Shaw Communications Inc. (“Shaw” or the “Company”) announces
consolidated financial and operating results for the quarter ended
February 28, 2021. Consolidated revenue increased by 1.8% to $1.39
billion, adjusted EBITDA1 increased 6.2% year-over-year to
$637 million and net income increased 29.9% to $217 million.
Second quarter results do not include any costs or financial
impacts from the proposed transaction with Rogers.
“Our country has been a leader in building and
operating strong, robust networks that deliver innovative
technology and services to our customers. If this past year has
shown us anything, it is that we are resilient, and that strong,
capable networks are not only essential to our health and
well-being now, but are required to fuel economic growth and
prosperity in the future. Today, we are on the cusp of a new
technological era, with 5G representing limitless opportunities;
however, there are significant investments required to fully
capitalize on all of its potential. Under a combined Rogers and
Shaw entity, we will enable the scale, assets and capabilities to
accelerate unprecedented investment, to help close the connectivity
gap faster in rural, remote and Indigenous communities, and to
deliver new technology and more choice for consumers and
businesses, more quickly than either could achieve on its own. All
Canadians deserve world class connectivity,” said Brad Shaw,
Executive Chair & Chief Executive Officer.
Shaw and Rogers Transaction
On March 15, 2021, Shaw announced that it
entered into an arrangement agreement (the “Arrangement Agreement”)
with Rogers Communications Inc. (“Rogers”), under which Rogers will
acquire all of Shaw’s issued and outstanding Class A Participating
Shares (“Class A Shares”) and Class B Non-Voting Participating
Shares (“Class B Shares”) in a transaction valued at approximately
$26 billion, inclusive of approximately $6 billion of Shaw debt
(the “Transaction”). Holders of Class A Shares and Class B Shares
(other than the Shaw Family Living Trust, the controlling
shareholder of Shaw, and related persons (collectively, the “Shaw
Family Shareholders”)) will receive $40.50 per share in cash. The
Shaw Family Shareholders will receive 60% of the consideration for
their shares in the form of Class B Non-Voting Shares of Rogers
(“Rogers Shares”) on the basis of the volume-weighted average
trading price for the Rogers Shares for the 10 trading days ending
March 12, 2021, and the balance in cash. As of March 13, 2021, when
the Arrangement Agreement was signed, the value of the
consideration attributable to the Class A Shares and Class B Shares
held by the Shaw Family Shareholders (calculated using the
volume-weighted average trading price for the Rogers Shares for the
10 trading days ending March 12, 2021) was equivalent to $40.50 per
share.
The Transaction will be implemented by way of a
court-approved plan of arrangement under the Business Corporations
Act (Alberta). The Transaction requires the approval of two thirds
of the votes cast by the holders of Shaw’s Class A Shares and Class
B Shares at a special shareholders meeting to be held on May 20,
2021 (the “Special Meeting”), voting separately as a class, as well
as majority of the minority approval under Multilateral Instrument
61-101 Protection of Minority Security Holders in Special
Transactions (“MI 61-101”) of holders of the Class A Shares and
Class B Shares (excluding the votes of the Shaw Family Shareholders
and any other person required to be excluded for the purposes of MI
61-101), each voting separately as a class. The Shaw Family
Shareholders have irrevocably agreed to vote all of their Class A
Shares (representing approximately 79% of the outstanding Class A
Shares) and Class B Shares (representing approximately 8% of the
outstanding Class B Shares) in favour of the Transaction.
A Special Committee of independent directors of
Shaw has unanimously recommended the Transaction, and Shaw’s Board
of Directors has unanimously (with Brad Shaw abstaining) approved
the Transaction and unanimously recommends that Shaw shareholders
(other than the Shaw Family Shareholders) vote to approve the
Transaction. Shaw’s Directors and senior management have agreed to
vote all of their shares in favour of the Transaction.
The Transaction is subject to other customary
closing conditions including court and stock exchange approval, as
well as approvals from Canadian regulators. Rogers and Shaw intend
to work cooperatively and constructively with the Competition
Bureau, the Ministry of Innovation, Science and Economic
Development (ISED) and the Canadian Radio-television and
Telecommunications Commission (CRTC) to secure the requisite
approvals. Subject to receipt of all required approvals, closing of
the Transaction is expected to occur in the first half of 2022.
Under the terms of the Transaction, Rogers has
the right to cause the Company to redeem its outstanding preferred
shares on June 30, 2021 in accordance with their terms by providing
written notice to Shaw. As of the date of this press release,
Rogers has not exercised this right. The Company will continue to
pay its regular monthly dividends of $0.098542 in cash per Class A
Share and $0.09875 in cash per Class B Share, and its regular
quarterly dividend on its preferred shares in accordance with their
terms.
Further information regarding the Transaction
will be contained in a management information circular that Shaw
will prepare, file on SEDAR and mail to holders of its Class A
Shares and Class B Shares, as of the close of business on April 6,
2021, in advance of the Special Meeting scheduled to be held on May
20, 2021. Copies of the Arrangement Agreement and voting support
agreements are also available on Shaw’s SEDAR profile at
www.sedar.com and EDGAR profile at www.sec.gov/edgar.shtml.
Second Quarter Fiscal 2021
In the second quarter, the Company added
approximately 82,300 new Wireless customers. Postpaid net additions
of approximately 75,100 in the quarter include continued momentum
with Shaw Mobile. Wireless service revenue growth of 8.5% is due to
subscriber growth. As the Company continues to scale its lower
revenue Shaw Mobile customer base, second quarter Wireless ARPU2
decreased 4.2% from the prior year period to $36.82; however,
household profitability of bundled customers increased and Internet
migration to faster speed tiers continues to accelerate. Wireless
postpaid churn2 improved 32-basis points over the prior year period
to 1.25%.
In Wireline, the Company continues to focus on
profitable Internet customer growth and retention, primarily
through its bundling initiatives. In the quarter, Consumer RGU2
losses of approximately 65,800 was an improvement over the first
quarter of fiscal 2021, including Consumer Internet RGU losses of
approximately 5,400 as more customers bundled their Internet and
Wireless service together. Second quarter Wireline revenue declined
0.8% year-over-year to $1.05 billion and adjusted EBITDA increased
4.0% to $540 million, resulting in an adjusted EBITDA margin3 of
51.2%.
Selected Financial
Highlights
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars except per share amounts) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Revenue |
1,387 |
|
1,363 |
|
1.8 |
|
2,757 |
|
2,746 |
|
0.4 |
Adjusted EBITDA(1) |
637 |
|
600 |
|
6.2 |
|
1,244 |
|
1,188 |
|
4.7 |
Adjusted EBITDA Margin(1) |
45.9 |
% |
44.0 |
% |
4.3 |
|
45.1 |
% |
43.3 |
% |
4.2 |
Free Cash Flow(2) |
248 |
|
191 |
|
29.8 |
|
473 |
|
374 |
|
26.5 |
Net income |
217 |
|
167 |
|
29.9 |
|
380 |
|
329 |
|
15.5 |
Basic
and diluted earnings per share |
0.43 |
|
0.32 |
|
|
|
0.74 |
|
0.63 |
|
|
(1) |
See “Non-GAAP and additional financial measures” in the
accompanying MD&A. |
(2) |
Free cash flow is a non-GAAP financial measure and should not be
considered a substitute or alternative for GAAP measures. This is
not a defined term under IFRS and does not have a standardized
meaning, and therefore may not be a reliable way to compare us to
other companies. Free cash flow is composed of adjusted EBITDA and
then 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, lease payments relating to lease liabilities,
dividends paid on the preferred shares, and recurring cash funding
of pension amounts net of pension expense and adjusted to exclude
share-based compensation expense or recovery. See “Non-GAAP and
additional financial measures” in the accompanying MD&A for
more information about this measure, including quantitative
reconciliations to the most comparable financial measure in the
Company’s Consolidated Financial Statements. |
In the quarter, the Company added approximately
82,300 net Wireless RGUs, consisting of approximately 75,100
postpaid additions and approximately 7,200 prepaid additions.
Wireless service revenue for the three-month
period increased 8.5% to $218 million over the comparable period in
fiscal 2020 due to the increased subscriber base, including
significant Shaw Mobile additions in the quarter. Second quarter
ARPU decreased 4.2% year-over-year to $36.82. Wireless equipment
revenue for the three-month period increased 16.8% to $118 million
mainly due to a higher mix of high-end device sales and lower
subsidies. Second quarter Wireless adjusted EBITDA of
$97 million grew 19.8% year-over-year, due to continued
service revenue growth, lower acquisition related costs, and a $4
million decrease in bad debt expense, resulting in an increase in
adjusted EBITDA margin to 28.9%.
Wireline RGUs declined by approximately 65,800
in the quarter compared to a loss of approximately 50,000 in the
second quarter of fiscal 2020. The current quarter includes a
sequential improvement in Consumer Internet RGUs with a loss of
approximately 5,400 compared to a loss of 15,100 in the first
quarter of fiscal 2021. The mature products within the Consumer
division, including Video, Satellite and Phone declined in the
aggregate by 60,400 RGUs. Through continued broadband product and
distribution enhancements and Shaw Mobile bundling initiatives, the
Company is focused on profitable subscriber growth and reducing
household churn.
Second quarter Wireline revenue of $1.05 billion
decreased 0.8% while adjusted EBITDA of $540 million increased 4.0%
year-over-year. The current quarter increase in adjusted EBITDA was
due primarily to proactive base management and decreased operating
expenses, including lower employee related costs, partially offset
by a decrease in Consumer revenue. The current quarter adjusted
EBITDA benefited from an $8 million employee benefits provision
release and a $2 million bad debt provision release based on claims
and payment experience, respectively. Consumer revenue of
$909 million decreased 1.1% compared to the prior year as
growth in Internet revenue was offset by declines in Video,
Satellite and Phone subscribers and revenue. Business revenue
increased 0.7% to $145 million with Internet revenue growth and
continued demand for the Smart suite of products, partially offset
by lower video revenue primarily related to COVID-19. Shaw Business
recently launched a 1.5 Gig Internet speed tier for its business
customers giving businesses of all sizes the speed and bandwidth to
leverage data-heavy applications and cloud services.
Capital expenditures in the second quarter of
$250 million were $26 million, or 9.4%, lower than the prior
year period. Wireline capital spending decreased $44 million
compared to the second quarter of fiscal 2020 primarily due to a
decrease in success-based capital, while Wireless spending
increased by approximately $18 million year-over-year due to costs
associated with spectrum deployment and investments related to our
network.
Free cash flow for the quarter of
$248 million compared to $191 million in the prior year
period. The increase was primarily due to higher adjusted EBITDA
and lower Wireline capital spending.
Net income for the second quarter of fiscal 2021
of $217 million compared to $167 million in the second
quarter of fiscal 2020. The increase of $50 million was primarily
due to a $37 million increase in adjusted EBITDA compared to a year
ago and a $27 million fair value gain on private investments
recorded in the current quarter.
Fiscal 2021 Guidance
The Company confirms that it remains on track to
meet its fiscal 2021 guidance of adjusted EBITDA growth over fiscal
2020, consolidated capital investments of approximately $1.0
billion and free cash flow of approximately $800 million.
The severity and duration of impacts from the
COVID-19 pandemic remain uncertain and management continues to
focus on the safety of our people, most of whom continue to work
from home, connectivity of our customer base, compliance with
guidelines and requirements issued by various health authorities
and government organizations, and continuity of other critical
business operations. During the second quarter of fiscal 2021, the
Company continued to experience a reduction in overall Wireline
subscriber activity, an increase in wireline network usage as well
as extended peak hours, increased demand for Wireless voice
services, a decrease in Wireless roaming revenue, customer payments
substantially in-line with historical trends, and an increase in
credits provided for, as well as the reduction or cancellation of
Shaw Business customer accounts.
While the financial impacts from COVID-19 in the
second quarter of fiscal 2021 were not material, the situation is
still uncertain in terms of its magnitude, outcome, duration,
resurgence and/or subsequent waves. Consumer behavior impacts
remain uncertain and could still change materially, including the
potential downward migration of services, acceleration of
cord-cutting and reduced ability of customers to pay their bills,
all due to the challenging economic situation. Shaw Business
primarily serves the small and medium sized market, which is also
particularly vulnerable to the economic uncertainty in western
Canada and COVID-19 related restrictions, including mandated
closures, capacity restrictions, self-quarantines or further social
distancing requirements.
The Company believes its business and
facilities-based networks provide critical and essential services
to Canadians which remained resilient throughout fiscal 2020 and
will continue to be resilient in this dynamic and uncertain
environment. Management continues to actively monitor the impacts
to the business and make the appropriate adjustments to operating
and capital expenditures to reflect the evolving environment.
Considering the ongoing presence of COVID-19, the speed at which it
develops and/or changes, and the continued uncertainty of the
magnitude, outcome, duration, resurgence and/or subsequent waves of
the pandemic or the potential efficacy and time frame for the
availability and distribution of any COVID-19 vaccines, compounded
by the continued economic uncertainty in western Canada, the
current estimates of our operational and financial results which
underlie our outlook for fiscal 2021 are subject to a significantly
higher degree of uncertainty. Any estimate of the length and
severity of these developments is therefore subject to uncertainty,
as are our estimates of the extent to which the COVID-19 pandemic
may, directly or indirectly, materially and adversely affect our
operations, financial results, and condition in future periods.
The Transaction could cause the attention of
management of the Company to be diverted from the day-to-day
operations of the Company. These disruptions could be exacerbated
by a delay in the completion of the Transaction and could have an
adverse effect on the current and future business, operations,
results of operations, financial condition and prospects of the
Company. Because the completion of the Transaction is subject to
significant uncertainty, officers and employees of the Company may
experience uncertainty about their future roles with the Company,
which may adversely affect the Company’s ability to attract or
retain key management and personnel in the period until the
completion or termination of the Arrangement Agreement.
In addition, third parties with which the
Company currently has business relationship or may have business
relationships in the future, including industry partners,
regulators, customers and suppliers, may experience uncertainty
associated with the Transaction, including with respect to current
or future relationships with the Company or Rogers. Such
uncertainty could have a material and adverse effect on the current
and future business, operations, results of operations, financial
condition and prospects of the Company.
As at the end of February 28, 2021, the
Company’s net debt leverage ratio4 of 2.4x was below its target
leverage range of 2.5x to 3.0x. In the second quarter, Shaw
repurchased 9,955,328 Class B Shares for approximately $225
million. For the six months ended February 28, 2021, the Company
purchased 13,224,772 Class B Shares for cancellation for a total
cost of approximately $300 million. In connection with the
announcement of the proposed Transaction on March 15, 2021, the
Company suspended share buybacks under its normal course issuer bid
(NCIB) program.
On April 6, 2021, ISED published its list of
applicants to participate in the 3500 MHz spectrum auction, which
is currently scheduled to begin in June 2021. The list
confirms that Shaw has elected not to participate in the
auction.
Mr. Shaw concluded, “We continue to deliver our
business plan in fiscal 2021 with our relentless focus on building
the best networks, strong execution and on improving the customer
experience. We are in the unique position to combine forces with
Rogers in a truly transformational way to deliver Canadians world
class connectivity, more choice and better value. By creating a
robust national provider with the resources to build the next
generation of wireline and wireless networks, we will improve how
our country is connected for generations to come.”
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.
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 Adjusted EBITDA is a
non-GAAP financial measure and should not be considered a
substitute or alternative for GAAP measures. This is not a defined
term under IFRS and does not have a standardized meaning, and
therefore may not be a reliable way to compare us to other
companies. Adjusted earnings before interest, taxes, depreciation
and amortization (“adjusted EBITDA”) is composed of revenue less
operating, general and administrative expenses. See “Non-GAAP and
additional financial measures” in the accompanying MD&A for
more information about this measure, including quantitative
reconciliations to the most comparable financial measure in the
Company’s Consolidated Financial Statements.2 ARPU, Wireless
postpaid churn and RGUs are metrics used to measure the success of
our strategic imperatives. These key performance drivers are not
accounting measures and may not be comparable to similar measures
presented by other issuers. See definitions and discussion under
“Key Performance Drivers” in the accompanying MD&A.3 Adjusted
EBITDA margin is a non-GAAP ratio that is calculated by dividing
adjusted EBITDA by revenue. Adjusted EBITDA margin is not a
standardized measure under IFRS and may not be a reliable way to
compare us to other companies. See “Non-GAAP and additional
financial measures” in the accompanying MD&A for more
information about this non-GAAP ratio.4 Net debt leverage ratio is
a non-GAAP ratio that is calculated by dividing net debt by
adjusted EBITDA. Net debt is a non-GAAP financial measure which is
composed of the Company’s short-term borrowings, current portion of
long-term debt, current portion of lease liabilities, long-term
debt, lease liabilities and 50% of outstanding preferred shares,
less cash and cash equivalents. Net debt leverage ratio and net
debt are not standardized measures under IFRS and may not be a
reliable way to compare us to other companies. See “Non-GAAP and
additional financial measures” in the accompanying MD&A for
more information about this non-GAAP ratio and non-GAAP financial
measure, including a quantitative reconciliation to the most
comparable financial measure in the Company’s Consolidated
Financial Statements.
