
Direct-to-Home and Satellite Relay Distribution services; and/or
negatively impact the Company’s revenues.
Telecommunications Act
CRTC Review of Barriers to Broadband
Deployment
On December 10, 2019, the Commission initiated a
review to examine “potential barriers and/or regulatory solutions
to building new facilities or interconnecting to existing
facilities in order to extend broadband-capable networks more
efficiently into underserved areas […].” The Commission
specifically requested comments on barriers such as access to
affordable transport services and efficient use of support
structures; how and to what extent these barriers are preventing
carriers from extending transport networks and offering services in
underserved regions; and proposals on potential regulatory measures
to address the barriers. The introduction of regulatory
requirements applicable to the provision of wholesale transport
services in rural or remote areas could negatively impact the
Company’s revenues.
CRTC Third Party Internet Access Tariff
Rates
On August 15, 2019, the CRTC issued Telecom
Order 2019-288 (the “Order”), which set Shaw’s final wholesale
high-speed access (“HSA”) service rates. The final rates are
significantly lower than the interim rates set in October 2016, and
retroactive to January 31, 2017. On December 13, 2019, Shaw,
jointly with other cable companies (the “Cable Carriers”) filed an
application with the CRTC to review and vary the rate-setting
methodology and the resulting rates, as well as the requirement to
make retroactive payments.
Any of the following developments could
significantly reduce the amount that Shaw can charge for aggregated
HSA service and negatively impact Shaw’s broadband wireline
revenues and its ability to compete with Resellers and other
facilities-based HSA providers: a decision by the Federal Court of
Appeal to uphold the Order in a form that is substantially
unvaried; a refusal by Cabinet to order a variance, rescission or
reconsideration of the Order; and any variance or reconsideration
of the Order by the CRTC (or lack thereof) that does not
result in substantial changes to the Order.
Potential for new or increased fees
The Minister of Canadian Heritage and the
Minister of Innovation, Science and Industry have been directed,
pursuant to their mandate letters issued December 13, 2019, to
“modernize the Broadcasting Act and Telecommunications Act as noted
above, examining how best to […] ensure quality affordable
internet, mobile and media access.” The Minister of
Innovation, Science and Industry has also been directed to:
- reduce mobile prices by 25% within two years, and failing that,
to further expand mobile virtual network operators (“MVNOs”) in
Canada and the CRTC’s mandate on affordable pricing; and
- create a new Canadian Consumer Advocate to ensure a single
point of contact for people who need help with federally regulated
banking, telecom or transportation-related complaints.
Any of the foregoing mandates could result in
the introduction of new regulatory measures that negatively impact
the business practices of the Company and the ability to serve our
customers; results in new fees payable by the Company’s wireless or
wireline services; and/or negatively impact the Company’s revenues.
If an MVNO regime is introduced, it could impact the Company’s
ability to compete in the wireless market.
Radiocommunication Act
The Minister of Innovation, Science and Industry
has also been mandated to award “spectrum access based on
commitments towards consumer choice, affordability and broad
access.” While the mandate letter also requires the Minister to
“reserve space for new entrants”, any legislative or policy change
that prevents the Company from obtaining new or additional spectrum
licenses or renewing existing spectrum licenses could negatively
impact the Company’s ability to compete in the wireless market.
Copyright Act
The Minister of Canadian Heritage and the
Minister of Innovation, Science and Industry have been directed,
pursuant to their mandate letters issued December 13, 2019, to work
together in reviewing the Copyright Act. Any amendments to
the Copyright Act that modify the terms and conditions applicable
to the use of content, including the scope of flexibility pursuant
to exceptions under the Copyright Act, could create increased fees
and negatively impact the business practices of the Company, as
well as the ability to serve our customers.
Personal Information Protection and Electronic Documents
Act (“PIPEDA”) and Canadian Anti-Spam Legislation
(“CASL”)
In June 2018, the Government initiated a
National Digital and Data Consultation. This led to the
Government’s publication, in May 2019, of a principles-based
Digital Charter and a consultation to modernize PIPEDA.
The Minister of Canadian Heritage; the Minister
of Innovation, Science and Industry; and the Minister of Justice
and Attorney General of Canada, have been directed, pursuant to
their mandate letters issued December 13, 2019, to “advance
Canada’s Digital Charter and enhanced powers for the Privacy
Commissioner in order to establish a new set of online rights”
related to collection, use and storage of personal data. The
Minister of Innovation, Science and Industry, with the support of
the Minister of Canadian Heritage, has also been mandated to enact
new legislation to “better protect people’s personal data and
encourage greater competition in the digital marketplace”, with
regulations overseen by a newly created Data Commissioner.
These processes could lead to changes to privacy
regulation that increase privacy-related measures with which the
Company is required to comply, as well as expose the Company to
increased penalties and claims in connection with any
non-compliance.
