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Apr 12, 2018

Shaw shares climb as it adds 93,500 wireless postpaid subscribers in Q2

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TORONTO -- Shaw Communications Inc. shares were up about ten per cent Thursday as strong operational performance by its main business units offset concerns about $417 million in restructuring-related costs booked in its second quarter.

Shaw's B (SJRb.TO) shares closed at $26.42, up $2.35 or 9.76 per cent after the company reported it had a $164-million loss in its latest quarter, mostly because of a previously announced restructuring that will affect one-quarter of its workforce.

The company's loss, including the restructuring costs, resulted in a net loss of $164 million or 33 cents per share. A year earlier, Shaw had a net profit of $150 million or 30 cents per share.

Excluding the restructuring costs and non-cash amortization costs, Shaw's operating income was $501 million -- down 0.4 per cent from $503 million in the second quarter of fiscal 2017.

The vast number of 3,300 planned departures over the next 18 to 24 months will be from the Calgary-based company's legacy wireline businesses -- primarily cable and internet -- which are bringing in a new generation of digital technology.

Chief executive Brad Shaw told analysts on a conference call that the restructuring, called the total business transformation program, is vital to future growth in both its legacy landline and new wireless businesses.

"We remain confident that through the next 18 months -- extended to 24 months in some circumstances -- we can manage the transition with limited disruption to our day-to-day business operations," Shaw said.

He added that the employees who chose to remain are excited about their future.

"We have a wireless business with tremendous growth opportunity and a step-by-step strategic operating plan that is delivering results in a meaningful way."

Shaw is a relative newcomer to the wireless business, anchored by its 2016 acquisition of Wind Mobile, which has been renamed Freedom Mobile.

While Freedom network is primarily in just three provinces -- Ontario, Alberta and British Columbia -- it is the largest rival to Canada's three national carriers: Rogers, Bell and Telus.

During the quarter ended Feb. 28, which included intense pre-Christmas discounting by most players in Freedom's key markets, it added a net 89,700 wireless customers. That included 93,500 additional post-paid subscribers, offset by a loss of 3,800 prepaid customers.

In total, that was 2.5 times the 33,400 net additions achieved by Freedom in the second quarter of 2017.

Analyst Drew McReynolds of RBC Dominion Securities wrote in a commentary that Shaw's wireless growth was above his estimates, in terms of customer additions, revenue, earnings and average revenue per user.

He also found the year-over-year decline of earnings at the wireline business was lower than expected, although customer additions were "light" because of reduced promotional spending for Shaw's BlueSky cable-internet packages.

Overall revenue in the quarter totalled nearly $1.36 billion, up from nearly $1.21 billion.

Wireline revenue was $1.07 billion, flat compared with a year earlier. Total wireless revenue was $290 million, up 106 per cent from last year.

The addition of Apple products as Shaw's second quarter was beginning was a major reason for the wireless arm's growth, partly because more people bought iPhones from Freedom rather than bringing their own devices to its service and partly because average revenue per user increased as Apple products operate on an advanced network.

Wireless equipment revenue soared to $148 million from $24 million a year before and service revenue was up 21 per cent to $142 million.

Free cash flow, which is what's available for management to allocate after servicing current debt obligations, fell to $135 million from $147 million a year earlier -- mainly due to higher capital spending.