MANAGEMENT’S DISCUSSION AND
ANALYSISFor the three and six months ended
February 28, 2021
April 14, 2021
Contents
Introduction |
12 |
Selected financial and operational highlights |
16 |
Overview |
18 |
Outlook |
20 |
Non-GAAP and additional financial measures |
22 |
Discussion of operations |
25 |
Other income and expense items |
28 |
Supplementary quarterly financial information |
29 |
Financial position |
31 |
Liquidity and capital resources |
32 |
Accounting standards |
34 |
Related party transactions |
35 |
Financial instruments |
35 |
Internal controls and procedures |
35 |
Risks and uncertainties |
35 |
Government regulations and regulatory developments |
39 |
Advisories
The following Management’s Discussion and
Analysis (MD&A) of Shaw Communications Inc. is dated April 14,
2021 and should be read in conjunction with the condensed interim
Consolidated Financial Statements and Notes thereto for the three-
and six-month periods ended February 28, 2021 and the 2020 Annual
Consolidated Financial Statements, the Notes thereto and related
MD&A included in the Company’s 2020 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 may include, but are
not limited to statements relating to:
- the expected impact of the
continued economic uncertainty in western Canada and the COVID-19
pandemic;
- future capital expenditures;
- proposed asset acquisitions and
dispositions;
- anticipated benefits of the
Transaction (as defined below) to Shaw and its securityholders,
including corporate, operational, scale and other synergies and the
timing thereof;
- the ability to successfully
integrate the businesses of Rogers and Shaw;
- the timing, receipt and conditions
of required shareholder, regulatory, court, stock exchange or other
third party approvals, including but not limited to the receipt of
applicable approvals under the Broadcasting Act (Canada), the
Competition Act (Canada) and the Radiocommunication Act (Canada)
(collectively, the “Key Regulatory Approvals”) related to the
Transaction;
- the ability of the Company and
Rogers to satisfy the other conditions to the closing of the
Transaction and the anticipated timing for closing of the
Transaction;
- Shaw’s ability to redeem the
preferred shares and the timing thereof;
- the expected operations and capital
expenditure plans for the Company following completion of the
Transaction;
- expected cost efficiencies;
- financial guidance and expectations
for future performance;
- business and technology strategies
and measures to implement strategies;
- the Company’s equity investments,
joint ventures, and partnership arrangements;
- expected growth in subscribers and
the products/services to which they subscribe;
- competitive strengths and
pressures;
- 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 effectiveness of any changes to
the design and performance of the Company’s internal controls and
procedures;
- the expected impact of changes in
laws, regulations, decisions by regulators or other actions by
governments or regulators on the Company’s business, operations
and/or financial performance or the markets in which the Company
operates;
- the expected impact of any
emergency measures implemented by governments or regulators;
- timing of new product and service
launches;
- the resiliency and performance of
the Company’s wireline and wireless networks;
- 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;
- expected changes in the Company’s
market share;
- the cost of acquiring and retaining
subscribers and deployment of new services;
- expansion of and changes in the
Company’s business and operations and other goals and plans;
and
- execution and success of the
Company’s current and long term strategic initiatives.
All of the forward-looking statements made in
this MD&A 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. Considering the ongoing economic
uncertainty in western Canada and the uncertain and changing
circumstances surrounding the COVID-19 pandemic and the related
response from the Company, governments (federal, provincial and
municipal), regulatory authorities, businesses and customers, there
continues to be inherently more uncertainty associated with the
Company’s assumptions as compared to prior periods.
These assumptions, many of which are
confidential, include but are not limited to management
expectations with respect to:
- general economic conditions, which
includes the impact on the economy and financial markets of (i)
economic uncertainty in western Canada, and (ii) the COVID-19
pandemic and other health risks;
- the impact of (i) economic
uncertainty in western Canada, and (ii) the COVID-19 pandemic and
other health risks on the Company’s business, operations, capital
resources and/or financial results;
- anticipated benefits of the
Transaction to the Company and its security holders;
- the timing, receipt and conditions
of required shareholder, regulatory, court, stock exchange or other
third-party approvals, including but not limited to the receipt of
the Key Regulatory Approvals related to the Transaction;
- the ability of the Company and
Rogers to satisfy the other conditions to closing of the
Transaction in a timely manner and the completion of the
Transaction on expected terms;
- the ability of Rogers to obtain the
debt financing required to complete the Transaction through the
satisfaction of the limited conditions of the debt commitment
letter for the debt financing and the absence of events that would
prevent Rogers from consummating the debt financing;
- the potential redemption of the
preferred shares in a timely manner;
- the ability to successfully
integrate the Company with Rogers in a timely manner;
- the impact of the announcement of
the Transaction and the dedication of substantial Company resources
to pursuing the Transaction on the Company’s ability to maintain
its current business relationships (including with current and
prospective employees, customers and suppliers) and its current and
future operations, financial condition and prospects;
- the ability to satisfy the other
expectations and assumptions concerning the Transaction and the
operations and capital expenditure plans for the Company following
completion of the Transaction;
- 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 and cost of
programming, content, equipment, and devices;
- industry structure, conditions and
stability;
- regulation, legislation or other
actions by governments or regulators (and the impact or projected
impact on the Company’s business);
- the implementation of any emergency
measures by governments or regulators (and the impact or projected
impact on the Company’s business, operations, and/or financial
results);
- access to key suppliers and
third-party service providers and their goods and services required
to execute on the Company’s current and long-term strategic
initiatives on commercially reasonable terms;
- key suppliers performing their
obligations within the expected timelines;
- 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 sustainability of results and
objectives and cost reductions achieved through the Total Business
Transformation (TBT) initiative and Voluntary Departure Program
(VDP);
- operating expenses and capital cost
estimates associated with the implementation of enhanced health and
safety measures for the Company’s offices, retail stores and
employees to reduce the spread of COVID-19;
- the Company’s access to sufficient
retail distribution channels;
- the Company’s access to the
spectrum resources required to execute on its current and long-term
strategic initiatives; and
- the Company being able to execute
on its current and long term strategic initiatives.
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 including the impact of (i) economic
uncertainty in western Canada, and (ii) the COVID-19 pandemic and
other health risks, on the economy and financial markets which may
have a material adverse effect on the Company’s business,
operations, capital resources and/or financial results;
- increased operating expenses and
capital costs associated with the implementation of enhanced health
and safety measures for the Company’s offices, retail stores and
employees in response to the COVID-19 pandemic;
- the failure of the Company and
Rogers to receive, in a timely manner and on satisfactory terms,
the necessary shareholder, regulatory, court, stock exchange and
other third-party approvals, including but not limited to the Key
Regulatory Approvals required to close the Transaction;
- the ability to satisfy, in a timely
manner, the other conditions to the closing of the
Transaction;
- the ability to complete the
Transaction on the terms contemplated by the arrangement agreement
(the “Arrangement Agreement”) between the Company and Rogers;
- the ability to successfully
integrate the Company with Rogers in a timely manner;
- the ability of Rogers to obtain the
debt financing required to complete the Transaction through the
satisfaction of the limited conditions of the debt commitment
letter for the debt financing and the absence of events that would
prevent Rogers from consummating the debt financing;
- the Company’s failure to complete
the Transaction for any reason could materially negatively impact
the trading price of the Company’s securities;
- the announcement of the Transaction
and the dedication of substantial Company resources to pursuing the
Transaction may adversely impact the Company’s current business
relationships (including with current and prospective employees,
customers and suppliers) and its current and future operations,
financial condition and prospects;
- the failure of the Company to
comply with the terms of the Arrangement Agreement may, in certain
circumstances, result in the Company being required to pay the
termination fee to Rogers, the result of which will or could have a
material adverse effect on the Company’s financial position and
results of operations and its ability to fund growth prospects and
current operations;
- 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, or other actions by governments or
regulators, that affect the Company or the markets in which it
operates;
- any emergency measures implemented
by governments or regulators;
- 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 its capital and other projects by
the completion date;
- the Company’s ability to grow
subscribers and market share;
- the Company’s ability to have
and/or obtain 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 and their goods and
services required to execute on its current and long-term strategic
initiatives on commercially reasonable terms;
- the ability of key suppliers to
perform their obligations within expected timelines;
- the Company’s ability to retain key
employees;
- the Company’s ability to achieve
cost efficiencies;
- the Company’s ability to sustain
the results/objectives and cost reductions achieved through the TBT
initiative and VDP;
- 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;
- 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 the
Company’s fiscal 2020 Annual MD&A 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 in the Company’s fiscal 2020 Annual MD&A and
this MD&A. 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.” 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-GAAP and additional financial
measures
Certain measures in this MD&A do not have
standard meanings prescribed by GAAP and are therefore considered
non-GAAP financial 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, GAAP and do not have standardized
meanings. Therefore, they are unlikely to be comparable to similar
measures presented by other entities.
Please refer to “Non-GAAP and additional
financial measures” in this MD&A for a discussion and
reconciliation of non-GAAP financial measures, including adjusted
EBITDA, free cash flow and net debt as well as net debt leverage
ratio and adjusted EBITDA margin, which are non-GAAP ratios.
Introduction
At Shaw, we focus on delivering sustainable
long-term growth by connecting customers to the world through a
best-in-class seamless connectivity experience by leveraging our
world class converged network. This includes driving operational
efficiencies 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
customer relationships, identifying sustainable cost savings in our
core Wireline business, and making the appropriate investments to
capitalize on future growth, including network related investments
to support continued broadband product enhancements and improve the
wireless experience.
With the onset of the global COVID-19 pandemic in 2020,
connectivity rapidly became a critical lifeline for Canadians and
our economy. During this unprecedented period, our network
performance was exceptional, and we remain focused on supporting
our employees, customers and communities. Our robust
facilities-based network, the result of years of significant
investment, has showcased its strength in addressing our customers’
need to stay connected to family, friends and colleagues and work
from home throughout the COVID-19 pandemic. During the second
quarter, the Company continued to experience the following key
impacts related to COVID-19:
- a reduction in overall wireline subscriber activity,
- an increase in wireline network usage as well as extended peak
hours,
- increased demand for wireless voice services,
- a decrease in wireless roaming revenue,
- customer payments substantially in-line with historical trends,
and
- an increase in credits provided for, as well as the reduction
or cancellation of, Shaw Business customer accounts.
While the pandemic has had an impact on our business, Shaw
continues to be resilient, delivering solid financial and operating
results, and we believe that we are well positioned to meet the
rapidly changing and increasing demands of our customers. The
financial impacts from COVID-19 in the second quarter were not
material; however, the situation remains uncertain in terms of (i)
its magnitude, outcome, duration, resurgences and/or subsequent
waves, and (ii) the potential efficacy and time frame for the
availability and distribution of any COVID-19 vaccines. Consumer
behavior impacts remain uncertain and could still change
materially, including the potential downward migration of services,
acceleration of cord-cutting and reduced ability of customers to
pay their bills, all due to the challenging economic situation.
Shaw Business primarily serves the small and medium sized market,
which is also particularly vulnerable to the economic uncertainty
in western Canada and COVID-19 related restrictions, including
mandated closures or further social distancing requirements.
As an ongoing risk, the duration and impact of
the COVID-19 pandemic is still unknown, as is the efficacy and
duration of the government interventions. Any estimate of the
length and severity of these developments is therefore subject to
significant uncertainty, and accordingly estimates of the extent to
which the COVID-19 pandemic may materially and adversely affect the
Company’s operations, financial results and condition in future
periods are also subject to significant uncertainty.
Shaw and Rogers Transaction
On March 15, 2021, Shaw announced that it
entered into an Arrangement Agreement with Rogers Communications
Inc. (“Rogers”), under which Rogers will acquire all of Shaw’s
issued and outstanding Class A Participating Shares (“Class A
Shares”) and Class B Non-Voting Participating Shares (“Class B
Shares”) in a transaction valued at approximately $26 billion
inclusive of approximately $6 billion of Shaw debt (the
“Transaction”). Holders of Class A Shares and Class B Shares (other
than the Shaw Family Living Trust, the controlling shareholder of
Shaw, and related persons (collectively the “Shaw Family
Shareholders”)) will receive $40.50 per share in cash. The Shaw
Family Shareholders will receive 60% of the consideration for their
shares in the form of Class B Non-Voting Shares of Rogers (the
“Rogers Shares”) on the basis of the volume-weighted average
trading price for the Rogers Shares for the 10 trading days ending
March 12, 2021, and the balance in cash. As of March 13, 2021, when
the Arrangement Agreement was signed, the value of the
consideration attributable to the Class A Shares and Class B Shares
held by the Shaw Family Shareholders (calculated using the
volume-weighted average trading price for the Rogers Shares for the
10 trading days ending March 12, 2021) was equivalent to $40.50 per
share.
The Transaction will be implemented by way of a
court-approved plan of arrangement under the Business Corporations
Act (Alberta). The Transaction requires the approval of two thirds
of the votes cast by the holders of Shaw’s Class A Shares and Class
B Shares at a special shareholders meeting to be held on May 20,
2021 (the “Special Meeting”), voting separately as a class, as well
as majority of the minority approval under Multilateral Instrument
61-101 Protection of Minority Security Holders in Special
Transactions (“MI 61-101”) of holders of the Class A Shares and
Class B Shares (excluding the votes of the Shaw Family Shareholders
and any other person required to be excluded for the purposes of MI
61-101), each voting separately as a class. The Shaw Family
Shareholders have irrevocably agreed to vote all of their Class A
Shares (representing approximately 79% of the outstanding Class A
Shares) and Class B Shares (representing approximately 8% of the
outstanding Class B Shares) in favour of the Transaction.
A Special Committee of independent directors of
Shaw has unanimously recommended the Transaction, and Shaw’s Board
of Directors has unanimously (with Brad Shaw abstaining) approved
the Transaction and unanimously recommends that Shaw shareholders
(other than the Shaw Family Shareholders) vote to approve the
Transaction. Shaw’s Directors and senior management have agreed to
vote all of their shares in favour of the Transaction.
The Transaction is subject to other customary
closing conditions including court and stock exchange approval, as
well as approvals from Canadian regulators. Rogers and Shaw intend
to work cooperatively and constructively with the Competition
Bureau, the Ministry of Innovation, Science and Economic
Development (ISED) and the Canadian Radio-television and
Telecommunications Commission (CRTC) to secure the requisite
approvals. Subject to receipt of all required approvals, closing of
the Transaction is expected to occur in the first half of 2022.
Under the terms of the Transaction, Rogers has
the right to cause the Company to redeem its outstanding preferred
shares on June 30, 2021 in accordance with their terms by providing
written notice to Shaw. As of the date of this MD&A, Rogers has
not exercised this right. The Company will continue to pay its
regular monthly dividends of $0.098542 in cash per Class A Share
and $0.09875 in cash per Class B Share, and its regular quarterly
dividend on its preferred shares in accordance with their
terms.
Further information regarding the Transaction
will be contained in a management information circular that Shaw
will prepare, file on SEDAR and mail to holders of Class A Shares
and Class B Shares, as of the close of business on April 6, 2021,
in advance of the Special Meeting scheduled to be held on May 20,
2021. Copies of the Arrangement Agreement and voting support
agreements are also available on Shaw’s SEDAR profile at
www.sedar.com and EDGAR profile at www.sec.gov/edgar.shtml.
Wireless
Our Wireless division currently operates in
Ontario, Alberta and British Columbia, covering approximately 50%
of the Canadian population.
On July 30, 2020, the Company launched Shaw
Mobile, a new wireless service in western Canada that leverages
Shaw’s LTE and Fibre+ networks, along with Canada’s largest WiFi
service, to provide Shaw Internet customers with an innovative
wireless experience. Shaw Mobile provides Shaw Internet customers
with bundling opportunities to take advantage of unprecedented
savings, combined with the ability to customize their mobile data
requirements through two rate plans – By The Gig and Unlimited
Data. Shaw Mobile is a powerful example of how facilities-based
service providers can compete and innovate to deliver true wireless
affordability for Canadians. Shaw Mobile capitalizes on the
long-term trend that shows the vast majority of Canadians’ smart
device data usage occurs on WiFi networks, a fact amplified by
recent work-from-home trends.
Freedom Mobile continues to promote its Big Gig
Unlimited and Absolute Zero offers. Paired with the most popular
devices and ongoing improvements in the strength and capacity of
its network, the Big Gig Unlimited and Absolute Zero plans continue
to provide Canadians with an affordable option when choosing a
wireless service provider.
Second quarter fiscal 2021 results include
Wireless net additions of approximately 82,300. Wireless service
revenue increased 8.5% to $218 million and adjusted EBITDA1
increased 19.8% to $97 million compared to the second quarter of
fiscal 2020, as a result of the increased service revenues and a $4
million decrease in bad debt expense, partially offset by reduced
roaming revenue and Shaw Mobile related costs.
The Company made significant investments in its
wireless network and customer service capabilities. The Company
continues to modernize and expand its retail presence. Total
wireless retail locations across its operating footprint, including
corporate, dealer and national retail, are approximately 730, where
Shaw Mobile is available in approximately 150 locations.
The Company continues to prioritize network
investments as part of its converged network strategy and continues
to leverage the coaxial cable (which transports both power and
multi-gigabit data speeds) in its Fibre+ network for the rapid and
flexible deployment of small cells, which will support
densification efforts.
On April 6, 2021, ISED published its list of
applicants to participate in the 3500 MHz spectrum auction, which
is currently scheduled to begin in June 2021. The list
confirms that Shaw has elected not to participate in the
auction.
Wireline
In our Wireline business, we have cemented our
status as a technology leader and western Canada’s leader in gig
speed Internet underpinned by our Fibre+ network. Through our
digital transformation, we have made it easier to interact with our
customers and are leveraging insights from customer data to better
understand their preferences so we can provide them with the
services they want. We continue to streamline and simplify manual
processes to improve the customer experience and day-to-day
operations for our employees.
Despite the unprecedented impact that the
COVID-19 pandemic has had on the lives of our customers, and the
corresponding impacts to the way we serve our customers, our focus
remains on the execution and delivery of stable and profitable
Wireline results. This includes growth in high quality Internet
subscribers and improving overall customer account profitability by
attracting and retaining higher value households with our best
value proposition on 2-year ValuePlans for those who want faster
Internet with a better customer experience in addition to Video and
Wireless services.
The Company continues to deploy its Shaw Gateway
modem, powered by Comcast, which enables faster Internet speeds,
supports more devices and provides a stronger in-home WiFi
connection. The Company introduced Shaw Fibre+ Gig 1.5 in November
2020, designed to provide gamers, streamers and other heavy data
users the speed and bandwidth they need for the many connected
devices and data-heavy applications they use every day at home.