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION(unaudited)
(millions of Canadian dollars) |
November 30, 2019 |
August 31, 2019 |
|
|
|
ASSETS |
|
|
Current |
|
|
Cash |
132 |
1,446 |
Accounts receivable |
283 |
287 |
Inventories |
91 |
86 |
Other current assets [note 4] |
276 |
291 |
Current portion of contract assets [note 11] |
117 |
106 |
|
899 |
2,216 |
Investments and other assets
[note 15] |
38 |
37 |
Property, plant and
equipment |
6,195 |
4,883 |
Other long-term assets |
205 |
195 |
Deferred income tax
assets |
1 |
4 |
Intangibles |
7,972 |
7,979 |
Goodwill |
280 |
280 |
Contract assets [note 11] |
69 |
52 |
|
15,659 |
15,646 |
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
Current |
|
|
Short-term borrowings [note 6] |
120 |
40 |
Accounts payable and accrued liabilities |
914 |
1,015 |
Provisions [note 7] |
183 |
224 |
Income taxes payable |
72 |
82 |
Current portion of contract liabilities [note 11] |
214 |
223 |
Current portion of long-term debt [notes 8 and 15] |
1 |
1,251 |
Current portion of lease liabilities [notes 2 and 5] |
113 |
- |
|
1,617 |
2,835 |
Long-term debt [notes 8 and
15] |
4,058 |
4,057 |
Lease liabilities [notes 2 and
5] |
1,193 |
- |
Other long-term
liabilities |
64 |
75 |
Provisions [note 7] |
80 |
79 |
Deferred credits |
421 |
425 |
Contract liabilities [note
11] |
15 |
15 |
Deferred income tax liabilities |
1,924 |
1,875 |
|
9,372 |
9,361 |
Shareholders'
equity [notes 9 and 13] |
|
|
Common and preferred
shareholders |
6,287 |
6,282 |
Non-controlling interests in subsidiaries |
- |
3 |
|
6,287 |
6,285 |
|
15,659 |
15,646 |
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF
INCOME(unaudited)
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
Revenue
[notes 3 and 11] |
1,383 |
|
1,354 |
|
Operating, general and
administrative expenses [note 12] |
(795 |
) |
(810 |
) |
Restructuring costs [notes 7
and 12] |
- |
|
(1 |
) |
Amortization: |
|
|
Deferred equipment revenue |
4 |
|
6 |
|
Deferred equipment costs |
(18 |
) |
(24 |
) |
Property, plant and equipment, intangibles and other |
(289 |
) |
(244 |
) |
Operating
income |
285 |
|
281 |
|
Amortization of financing costs – long-term debt |
(1 |
) |
(1 |
) |
Interest expense |
(71 |
) |
(62 |
) |
Equity income of an associate or joint venture |
- |
|
23 |
|
Other losses |
(3 |
) |
- |
|
Income before income
taxes |
210 |
|
241 |
|
Current income tax expense [note 3] |
36 |
|
35 |
|
Deferred income tax expense |
12 |
|
20 |
|
Net income |
162 |
|
186 |
|
Net income
attributable to: |
|
|
Equity
shareholders |
162 |
|
186 |
|
|
|
|
Earnings per
share: [note 10] |
|
|
Basic
and diluted |
0.31 |
|
0.36 |
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME(unaudited)
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
2018 |
Net
income |
162 |
186 |
|
|
|
Other comprehensive
income [note 13] |
|
|
Items that may
subsequently be reclassified to income: |
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
- |
1 |
Share of other comprehensive income of associates |
- |
1 |
|
- |
2 |
Items that will not
subsequently be reclassified to income: |
|
|
Remeasurements on employee benefit plans |
5 |
9 |
|
5 |
11 |
Comprehensive income |
167 |
197 |
Comprehensive income
attributable to: |
|
|
Equity shareholders |
167 |
197 |
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(unaudited)
Three months ended November
30, 2019 |
|
|
|
|
|
|
|
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Total |
Equityattributableto noncontrollinginterest |
Totalequity |
September 1, 2019, as previously reported |
4,605 |
|
26 |
1,745 |
|
(94 |
) |
6,282 |
|
3 |
|
6,285 |
|
Transition adjustments - IFRIC 23 [note 2] |
- |
|
- |
(22 |
) |
- |
|
(22 |
) |
- |
|
(22 |
) |
Restated balance as at
September 1, 2019 |
4,605 |
|
26 |
1,723 |
|
(94 |
) |
6,260 |
|
3 |
|
6,263 |
|
Net income |
- |
|
- |
162 |
|
- |
|
162 |
|
- |
|
162 |
|
Other
comprehensive income |
- |
|
- |
- |
|
5 |
|
5 |
|
- |
|
5 |
|
Comprehensive income |
- |
|
- |
162 |
|
5 |
|
167 |
|
- |
|
167 |
|
Dividends |
- |
|
- |
(118 |
) |
- |
|
(118 |
) |
- |
|
(118 |
) |
Dividend reinvestment
plan |
37 |
|
- |
(37 |
) |
- |
|
- |
|
- |
|
- |
|
Distributions declared to
non-controlling interest |
- |
|
- |
- |
|
- |
|
- |
|
(3 |
) |
(3 |
) |
Shares issued under stock
option plan |
3 |
|
- |
- |
|
- |
|
3 |
|
- |
|
3 |
|
Shares repurchased [note
9] |
(8 |
) |
- |
(17 |
) |
- |
|
(25 |
) |
- |
|
(25 |
) |
Balance as at November 30, 2019 |
4,637 |
|
26 |
1,713 |
|
(89 |
) |
6,287 |
|
- |
|
6,287 |
|
Three months ended November
30, 2018 |
|
|
|
|
|
|
|
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Total |
Equityattributableto noncontrollinginterest |
Totalequity |
Balance as at September 1, 2018 |
4,349 |
27 |
1,632 |
|
(39 |
) |
5,969 |
|
1 |
5,970 |
|
Net income |
- |
- |
186 |
|
- |
|
186 |
|
- |
186 |
|
Other
comprehensive income |
- |
- |
- |
|
11 |
|
11 |
|
- |
11 |
|
Comprehensive income |
- |
- |
186 |
|
11 |
|
197 |
|
- |
197 |
|
Dividends |
- |
- |
(102 |
) |
- |
|
(102 |
) |
- |
(102 |
) |
Dividend reinvestment
plan |
53 |
- |
(53 |
) |
- |
|
- |
|
- |
- |
|
Shares issued under stock
option plan |
2 |
- |
- |
|
- |
|
2 |
|
- |
2 |
|
Share-based compensation |
- |
1 |
- |
|
- |
|
1 |
|
- |
1 |
|
Balance
as at November 30, 2018 |
4,404 |
28 |
1,663 |
|
(28 |
) |
6,067 |
|
1 |
6,068 |
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited)
|
Three months ended November 30, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
OPERATING
ACTIVITIES |
|
|
Funds flow from
continuing operations [note 14] |
450 |
|
438 |
|
Net
change in non-cash balances |
(111 |
) |
(147 |
) |
|
339 |
|
291 |
|
INVESTING
ACTIVITIES |
|
|
Additions to property, plant
and equipment [note 3] |
(270 |
) |
(336 |
) |
Additions to equipment costs
(net) [note 3] |
(11 |
) |
(9 |
) |
Additions to other intangibles
[note 3] |
(28 |
) |
(34 |
) |
Net
additions to investments and other assets |
(1 |
) |
- |
|
|
(310 |
) |
(379 |
) |
FINANCING
ACTIVITIES |
|
|
Increase in short-term
borrowings |
80 |
|
- |
|
Net (repayment) issuance of
long-term debt |
(1,250 |
) |
993 |
|
Bank facility arrangement
costs |
(1 |
) |
(2 |
) |
Payment of lease
liabilities |
(30 |
) |
- |
|
Issue of Class B Non-Voting
Shares [note 9] |
3 |
|
2 |
|
Purchase of Class B Non-Voting
Shares for cancellation [note 9] |
(25 |
) |
- |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(116 |
) |
(98 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
(2 |
) |
Payment
of distributions to non-controlling interests |
(2 |
) |
- |
|
|
(1,343 |
) |
893 |
|
Increase (decrease) in
cash |
(1,314 |
) |
805 |
|
Cash,
beginning of the period |
1,446 |
|
384 |
|
Cash, end of the period |
132 |
|
1,189 |
|
|
|
|
See accompanying notes. |
|
|
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(unaudited)
November 30, 2019 and 2018[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, Satellite video
services and data networking to residential customers, businesses
and public-sector entities (“Wireline”); and wireless services for
voice and data communications (“Wireless”). The Company’s shares
are listed on the Toronto Stock Exchange (“TSX”), TSX Venture
Exchange (“TSXV”) and New York Stock Exchange (“NYSE”) (Symbol: TSX
- SJR.B, SJR.PR.A, SJR.PR.B, NYSE - SJR, and TSXV - SJR.A).
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 months ended November 30,
2019 were authorized for issue by the Audit Committee on January
12, 2020.
a)
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, 2019 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.
Certain comparative figures have been
reclassified to conform to the current period’s presentation.
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,
2019.
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.
b) New accounting
standards
We adopted the following new accounting
standards effective September 1, 2019.
- IFRS 16 Leases was issued on January 2016 and replaces IAS 17
Leases. The new standard requires entities to recognize lease
assets and lease obligations on the balance sheet. For lessees,
IFRS 16 removes the classification of leases as either operating
leases or finance leases, instead requiring that leases be
capitalized by recognizing the present value of the lease payments
and showing them as lease assets (right-of-use assets) and
representing the right to use the underlying leased asset. If lease
payments are made over time, the Company recognizes a lease
liability representing its obligation to make future lease
payments. Certain short-term leases (less than 12 months) and
leases of low-value may be exempted from the requirements and may
continue to be treated as operating leases if certain elections are
made. Lessors will continue with a dual lease classification model.
Classification will determine how and when a lessor will recognize
lease revenue, and what assets would be recorded.As a result of
adopting IFRS 16, the Company recognized a significant increase to
both assets and liabilities on our Consolidated Statements of
Financial Position as well as a decrease to operating costs, as a
result of removing the lease expense, an increase to depreciation
and amortization, due to the depreciation of the right-of-use
asset, and an increase to finance costs, due to the accretion of
the lease liability. Relative to the results of applying the
previous standard, although actual cash flows are unaffected, the
Company’s statement of cash flows will reflect increases in cash
flows from operating activities offset equally by decreases in cash
flows from financing activities.ImplementationWe adopted IFRS 16
using a modified retrospective approach whereby the financial
statements of prior periods presented are not restated. We
recognized lease liabilities at September 1, 2019 for leases
previously classified as operating leases, measured at the
present-value of the lease payments using our incremental borrowing
rate at that date, with the corresponding right-of-use asset
generally measured at an equal amount, adjusted for any prepaid or
accrued rent outstanding as at August 31, 2019.As permitted by IFRS
16, we applied certain practical expedients to facilitate the
initial adoption and ongoing application of IFRS 16 including the
following: • not separate fixed non-lease components
from lease components for certain classes of underlying assets.
Each lease component and any associated non-lease components will
be accounted for as a single lease component;
• apply a single discount rate to a portfolio of leases
with similar characteristics; • exclude initial
direct costs from measuring the right-of-use asset as at September
1, 2019; and • use hindsight in determining the
lease term where the contract contains purchase, extension, or
termination options.On transition, we have not elected the
recognition exemptions on short-term leases or low-value leases;
however, we may choose to elect these recognition exemptions on a
class-by-class basis for new classes and lease-by-lease basis,
respectively, in the future.There was no significant impact for
contracts in which we are the lessor.
- IFRIC 23 Uncertainty over Income Tax Treatments was issued in
2017 to clarify how to apply the recognition and measurement
requirements in IAS 12 Income Taxes when there is uncertainty over
income tax treatments. It was required to be applied for
annual periods commencing January 1, 2019, which for the Company
was the annual period commencing September 1, 2019. The cumulative
effect of the initial application of the new standard has been
reflected as an adjustment to retained earnings at September 1,
2019. Refer to “Transition adjustments” below for details.
c) Transition
adjustments
Below is the effect of transition to IFRS 16 and
the adoption of IFRIC 23 on our condensed consolidated Statement of
Financial Position as at September 1, 2019.