In the second quarter, Wireline
RGUs2 declined by approximately 65,800 compared to a decline
of 50,000 in the prior year period. Consumer Internet losses of
5,400 in the current quarter marks a sequential improvement from
the first quarter of fiscal 2021. Wireline revenue remained stable,
decreasing 0.8% while our focus on profitable customer
interactions, lower employee related costs and continued cost
discipline in the ongoing COVID-19 environment, contributed to
adjusted EBITDA growth of 4.0% and a strong Wireline adjusted
EBITDA margin3 of 51.2%. The current quarter adjusted EBITDA
benefited from an $8 million employee benefits provision release
and a $2 million bad debt provision release based on claims and
payment experience, respectively.
Our Wireline Business division provides
connectivity solutions to its customers by leveraging our Smart
suite products which provide cost-effective enterprise grade
managed IT and communications solutions that are increasingly
valued by businesses of all sizes as the digital economy grows in
scope and complexity. The COVID-19 pandemic, as well as continued
economic uncertainty in western Canada, impacted the Business
division by causing the crediting, as well as the reduction or
cancellation, of a number of Business customer accounts and slowing
revenue growth. In response to the changing needs of its customers
during the pandemic, Shaw Business added a suite of collaboration
tools and new Smart products, such as Microsoft 365, Smart Remote
Office, SmartSecurity and SmartTarget. Shaw Business recently
launched a 1.5 Gig Internet speed tier for its business customers
giving businesses of all sizes the speed and bandwidth to leverage
data-heavy applications and cloud services. Despite the continued
uncertain environment, Shaw Business performance has been solid,
including modest second quarter Business revenue growth of 0.7% to
$145 million over the prior year period.
_______________1 Adjusted EBITDA is a non-GAAP
financial measure and should not be considered a substitute or
alternative for GAAP measures. Adjusted EBITDA is not a defined
term under IFRS and does not have a standard meaning, and therefore
may not be a reliable way to compare us to other companies.
Adjusted earnings before interest, taxes, depreciation and
amortization (“adjusted EBITDA”) is composed of revenue less
operating, general and administrative expenses. See “Non-GAAP and
additional financial measures” for more information about this
measure, including a quantitative reconciliation to the most
comparable financial measure in the Company’s Consolidated
Financial Statements.2 See “Key Performance Drivers.”3 Adjusted
EBITDA margin is a non-GAAP ratio that is calculated by dividing
adjusted EBITDA by revenue. Adjusted EBITDA margin is not a
standardized measure under IFRS and may not be a reliable way to
compare us to other companies. See “Non-GAAP and additional
financial measures” for more information about this non-GAAP
ratio.
Selected financial and operational
highlights
Financial
Highlights |
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars except per share amounts) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Operations: |
|
|
|
|
|
|
|
Revenue |
1,387 |
|
1,363 |
|
1.8 |
|
2,757 |
|
2,746 |
|
0.4 |
Adjusted EBITDA(1) |
637 |
|
600 |
|
6.2 |
|
1,244 |
|
1,188 |
|
4.7 |
Adjusted EBITDA margin(1) |
45.9 |
% |
44.0 |
% |
4.3 |
|
45.1 |
% |
43.3 |
% |
4.2 |
Funds flow from operations(2) |
539 |
|
496 |
|
8.7 |
|
1,027 |
|
946 |
|
8.6 |
Free cash flow(1) |
248 |
|
191 |
|
29.8 |
|
473 |
|
374 |
|
26.5 |
Net income |
217 |
|
167 |
|
29.9 |
|
380 |
|
329 |
|
15.5 |
Per share
data: |
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
Basic and diluted |
0.43 |
|
0.32 |
|
|
|
0.74 |
|
0.63 |
|
|
Weighted average participating shares for basic earnings per share
outstanding during period (millions) |
505 |
|
516 |
|
|
|
509 |
|
517 |
|
|
(1) |
Adjusted EBITDA, adjusted EBITDA margin and free cash flow are
non-GAAP financial measures or non-GAAP ratios and should not be
considered substitutes or alternatives for GAAP measures. These are
not defined terms under IFRS and do not have standardized meanings,
and therefore may not be a reliable way to compare us to other
companies. Free cash flow is composed of adjusted EBITDA and then
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, lease payments relating to lease liabilities,
dividends paid on the preferred shares, and recurring cash funding
of pension amounts net of pension expense and adjusted to exclude
share-based compensation expense or recovery. See “Non-GAAP and
additional financial measures” for more information about these
measures including quantitative reconciliations to the most
comparable financial measures in the Company’s Consolidated
Financial Statements. |
(2) |
Funds flow from operations is before changes in non-cash balances
related to operations as presented in the condensed interim
Consolidated Statements of Cash Flows. |
Key Performance Drivers
The Company 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 2020 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
GAAP, should not be considered alternatives to revenue, net income
or any other measure of performance under GAAP and may not be
comparable to similar measures presented by other issuers.
Subscriber (or revenue generating unit
(RGU)) highlights
The Company measures the count of its
subscribers in its Consumer, Business, and Wireless divisions. For
further details and discussion on subscriber counts for RGUs see
“Key Performance Drivers – Statistical Measures – Subscriber Counts
for RGUs” in the MD&A for the year ended August 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
|
Three months ended |
|
Six months ended |
|
February 28, 2021 |
August 31, 2020 |
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Wireline – Consumer |
|
|
|
|
|
|
|
Video – Cable |
1,329,586 |
1,390,520 |
(26,497 |
) |
(19,310 |
) |
|
(60,934 |
) |
(33,258 |
) |
Video – Satellite |
603,632 |
650,727 |
(13,508 |
) |
(13,211 |
) |
|
(47,095 |
) |
(45,086 |
) |
Internet |
1,883,375 |
1,903,868 |
(5,425 |
) |
6,072 |
|
|
(20,493 |
) |
11,720 |
|
Phone |
628,432 |
672,610 |
(20,418 |
) |
(23,547 |
) |
|
(44,178 |
) |
(49,725 |
) |
Total Consumer |
4,445,025 |
4,617,725 |
(65,848 |
) |
(49,996 |
) |
|
(172,700 |
) |
(116,349 |
) |
Wireline – Business |
|
|
|
|
|
|
|
Video – Cable |
37,809 |
37,512 |
330 |
|
(2,779 |
) |
|
297 |
|
(1,157 |
) |
Video – Satellite |
36,464 |
36,002 |
(1,903 |
) |
1,099 |
|
|
462 |
|
3,432 |
|
Internet |
179,830 |
178,270 |
369 |
|
(338 |
) |
|
1,560 |
|
356 |
|
Phone |
391,104 |
387,660 |
1,022 |
|
1,509 |
|
|
3,444 |
|
5,762 |
|
Total Business |
645,207 |
639,444 |
(182 |
) |
(509 |
) |
|
5,763 |
|
8,393 |
|
Total Wireline |
5,090,232 |
5,257,169 |
(66,030 |
) |
(50,505 |
) |
|
(166,937 |
) |
(107,956 |
) |
Wireless |
|
|
|
|
|
|
|
Postpaid |
1,644,540 |
1,482,175 |
75,069 |
|
54,289 |
|
|
162,365 |
|
121,154 |
|
Prepaid |
360,300 |
339,339 |
7,228 |
|
(3,230 |
) |
|
20,961 |
|
(12,184 |
) |
Total Wireless |
2,004,840 |
1,821,514 |
82,297 |
|
51,059 |
|
|
183,326 |
|
108,970 |
|
Total Subscribers |
7,095,072 |
7,078,683 |
16,267 |
|
554 |
|
|
16,389 |
|
1,014 |
|
In Wireless, the Company gained 82,297 net
postpaid and prepaid subscribers in the quarter, consisting of
75,069 postpaid additions and 7,228 prepaid additions.
Wireline RGUs decreased by 66,030 compared to a
50,505 RGU loss in the second quarter of fiscal 2020. The current
quarter includes a Consumer Internet RGU decline of 5,425, which
compares to net additions of 6,072 a year ago but does include a
sequential improvement in Consumer Internet RGUs when compared to a
loss of 15,068 in the first quarter of fiscal 2021. The mature
products within the Consumer division, including Video, Satellite
and Phone, declined in the aggregate by 60,423 RGUs.
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 1.25% in the second quarter of
fiscal 2021 improved 32-basis points from 1.57% in the second
quarter of fiscal 2020.
Wireless average billing per subscriber
unit (ABPU)
Wireless 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 for service 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 allocations to wireless service revenue under IFRS 15)
divided by the average number of subscribers on the network during
the period and is expressed as a rate per month.
ABPU of $40.98 in the second quarter of fiscal
2021 compares to $43.84 in the second quarter of fiscal 2020,
representing a decrease of 6.5%.
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 $36.82 in the second quarter of fiscal
2021 compares to $38.45 in the second quarter of fiscal 2020,
representing a decrease of 4.2%.
Overview
For detailed discussion of divisional
performance see “Discussion of operations.” Highlights of the
consolidated second quarter financial results are as follows:
Revenue
Revenue for the second quarter
of fiscal 2021 of $1.39 billion increased $24 million, or
1.8%, from $1.36 billion for the second quarter of fiscal 2020,
highlighted by the following:
- Revenues in the Consumer division
decreased by $10 million, or 1.1%, as the growth in Internet
revenue was offset by declines in Video, Satellite and Phone
subscribers and revenue.
- The Wireless division contributed
$336 million and included a $34 million, or 11.3%, increase over
the second quarter of fiscal 2020 reflecting a $17 million increase
in service revenue due to the increased subscriber base, including
significant Shaw Mobile additions in the quarter and an increase in
equipment revenue of $17 million mainly due to a higher mix of
high-end device sales and lower subsidies.
- The Business division had growth of
$1 million, or 0.7%, in comparison to the second quarter of fiscal
2020 reflecting Internet revenue growth and continued demand for
the Smart suite of products, partially offset by lower video
revenue primarily related to COVID-19.
Compared to the first quarter
of fiscal 2021, consolidated revenue for the quarter increased
1.2%, or $17 million. The increase in revenue over the prior
quarter primarily relates to a $16 million increase in equipment
revenue in the Wireless division while a $3 million increase in
service revenue in the Wireless division reflects the impact of the
increased subscriber base partially mitigated by a decrease in ABPU
(down from $42.66 in the first quarter of fiscal 2021 to $40.98 in
the current quarter). ARPU also decreased quarter over quarter
(down from $38.25 in the first quarter of fiscal 2021 to $36.82 in
the current quarter). Wireline revenues decreased by $2 million
over the prior quarter.
Revenue for the six-month
period ended February 28, 2021 of $2.76 billion increased
$11 million, or 0.4%, from $2.76 billion for the comparable period
in fiscal 2020.
- The year-over-year improvement in
revenue was primarily due to the Wireless division contributing
revenues of $653 million mainly due to an increase in service
revenue of $36 million, or 9.1%, partially offset by a reduction in
equipment revenue of $3 million, or 1.3%, compared to the
comparable six-month period of fiscal 2020.
- The Business division contributed
$3 million, or 1.0%, to the consolidated revenue improvements for
the six-month period driven primarily by customer growth.
- Consumer division revenues
decreased $23 million, or 1.2%, compared to the comparable
six-month period of fiscal 2020 as growth in Internet revenues were
fully offset by declines in Video, Satellite and Phone subscribers
and revenues.
Adjusted EBITDA
Adjusted EBITDA for the second
quarter of fiscal 2021 of $637 million increased by $37
million, or 6.2%, from $600 million for the second quarter of
fiscal 2020, highlighted by the following:
- The year-over-year improvement in
the Wireless division of $16 million, or 19.8%, is mainly due
to continued service revenue growth, lower acquisition related
costs, and a $4 million decrease in bad debt expense.
- The year-over-year increase in the
Wireline division of $21 million, or 4.0%, was primarily due
to proactive base management and decreased operating expenses,
including lower employee related costs, partially offset by the
decrease in Consumer revenue. The current quarter adjusted EBITDA
benefited from an $8 million employee benefits provision release
and a $2 million bad debt provision release based on claims and
payment experience, respectively.
Consistent with the variances noted above,
adjusted EBITDA margin for the second quarter of
45.9% increased 190-basis points compared to 44.0% in the second
quarter of fiscal 2020.
Compared to the first quarter
of fiscal 2021, adjusted EBITDA for the current quarter increased
$30 million, or 4.9%, primarily due to a $22 million increase in
the Wireless division as a result of higher equipment revenues and
an $8 million increase in the Wireline division primarily due to
lower employee related costs and a decrease in bad debts.
For the six-month period ended
February 28, 2021, adjusted EBITDA of $1.24 billion increased $56
million, or 4.7%, from $1.19 billion for the comparable prior year
period.
- Wireless adjusted EBITDA for the six-month period increased $20
million, or 13.2%, over the comparable period mainly due to an
increase in service revenues partially offset by additional costs
in connection with the expansion of the Shaw retail footprint in
the current year.
- Wireline adjusted EBITDA for the six-month period increased $36
million, or 3.5%, over the comparable period mainly due to
decreased operating costs, including lower employee related costs,
travel expenses, and advertising, partially offset by a decrease in
Consumer revenue.
Free cash flow
Free cash flow for the second
quarter of fiscal 2021 of $248 million increased
$57 million from $191 million in the second quarter of
fiscal 2020, mainly due to a $37 million increase in adjusted
EBITDA, a $26 million decrease in capital expenditures, and a $2
million decrease in interest on debt partially offset by an $8
million increase in cash taxes.
Net income (loss)
Net income of $217 million and $380 million for
the three and six months ended February 28, 2021 respectively,
compared to a net income of $167 and $329 million for the same
periods in fiscal 2020. The changes in net income are outlined in
the following table:
|
|
|
|
|
|
February 28, 2021 net income compared to: |
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
November 30, 2020 |
February 29, 2020 |
|
February 29, 2020 |
Increased adjusted EBITDA(1) |
30 |
|
37 |
|
|
56 |
|
Decreased (increased)
restructuring costs(2) |
11 |
|
(1 |
) |
|
(13 |
) |
Decreased (increased)
amortization |
3 |
|
(2 |
) |
|
(4 |
) |
Change in net other costs and
revenue(3) |
27 |
|
46 |
|
|
52 |
|
Increased income taxes |
(17 |
) |
(30 |
) |
|
(40 |
) |
|
54 |
|
50 |
|
|
51 |
|
(1) |
See “Non-GAAP and additional financial measures.” |
(2) |
During the first and second quarters of fiscal 2021, the Company
made a number of changes to its organizational structure in an
effort to streamline the business, consolidate certain functions
and reduce redundancies between the Wireless and Wireline segments.
In connection with the restructuring, the Company recorded costs of
$12 million in the first quarter of fiscal 2021 and $1 million in
the second quarter of fiscal 2021, in each case primarily related
to severance and employee related costs. |
(3) |
Net other costs and revenue include accretion of long-term
liabilities and provisions, interest, debt retirement costs,
realized and unrealized foreign exchange differences and other
losses as detailed in the unaudited Consolidated Statements of
Income. In the second quarter of fiscal 2021, the Company recorded
a $27 million fair value gain on private investments in the
category. |
Outlook
The Company confirms that it remains on track to
meet its fiscal 2021 guidance of adjusted EBITDA growth over fiscal
2020, consolidated capital investments of approximately $1.0
billion and free cash flow of approximately $800 million.
The severity and duration of impacts from the
COVID-19 pandemic remain uncertain and management continues to
focus on the safety of our people, most of whom continue to work
from home, connectivity of our customer base, compliance with
guidelines and requirements issued by various health authorities
and government organizations, and continuity of other critical
business operations. During the second quarter of fiscal 2021, the
Company continued to experience a reduction in overall Wireline
subscriber activity, an increase in wireline network usage as well
as extended peak hours, increased demand for Wireless voice
services, a decrease in Wireless roaming revenue, customer payments
substantially in-line with historical trends, and an increase in
credits provided for, as well as the reduction or cancellation of
Shaw Business customer accounts.
While the financial impacts from COVID-19 in the
second quarter of fiscal 2021 were not material, the situation is
still uncertain in terms of its magnitude, outcome, duration,
resurgence and/or subsequent waves. Consumer behavior impacts
remain uncertain and could still change materially, including the
potential downward migration of services, acceleration of
cord-cutting and reduced ability of customers to pay their bills,
all due to the challenging economic situation. Shaw Business
primarily serves the small and medium sized market, which is also
particularly vulnerable to the economic uncertainty in western
Canada and COVID-19 related restrictions, including mandated
closures, capacity restrictions, self-quarantines or further social
distancing requirements.
The Company believes its business and
facilities-based networks provide critical and essential services
to Canadians which remained resilient throughout fiscal 2020 and
will continue to be resilient in this dynamic and uncertain
environment. Management continues to actively monitor the impacts
to the business and make the appropriate adjustments to operating
and capital expenditures to reflect the evolving environment.
Considering the ongoing presence of COVID-19, the speed at which it
develops and/or changes, and the continued uncertainty of the
magnitude, outcome, duration, resurgence and/or subsequent waves of
the pandemic or the potential efficacy and time frame for the
availability and distribution of any COVID-19 vaccines, compounded
by the continued economic uncertainty in western Canada, the
current estimates of our operational and financial results which
underlie our outlook for fiscal 2021 are subject to a significantly
higher degree of uncertainty. Any estimate of the length and
severity of these developments is therefore subject to uncertainty,
as are our estimates of the extent to which the COVID-19 pandemic
may, directly or indirectly, materially and adversely affect our
operations, financial results, and condition in future periods.
The Transaction could cause the attention of
management of the Company to be diverted from the day-to-day
operations of the Company. These disruptions could be exacerbated
by a delay in the completion of the Transaction and could have an
adverse effect on the current and future business, operations,
results of operations, financial condition and prospects of the
Company. Because the completion of the Transaction is subject to
significant uncertainty, officers and employees of the Company may
experience uncertainty about their future roles with the Company,
which may adversely affect the Company’s ability to attract or
retain key management and personnel in the period until the
completion or termination of the Arrangement Agreement.
In addition, third parties with which the
Company currently has business relationships or may have business
relationships in the future, including industry partners,
regulators, customers and suppliers, may experience uncertainty
associated with the Transaction, including with respect to current
or future relationships with the Company or Rogers. Such
uncertainty could have a material and adverse effect on the current
and future business, operations, results of operations, financial
condition and prospects of the Company.
Under the Arrangement Agreement, the Company
must generally use its reasonable best efforts to conduct its
business in the Ordinary Course (as such term is defined in the
Arrangement Agreement) and, prior to the completion of the
Transaction or the termination of the Arrangement Agreement, the
Company is subject to certain covenants which restrict it from
taking certain actions without the prior consent of Rogers and
which require it to take certain other actions. In either case,
such covenants may delay or prevent the Company from pursuing
business opportunities that may arise or preclude actions that
would otherwise be advisable if the Company were to remain a
standalone entity. The entering into of the Arrangement Agreement
may also preclude the Company from participating in any auction by
ISED for wireless spectrum licensing.
On April 6, 2021, ISED published its list of
applicants to participate in the 3500 MHz spectrum auction, which
is currently scheduled to begin in June 2021. The list
confirms that Shaw has elected not to participate in the
auction.
See “Caution concerning forward-looking
statements.”
Non-GAAP and additional financial
measures
The Company’s continuous disclosure documents
may provide discussion and analysis of non-GAAP financial measures
or ratios. These financial measures or ratios 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 financial measures. Additional financial
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-GAAP financial measures, ratios and
additional financial measures have not been presented as an
alternative to revenue, net income or any other measure of
performance required by GAAP.
Below is a discussion of the non-GAAP financial
measures, ratios and additional financial measures used by the
Company and provides a reconciliation to the nearest GAAP measure
or provides a reference to such reconciliation.
Adjusted EBITDA
Adjusted earnings before interest, taxes,
depreciation and amortization (“adjusted EBITDA”) 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. Adjusted EBITDA has no directly comparable GAAP
financial measure. Alternatively, the following table provides a
reconciliation of net income to adjusted EBITDA:
|
Three months ended |
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
February 28, 2021 |
February 29, 2020 |
Net income |
217 |
|
167 |
|
380 |
|
329 |
|
Add back (deduct): |
|
|
|
|
Restructuring costs |
1 |
|
- |
|
13 |
|
- |
|
Amortization: |
|
|
|
|
Deferred equipment revenue |
(3 |
) |
(5 |
) |
(6 |
) |
(9 |
) |
Deferred equipment costs |
12 |
|
17 |
|
25 |
|
35 |
|
Property, plant and equipment, intangibles and other |
294 |
|
288 |
|
589 |
|
577 |
|
Amortization of financing costs – long-term debt |
- |
|
1 |
|
1 |
|
2 |
|
Interest expense |
67 |
|
68 |
|
133 |
|
139 |
|
Other losses (gains) |
(26 |
) |
19 |
|
(24 |
) |
22 |
|
Current income tax expense |
44 |
|
23 |
|
80 |
|
59 |
|
Deferred income tax expense |
31 |
|
22 |
|
53 |
|
34 |
|
Adjusted EBITDA |
637 |
|
600 |
|
1,244 |
|
1,188 |
|
|
|
|
|
|
Adjusted EBITDA margin
Adjusted EBITDA margin is a non-GAAP ratio that
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 |
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Wireline |
51.2 |
% |
48.8 |
% |
4.9 |
|
50.8 |
% |
48.6 |
% |
4.5 |
Wireless |
28.9 |
% |
26.8 |
% |
7.8 |
|
26.3 |
% |
24.5 |
% |
7.3 |
Combined Wireline and Wireless |
45.9 |
% |
44.0 |
% |
4.3 |
|
45.1 |
% |
43.3 |
% |
4.2 |
Net debt
The Company uses this measure to perform
valuation-related analysis and make decisions about the Company’s
capital structure. We believe this measure aids investors in
analyzing the value of the business and assessing our leverage.
Refer to “Liquidity and capital resources” for further detail.
Net debt leverage ratio
The Company uses this non-GAAP 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.
Free cash flow is comprised of adjusted EBITDA
and then 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, lease payments relating to lease liabilities,
dividends paid on the preferred shares, and recurring cash funding
of pension amounts net of pension expense and adjusted to exclude
share-based compensation expense or recovery.
Free cash flow has not been reported on a
segmented basis. Certain components of free cash flow, 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 |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Revenue |
|
|
|
|
|
|
|
Consumer |
909 |
|
919 |
|
(1.1 |
) |
|
1,820 |
|
1,843 |
|
(1.2 |
) |
Business |
145 |
|
144 |
|
0.7 |
|
|
290 |
|
287 |
|
1.0 |
|
Wireline |
1,054 |
|
1,063 |
|
(0.8 |
) |
|
2,110 |
|
2,130 |
|
(0.9 |
) |
Service |
218 |
|
201 |
|
8.5 |
|
|
433 |
|
397 |
|
9.1 |
|
Equipment |
118 |
|
101 |
|
16.8 |
|
|
220 |
|
223 |
|
(1.3 |
) |
Wireless |
336 |
|
302 |
|
11.3 |
|
|
653 |
|
620 |
|
5.3 |
|
|
1,390 |
|
1,365 |
|
1.8 |
|
|
2,763 |
|
2,750 |
|
0.5 |
|
Intersegment eliminations |
(3 |
) |
(2 |
) |
50.0 |
|
|
(6 |
) |
(4 |
) |
50.0 |
|
|
1,387 |
|
1,363 |
|
1.8 |
|
|
2,757 |
|
2,746 |
|
0.4 |
|
Adjusted EBITDA |
|
|
|
|
|
|
|
Wireline |
540 |
|
519 |
|
4.0 |
|
|
1,072 |
|
1,036 |
|
3.5 |
|
Wireless |
97 |
|
81 |
|
19.8 |
|
|
172 |
|
152 |
|
13.2 |
|
|
637 |
|
600 |
|
6.2 |
|
|
1,244 |
|
1,188 |
|
4.7 |
|
Capital expenditures and equipment costs
(net):(1) |
|
|
|
|
|
|
|
Wireline |
179 |
|
223 |
|
(19.7 |
) |
|
340 |
|
428 |
|
(20.6 |
) |
Wireless |
71 |
|
53 |
|
34.0 |
|
|
144 |
|
108 |
|
33.3 |
|
|
250 |
|
276 |
|
(9.4 |
) |
|
484 |
|
536 |
|
(9.7 |
) |
Free cash flow before the following |
387 |
|
324 |
|
19.4 |
|
|
760 |
|
652 |
|
16.6 |
|
Less: |
|
|
|
|
|
|
|
Interest on debt |
(54 |
) |
(56 |
) |
(3.6 |
) |
|
(109 |
) |
(114 |
) |
(4.4 |
) |
Interest on lease liabilities |
(11 |
) |
(11 |
) |
– |
|
|
(22 |
) |
(22 |
) |
– |
|
Cash taxes |
(49 |
) |
(41 |
) |
19.5 |
|
|
(98 |
) |
(83 |
) |
18.1 |
|
Lease payments relating to lease liabilities |
(27 |
) |
(27 |
) |
– |
|
|
(58 |
) |
(57 |
) |
1.8 |
|
Other
adjustments: |
|
|
|
|
|
|
|
Non-cash share-based compensation |
1 |
|
1 |
|
– |
|
|
1 |
|
1 |
|
– |
|
Pension adjustment |
3 |
|
3 |
|
– |
|
|
3 |
|
1 |
|
>100.0 |
|
Preferred share dividends |
(2 |
) |
(2 |
) |
– |
|
|
(4 |
) |
(4 |
) |
– |
|
Free cash flow |
248 |
|
191 |
|
29.8 |
|
|
473 |
|
374 |
|
26.5 |
|
(1) |
Per Note 3 to the unaudited interim Consolidated Financial
Statements. |
Discussion of operations
Wireline
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Consumer |
909 |
|
919 |
|
(1.1 |
) |
|
1,820 |
|
1,843 |
|
(1.2 |
) |
Business |
145 |
|
144 |
|
0.7 |
|
|
290 |
|
287 |
|
1.0 |
|
Wireline revenue |
1,054 |
|
1,063 |
|
(0.8 |
) |
|
2,110 |
|
2,130 |
|
(0.9 |
) |
Adjusted EBITDA(1) |
540 |
|
519 |
|
4.0 |
|
|
1,072 |
|
1,036 |
|
3.5 |
|
Adjusted EBITDA margin(1) |
51.2 |
% |
48.8 |
% |
4.9 |
|
|
50.8 |
% |
48.6 |
% |
4.5 |
|
(1) |
See “Non-GAAP and additional financial measures.” |
In the second quarter of fiscal
2021, Wireline RGUs decreased by 66,030 compared to a 50,505 RGU
loss in the second quarter of fiscal 2021. The current quarter
includes a loss in Consumer Internet RGUs of 5,425 whereas the
mature products within the Consumer division, including Video,
Satellite and Phone declined in the aggregate by 60,423 RGUs.
Revenue highlights include:
- Consumer revenue for the
second quarter of fiscal 2021 decreased by $10
million, or 1.1%, compared to the second quarter of fiscal 2020 as
the growth in Internet revenue was offset by declines in Video,
Satellite and Phone subscribers and revenue.
- As compared to the first
quarter of fiscal 2021, the current quarter revenue
decreased by $2 million, or 0.2%.
- Business revenue of $145 million
for the second quarter of fiscal 2021 increased $1
million, or 0.7%, compared to the second quarter of fiscal 2020,
reflecting Internet revenue growth and demand for the Smart suite
of products, partially offset by lower video revenue primarily
related to COVID-19.
- As compared to the first
quarter of fiscal 2021, the current quarter revenue
remained unchanged.
- Wireline revenue for the
first six months of fiscal 2021 decreased $20
million, or 1.2%, compared to the first six months of fiscal 2020,
primarily due to a $23 million decrease in Consumer revenue as the
growth in Internet revenue was offset by declines in Video,
Satellite and Phone subscribers and revenue. This was partially
offset by a $3 million increase in Business revenue.
Adjusted EBITDA highlights include:
- Adjusted EBITDA for the
second quarter of fiscal 2021 of $540 million
increased 4.0%, or $21 million, from $519 million in the
second quarter of fiscal 2020. The increase was primarily due to
proactive base management and decreased operating expenses,
including lower employee related costs, partially offset by the
decrease in Consumer revenue. The current quarter adjusted EBITDA
benefited from an $8 million employee benefits provision release
and a $2 million bad debt provision release based on claims and
payment experience, respectively.
- As compared to the first
quarter of fiscal 2021, Wireline adjusted EBITDA for the
current quarter increased by $8 million, or 1.5%, primarily
due to lower employee related costs and a decrease in bad
debts.
- Adjusted EBITDA for the
first six months of fiscal 2021 increased $36
million, or 3.5%, compared to the first six months of fiscal 2020,
primarily due to decreased operating costs, including lower
employee related costs, travel expenses, and advertising, partially
offset by a decrease in Consumer revenue.
Wireless |
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Service |
218 |
|
201 |
|
8.5 |
|
433 |
|
397 |
|
9.1 |
|
Equipment and other |
118 |
|
101 |
|
16.8 |
|
220 |
|
223 |
|
(1.3 |
) |
Wireless revenue |
336 |
|
302 |
|
11.3 |
|
653 |
|
620 |
|
5.3 |
|
Adjusted EBITDA(1) |
97 |
|
81 |
|
19.8 |
|
172 |
|
152 |
|
13.2 |
|
Adjusted EBITDA margin(1) |
28.9 |
% |
26.8 |
% |
7.8 |
|
26.3 |
% |
24.5 |
% |
7.3 |
|
(1) |
See “Non-GAAP and additional financial measures.” |
The Wireless division added 82,297 RGUs in the
second quarter of fiscal 2021 as compared to
51,059 RGUs gained in the second quarter of fiscal 2020. The net
additions in the quarter consisted of 75,069 postpaid and 7,228
prepaid additions.
Revenue highlights include:
- Revenue of $336 million for the
second quarter of fiscal 2021 increased
$34 million, or 11.3%, over the second quarter of fiscal 2020.
This was primarily due to an increase in service revenues of $17
million, or 8.5%, due to the increased subscriber base, including
significant Shaw Mobile additions in the quarter and an increase in
equipment revenue of $17 million, or 16.8%, mainly due to a higher
mix of high-end device sales and lower subsidies. There was a 6.5%
and 4.2% year-over-year decrease in ABPU to $40.98 and ARPU to
$36.82, respectively.
- As compared to the first
quarter of fiscal 2021, the current quarter revenue
increased $19 million, or 6.0%, due to increased equipment sales of
$16 million combined with $3 million in higher service revenues,
while ABPU of $40.98 decreased by $1.68, or 3.9% (ABPU of $42.66 in
the first quarter of fiscal 2021), and ARPU of $36.82 decreased by
$1.43, or 3.7% (ARPU of $38.25 in the first quarter of fiscal
2021).
- Revenue of $653 million for the
first six months of fiscal 2021 increased
$33 million, or 5.3%, over the first six months of fiscal 2020
mainly due to an increase in service revenue of $36 million, or
9.1%, due to the increased subscriber base, partially offset by a
reduction in equipment revenue of $3 million, or 1.3%, as Shaw
Mobile benefited from the vast majority of customers bringing their
own device.
Adjusted EBITDA highlights include:
- Adjusted EBITDA of $97 million for
the second quarter of fiscal 2021 improved by
$16 million, or 19.8%, over the second quarter of fiscal 2020.
The increase is primarily due to continued service revenue growth,
lower acquisition related costs, and a $4 million decrease in bad
debt expense.
- As compared to the first
quarter of fiscal 2020, adjusted EBITDA for the current
quarter increased $22 million, or 29.3%, mainly due to a $16
million increase in equipment revenues, a $3 million increase in
service revenues, and a $2 million decrease in bad debt
expense.
- Adjusted EBITDA for the
first six months of fiscal 2021 increased $20
million, or 13.2%, compared to the first six months of fiscal 2020,
primarily due to an increase in service revenues partially offset
by additional costs in connection with the expansion of the Shaw
retail footprint in the current year.
|
Capital
expenditures and equipment costs |
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Wireline |
|
|
|
|
|
|
|
New housing development |
27 |
31 |
(12.9 |
) |
|
50 |
66 |
(24.2 |
) |
Success-based |
34 |
67 |
(49.3 |
) |
|
78 |
129 |
(39.5 |
) |
Upgrades and enhancements |
92 |
82 |
12.2 |
|
|
173 |
162 |
6.8 |
|
Replacement |
8 |
7 |
14.3 |
|
|
15 |
15 |
- |
|
Building and other |
18 |
36 |
(50.0 |
) |
|
24 |
56 |
(57.1 |
) |
Total as per Note 3 to the unaudited interim consolidated financial
statements |
179 |
223 |
(19.7 |
) |
|
340 |
428 |
(20.6 |
) |
Wireless |
|
|
|
|
|
|
|
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
71 |
53 |
34.0 |
|
|
144 |
108 |
33.3 |
|
Consolidated total as per Note 3 to the unaudited interim
consolidated financial statements |
250 |
276 |
(9.4 |
) |
|
484 |
536 |
(9.7 |
) |
In the second quarter of fiscal
2021, capital investment of $250 million decreased $26 million from
the comparable period in fiscal 2020. Total Wireline capital
spending of $179 million decreased $44 million compared to the
prior year period primarily due to lower success-based capital,
capitalized labour, and buildings and other costs partially offset
by an increase in upgrades and enhancements. Wireless spending
increased by approximately $18 million year-over-year primarily due
to continued network and retail expansion, spectrum deployment, and
higher IT related spending related to back office systems and
digital initiatives.
Wireline highlights for the quarter include:
- For the quarter, investment in
combined upgrades, enhancements and replacement categories was $100
million which is an increase of $11 million, or 12.4%, over the
prior year period.
- Investments in new housing
development were $27 million, a $4 million, or 12.9%, decrease over
the prior year period, driven by lower residential and commercial
customer network growth and acquisition in the current year.
- Success-based capital for the
quarter of $34 million was $33 million lower than the second
quarter of fiscal 2020 primarily due to lower equipment purchases
in the period and decreased labour costs related to the increase in
customer self-installation.
- Investments in buildings and other
in the amount of $18 million was $18 million lower year-over year
primarily due to higher corporate related costs in the comparable
period.
Wireless highlights for the quarter include:
- Capital investment of
$71 million in the second quarter increased relative to the
second quarter of fiscal 2020 by $18 million, primarily due to
continued network and retail expansion, spectrum deployment and
higher IT related spending related to back office systems and
digital initiatives. In fiscal 2021, the Company continues to focus
on investment in the Wireless network and infrastructure,
specifically the continued deployment of 700 MHz spectrum, 600 MHz
spectrum, LTE and small cells as well as enhancements to the
back-office systems, new retail locations and other corporate
initiatives.
Other income and expense
items
Restructuring costs
Restructuring costs generally include severance,
employee related costs and other costs directly associated with a
restructuring program. During the first and second quarters of
fiscal 2021, the Company made a number of changes to its
organizational structure in an effort to streamline the business,
consolidate certain functions, and reduce redundancies between the
Wireless and Wireline segments. In connection with the
restructuring, the Company recorded costs of $12 million in the
first quarter of fiscal 2021, and $1 million in the second quarter
of fiscal 2021 primarily related to severance and employee related
costs.