(millions of Canadian dollars) |
As reported as at August 31,
2019 |
Effect of IFRS 16 transition |
Effect of IFRIC 23 transition |
Subsequent to transition as at September 1,
2019 |
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash |
1,446 |
- |
|
- |
|
1,446 |
Accounts receivable |
287 |
- |
|
- |
|
287 |
Inventories |
86 |
- |
|
- |
|
86 |
Other current assets |
291 |
(16 |
) |
- |
|
275 |
Current portion of contract assets |
106 |
- |
|
- |
|
106 |
|
2,216 |
(16 |
) |
- |
|
2,200 |
Investments and other
assets |
37 |
- |
|
- |
|
37 |
Property, plant and
equipment |
4,883 |
1,338 |
|
- |
|
6,221 |
Other long-term assets |
195 |
- |
|
- |
|
195 |
Deferred income tax
assets |
4 |
- |
|
- |
|
4 |
Intangibles |
7,979 |
- |
|
- |
|
7,979 |
Goodwill |
280 |
- |
|
- |
|
280 |
Contract assets |
52 |
- |
|
- |
|
52 |
|
15,646 |
1,322 |
|
- |
|
16,968 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
Current |
|
|
|
|
Short-term borrowings |
40 |
- |
|
- |
|
40 |
Accounts payable and accrued liabilities |
1,015 |
- |
|
- |
|
1,015 |
Provisions |
224 |
- |
|
(5 |
) |
219 |
Income taxes payable |
82 |
- |
|
(11 |
) |
71 |
Current portion of contract liabilities |
223 |
- |
|
- |
|
223 |
Current portion of long-term debt |
1,251 |
- |
|
- |
|
1,251 |
Current portion of lease liabilities |
- |
113 |
|
- |
|
113 |
|
2,835 |
113 |
|
(16 |
) |
2,932 |
Long-term debt |
4,057 |
- |
|
- |
|
4,057 |
Lease liabilities |
- |
1,211 |
|
- |
|
1,211 |
Other long-term
liabilities |
75 |
(2 |
) |
- |
|
73 |
Provisions |
79 |
- |
|
- |
|
79 |
Deferred credits |
425 |
- |
|
- |
|
425 |
Contract liabilities |
15 |
- |
|
- |
|
15 |
Deferred income tax liabilities |
1,875 |
- |
|
38 |
|
1,913 |
|
9,361 |
1,322 |
|
22 |
|
10,705 |
Shareholders'
equity |
|
|
|
- |
Common and preferred
shareholders |
6,282 |
- |
|
(22 |
) |
6,260 |
Non-controlling interests in subsidiaries |
3 |
- |
|
- |
|
3 |
|
6,285 |
- |
|
(22 |
) |
6,263 |
|
15,646 |
1,322 |
|
- |
|
16,968 |
Prior to adopting IFRS 16, our total minimum
operating lease commitments as at August 31, 2019 was $919 million.
The weighted average discount rate applied to the total lease
liabilities was 3.50% at September 1, 2019. The difference between
the total of the minimum lease payments set out in Note 27 in our
2019 Audited Financial Statements and the total lease liability
recognized on transition was a result of:
- the inclusion of lease payments beyond minimum commitments
relating to reasonably certain renewal periods or extension options
that had not yet been exercised as at August 31, 2019;
- the effect of discounting on the minimum lease payments;
and
- certain costs to which we are contractually committed under
lease contracts but which do not qualify to be accounted for as a
lease liability, such as variable lease payments not tied to an
index or rate.
d) Fiscal 2019 Accounting Policies
Updated for IFRS 16
Leases
The following accounting policy applies as of
September 1, 2019 following the adoption of IFRS 16. Prior to
September 1, 2019, IAS 17 was applied as disclosed in the Company’s
2019 annual consolidated financial statements, as permitted by
transition provisions of IFRS 16.
Leases are typically entered into for network
infrastructure and equipment, including transponders, and land and
buildings relating to the Company’s wireless and wireline networks,
office space and retail stores. At inception of a contract, the
Company assesses whether the contract contains a lease. A lease
contract conveys the right to control the use of an identified
asset for a period in exchange for consideration. To assess whether
a contract conveys the right to control the use of an identified
asset, the Company assesses whether:
- the contract involves the use of an identified asset;
- the Company has the right to obtain substantially all of the
economic benefits from use of the asset throughout the period of
use; and
- the Company has the right to direct the use of the identified
asset.
Lease liabilities are initially measured at the
present value of future lease payments at the commencement date,
discounted using the interest rate implicit in the lease or, if not
readily determinable, the Company’s incremental borrowing rate. A
single incremental borrowing rate is applied to a portfolio of
leases with similar characteristics.
Lease payments included in the measurement of
the lease liability are comprised of:
- Fixed payments, including in-substance fixed payments;
- Variable lease payments that depend on an index or rate;
- Amounts expected to be payable under a residual value
guarantee; and
- Payments relating to purchase options and renewal option
periods that are reasonably certain to be exercised, or periods
subject to termination options that are not reasonably certain to
be exercised.
The initial lease term included in the
measurement of the lease liability is comprised of:
- The non-cancellable period of the lease;
- Periods covered by options to extend the lease, where the
Company is reasonably certain to exercise the option; and
- Periods covered by options to terminate the lease, where the
Company is reasonably certain not to exercise the option.
Lease liabilities are subsequently measured at
amortized cost using the effective interest method. Lease
liabilities are remeasured when there is a lease modification, and
a corresponding adjustment is made to the carrying amount of the
right-of-use asset or is recorded in profit or loss if the carrying
amount of the right-of-use asset has been reduced to zero. The
interest expense for lease liabilities is recorded in Interest
expense in the Consolidated Statements of Income.
Variable lease payments that do not depend on an
index or rate are not included in the measurement of lease
liabilities and right-of-use assets. The related payments are
expensed in Operating, general and administrative expenses in the
period in which the event or condition that triggers those payments
occurs.
Right-of-use assets are initially measured at
cost, which comprises the initial amount of the lease obligation
adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred, plus an estimate of
costs to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located, less any
lease incentives received. The Company presents right-of-use assets
in Property, plant and equipment.
If we obtain ownership of the leased asset by
the end of the lease term or the costs of the right-of-use asset
reflects the exercise of a purchase option, we depreciate the
right-of-use asset from the lease commencement date to the end of
the useful life of the underlying asset. Otherwise, right-of-use
assets are depreciated on a straight-line basis from the
commencement date to the earlier of the end of the useful life or
the end of the lease term. Right-of-use assets are periodically
reduced by impairment losses, if any, and adjusted for certain
remeasurements on the related lease liability. The depreciation
charge for right-of-use assets is recorded in Amortization –
Property, plant and equipment.
Significant Judgments and
Estimates
The application of IFRS 16 requires the Company
to make judgments that affect the valuation of the lease
liabilities and the valuation of right-of-use assets. These include
determining whether a contract contains a lease, determining the
contract term, including whether or not to exercise renewal or
termination options, and determining the interest rate used for
discounting future cash flows.