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Amortization revenue (expense) |
|
|
|
|
|
|
|
Deferred equipment revenue |
3 |
|
5 |
|
(40.0 |
) |
|
6 |
|
9 |
|
(33.3 |
) |
Deferred equipment costs |
(12 |
) |
(17 |
) |
(29.4 |
) |
|
(25 |
) |
(35 |
) |
(28.6 |
) |
Property, plant and equipment, intangibles and other |
(294 |
) |
(288 |
) |
2.1 |
|
|
(589 |
) |
(577 |
) |
2.1 |
|
Amortization of property, plant and equipment,
intangibles and other increased 2.1% for both the three and six
months ended February 28, 2021 when compared to the same periods in
fiscal 2020. The increase in amortization reflects 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 |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Amortization of financing costs – long-term debt |
- |
1 |
(100.0 |
) |
|
1 |
2 |
(50.0 |
) |
Interest expense |
67 |
68 |
(1.5 |
) |
|
133 |
139 |
(4.3 |
) |
Interest expense for the three and six months
ended February 28, 2021 decreased 1.5% and 4.3%, respectively, over
the comparable periods which primarily reflects the lower average
outstanding debt balances in the period and the decrease in the
weighted average interest rate.
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, realized and unrealized
gains and losses on private investments, and the Company’s share of
the operations of Burrard Landing Lot 2 Holdings Partnership. In
the second quarter of fiscal 2021, the Company recorded a $27
million fair value gain on private investments in the category.
Income taxes
Income taxes are higher in the quarter compared
to the second quarter of fiscal 2020 due mainly to the increase in
net income and the recognition of previously unrecognized tax
losses in fiscal 2020.
|
Supplementary quarterly financial information |
|
2021(3) |
2020(3) |
2019 |
(millions of Canadian dollars except per
share amounts) |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
|
|
|
|
|
|
|
|
|
Revenue |
1,387 |
|
1,370 |
|
1,349 |
|
1,312 |
|
1,363 |
|
1,383 |
|
1,349 |
|
1,322 |
|
Adjusted EBITDA(1) |
637 |
|
607 |
|
594 |
|
609 |
|
600 |
|
588 |
|
534 |
|
528 |
|
Restructuring costs |
(1 |
) |
(12 |
) |
– |
|
(14 |
) |
– |
|
– |
|
10 |
|
– |
|
Amortization |
(303 |
) |
(305 |
) |
(312 |
) |
(302 |
) |
(300 |
) |
(303 |
) |
(250 |
) |
(263 |
) |
Amortization of financing
costs |
– |
|
(1 |
) |
(1 |
) |
– |
|
(1 |
) |
(1 |
) |
(1 |
) |
(1 |
) |
Interest expense |
(67 |
) |
(66 |
) |
(68 |
) |
(67 |
) |
(68 |
) |
(71 |
) |
(66 |
) |
(62 |
) |
Other income (expense) |
26 |
|
(2 |
) |
(1 |
) |
7 |
|
(19 |
) |
(3 |
) |
2 |
|
(36 |
) |
Income taxes |
(75 |
) |
(58 |
) |
(37 |
) |
(49 |
) |
(45 |
) |
(48 |
) |
(63 |
) |
61 |
|
Net income(2) |
217 |
|
163 |
|
175 |
|
184 |
|
167 |
|
162 |
|
166 |
|
227 |
|
Net income attributable to
equity shareholders |
217 |
|
163 |
|
175 |
|
184 |
|
167 |
|
162 |
|
166 |
|
225 |
|
Net income attributable to
non-controlling interests |
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
2 |
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic and diluted |
0.43 |
|
0.31 |
|
0.34 |
|
0.35 |
|
0.32 |
|
0.31 |
|
0.32 |
|
0.43 |
|
Other Information |
|
|
|
|
|
|
|
|
Cash flows from operating
activities |
473 |
|
300 |
|
632 |
|
588 |
|
361 |
|
339 |
|
435 |
|
432 |
|
Free cash flow(1) |
248 |
|
225 |
|
152 |
|
221 |
|
191 |
|
183 |
|
42 |
|
174 |
|
Capital
expenditures and equipment costs |
250 |
|
234 |
|
307 |
|
268 |
|
276 |
|
260 |
|
382 |
|
280 |
|
(1) |
See “Non-GAAP and additional financial measures.” |
(2) |
Net income attributable to both equity shareholders and
non-controlling interests. |
(3) |
Fiscal 2021 and 2020 figures reflect the impact of the adoption and
application of IFRS 16 while Fiscal 2019 figures do not and are not
comparable. See “New Accounting Standards” as well as “Results of
Operations” and “Segmented Operations Review” in the MD&A for
the year ended August 31, 2020. |
F21 Q2 vs F21 Q1 |
In the second quarter of fiscal 2021, net income increased $54
million compared to the first quarter of fiscal 2021 mainly due to
a $30 million increase in adjusted EBITDA, an $11 million decrease
in restructuring costs, and a $27 million fair value gain on
private investments recorded in the second quarter, partially
offset by a $9 million increase in deferred taxes and an $8 million
increase in current taxes, all in the second quarter. |
F21 Q1 vs F20 Q4 |
In the first quarter of fiscal 2021, net income decreased $12
million compared to the fourth quarter of fiscal 2020 mainly due to
a $12 million increase in restructuring costs in the first quarter
and a $27 million increase in deferred taxes, partially offset by a
$13 million increase in adjusted EBITDA and a $6 million decrease
in current taxes, all in the first quarter. |
F20 Q4 vsF20 Q3 |
In the fourth quarter of fiscal 2020, net income decreased $9
million compared to the third quarter of fiscal 2020 mainly due to
an $15 million decrease in adjusted EBITDA and a $23 million
increase in current taxes in the fourth quarter as well an $8
million decrease in other gains (losses) as a result of an
insurance claim recovery in the third quarter, partially offset by
a $35 million decrease in deferred taxes and a $14 million decrease
in restructuring costs in the fourth quarter. |
F20 Q3 vsF20 Q2 |
In the third quarter of fiscal 2020, net income increased $17
million compared to the second quarter of fiscal 2020 mainly due to
a $26 million increase in other gains (losses), which includes the
impact of the $17 million payment related to the early redemption
of $800 million in senior notes in the second quarter, a $6 million
insurance claim recovery, a $9 million increase in adjusted EBITDA
in the third quarter and a $4 million decrease in current taxes,
partially offset by an $8 million increase in deferred taxes, also
in the third quarter. |
F20 Q2 vs F20 Q1 |
In the second quarter of fiscal 2020, net income increased
$5 million compared to the first quarter of fiscal 2020 mainly
due to a $13 million decrease in current taxes, a $12 million
increase in adjusted EBITDA and a $3 million decrease in interest
expense, all in the second quarter, partially offset by a $17
million payment related to the early redemption of $800 million in
senior notes and a $10 million increase in deferred taxes, also in
the second quarter. |
F20 Q1 vs 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 Q4 vs 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 Q3 vs 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 entire equity investment in Corus, all
recorded in the third quarter. |
Financial position
Total assets were $15.9 billion at February 28,
2021 compared to $16.2 billion at August 31, 2020. The following is
a discussion of significant changes in the Consolidated Statements
of Financial Position since August 31, 2020.
Current assets decreased $254 million primarily
due to a decrease in cash of $375 million which was partially
offset by increases in accounts receivables of $62 million,
inventories of $10 million, other current assets of $32 million and
income taxes recoverable of $21 million. Cash decreased primarily
due to the payment of $300 million in dividends, $300 million for
share repurchases, as described below, and cash outlays for
investing activities, partially offset by funds flow from
operations. Refer to “Liquidity and capital resources” for more
information.
Accounts receivable increased $62 million mainly
due to timing, as the Company continues to migrate customers from
two-month advance billing to one-month advance billing, and the
impact of an $18 million capital project reimbursement accrual
recorded in the period.
The current portion of contract assets decreased
slightly over the period mainly due to a decrease in deferred
Wireline costs as a result of lower onboarding promotional activity
for new subscribers over the past year. Under IFRS 15, up-front
promotional offers, such as onboarding or switch credits, offered
to new two-year value-plan customers is recorded as a contract
asset and amortized over the life of the contract against future
service revenues.
Property, plant and equipment decreased
$51 million as the amortization of capital and right-of-use
assets exceeded the capital investments and additions to
right-of-use assets in the period.
Current liabilities decreased $134 million
during the period primarily due to a $64 million decrease in
accounts payable and a decrease in income taxes payable of $57
million.
Accounts payable and accrued liabilities
decreased due to the timing of payments and fluctuations in various
payables including capital expenditures and tax remittances. The
decrease in current provisions was mainly due to the payment of
outstanding restructuring costs in the period, partially offset by
an increase in regulatory provisions.
Lease liabilities increased $20 million mainly
due to $78 million in new lease liabilities, partially offset by
principal repayments of $58 million in the period.
Shareholders’ equity decreased $196 million
mainly due to a decrease in retained earnings. Retained earnings
decreased as the current period income of $380 million was
more than fully offset by dividends of $300 million and the
impact of shares repurchased under the normal course issuer bid
(NCIB) program of $184 million. Share capital decreased $115
million due to the impact of 13,224,772 Class B Shares repurchased
under the terms of the Company’s NCIB program which was partially
offset by the issuance of 28,300 Class B Shares under the Company’s
stock option plan. Accumulated other comprehensive loss decreased
$23 million due to the remeasurement recorded on employee benefit
plans in the period.
As at March 31, 2021, there were 476,278,172
Class B Shares, 10,012,393 Cumulative Redeemable Rate Reset Class 2
Preferred Shares, Series A, 1,987,607 Cumulative Redeemable
Floating Rate Class 2 Preferred Shares, Series B and 22,372,064
Class A Shares issued and outstanding. As at March 31, 2021,
7,801,230 Class B 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 six-month period ended February 28, 2021,
the Company generated $473 million of free cash flow. Shaw used its
free cash flow along with cash of $375 million and proceeds from
the issuance of Class B Shares of $1 million to fund the net
working capital change of $243 million, pay common share dividends
of $300 million, repurchase $300 million in Class B Shares under
the Company’s NCIB program and pay $24 million in restructuring
costs.
Debt structure and financial
policy
The Company has an accounts receivable
securitization program with a Canadian financial institution which
allows it to sell certain trade receivables into the program. As at
February 28, 2021, the proceeds of the sales were committed up to a
maximum of $200 million (with $200 million drawn under
the program as at February 28, 2021). 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
Statements 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 the Company’s other assets.
As at February 28, 2021, the net debt leverage
ratio for the Company was 2.4x. 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 appropriate for the Company in the current
environment. In addition, the terms of the Arrangement Agreement
require Shaw to obtain Rogers’ consent prior to incurring certain
types of indebtedness.
The Company calculates net debt leverage ratio as follows(1): |
|
|
|
|
|
|
|
(millions of Canadian dollars) |
February 28, 2021 |
|
August 31, 2020 |
Short-term borrowings |
200 |
|
|
200 |
|
Current portion of long-term debt |
1 |
|
|
1 |
|
Current portion of lease liabilities |
108 |
|
|
113 |
|
Long-term debt |
4,548 |
|
|
4,547 |
|
Lease liabilities |
1,182 |
|
|
1,157 |
|
50% of outstanding preferred shares |
147 |
|
|
147 |
|
Cash and cash equivalents |
(388 |
) |
|
(763 |
) |
(A) Net debt(2) |
5,798 |
|
|
5,402 |
|
(B) Adjusted EBITDA(2) |
2,447 |
|
|
2,391 |
|
(A/B) Net debt leverage
ratio(3) |
2.4 |
x |
|
2.3 |
x |
(1) |
The following contains a description of the Company’s use of
non-GAAP financial measures in the calculation of net debt leverage
ratio, which is a non-GAAP ratio, and provides a reconciliation to
the nearest GAAP measure or provides a reference to such
reconciliation. |
(2) |
See “Non-GAAP and additional financial measures.” |
(3) |
Net debt leverage ratio is a non-GAAP ratio and should not be
considered as a substitute or alternative for a GAAP measure and
may not be a reliable way to compare us to other companies. See
“Non-GAAP and additional financial measures” for further
information about this ratio. |
On November 2, 2020, the Company announced that
it had received approval from the TSX to establish an NCIB program.
The program commenced on November 5, 2020 and will remain in effect
until November 4, 2021. As approved by the TSX, the Company has the
ability to purchase for cancellation up to 24,532,404 Class B
Shares representing approximately 5% of all of the issued and
outstanding Class B Shares as at October 22, 2020.
During the three and six months ended February
28, 2021, the Company purchased 9,955,328 and 13,224,772 Class B
Shares for cancellation for a total cost of approximately $225
million and $300 million, respectively, under the NCIB program.
From March 1, 2021 to March 12, 2021, the
Company purchased an additional 1,559,202 Class B Shares for
cancellation for a total cost of approximately $36 million under
the NCIB program. In connection with the announcement of the
Transaction on March 15, 2021, the Company suspended share buybacks
under its NCIB program.
Shaw’s credit facilities are subject to
customary covenants which include maintaining minimum or maximum
financial ratios.
|
Covenant as atFebruary 28,
2021 |
|
Covenant Limit |
Shaw Credit Facilities |
|
|
|
Total Debt to Operating Cash Flow(1) Ratio |
1.83:1 |
|
< 5.00:1 |
Operating Cash Flow(1) to Fixed Charges(2) Ratio |
10.99:1 |
|
> 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 February 28, 2021, 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 and working capital requirements, including
maturing debt, during the upcoming fiscal year. The terms of the
Arrangement Agreement require that the Company maintain sufficient
liquidity to pay an $800 million termination fee payable by Shaw in
certain circumstances.
Under the terms of the Arrangement Agreement,
Rogers has the right to cause the Company to redeem its outstanding
preferred shares on June 30, 2021 in accordance with their terms by
providing written notice to Shaw. As of the date of this MD&A,
Rogers has not exercised this right.
As at February 28, 2021, the Company had $388
million of cash on hand and its $1.5 billion bank credit facility
was fully undrawn.
Cash Flow
Operating Activities |
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Change % |
|
February 28, 2021 |
February 29, 2020 |
Change % |
Funds flow from operations |
539 |
|
496 |
|
8.7 |
|
1,027 |
|
946 |
|
8.6 |
|
Net
change in non-cash balances related to operations |
(66 |
) |
(135 |
) |
51.1 |
|
(254 |
) |
(246 |
) |
(3.3 |
) |
|
473 |
|
361 |
|
31.0 |
|
773 |
|
700 |
|
10.4 |
|
For the three months ended February 28, 2021,
funds flow from operating activities increased over the comparable
period in fiscal 2020 primarily due to a smaller decrease in the
net change in non-cash balances related to operations and an
increase in the funds flow from 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 |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
Decrease |
|
February 28, 2021 |
February 29, 2020 |
Decrease |
Cash used in investing activities |
(254 |
) |
(294 |
) |
(40 |
) |
|
(486 |
) |
(604 |
) |
(118 |
) |
For the three months ended February 28, 2021,
the cash used in investing activities decreased over the comparable
period in fiscal 2020 primarily due to a decrease in additions to
property, plant and equipment of $30 million and a decrease to
additions to investment and other assets of $4 million, partially
offset by an increase in proceeds on disposal of property, plant
and equipment of $2 million received in the current period.
Financing Activities |
|
|
|
|
|
The changes in
financing activities during the comparative periods were as
follows: |
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Increase in short-term borrowings [note 7] |
- |
|
135 |
|
|
- |
|
215 |
|
Issuance of long-term
debt |
- |
|
800 |
|
|
- |
|
800 |
|
Repayment of long-term
debt |
- |
|
(818 |
) |
|
- |
|
(2,068 |
) |
Debt arrangement costs |
- |
|
(9 |
) |
|
- |
|
(10 |
) |
Payment of lease liabilities
[note 6] |
(27 |
) |
(27 |
) |
|
(58 |
) |
(57 |
) |
Issue of Class B Shares [note
10] |
1 |
|
2 |
|
|
1 |
|
5 |
|
Purchase of Class B
Shares |
(225 |
) |
(80 |
) |
|
(300 |
) |
(105 |
) |
Dividends paid on Class A
Shares and Class B Shares |
(149 |
) |
(153 |
) |
|
(301 |
) |
(269 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
(2 |
) |
|
(4 |
) |
(4 |
) |
Payment
of distributions to non-controlling interests |
- |
|
- |
|
|
- |
|
(2 |
) |
|
(402 |
) |
(152 |
) |
|
(662 |
) |
(1,495 |
) |
Contractual Obligations
There has been no material change in the
Company’s contractual obligations, including commitments for
capital expenditures, between August 31, 2020 and February 28,
2021.
Accounting standards
The MD&A included in the Company’s
August 31, 2020 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 2020 Annual 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, 2020. The condensed interim Consolidated Financial
Statements follow the same accounting policies and methods of
application as the 2020 Annual Consolidated Financial
Statements.
Related party transactions
The Company’s transactions with related parties
are discussed in its MD&A for the year ended August 31,
2020 under “Related Party Transactions” and under Note 29 of
the Consolidated Financial Statements of the Company for the year
ended August 31, 2020.
There has been no material change in the
Company’s transactions with related parties between August 31,
2020 and February 28, 2021.
Financial instruments
There has been no material change in the
Company’s risk management practices with respect to financial
instruments between August 31, 2020 and February 28, 2021. See
“Known Events, Trends, Risks and Uncertainties – Interest Rates,
Foreign Exchange Rates and Capital Markets” in the Company’s
MD&A for the year ended August 31, 2020 and the section
entitled “Financial Instruments” under Note 30 of the
Consolidated Financial Statements of the Company for the year ended
August 31, 2020.
Internal controls and
procedures
Details relating to disclosure controls and
procedures, and internal control over financial reporting (ICFR),
are discussed in the Company’s MD&A for the year ended August
31, 2020 under “Certification.” As at February 28, 2021, there have
been no changes in the Company’s ICFR that have materially
affected, or are reasonably likely to materially affect, the
Company’s ICFR in fiscal 2021.
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, 2020 under “Known
Events, Trends, Risks and Uncertainties.” The following is a list
of the significant risks and uncertainties since that date.