3. BUSINESS
SEGMENT INFORMATION
The Company’s chief operating decision makers
are the Chief Executive Officer, the President and the Executive
Vice President, Chief Financial & Corporate Development Officer
and they review the operating performance of the Company by
segments, which are comprised of Wireline and Wireless. The chief
operating decision makers utilize adjusted earnings before
interest, income taxes, depreciation and amortization (“EBITDA”)
for each segment as a key measure in making operating decisions and
assessing performance.
The Wireline segment provides Cable
telecommunications services including Video, Internet, Wi-Fi,
Phone, Satellite Video and data networking through a national
fibre-optic backbone network to Canadian consumers, North American
businesses and public-sector entities. The Wireless segment
provides wireless services for voice and data communications
serving customers in Ontario, British Columbia and Alberta.
Both of the Company’s reportable segments are
substantially located in Canada. Information on operations by
segment is as follows:
Operating information
|
Three months ended November 30, |
|
2019 |
|
2018 |
|
Revenue |
|
|
Wireline |
1,067 |
|
1,083 |
|
Wireless |
318 |
|
272 |
|
|
1,385 |
|
1,355 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
|
1,383 |
|
1,354 |
|
Adjusted
EBITDA(1) |
|
|
Wireline |
517 |
|
500 |
|
Wireless |
71 |
|
44 |
|
|
588 |
|
544 |
|
Restructuring costs |
- |
|
(1 |
) |
Amortization |
(303 |
) |
(262 |
) |
Operating income |
285 |
|
281 |
|
|
|
|
Current
taxes |
|
|
Operating |
32 |
|
50 |
|
Other/non-operating |
4 |
|
(15 |
) |
|
36 |
|
35 |
|
(1) Adjusted EBITDA does not have any
standardized meaning prescribed by IFRS and is therefore unlikely
to be comparable to similar measures presented by other issuers;
the Company defines adjusted EBITDA as revenues less operating,
general and administrative expenses. We previously referred to this
measure as “Operating income before restructuring and amortization”
but have renamed it to better align with language used by various
stakeholders of the Company.
Capital
expenditures |
|
Three months ended November 30, |
|
2019 |
|
2018 |
|
Capital expenditures
accrual basis |
|
|
Wireline |
194 |
|
195 |
|
Wireless |
55 |
|
66 |
|
|
249 |
|
261 |
|
Equipment costs (net
of revenue) |
|
|
Wireline |
11 |
|
10 |
|
|
|
|
Capital expenditures
and equipment costs (net) |
|
|
Wireline |
205 |
|
205 |
|
Wireless |
55 |
|
66 |
|
|
260 |
|
271 |
|
|
|
|
Reconciliation to
Consolidated Statements of Cash Flows |
|
|
Additions to property, plant and equipment |
270 |
|
336 |
|
Additions to equipment costs (net) |
11 |
|
9 |
|
Additions to other intangibles |
28 |
|
34 |
|
Total of capital expenditures and equipment costs (net)
per Consolidated Statements of Cash Flows |
309 |
|
379 |
|
Increase/(decrease) in working capital and other liabilities
related to capital expenditures |
(49 |
) |
(109 |
) |
Decrease in customer equipment financing receivables |
- |
|
1 |
|
Total capital expenditures and equipment costs (net) reported by
segments |
260 |
|
271 |
|
|
|
|
|
|
4. OTHER CURRENT
ASSETS
|
November 30, 2019 |
|
August 31, 2019 |
Prepaid
expenses |
94 |
|
108 |
Deferred
commission costs(1) |
60 |
|
59 |
Wireless handset receivables(2) |
122 |
|
124 |
|
276 |
|
291 |
(1) Costs incurred to obtain or fulfill a contract with a
customer are capitalized and subsequently amortized as an expense
over the average life of a customer. |
|
(2) As described in the revenue and expenses accounting
policy detailed in the significant accounting policies disclosed in
the Company’s consolidated financial statements for the year ended
August 31, 2019, these amounts relate to the current portion of
wireless handset receivables. |
|
5. LEASE
LIABILITIES
Below is a summary of the activity related to the Company’s
lease liabilities for the three months ended November 30, 2019.
|
2019 |
|
Balance as at September 1,
2019 |
1,324 |
|
Net additions |
12 |
|
Interest on lease
liabilities |
11 |
|
Interest payments on lease
liabilities |
(11 |
) |
Principal payments of lease
liabilities |
(30 |
) |
Other |
- |
|
Balance as at November 30, 2019 |
1,306 |
|
|
|
Current |
113 |
|
Long-term |
1,211 |
|
Balance
as at September 1, 2019 |
1,324 |
|
Current |
113 |
|
Long-term |
1,193 |
|
Balance as at November 30, 2019 |
1,306 |
|
|
|
|
6. SHORT-TERM
BORROWINGS
A summary of our accounts receivable
securitization program is as follows:
|
November 30, 2019 |
August 31, 2019 |
Trade accounts receivable sold to buyer as security |
448 |
|
434 |
|
Short-term borrowings from buyer |
(120 |
) |
(40 |
) |
Over-collateralization |
328 |
|
394 |
|
|
Three months ended November 30, |
|
2019 |
2018 |
Accounts receivable
securitization program, beginning of period |
40 |
40 |
Proceeds received from accounts receivable securitization |
80 |
- |
Repayment of accounts receivable securitization |
- |
- |
Accounts receivable securitization program, end of
period |
120 |
40 |
|
|
|
On December 12, 2019, the Company drew an
additional $80 under its accounts receivable securitization program
with a Canadian financial institution, bringing the total amount
drawn under the program to $200. The program is now fully
drawn.
7. PROVISIONS
|
Asset |
|
|
|
|
retirement |
|
|
|
|
obligations |
Restructuring (1) |
Other |
Total |
|
$ |
$ |
$ |
$ |
September 1, 2019, as previously reported |
78 |
142 |
|
83 |
|
303 |
|
Transition adjustments |
- |
- |
|
(5 |
) |
(5 |
) |
Restated balance as at
September 1, 2019 |
78 |
142 |
|
78 |
|
298 |
|
Additions |
- |
- |
|
6 |
|
6 |
|
Accretion |
1 |
- |
|
- |
|
1 |
|
Reversal |
- |
- |
|
(1 |
) |
(1 |
) |
Payments |
- |
(36 |
) |
(5 |
) |
(41 |
) |
Balance as at November 30, 2019 |
79 |
106 |
|
78 |
|
263 |
|
|
|
|
|
|
Current |
- |
141 |
|
83 |
|
224 |
|
Long-term |
78 |
1 |
|
- |
|
79 |
|
Balance
as at August 31, 2019 |
78 |
142 |
|
83 |
|
303 |
|
|
|
|
|
|
Current |
- |
105 |
|
78 |
|
183 |
|
Long-term |
79 |
1 |
|
- |
|
80 |
|
Balance as at November 30, 2019 |
79 |
106 |
|
78 |
|
263 |
|
(1) During fiscal 2018, the Company offered a voluntary
departure program to a group of eligible employees as part of a
total business transformation initiative. A total of $36 has
been paid in fiscal 2020. The remaining costs are expected to be
paid out within the next 14 months. |
|
8. LONG-TERM DEBT
|
November 30, 2019 |
|
August 31, 2019 |
|
Effectiveinterestrates |
Long-termdebt
atamortizedcost(1) |
Adjustmentfor
financecosts (1) |
Long-termdebtrepayableat
maturity |
|
Long-termdebt atamortizedcost(1) |
Adjustmentfor financecosts (1) |
Long-termdebtrepayableat maturity |
|
% |
$ |
$ |
$ |
|
$ |
$ |
$ |
Corporate |
|
|
|
|
|
|
|
|
Cdn fixed rate
senior notes- |
|
|
|
|
|
|
|
|
5.65% due October 1, 2019 |
5.69 |
- |
- |
- |
|
1,250 |
- |
1,250 |
5.50% due December 7, 2020 |
5.55 |
499 |
1 |
500 |
|
499 |
1 |
500 |
3.15% due February 19, 2021 |
3.17 |
300 |
- |
300 |
|
299 |
1 |
300 |
3.80% due November 2, 2023 |
3.80 |
498 |
2 |
500 |
|
498 |
2 |
500 |
4.35% due January 31, 2024 |
4.35 |
498 |
2 |
500 |
|
498 |
2 |
500 |
3.80% due March 1, 2027 |
3.84 |
298 |
2 |
300 |
|
298 |
2 |
300 |
4.40% due November 2, 2028 |
4.40 |
496 |
4 |
500 |
|
496 |
4 |
500 |
6.75% due November 9, 2039 |
6.89 |
1,420 |
30 |
1,450 |
|
1,420 |
30 |
1,450 |
|
|
4,009 |
41 |
4,050 |
|
5,258 |
42 |
5,300 |
Other |
|
|
|
|
|
|
|
|
Burrard
Landing Lot 2 Holdings Partnership |
Various |
50 |
- |
50 |
|
50 |
- |
50 |
Total consolidated
debt |
|
4,059 |
41 |
4,100 |
|
5,308 |
42 |
5,350 |
Less
current portion(2) |
|
1 |
- |
1 |
|
1,251 |
1 |
1,252 |
|
|
4,058 |
41 |
4,099 |
|
4,057 |
41 |
4,098 |
(1) Long-term debt is presented net of unamortized discounts
and finance costs. |
(2) Current portion of long-term debt includes amounts due
within one year in respect of senior notes due October 1, 2019 and
the Burrard Landing loans. |
On October 1, 2019, the Company repaid $1,250 of
5.65% senior notes at their maturity.
On November 21, 2019, the Company amended the
terms of its bank credit facility to extend the maturity date to
December 2024.The facility can be used for working capital and
general corporate purposes.
Subsequent to quarter-end, on December 9, 2019
the Company issued $800 of senior notes, comprised of $500
principal amount of 3.30% senior notes due 2029 and $300 principal
amount of 4.25% senior notes due 2049. The net proceeds of the
offering of $792, along with cash on hand, were used to fund the
redemption of the $500 principal amount of 5.50% senior notes due
2020 and the $300 principal amount of 3.15% senior notes due
2021.
On December 24, 2019, the Company redeemed the
$500 principal amount of 5.50% senior notes due December 7, 2020
and the $300 principal amount of 3.15% senior notes due February
19, 2021. In conjunction with the redemption, the Company paid make
whole premiums of $17 and accrued interest of $5.
9. SHARE CAPITAL
Changes in share capital during the three months ended November
30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
Class AShares |
|
Class BNon-Voting Shares |
|
Series APreferred Shares |
|
Series BPreferred Shares |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
August 31, 2019 |
22,372,064 |
2 |
|
494,389,771 |
|
4,310 |
|
|
10,012,393 |
245 |
|
1,987,607 |
48 |
Issued upon stock option plan
exercises |
- |
- |
|
147,908 |
|
3 |
|
|
- |
- |
|
- |
- |
Issued pursuant to dividend
reinvestment plan |
- |
- |
|
1,445,494 |
|
37 |
|
|
- |
- |
|
- |
- |
Shares
repurchased |
- |
- |
|
(832,893 |
) |
(8 |
) |
|
- |
- |
|
- |
- |
November 30, 2019 |
22,372,064 |
2 |
|
495,150,280 |
|
4,342 |
|
|
10,012,393 |
245 |
|
1,987,607 |
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normal Course Issuer Bid
On October 29, 2019, the Company announced that
it had received approval from the Toronto Stock Exchange (“TSX”) to
establish a normal course issuer bid (“NCIB”) program. The program
commenced on November 1, 2019 and will remain in effect until
October 31, 2020. As approved by the TSX, the Company has the
ability to purchase for cancellation up to 24,758,127 Class B
Shares representing 5% of all of the issued and outstanding Class B
Shares as at October 18, 2019.