Risks Related to the
Transaction
The completion of the Transaction is
subject to the satisfaction or waiver of several conditions
precedent
The completion of the Transaction is subject to
a number of conditions precedent, some of which are outside of the
control of the Company and Rogers, including receipt of the Key
Regulatory Approvals, receipt of the required shareholder approval,
the granting of the interim and final orders by the court, stock
exchange approvals, there not having occurred a Material Adverse
Effect or Purchaser Material Adverse Effect (as such terms are
defined in the Arrangement Agreement), and the satisfaction of
certain other customary closing conditions. There can be no
certainty, nor can the Company or Rogers provide any assurance,
that all conditions precedent to the Transaction will be satisfied
or waived, nor can there be any certainty of the timing of their
satisfaction or waiver. In addition, shareholders are advised that
the condition relating to the occurrence of a Purchaser Material
Adverse Effect is enforceable by, and is for the benefit of, the
Shaw Family Living Trust. Accordingly, the Shaw Family Living
Trust, which may have interests in the Transaction different from,
or in addition to, those of other shareholders, has the right to
prevent or delay the completion of the Transaction should it
determine that a Purchaser Material Adverse Effect has
occurred.
If, for any reason, the Transaction is not
completed or its completion is materially delayed and/or the
Arrangement Agreement is terminated, the market price of the Shares
may be materially adversely affected. In such circumstances, the
Company’s business, financial condition or results of operations
could also be subject to various material adverse consequences. In
addition, if the Transaction is not completed, in certain
circumstances, the Company may be required to pay a termination fee
of $800 million to Rogers, the result of which could have a
material adverse effect on the Company’s business, financial
position and results of operations and its ability to fund growth
prospects and current operations.
The Key Regulatory Approvals necessary
to complete the Transaction may not be obtained or may only be
obtained after substantial delay
To complete the Transaction, each of the Company
and Rogers must make certain filings with and obtain certain
consents and approvals from various governmental and regulatory
authorities. In particular, the Company and Rogers have not yet
obtained the Key Regulatory Approvals, all of which are required to
complete the Transaction. In addition, governmental or regulatory
agencies could deny permission for, or seek to block or challenge
the Transaction or the transfer or deemed transfer of specific
assets, including spectrum licenses, or impose material conditions
relating to the Arrangement or any such transfer. If any one of the
Key Regulatory Approvals is not obtained or any applicable law is
in effect which makes the consummation of the Transaction illegal,
the Transaction will not be completed.
In addition, a substantial delay in obtaining
the Key Regulatory Approvals could result in the Transaction not
being completed. In particular, if the Transaction is not completed
by March 15, 2022 (subject to an extension of up to 90 days if
required to obtain the Key Regulatory Approvals), either Shaw or
Rogers may terminate the Arrangement Agreement, in which case the
Transaction will not be completed.
Under certain circumstances, if the Key
Regulatory Approvals are not obtained or any law (that relates to
one or more of the Key Regulatory Approvals or the Competition Act
(Canada)) is in effect which would make the consummation of the
Transaction illegal and the failure to obtain the Key Regulatory
Approvals is not caused by, and is not a result of, the failure by
the Company to perform in all material respects any of its
covenants or agreements under the Arrangement Agreement, then
Rogers is obligated to pay the $1.2 billion reverse termination
amount and holders of the Class A Shares and Class B Shares will
not receive the consideration under the Arrangement Agreement (as
the Transaction will not be completed).
Federal election could impact the
regulatory reviews of the Transaction
The potential for a federal election to be
called before the expected closing of the Transaction may have an
unpredictable impact on the timing and outcome of the regulatory
reviews of the Transaction.
The Transaction is subject to receipt of
the Required Shareholder Approval
The Transaction requires that the shareholder
resolution for the Transaction be approved by (a) not less than
two-thirds of the votes cast by holders of Class A Shares, voting
separately as a class, present in person (including virtually) or
by proxy at the Special Meeting, (b) not less than two-thirds of
the votes cast by holders of Class B Shares, voting separately as a
class, present in person (including virtually) or by proxy at the
Special Meeting, (c) a majority of the votes cast by holders of
Class A Shares, voting separately as a class, present in person
(including virtually) or by proxy at the Special Meeting, excluding
for this purpose votes attached to the Class A Shares held by
persons described in items (a) through (d) of section 8.1(2) of MI
61-101; and (d) a majority of the votes cast by holders of Class B
Shares, voting separately as a class, present in person (including
virtually) or by proxy at the Special Meeting, excluding for this
purpose votes attached to the Class B Shares held by persons
described in items (a) through (d) of section 8.1(2) of MI
61-101.
There can be no certainty, nor can the Company
provide any assurance, that the required shareholder approval will
be obtained. If such approval is not obtained and the Transaction
is not completed, the market price of Shaw’s securities may decline
to the extent that the current market price reflects a market
assumption that the Transaction will be completed. If the
Transaction is not completed, the Controlling Shareholder Voting
Support Agreement (as defined in the Arrangement Agreement) may
also limit the Company’s ability to seek another merger or business
combination prior to June 13, 2022. Subject to the terms of the
Controlling Shareholder Voting Support Agreement, if the Company’s
Board decides to seek another merger or business combination, there
can be no assurance that it will be able to find a party willing to
pay an equivalent or greater price for all of Shaw’s issued and
outstanding Class A Shares and Class B Shares than the price to be
paid by Rogers pursuant to the Transaction.
The Arrangement Agreement may be
terminated in certain circumstances
The Transaction may be terminated by the Company
or Rogers in certain circumstances, in which case the Transaction
will not be completed. Accordingly, there is no certainty, nor can
the Company provide any assurance, that the Arrangement Agreement
will not be terminated by the Company or Rogers prior to the
completion of the Transaction. The failure to complete the
Transaction could materially negatively impact the market price of
Shaw’s securities. Moreover, if the Arrangement Agreement is
terminated and the Company’s Board determines to pursue another
merger or business combination, there is no assurance that the
Company’s Board will be able to find a party willing to pay an
equivalent or greater price for all of Shaw’s issued and
outstanding Class A Shares and Class B Shares than the price to be
paid by Rogers pursuant to the Transaction.
The failure to complete the Transaction
could negatively impact the Company and have a material adverse
effect on the current and future operations, financial condition
and prospects of the Company
If the Transaction is not completed for any
reason, there are risks that the announcement of the Transaction
and the dedication of substantial resources of the Company to the
completion thereof could have a negative impact on the Company’s
current business relationships (including with future and
prospective employees, customers, suppliers and partners) and could
have a material adverse effect on the current and future business,
operations, results of operations, financial condition and
prospects of the Company. In addition, failure to complete the
Transaction for any reason could materially negatively impact the
market price of Shaw’s securities.
The entering into of the Arrangement Agreement
may also preclude the Company from participating in any auction by
ISED for wireless spectrum licenses.
On April 6, 2021, ISED published its list of
applicants to participate in the 3500 MHz spectrum auction, which
is currently scheduled to begin in June 2021. The list
confirms that Shaw has elected not to participate in the
auction.
If the Transaction is not completed, the
inability of the Company to participate in any wireless spectrum
auction and to acquire licenses thereunder could have a material
adverse effect on the current and future operations, financial
condition and prospects of the Company.
The Company will incur significant costs
and, in certain circumstances, may be required to pay a Termination
Fee
Certain costs relating to the Transaction, such
as legal, accounting, tax and financial advisory fees, must be paid
by the Company even if the Transaction is not completed. In
addition, if the Transaction is not completed for certain reasons,
the Company may be required to pay a termination fee of $800
million to Rogers, the result of which could have a material
adverse effect on the Company’s business, financial position and
results of operations and its ability to fund growth prospects and
current operations.
The Controlling Shareholder Voting
Support Agreement and the Termination Fee may discourage third
parties from attempting to acquire the Company
The Controlling Shareholder Voting Support
Agreement (as defined in the Arrangement Agreement) may
significantly reduce the likelihood that any third party will
express any interest in acquiring the Company. In particular,
pursuant to the terms of the Controlling Shareholder Voting Support
Agreement, the Shaw Family Living Trust has agreed to, among other
things, vote in favour of the Transaction and against any matter
that could reasonably be expected to impede, interfere with, delay,
discourage, prevent, adversely affect, inhibit or frustrate the
timely consummation of the Transaction. The voting obligations of
the Shaw Family Living Trust under the Controlling Shareholder
Voting Support Agreement are “irrevocable” in that they do not
terminate upon the termination of the Arrangement Agreement
(subject to certain exceptions) and the Arrangement Agreement does
not permit the Company or the Company’s Board to terminate the
Arrangement Agreement in order to enter into an agreement providing
for, or to complete, an Acquisition Proposal, even if such
Acquisition Proposal constitutes a Superior Proposal (as such terms
are defined in the Arrangement Agreement). The Shaw Family Living
Trust has also agreed to not solicit, assist, initiate, encourage
or otherwise knowingly facilitate any inquiry, proposal or offer
(whether public or otherwise) that constitutes or could reasonably
be expected to constitute or lead to an Acquisition Proposal or
enter into, engage in, continue or otherwise participate in any
discussions or negotiations regarding any inquiry, proposal or
offer (whether public or otherwise) that constitutes or could
reasonably be expected to constitute or lead to an Acquisition
Proposal. The effect of these provisions is that a competing offer
for the Company may be less likely than in other transactions of a
similar nature.
In addition, if the Transaction is not completed
for certain reasons, the Company may be required to pay a
termination fee of $800 million to Rogers, which may discourage
other parties from making an Acquisition Proposal, even if such
Acquisition Proposal could provide better value to Shaw’s Class A
and Class B shareholders than the Transaction. Even if the
Arrangement Agreement is terminated without payment of a
termination fee by the Company to Rogers, the Company may, in the
future, be required to pay a termination fee in certain
circumstances. Accordingly, if the Transaction is not consummated
and the Arrangement Agreement is terminated, the Company may not be
able to consummate another Acquisition Proposal that would
otherwise provide greater value than what is provided for under the
Arrangement Agreement without paying the termination fee to
Rogers.
The Arrangement Agreement contains
provisions that restrict the ability of the Company and the
Company’s Board to pursue alternatives to the
Transaction
The Arrangement Agreement contains
non-solicitation provisions that restrict the ability of the
Company and the Company’s Board to solicit, initiate, knowingly
encourage or otherwise knowingly facilitate any inquiry, proposal
or offer that constitutes or may reasonably be expected to
constitute or lead to an Acquisition Proposal. In addition, the
Arrangement Agreement does not permit the Company or the Company’s
Board to terminate the Arrangement Agreement in order to enter into
an agreement providing for, or to complete, another Acquisition
Proposal (even if such Acquisition Proposal constitutes a Superior
Proposal) and could provide better value to Shaw’s Class A and
Class B shareholders than the Transaction.
The Transaction may divert the attention
of management of the Company, impact the Company’s ability to
attract or retain key personnel or impact the Company’s third party
business relationships
The Transaction could cause the attention of the
Company’s management to be diverted from the day-to-day operations
of the Company. These disruptions could be exacerbated by a delay
in the completion of the Transaction and could have an adverse
effect on the current and future business, operations, results of
operations, financial condition and prospects of the Company.
Because the completion of the Transaction is subject to
uncertainty, officers and employees of the Company may experience
uncertainty about their future roles with the Company, which may
adversely affect the Company’s ability to attract or retain key
management and personnel in the period until the completion or
termination of the Transaction.
In addition, third parties with which the
Company currently has business relationships or may have business
relationships in the future, including industry partners,
regulators, customers and suppliers, may experience uncertainty
associated with the Transaction, including with respect to current
or future relationships with the Company or Rogers. Such
uncertainty could have a material and adverse effect on the current
and future business, operations, results of operations, financial
condition and prospects of the Company.
The Company’s directors, officers and
employees may have interests in the Transactions that are different
from those of Shaw’s shareholders
Certain directors, officers and employees of the
Company may have interests in the Transaction that are different
from, or in addition to, the interests of Company’s Class A and
Class B shareholders generally.
The Arrangement Agreement contains
certain restrictions on the ability of the Company to conduct its
business
Under the Arrangement Agreement, the Company
must generally use its reasonable best efforts to conduct its
business in the ordinary course and, prior to the completion of the
Transaction or the termination of the Arrangement Agreement, the
Company is subject to certain covenants which restrict it from
taking certain actions without the prior consent of Rogers and
which require it to take certain other actions. In either case,
such covenants may delay or prevent the Company from pursuing
business opportunities that may arise or preclude actions that
would otherwise be advisable if the Company were to remain a
standalone entity.
The financing of the
Transaction
Although the Arrangement Agreement does not
contain a financing condition and Rogers has received the debt
commitment letter to provide for the debt financing in order to
finance the Transaction, the obligation of the lenders under the
debt commitment letter to provide the debt financing is subject to
certain limited conditions. In the event that the Transaction
cannot be completed due to the failure of Rogers to obtain
financing required to close the Transaction either because the
limited conditions to the financing are not satisfied or other
events arise which prevent Rogers from consummating the Debt
Financing, the Company expects that Rogers may be unable to fund
the Consideration required to complete the Arrangement, in which
case Rogers will be required to pay a reverse termination fee of
$1.2 billion to the Company and the holders of the Class A Shares
and Class B Shares will not receive the consideration under the
Arrangement Agreement (as the Transaction will not be
completed).
Government regulations and regulatory
developments
See our MD&A in the Annual Report for the
year ended August 31, 2020 for a discussion of the significant
regulations that affected our operations as of October 30, 2020.
The following is a list of the significant regulatory developments
since that date.
For a discussion of the regulatory approval
processes related to the Transaction, see “Introduction – Shaw and
Rogers Transaction” and “Risks and uncertainties – Risks Related to
the Transaction – The Key Regulatory Approvals necessary to
complete the Transaction may not be obtained or may only be
obtained after substantial delay and a Federal election could
impact the regulatory reviews of the Transaction” of this
MD&A.
Broadcasting Act
Potential for new or increased fees
On November 3, 2020, the Minister of Heritage
introduced a bill to amend the Broadcasting Act (Bill C-10). Bill
C-10 does not introduce material new obligations applicable to or
fees payable by the Company’s cable, Direct-to-Home (DTH),
Satellite Relay Distribution or digital media services. However,
the Bill remains subject to amendment, pursuant to the
parliamentary process, prior to its passage. In addition, the
Canadian Radio-television and Telecommunications Commission (“CRTC”
or “Commission”) will, subsequent to any royal assent to Bill C-10,
engage in one or more proceedings to align Canadian broadcasting
regulation with the amended Broadcasting Act. Furthermore, the
Minister of Heritage has indicated that the Commission’s subsequent
regulatory processes will be subject to a Direction by the
Governor-in-Council that sets out the Government’s expectations
with respect to how the newly-incorporated amendments to the
Broadcasting Act should be reflected in regulation, which Direction
may also specify the requirement that new regulations be brought
into force within a relatively short timeframe. On February 16,
2021, Bill C-10 passed Second Reading and was referred to the
Standing Committee on Canadian Heritage for study. The
implementation of new regulatory measures in connection with Bill
C-10 could impact the Company’s cable and DTH services if
regulatory fees and obligations are not applied symmetrically as
between licensed and unlicensed entities.
Telecommunications Act
Telecom Order CRTC 2019-288
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. For a detailed summary regarding
all proceedings and decisions issued between August 15, 2019 and
October 30, 2020 related to the Company’s multiple routes of appeal
of the Order, see “Government Relations and Regulatory Developments
– Third Party Internet Access” of the Company’s Annual Report for
the year ended August 31, 2020.
On November 12, 2020, the Company, together with
Cogeco, Eastlink, Rogers and Videotron (collectively, the “Cable
Carriers”), filed an application with the Supreme Court of Canada
(SCC), seeking leave to appeal the Federal Court of Appeal’s
decision dated September 10, 2020 denying the Company’s appeal of
the Order. On February 25, 2021, the application for leave to
appeal was dismissed.
If the CRTC does not review and vary the rates
set by the Order, this could significantly reduce the amount that
the Company can charge for aggregated HSA services and negatively
impact the Company’s broadband Wireline revenues and investments,
as well as its ability to compete with Resellers and other
facilities-based HSA providers.
Compliance and Enforcement and Telecom Notice of
Consultation CRTC 2021-9
On January 13, 2021, the Commission initiated a
proceeding to develop a network-level blocking framework to limit
botnet traffic targeting Canadians. Shaw has recommended a limited
role for the Commission. If, however, the Commission implements
more onerous obligations, this could result introduce additional
costs to the Company and a risk of penalties in connection with any
non-compliance.
36-Month Device Financing
On March 4, 2021, the Commission released its
decision regarding 36-month device financing plans (also referred
to as equipment installment plans), in which it confirmed that
plans longer than 24-months violate the Wireless Code. The
Commission also ordered all wireless service providers to update
their contracts, sales, training material, and any other
documentation, to ensure that the offering of device financing
plans complies with the Wireless Code’s limitation on rules
applicable to contract length and early cancellation fees. The
Company has never offered device financing plans longer than
24-months.
Copyright Act
Interpretation of s.2.4(1.1)
In June 2020, the Federal Court of Appeal
overturned the Copyright Board’s interpretation of the scope and
meaning of the “making available” provision (section 2.4(1.1) of
the Copyright Act). The Copyright Board determined that section
2.4(1.1) expands the scope of the performance right and the Society
of Composers, Authors and Music Publishers of Canada’s (SOCAN)
entitlement to royalties. On November 12, 2020, SOCAN filed an
application for leave to appeal to the SCC. If leave is granted and
the SCC restores the Copyright Board’s interpretation, it could
lead to new claims by rights holders in connection with Company
technologies that facilitate downloading.