During the three months ended November 30, 2019,
the Company purchased 919,731 Class B Non-Voting Shares for
cancellation for a total cost of approximately $25 under the NCIB.
The average book value of the shares repurchased was $8.78 per
share and was charged to share capital. The excess of the market
price over the average book value, including transaction costs, was
approximately $17 and was charged to retained earnings.
From December 1, 2019 to December 31, 2019, the
Company purchased an additional 938,273 Class B Non-Voting Shares
for cancellation for a total cost of approximately $25 under the
NCIB.
Dividend Reinvestment Plan
On October 24, 2019, in accordance with the
terms of our Dividend Reinvestment Plan (the “DRIP”), the Company
announced that in lieu of issuing shares from treasury, it will
satisfy its share delivery obligations under the DRIP by purchasing
Class B Shares on the open market. In addition, the Company reduced
its discount from 2% to 0% for the Class B Shares delivered under
the DRIP. These changes to the DRIP were applied to the dividends
payable on November 28, 2019 to shareholders of record on November
15, 2019.
10. EARNINGS PER SHARE
Earnings per share calculations are as follows:
|
|
|
Three months ended November 30, |
|
2019 |
|
2018 |
|
Numerator for basic
and diluted earnings per share ($) |
|
|
Net income |
162 |
|
186 |
|
Deduct:
dividends on Preferred Shares |
(2 |
) |
(2 |
) |
Net
income attributable to common shareholders |
160 |
|
184 |
|
Denominator (millions
of shares) |
|
|
Weighted average number of
Class A Shares and Class B Non-Voting Shares for basic earnings per
share |
518 |
|
507 |
|
Effect
of dilutive securities (1) |
- |
|
1 |
|
Weighted average number of Class A Shares and Class B Non-Voting
Shares for diluted earnings per share |
518 |
|
508 |
|
Basic earnings per
share ($) |
|
|
Basic and diluted |
0.31 |
|
0.36 |
|
(1)The earnings per
share calculation does not take into consideration the potential
dilutive effect of certain stock options since their impact is
anti-dilutive. For the three months ended November 30, 2019,
4,966,252 (2018 – 6,976,976) options were excluded from the diluted
earnings per share calculation. |
|
|
11.
REVENUE
Contract assets and
liabilities
The table below provides a reconciliation of the
significant changes to the current and long-term portion of
contract assets and liabilities balances during the year.
|
Contract |
Contract |
|
Assets |
Liabilities |
Balance as at September 1, 2019 |
158 |
|
238 |
|
Increase in contract assets
from revenue recognized during the year |
72 |
|
- |
|
Contract assets transferred to
trade receivables |
(40 |
) |
- |
|
Contract terminations
transferred to trade receivables |
(4 |
) |
- |
|
Revenue recognized included in
contract liabilities at the beginning of the year |
- |
|
225 |
|
Increase in contract liabilities during the year |
- |
|
(234 |
) |
Balance as at November 30, 2019 |
186 |
|
229 |
|
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
Current |
106 |
|
223 |
Long-term |
52 |
|
15 |
Balance
as at August 31, 2019 |
158 |
|
238 |
Current |
117 |
|
214 |
Long-term |
69 |
|
15 |
Balance as at November 30, 2019 |
186 |
|
229 |
|
|
|
|
Deferred commission cost
assets
The table below provides a summary of the
changes in the deferred commission cost assets recognized from the
incremental costs incurred to obtain contracts with customers
during the three months ended November 30, 2019. We believe these
amounts to be recoverable through the revenue earned from the
related contracts. The deferred commission cost assets are
presented within other current assets (when they will be amortized
into net income within twelve months of the date of the financial
statements) or other long-term assets.
Balance as at September 1, 2019 |
94 |
|
Additions to deferred
commission cost assets |
28 |
|
Amortization recognized on deferred commission cost assets |
(20 |
) |
Balance as at November 30, 2019 |
102 |
|
|
|
Current |
59 |
|
Long-term |
35 |
|
Balance
as at August 31, 2019 |
94 |
|
Current |
60 |
|
Long-term |
42 |
|
Balance as at November 30, 2019 |
102 |
|
Commission costs are amortized over a period
ranging from 24 to 36 months.
Disaggregation of revenue
|
Three months ended November 30, |
|
2019 |
|
2018 |
|
Services |
|
|
Wireline - Consumer(1) |
924 |
|
945 |
|
Wireline - Business(1) |
143 |
|
138 |
|
Wireless |
196 |
|
166 |
|
|
1,263 |
|
1,249 |
|
Equipment and
other |
|
|
Wireless |
122 |
|
106 |
|
|
122 |
|
106 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
Total revenue |
1,383 |
|
1,354 |
|
(1) As a
result of a realignment of management responsibilities, revenues
relating to the Wholesale TPIA Services and Broadcast Services
operations, previously reported under the Business division are now
reported as part of the Consumer division. Fiscal 2019 results have
been restated to reflect this change. |
|
|
|
|
|
Remaining performance obligations
The following table includes revenues expected
to be recognized in the future related to performance obligations
that are unsatisfied (or partially unsatisfied) as at November 30,
2019.
|
Within |
Within |
|
|
1 year |
2 years |
Total |
Wireline |
2,027 |
929 |
2,956 |
Wireless |
397 |
156 |
553 |
Total |
2,424 |
1,085 |
3,509 |
|
|
|
|
When estimating minimum transaction prices
allocated to the remaining unfilled, or partially unfulfilled,
performance obligations, Shaw applied the practical expedient to
not disclose information about remaining performance obligations
that have original expected duration of one year or less and for
those contracts where we bill the same value as that which is
transferred to the customer.
12. OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES AND RESTRUCTURING COSTS
|
|
|
Three months ended November 30, |
|
2019 |
2018 |
Employee salaries
and benefits(1) |
157 |
162 |
Purchase of goods and services |
638 |
649 |
|
795 |
811 |
(1) For the three months ended November 30, 2019, employee salaries
and benefits include $nil (2018 - $1) in restructuring costs. |
|
13. OTHER COMPREHENSIVE INCOME AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
Components of other comprehensive income and the
related income tax effects for the three months ended November 30,
2019 are as follows:
|
|
|
|
|
Amount |
Income taxes |
Net |
Items that may
subsequently be reclassified to income |
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
- |
- |
|
- |
Share of other comprehensive income of associates |
- |
- |
|
- |
|
- |
- |
|
- |
Items that will not be
subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
7 |
(2 |
) |
5 |
|
7 |
(2 |
) |
5 |
|
|
|
|
|
Components of other comprehensive income and the
related income tax effects for the three months ended November 30,
2018 are as follows:
|
Amount |
Income taxes |
Net |
Items that
may subsequently be reclassified to income |
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
1 |
- |
|
1 |
Share of other comprehensive income of associates |
1 |
- |
|
1 |
|
2 |
- |
|
2 |
Items that
will not be subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
12 |
(3 |
) |
9 |
|
14 |
(3 |
) |
11 |
|
|
|
|
|
Accumulated other comprehensive loss is
comprised of the following:
|
|
|
|
November 30, 2019 |
August 31, 2019 |
Items that may
subsequently be reclassified to income |
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
1 |
|
1 |
|
|
|
|
Items that will not be
subsequently reclassified to income |
|
|
Remeasurements on employee benefit plans |
(90 |
) |
(95 |
) |
|
(89 |
) |
(94 |
) |
|
|
|
|
|
14. STATEMENTS OF CASH FLOWS
(i) Funds flow from continuing operations
|
|
|
Three months ended November 30, |
|
2019 |
|
2018 |
|
Net income from continuing
operations |
162 |
|
186 |
|
Adjustments to reconcile net
income to funds flow from operations: |
|
|
Amortization |
304 |
|
263 |
|
Deferred income tax expense |
12 |
|
20 |
|
Share-based compensation |
- |
|
1 |
|
Defined benefit pension plans |
(2 |
) |
3 |
|
Equity income of an associate or joint venture |
- |
|
(23 |
) |
Net change in contract asset balances |
(28 |
) |
(10 |
) |
Other |
2 |
|
(2 |
) |
Funds flow from continuing operations |
450 |
|
438 |
|
|
|
|
|
|
(ii) Interest and income taxes paid
and interest received and classified as operating activities are as
follows:
|
|
|
Three months ended November 30, |
|
2019 |
2018 |
Interest paid |
109 |
87 |
Income taxes paid (net of
refunds) |
34 |
52 |
Interest received |
4 |
1 |
|
|
|
(iii) Non-cash transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
|
|
Three months ended November 30, |
|
2019 |
2018 |
Issuance of Class B Non-Voting
Shares: |
|
|
Dividend reinvestment plan |
37 |
53 |
|
|
|
15. FAIR VALUE
Fair value estimates are made at a specific
point in time, based on relevant market information and information
about the financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the
estimates.
Financial instruments
The fair value of financial instruments has been
determined as follows:
(i) Current assets and current
liabilities
The fair value of financial instruments included
in current assets and current liabilities approximates their
carrying value due to their short-term nature.
(ii) Investments and other assets and
other long-term assets
The fair value of publicly traded investments is
determined by quoted market prices. Investments in private entities
which do not have quoted market prices in an active market and
whose fair value cannot be readily measured are carried at
approximate fair value. No published market exists for such
investments. These equity investments have been made as they are
considered to have the potential to provide future benefit to the
Company and accordingly, the Company has no current intention to
dispose of these investments in the near term. The fair value of
long-term receivables approximates their carrying value as they are
recorded at the net present values of their future cash flows,
using an appropriate discount rate.
(iii) Long-term debt
The carrying value of long-term debt is at
amortized cost based on the initial fair value as determined at the
time of issuance or at the time of a business acquisition. The fair
value of publicly traded notes is based upon current trading
values. The fair value of finance lease obligations is determined
by discounting future cash flows using a rate for loans with
similar terms, conditions and maturity dates. The carrying value of
bank credit facilities approximates fair value as the debt bears
interest at rates that fluctuate with market values. Other notes
and debentures are valued based upon current trading values for
similar instruments.
(iv) Other long-term liabilities
The fair value of contingent consideration
arising from a business acquisition is determined by calculating
the present value of the probability weighted assessment of the
likelihood that revenue targets will be met and the estimated
timing of such payments.
(v) Derivative financial
instruments
The fair value of US currency forward purchase
contracts is determined by an estimated credit-adjusted
mark-to-market valuation using observable forward exchange rates at
the end of reporting periods and contract forward rates.
The carrying values and estimated fair values of
long-term debt and a contingent liability are as follows:
|
|
|
|
|
November 30, 2019 |
|
August 31, 2019 |
|
Carryingvalue |
Estimatedfair value |
|
Carryingvalue |
Estimatedfair value |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion)(1) |
4,059 |
4,740 |
|
5,308 |
6,014 |
(1) Level 2 fair value – determined by valuation techniques
using inputs based on observable market data, either directly or
indirectly, other than quoted prices. |
|
|
16. SUBSEQUENT
EVENTS
On December 9, 2019 the Company issued $800 of
senior notes, comprised of $500 principal amount of 3.30% senior
notes due 2029 and $300 principal amount of 4.25% senior notes due
2049. The net proceeds of the offering of $792, along with cash on
hand, were used to fund the redemption of the $500 principal amount
of 5.50% senior notes due 2020 and the $300 principal amount of
3.15% senior notes due 2021.
On December 12, 2019, the Company drew an
additional $80 under its accounts receivable securitization program
with a Canadian financial institution, bringing the total amount
drawn under the program to $200. The program is now fully
drawn.
On December 24, 2019, the Company redeemed the
$500 principal amount of 5.50% senior notes due December 7, 2020
and the $300 principal amount of 3.15% senior notes due February
19, 2021. In conjunction with the redemption, the Company paid make
whole premiums of $17 and accrued interest of $5.
From December 1, 2019 to December 31, 2019, the
Company purchased an additional 938,273 Class B Non-Voting Shares
for cancellation for a total cost of approximately $25 under the
NCIB.
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