Personal Information Protection and
Electronic Documents Act (PIPEDA)
On November 17, 2020, the Minister of
Innovation, Science and Industry introduced Bill C-11 – the Digital
Charter Implementation Act (“DCIA”), which, when passed and brought
into force, will repeal and replace PIPEDA. Bill C-11 is comprised
of two parts: (1) the Consumer Privacy Protection Act (the “CCPA”),
which establishes protections and parameters for the collection,
use and disclosure of personal information (PI), including enhanced
rights for individuals with respect to their privacy and data;
enhanced accountabilities for organizations with respect to consent
gathering and data usage; and significant penalties (up to 5% of an
organization’s gross revenue the previous year) for breaches of
rights and responsibilities; and (2) the Personal Information and
Data Protection Tribunal Act (the “PIDPTA”), which creates a new
administrative tribunal to oversee enforcement of the CCPA. As of
April 14, 2021, Bill C-11 remains in Second Reading before the
House of Commons.
Changes to privacy laws and regulations
resulting from the passage of Bill C-11 will require Shaw to incur
costs to adjust its policies and practices related to privacy, as
well as data collection and management. Such changes could: result
in significant new costs payable by the Company to ensure
compliance; limit the Company’s ability to utilize data in support
of its business, as well as preserve and expand its customer base;
and expose the Company to the risk of significant penalties and
claims (including pursuant to a proposed right of private action)
in connection with any non-compliance. The Government will be
consulting on Bill C-11, and the timing of its coming into force
will be set at the time the legislation is passed.
|
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION(unaudited) |
|
(millions of Canadian dollars) |
February 28, 2021 |
|
August 31, 2020 |
|
|
|
|
ASSETS |
|
|
|
Current |
|
|
|
Cash and cash equivalents |
388 |
|
763 |
Accounts receivable |
330 |
|
268 |
Income taxes recoverable |
21 |
|
- |
Inventories |
70 |
|
60 |
Other current assets [note 4] |
309 |
|
277 |
Current portion of contract assets [note 12] |
128 |
|
132 |
|
1,246 |
|
1,500 |
Investments and other assets
[note 5 & 16] |
70 |
|
42 |
Property, plant and
equipment |
6,091 |
|
6,142 |
Other long-term assets |
159 |
|
163 |
Contract assets [note 12] |
35 |
|
40 |
Deferred income tax
assets |
2 |
|
1 |
Intangibles [note 17] |
8,005 |
|
7,997 |
Goodwill [note 17] |
280 |
|
280 |
|
15,888 |
|
16,165 |
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
Current |
|
|
|
Short-term borrowings [note 7] |
200 |
|
200 |
Accounts payable and accrued liabilities |
935 |
|
999 |
Provisions [note 8] |
97 |
|
101 |
Income taxes payable |
- |
|
57 |
Current portion of contract liabilities [note 12] |
206 |
|
211 |
Current portion of long-term debt [notes 9 and 16] |
1 |
|
1 |
Current portion of lease liabilities [note 6] |
108 |
|
113 |
Current portion of derivatives |
7 |
|
6 |
|
1,554 |
|
1,688 |
Long-term debt [notes 9 and
16] |
4,548 |
|
4,547 |
Lease liabilities [note
6] |
1,182 |
|
1,157 |
Other long-term
liabilities |
44 |
|
72 |
Provisions [note 8] |
80 |
|
80 |
Deferred credits |
398 |
|
406 |
Contract liabilities [note
12] |
15 |
|
14 |
Deferred income tax liabilities |
2,030 |
|
1,968 |
|
9,851 |
|
9,932 |
Shareholders'
equity [notes 10 and 14] |
|
|
|
Common
and preferred shareholders |
6,037 |
|
6,233 |
|
15,888 |
|
16,165 |
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF
INCOME(unaudited) |
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Revenue [notes 3 and 12] |
1,387 |
|
1,363 |
|
|
2,757 |
|
2,746 |
|
Operating, general and
administrative expenses [note 13] |
(750 |
) |
(763 |
) |
|
(1,513 |
) |
(1,558 |
) |
Restructuring costs [notes 8
and 13] |
(1 |
) |
- |
|
|
(13 |
) |
- |
|
Amortization: |
|
|
|
|
|
Deferred equipment revenue |
3 |
|
5 |
|
|
6 |
|
9 |
|
Deferred equipment costs |
(12 |
) |
(17 |
) |
|
(25 |
) |
(35 |
) |
Property, plant and equipment, intangibles and other |
(294 |
) |
(288 |
) |
|
(589 |
) |
(577 |
) |
Operating income |
333 |
|
300 |
|
|
623 |
|
585 |
|
Amortization of financing costs – long-term debt |
- |
|
(1 |
) |
|
(1 |
) |
(2 |
) |
Interest expense |
(67 |
) |
(68 |
) |
|
(133 |
) |
(139 |
) |
Other gains (losses) |
26 |
|
(19 |
) |
|
24 |
|
(22 |
) |
Income before income taxes |
292 |
|
212 |
|
|
513 |
|
422 |
|
Current income tax expense [note 3] |
44 |
|
23 |
|
|
80 |
|
59 |
|
Deferred income tax expense |
31 |
|
22 |
|
|
53 |
|
34 |
|
Net income |
217 |
|
167 |
|
|
380 |
|
329 |
|
Net income attributable to: |
|
|
|
|
|
Equity shareholders |
217 |
|
167 |
|
|
380 |
|
329 |
|
|
|
|
|
|
|
Earnings per
share: [note 11] |
|
|
|
|
|
Basic
and diluted |
0.43 |
|
0.32 |
|
|
0.74 |
|
0.63 |
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME(unaudited) |
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Net income |
217 |
|
167 |
|
|
380 |
|
329 |
|
|
|
|
|
|
|
Other comprehensive
income [note 14] |
|
|
|
|
|
Items that may
subsequently be reclassified to income: |
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
(1 |
) |
- |
|
|
(2 |
) |
- |
|
Adjustment for hedged items recognized in the period |
1 |
|
- |
|
|
2 |
|
- |
|
|
- |
|
- |
|
|
- |
|
- |
|
Items that will not
subsequently be reclassified to income: |
|
|
|
|
|
Remeasurements on employee benefit plans |
28 |
|
(10 |
) |
|
23 |
|
(5 |
) |
|
28 |
|
(10 |
) |
|
23 |
|
(5 |
) |
Comprehensive income |
245 |
|
157 |
|
|
403 |
|
324 |
|
Comprehensive income attributable to: |
|
|
|
|
|
Equity shareholders |
245 |
|
157 |
|
|
403 |
|
324 |
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY(unaudited) |
|
Six months ended
February 28, 2021 |
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Total |
Equityattributableto noncontrollinginterest |
Totalequity |
Balance as at September 1, 2020 |
4,602 |
|
27 |
1,703 |
|
(99 |
) |
6,233 |
|
- |
6,233 |
|
Net income |
- |
|
- |
380 |
|
- |
|
380 |
|
- |
380 |
|
Other
comprehensive income |
- |
|
- |
- |
|
23 |
|
23 |
|
- |
23 |
|
Comprehensive income |
- |
|
- |
380 |
|
23 |
|
403 |
|
- |
403 |
|
Dividends |
- |
|
- |
(300 |
) |
- |
|
(300 |
) |
- |
(300 |
) |
Shares issued under stock
option plan |
1 |
|
- |
- |
|
- |
|
1 |
|
- |
1 |
|
Shares repurchased [note
10] |
(116 |
) |
- |
(184 |
) |
- |
|
(300 |
) |
- |
(300 |
) |
Balance as at February 28, 2021 |
4,487 |
|
27 |
1,599 |
|
(76 |
) |
6,037 |
|
- |
6,037 |
|
Six months ended
February 29, 2020 |
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Total |
Equityattributableto noncontrollinginterest |
Totalequity |
Balance as at September 1, 2019 |
4,605 |
|
26 |
|
1,723 |
|
(94 |
) |
6,260 |
|
3 |
|
6,263 |
|
Net income |
- |
|
- |
|
329 |
|
- |
|
329 |
|
- |
|
329 |
|
Other
comprehensive income |
- |
|
- |
|
- |
|
(5 |
) |
(5 |
) |
- |
|
(5 |
) |
Comprehensive income |
- |
|
- |
|
329 |
|
(5 |
) |
324 |
|
- |
|
324 |
|
Dividends |
- |
|
- |
|
(272 |
) |
- |
|
(272 |
) |
- |
|
(272 |
) |
Dividend reinvestment
plan |
37 |
|
- |
|
(37 |
) |
- |
|
- |
|
- |
|
- |
|
Distributions declared to
non-controlling interest |
- |
|
- |
|
- |
|
- |
|
- |
|
(3 |
) |
(3 |
) |
Shares issued under stock
option plan |
6 |
|
(1 |
) |
- |
|
- |
|
5 |
|
- |
|
5 |
|
Shares repurchased |
(35 |
) |
- |
|
(70 |
) |
- |
|
(105 |
) |
- |
|
(105 |
) |
Share-based compensation |
- |
|
1 |
|
- |
|
- |
|
1 |
|
- |
|
1 |
|
Balance as at February 29, 2020 |
4,613 |
|
26 |
|
1,673 |
|
(99 |
) |
6,213 |
|
- |
|
6,213 |
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited) |
|
|
Three months ended |
|
Six months ended |
(millions of Canadian dollars) |
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
OPERATING ACTIVITIES |
|
|
|
|
|
Funds flow from operations [note 15] |
539 |
|
496 |
|
|
1,027 |
|
946 |
|
Net
change in non-cash balances |
(66 |
) |
(135 |
) |
|
(254 |
) |
(246 |
) |
|
473 |
|
361 |
|
|
773 |
|
700 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
Additions to property, plant
and equipment [note 3] |
(218 |
) |
(248 |
) |
|
(414 |
) |
(518 |
) |
Additions to equipment costs
(net) [note 3] |
(5 |
) |
(7 |
) |
|
(12 |
) |
(18 |
) |
Additions to other intangibles
[note 3] |
(34 |
) |
(36 |
) |
|
(76 |
) |
(64 |
) |
Net additions to investments
and other assets |
- |
|
(4 |
) |
|
(1 |
) |
(5 |
) |
Proceeds on disposal of property, plant and equipment |
3 |
|
1 |
|
|
17 |
|
1 |
|
|
(254 |
) |
(294 |
) |
|
(486 |
) |
(604 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
Increase in short-term
borrowings [note 7] |
- |
|
135 |
|
|
- |
|
215 |
|
Issuance of long-term
debt |
- |
|
800 |
|
|
- |
|
800 |
|
Repayment of long-term
debt |
- |
|
(818 |
) |
|
- |
|
(2,068 |
) |
Debt arrangement costs |
- |
|
(9 |
) |
|
- |
|
(10 |
) |
Payment of lease liabilities
[note 6] |
(27 |
) |
(27 |
) |
|
(58 |
) |
(57 |
) |
Issue of Class B Shares [note
10] |
1 |
|
2 |
|
|
1 |
|
5 |
|
Purchase of Class B Shares
[note 10] |
(225 |
) |
(80 |
) |
|
(300 |
) |
(105 |
) |
Dividends paid on Class A
Shares and Class B Shares |
(149 |
) |
(153 |
) |
|
(301 |
) |
(269 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
(2 |
) |
|
(4 |
) |
(4 |
) |
Payment
of distributions to non-controlling interests |
- |
|
- |
|
|
- |
|
(2 |
) |
|
(402 |
) |
(152 |
) |
|
(662 |
) |
(1,495 |
) |
Decrease in cash |
(183 |
) |
(85 |
) |
|
(375 |
) |
(1,399 |
) |
Cash,
beginning of the period |
571 |
|
132 |
|
|
763 |
|
1,446 |
|
Cash, end of the period |
388 |
|
47 |
|
|
388 |
|
47 |
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(unaudited)
February 28, 2021 and February 29,
2020[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 and six months ended
February 28, 2021 were authorized for issue by the Board of
Directors on April 14, 2021.
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, 2020 and are expressed in
millions of Canadian dollars unless otherwise indicated. The
condensed interim consolidated statements of income are presented
using the nature classification for expenses.
The notes presented in these condensed interim
consolidated financial statements include only significant events
and transactions occurring since the Company’s last fiscal year end
and are not fully inclusive of all matters required to be disclosed
by IFRS in the Company’s annual consolidated financial statements.
As a result, these condensed interim consolidated financial
statements should be read in conjunction with the Company’s
consolidated financial statements for the year ended August 31,
2020.
The condensed interim consolidated financial
statements follow the same accounting policies and methods of
application as the most recent annual consolidated financial
statements.
3. BUSINESS SEGMENT
INFORMATION
The Company’s chief operating decision makers
are the Executive Chair & 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 (“adjusted 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, WiFi, 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 through Freedom Mobile and in
British Columbia and Alberta through Shaw Mobile.
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 |
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Revenue |
|
|
|
|
|
Wireline |
1,054 |
|
1,063 |
|
|
2,110 |
|
2,130 |
|
Wireless |
336 |
|
302 |
|
|
653 |
|
620 |
|
|
1,390 |
|
1,365 |
|
|
2,763 |
|
2,750 |
|
Intersegment eliminations |
(3 |
) |
(2 |
) |
|
(6 |
) |
(4 |
) |
|
1,387 |
|
1,363 |
|
|
2,757 |
|
2,746 |
|
Adjusted EBITDA(1) |
|
|
|
|
|
Wireline |
540 |
|
519 |
|
|
1,072 |
|
1,036 |
|
Wireless |
97 |
|
81 |
|
|
172 |
|
152 |
|
|
637 |
|
600 |
|
|
1,244 |
|
1,188 |
|
Restructuring costs |
(1 |
) |
- |
|
|
(13 |
) |
- |
|
Amortization |
(303 |
) |
(300 |
) |
|
(608 |
) |
(603 |
) |
Operating income |
333 |
|
300 |
|
|
623 |
|
585 |
|
|
|
|
|
|
|
Current
taxes |
|
|
|
|
|
Operating |
43 |
|
22 |
|
|
78 |
|
54 |
|
Other/non-operating |
1 |
|
1 |
|
|
2 |
|
5 |
|
|
44 |
|
23 |
|
|
80 |
|
59 |
|
(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. |
Capital
expenditures |
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Capital expenditures accrual basis |
|
|
|
|
|
Wireline |
174 |
|
216 |
|
|
328 |
|
410 |
|
Wireless |
71 |
|
53 |
|
|
144 |
|
108 |
|
|
245 |
|
269 |
|
|
472 |
|
518 |
|
Equipment costs (net of revenue) |
|
|
|
|
|
Wireline |
5 |
|
7 |
|
|
12 |
|
18 |
|
|
|
|
|
|
|
Capital expenditures
and equipment costs (net) |
|
|
|
|
|
Wireline |
179 |
|
223 |
|
|
340 |
|
428 |
|
Wireless |
71 |
|
53 |
|
|
144 |
|
108 |
|
|
250 |
|
276 |
|
|
484 |
|
536 |
|
|
|
|
|
|
|
Reconciliation to
Consolidated Statements of Cash Flows |
|
|
|
|
|
Additions to property, plant and equipment |
218 |
|
248 |
|
|
414 |
|
518 |
|
Additions to equipment costs (net) |
5 |
|
7 |
|
|
12 |
|
18 |
|
Additions to other intangibles |
34 |
|
36 |
|
|
76 |
|
64 |
|
Total of capital expenditures and equipment costs (net) per
Consolidated Statements of Cash Flows |
257 |
|
291 |
|
|
502 |
|
600 |
|
Decrease in working capital and other liabilities related to
capital expenditures |
(4 |
) |
(14 |
) |
|
(1 |
) |
(63 |
) |
Less: Proceeds on disposal of property, plant and equipment |
(3 |
) |
(1 |
) |
|
(17 |
) |
(1 |
) |
Total capital expenditures and equipment costs (net) reported by
segments |
250 |
|
276 |
|
|
484 |
|
536 |
|
4. OTHER CURRENT
ASSETS
|
|
February 28, 2021 |
August 31, 2020 |
Prepaid
expenses |
93 |
89 |
Deferred
commission costs(1) |
63 |
61 |
Wireless handset receivables(2) |
153 |
127 |
|
|
309 |
277 |
(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,
2020, these amounts relate to the current portion of wireless
handset receivables. |
5. INVESTMENTS AND OTHER
ASSETS
|
|
February 28, 2021 |
August 31, 2020 |
Investments in private entities |
70 |
42 |
The Company has a portfolio of investments in
various private entities. In the second quarter of fiscal 2021, the
Company recorded a net fair value adjustment of $27 relating to
these investments. This gain is included in other gains (losses) on
the Consolidated Statements of Income.
6. LEASE
LIABILITIES
Below is a summary of the activity related to
the Company’s lease liabilities.
|
|
August 31, 2020 |
1,270 |
|
Net additions |
78 |
|
Interest on lease
liabilities |
22 |
|
Interest payments on lease
liabilities |
(22 |
) |
Principal payments of lease
liabilities |
(58 |
) |
Other |
- |
|
Balance as at February 28, 2021 |
1,290 |
|
|
|
Current |
113 |
|
Long-term |
1,157 |
|
Balance as at August 31, 2020 |
1,270 |
|
Current |
108 |
|
Long-term |
1,182 |
|
Balance as at February 28, 2021 |
1,290 |
|
7. SHORT-TERM
BORROWINGS
A summary of our accounts receivable
securitization program is as follows:
|
Three months ended |
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Accounts receivable securitization program, beginning of
period |
200 |
120 |
|
200 |
40 |
Proceeds received from accounts receivable securitization |
- |
80 |
|
- |
160 |
Repayment of accounts receivable securitization |
- |
- |
|
- |
- |
Accounts receivable securitization program, end of
period |
200 |
200 |
|
200 |
200 |
|
|
|
|
February 28, 2021 |
August 31, 2020 |
Trade accounts receivable sold to buyer as security |
485 |
|
446 |
|
Short-term borrowings from buyer |
(200 |
) |
(200 |
) |
Over-collateralization |
285 |
|
246 |
|
8. PROVISIONS
|
|
Asset |
|
|
|
|
|
retirement |
Restructuring |
|
|
|
|
obligations |
(1)(2) |
Other |
Total |
|
|
$ |
$ |
$ |
$ |
Balance as at August 31, 2020 |
79 |
13 |
|
89 |
|
181 |
|
Additions |
- |
13 |
|
9 |
|
22 |
|
Accretion |
1 |
- |
|
- |
|
1 |
|
Reversal |
- |
- |
|
(3 |
) |
(3 |
) |
Payments |
- |
(24 |
) |
- |
|
(24 |
) |
Balance as at February 28, 2021 |
80 |
2 |
|
95 |
|
177 |
|
|
|
|
|
|
|
Current |
- |
13 |
|
88 |
|
101 |
|
Long-term |
79 |
- |
|
1 |
|
80 |
|
Balance as at August 31, 2020 |
79 |
13 |
|
89 |
|
181 |
|
|
|
|
|
|
|
Current |
- |
2 |
|
95 |
|
97 |
|
Long-term |
80 |
- |
|
- |
|
80 |
|
Balance as at February 28, 2021 |
80 |
2 |
|
95 |
|
177 |
|
(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 and in fiscal 2020 restructured
certain operations within the Wireline segment and announced a
realignment of the senior leadership team. A total of $12 has been
paid in fiscal 2021 relating to these initiatives. The remaining
costs are expected to be paid out within the next 11 months. |
(2) |
During fiscal 2021, the Company made a number of changes to its
organizational structure in an effort to streamline the business,
consolidate certain functions, and reduce redundancies between the
Wireless and Wireline segments. In connection with the
restructuring, the Company recorded $1 in the second quarter and
$12 in the first quarter primarily related to severance and
employee related costs, of which $12 has been paid as at February
28, 2021. The remaining costs are expected to be paid within the
next 11 months. |
9. LONG-TERM
DEBT
|
|
February 28, 2021 |
|
August 31, 2020 |
|
|
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- |
|
|
|
|
|
|
|
|
3.80% due November 2, 2023 |
3.80 |
498 |
2 |
500 |
|
498 |
2 |
500 |
4.35% due January 31, 2024 |
4.35 |
499 |
1 |
500 |
|
499 |
1 |
500 |
3.80% due March 1, 2027 |
3.84 |
299 |
1 |
300 |
|
298 |
2 |
300 |
4.40% due November 2, 2028 |
4.40 |
496 |
4 |
500 |
|
496 |
4 |
500 |
3.30% due December 10, 2029 |
3.41 |
496 |
4 |
500 |
|
495 |
5 |
500 |
2.90% due December 9, 2030 |
2.92 |
496 |
4 |
500 |
|
496 |
4 |
500 |
6.75% due November 9, 2039 |
6.89 |
1,421 |
29 |
1,450 |
|
1,421 |
29 |
1,450 |
4.25% due December 9, 2049 |
4.33 |
296 |
4 |
300 |
|
296 |
4 |
300 |
|
|
|
4,501 |
49 |
4,550 |
|
4,499 |
51 |
4,550 |
Other |
|
|
|
|
|
|
|
|
Burrard
Landing Lot 2 HoldingsPartnership |
Various |
48 |
- |
48 |
|
49 |
- |
49 |
Total
consolidated debt |
|
4,549 |
49 |
4,598 |
|
4,548 |
51 |
4,599 |
Less
current portion(2) |
|
1 |
- |
1 |
|
1 |
- |
1 |
|
|
|
4,548 |
49 |
4,597 |
|
4,547 |
51 |
4,598 |
(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 the Burrard Landing loans. |
10. SHARE
CAPITAL
Changes in share capital during the six months
ended February 28, 2021 are as follows:
|
Class AShares |
|
Class BShares |
|
Series APreferred Shares |
|
Series BPreferred Shares |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
August 31, 2020 |
22,372,064 |
2 |
|
490,632,833 |
|
4,307 |
|
|
10,012,393 |
245 |
|
1,987,607 |
48 |
Issued upon stock option plan
exercises |
- |
- |
|
28,300 |
|
1 |
|
|
- |
- |
|
- |
- |
Issued upon restricted share
unit exercises |
- |
- |
|
6,423 |
|
- |
|
|
- |
- |
|
- |
- |
Shares
repurchased |
- |
- |
|
(13,224,772 |
) |
(116 |
) |
|
- |
- |
|
- |
- |
February 28, 2021 |
22,372,064 |
2 |
|
477,442,784 |
|
4,192 |
|
|
10,012,393 |
245 |
|
1,987,607 |
48 |
Normal Course Issuer Bid
On November 2, 2020, the Company announced that
it had received approval from the TSX to establish a normal course
issuer bid (NCIB) program. The program commenced on November 5,
2020 and will remain in effect until November 4, 2021. As approved
by the TSX, the Company has the ability to purchase for
cancellation up to 24,532,404 Class B Non-Voting Participating
Shares (“Class B Shares”) representing approximately 5% of all of
the issued and outstanding Class B Shares as at October 22,
2020.
During the six months ended February 28, 2021,
the Company purchased 13,224,772 Class B Shares for cancellation
for a total cost of approximately $300 under the NCIB program. The
average book value of the shares repurchased was $8.77 per share
and was charged to share capital. The excess of the market price
over the average book value, including transaction costs, was
approximately $184 and was charged to retained earnings.
From March 1, 2021 to March 12, 2021, the
Company purchased an additional 1,559,202 Class B Shares for
cancellation for a total cost of approximately $36 under the NCIB
program. In connection with the announcement of the Transaction on
March 15, 2021 (as discussed in more detail in Note 18), the
Company suspended share buybacks under its NCIB program.
11. EARNINGS PER
SHARE
Earnings per share calculations are as
follows:
|
|
Three months ended |
|
Six months ended |
|
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Numerator for basic and diluted earnings per share
($) |
|
|
|
|
|
Net income |
217 |
|
167 |
|
|
380 |
|
329 |
|
Deduct:
dividends on Preferred Shares |
(2 |
) |
(2 |
) |
|
(4 |
) |
(4 |
) |
Net income attributable to common shareholders |
215 |
|
165 |
|
|
376 |
|
325 |
|
Denominator (millions of shares) |
|
|
|
|
|
Weighted average
number of Class A Shares and Class B Shares for basic earnings per
share |
505 |
|
516 |
|
|
509 |
|
517 |
|
Effect
of dilutive securities (1) |
- |
|
- |
|
|
- |
|
- |
|
Weighted average number of Class A Shares and Class B Shares for
diluted earnings per share |
505 |
|
516 |
|
|
509 |
|
517 |
|
Basic earnings per share ($) |
|
|
|
|
|
Basic and diluted |
0.43 |
|
0.32 |
|
|
0.74 |
|
0.63 |
|
(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 and six months ended
February 28, 2021, 8,199,698 (February 29, 2020 – 5,852,922) and
7,852,637 (February 29, 2020 – 5,719,981) options were excluded
from the diluted earnings per share calculation, respectively. |
12. 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 August 31, 2020 |
172 |
|
|
225 |
|
Increase in contract assets
from revenue recognized during the year |
81 |
|
|
- |
|
Contract assets transferred to
trade receivables |
(81 |
) |
|
- |
|
Contract terminations
transferred to trade receivables |
(9 |
) |
|
- |
|
Revenue recognized included in
contract liabilities at the beginning of the year |
- |
|
|
(215 |
) |
Increase in contract liabilities during the year |
- |
|
|
211 |
|
Balance as at February 28, 2021 |
163 |
|
|
221 |
|
|
|
|
|
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
Current |
132 |
|
211 |
Long-term |
40 |
|
14 |
Balance as at August 31, 2020 |
172 |
|
225 |
Current |
128 |
|
206 |
Long-term |
35 |
|
15 |
Balance as at February 28, 2021 |
163 |
|
221 |
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 six months ended February 28, 2021. 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.
August 31, 2020 |
98 |
|
Additions to deferred
commission cost assets |
39 |
|
Amortization recognized on deferred commission cost assets |
(41 |
) |
Balance as at February 28, 2021 |
96 |
|
|
|
Current |
61 |
|
Long-term |
37 |
|
Balance as at August 31, 2020 |
98 |
|
Current |
63 |
|
Long-term |
33 |
|
Balance as at February 28, 2021 |
96 |
|
Commission costs are amortized over a period
ranging from 24 to 36 months.
Disaggregation of revenue
|
Three months ended |
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Services |
|
|
|
|
|
Wireline - Consumer |
909 |
|
919 |
|
|
1,820 |
|
1,843 |
|
Wireline - Business |
145 |
|
144 |
|
|
290 |
|
287 |
|
Wireless |
218 |
|
201 |
|
|
433 |
|
397 |
|
|
1,272 |
|
1,264 |
|
|
2,543 |
|
2,527 |
|
Equipment and other |
|
|
|
|
|
Wireless |
118 |
|
101 |
|
|
220 |
|
223 |
|
|
118 |
|
101 |
|
|
220 |
|
223 |
|
Intersegment eliminations |
(3 |
) |
(2 |
) |
|
(6 |
) |
(4 |
) |
Total revenue |
1,387 |
|
1,363 |
|
|
2,757 |
|
2,746 |
|
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 February 28,
2021.
|
Within |
Within |
Within |
Within |
Within |
|
|
|
1 year |
2 years |
3 years |
4 years |
5 years |
Thereafter |
Total |
Wireline |
1,553 |
672 |
159 |
88 |
28 |
1 |
2,501 |
Wireless |
415 |
137 |
- |
- |
- |
- |
552 |
Total |
1,968 |
809 |
159 |
88 |
28 |
1 |
3,053 |
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. The estimated amounts disclosed are
based upon contractual terms and maturities. Revenues recognized
based on actual minimum transaction price, and the timing thereof,
will differ from these estimates due to the frequency with which
the actual durations of contracts with customers do not match their
contractual maturities.
13.
OPERATING, GENERAL AND ADMINISTRATIVE
EXPENSES AND RESTRUCTURING COSTS
|
|
Three months ended |
|
Six months ended |
|
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Employee
salaries and benefits(1) |
154 |
160 |
|
307 |
317 |
Purchase of goods and services |
597 |
603 |
|
1,219 |
1,241 |
|
751 |
763 |
|
1,526 |
1,558 |
(1) |
For the three and six months ended February 28, 2021, employee
salaries and benefits include $1 (2020 - $nil) and $13 (2020 -
$nil) in restructuring costs respectively. |
14. OTHER COMPREHENSIVE
INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Components of other comprehensive income and the
related income tax effects for the three months ended February 28,
2021 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 |
) |
Adjustment for hedged items recognized in the period |
1 |
|
- |
|
1 |
|
|
- |
|
- |
|
- |
|
Items that will not be
subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
38 |
|
(10 |
) |
28 |
|
|
38 |
|
(10 |
) |
28 |
|
Components of other comprehensive income and the
related income tax effects for the six months ended February 28,
2021 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 |
(2 |
) |
- |
|
(2 |
) |
Adjustment for hedged items recognized in the period |
2 |
|
- |
|
2 |
|
|
- |
|
- |
|
- |
|
Items that will not be
subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
31 |
|
(8 |
) |
23 |
|
|
31 |
|
(8 |
) |
23 |
|
Components of other comprehensive income and the
related income tax effects for the three months ended February 29,
2020 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 |
- |
|
- |
- |
|
Adjustment for hedged items recognized in the period |
- |
|
- |
- |
|
|
|
- |
|
- |
- |
|
Items that
will not be subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
(14 |
) |
4 |
(10 |
) |
|
|
(14 |
) |
4 |
(10 |
) |
Components of other comprehensive income and the
related income tax effects for the six months ended February 29,
2020 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 |
- |
|
- |
- |
|
Adjustment for hedged items recognized in the period |
- |
|
- |
- |
|
|
|
- |
|
- |
- |
|
Items that
will not be subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
(7 |
) |
2 |
(5 |
) |
|
|
(7 |
) |
2 |
(5 |
) |
Accumulated other comprehensive loss is
comprised of the following:
|
February 28, 2021 |
|
August 31, 2020 |
Items that may subsequently be reclassified to
income |
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
(5 |
) |
|
(5 |
) |
|
|
|
|
Items that will not be
subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
(71 |
) |
|
(94 |
) |
|
(76 |
) |
|
(99 |
) |
15.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(i)
Funds flow from
operations
|
Three months ended |
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Net income from continuing operations |
217 |
|
167 |
|
|
380 |
|
329 |
|
Adjustments to reconcile net
income to funds flow from operations: |
|
|
|
|
|
Amortization |
303 |
|
301 |
|
|
609 |
|
605 |
|
Deferred income tax expense |
31 |
|
22 |
|
|
53 |
|
34 |
|
Share-based compensation |
1 |
|
1 |
|
|
1 |
|
1 |
|
Defined benefit pension plans |
3 |
|
3 |
|
|
3 |
|
1 |
|
Net change in contract asset balances |
13 |
|
(17 |
) |
|
8 |
|
(45 |
) |
Fair value adjustments for private investments |
(27 |
) |
- |
|
|
(27 |
) |
- |
|
Other |
(2 |
) |
19 |
|
|
- |
|
21 |
|
Funds flow from operations |
539 |
|
496 |
|
|
1,027 |
|
946 |
|
|
|
|
|
|
|
(ii)
Interest and income
taxes paid and interest received and classified as operating
activities are as follows:
|
Three months ended |
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
|
February 28, 2021 |
February 29, 2020 |
Interest paid |
35 |
31 |
|
110 |
140 |
Income taxes paid (net of
refunds) |
64 |
68 |
|
158 |
102 |
Interest received |
1 |
1 |
|
3 |
5 |
(iii)
Non-cash
transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
Six months ended |
|
February 28, 2021 |
February 29, 2020 |
Issuance of Class B Non-Voting Shares: |
|
|
Dividend reinvestment plan |
- |
37 |
16. 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.
The carrying value and estimated fair value of
long-term debt are as follows:
|
|
February 28, 2021 |
|
August 31, 2020 |
|
|
Carryingvalue |
Estimatedfair value |
|
Carryingvalue |
Estimatedfair value |
Liabilities |
|
|
|
|
|
Long-term debt (including current portion)(1) |
4,549 |
5,378 |
|
4,548 |
5,613 |
(1) |
Level 2 fair value – determined by valuation techniques using
inputs based on observable market data, either directly or
indirectly, other than quoted prices. |
(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.
17.
INTANGIBLES AND GOODWILL
Impairment testing of indefinite-life
intangibles and goodwill
The Company conducted its annual impairment test
on goodwill and indefinite-life intangibles as at February 1, 2021
and the recoverable amount of the cash generating units exceeded
their carrying value.
A hypothetical decline of 10% in the recoverable
amount of the broadcast rights and licences for the Cable cash
generating unit as at February 1, 2021 would not result in any
impairment loss. A hypothetical decline of 10% in the recoverable
amount of the broadcast rights and licences for the Satellite cash
generating unit as at February 1, 2021 would not result in an
impairment loss. A hypothetical decline of 10% in the recoverable
amount of the Wireless generating unit as at February 1, 2021 would
not result in any impairment loss.
Any changes in economic conditions since the
impairment testing conducted as at February 1, 2021 do not
represent events or changes in circumstance that would be
indicative of impairment at February 28, 2021.
Significant estimates inherent to this analysis
include discount rates and the terminal value. At February 1, 2021,
the estimates that have been utilized in the impairment tests
reflect any changes in market conditions and are as follows:
|
|
Terminal value |
|
Post-taxdiscount rate |
Terminalgrowth rate |
Terminal adjusted EBITDA
multiple |
Cable |
5.0 |
% |
0.0 |
% |
9.7x |
Satellite |
6.0 |
% |
-8.0 |
% |
6.5x |
Wireless |
6.0 |
% |
1.0 |
% |
6.1x |
A sensitivity analysis of significant estimates
is conducted as part of every impairment test. With respect to the
impairment tests performed in the second quarter, the estimated
decline in recoverable amount for the sensitivity of significant
estimates is as follows:
|
Estimated decline in recoverable amount |
|
|
Terminal value |
|
1% increase indiscount rate |
1% decrease interminal growth rate |
0.5 times decrease interminal adjusted
EBITDA multiple |
Cable |
16.4 |
% |
13.8 |
% |
1.9 |
% |
Satellite |
6.5 |
% |
4.2 |
% |
3.6 |
% |
Wireless |
21.9 |
% |
13.5 |
% |
2.1 |
% |
18.
SUBSEQUENT EVENT
On March 15, 2021, the Company announced that it
had entered into an arrangement agreement (the “Arrangement
Agreement”) with Rogers Communications Inc. (“Rogers”), under which
Rogers will acquire all of Shaw’s issued and outstanding Class A
Participating Shares (“Class A Shares”) and Class B Shares in a
transaction valued at approximately $26 billion, inclusive of
approximately $6 billion of Shaw debt (the “Transaction”). Holders
of Shaw Class A Shares and Class B Shares (other than the Shaw
Family Living Trust, the controlling shareholder of Shaw, and
related persons (collectively the “Shaw Family Shareholders”)) will
receive $40.50 per share in cash. The Shaw Family Shareholders will
receive 60% of the consideration for their shares in the form of
Class B Non-Voting Shares of Rogers (the “Rogers Shares”) on the
basis of the volume-weighted average trading price for the Rogers
Shares for the 10 trading days ending March 12, 2021, and the
balance in cash. The Transaction is subject to the approval of
shareholders as well as other customary closing conditions
including court and stock exchange approval and approvals from
Canadian regulators. In connection with the announcement of the
Transaction on March 15, 2021, the Company suspended share buybacks
under its normal course issuer bid (NCIB) program. Subject to
receipt of all required approvals, the Transaction is expected to
close in the first half of 2022.
Under the terms of the Arrangement Agreement,
Rogers has the right to cause the Company to redeem its outstanding
preferred shares on June 30, 2021 in accordance with their terms by
providing written notice to Shaw. As of the date of these financial
statements, Rogers has not exercised this right.
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