CALGARY – Thanks to the addition of 43,744 local phone customers in the fourth quarter, bringing its total to 212,707 voice subscribers, Shaw Communications today announced net income of $210.4 million in the quarter ended August 31, three times its net income of $70 million for the same quarter of 2005.
Net income for the year was $458.3 million, up from $153.2 million last year.
While digital phone subs grew pretty quickly (although a little off the pace of the third quarter), new Internet customers also grew at a good clip, adding 25,907 in the fourth quarter. Digital TV growth continues to be relatively slow as 9,630 of those customers were added in the quarter, a 13.8% drop compared to Q4 ’05’s growth. Star Choice growth has fallen off as well as the company added just 3,221 in Q4, a 63.2% decline in growth. Shaw also added 2,766 basic cable subs.
Company CEO Jim Shaw fielded some questions on the digital TV front and why growth there is weak, as compared to other cable companies (Cogeco, for example, a far smaller MSO, added over 10,500 digital cable customers over the same three-month period).
The lack of aggression on the digital TV front "is a choice by Shaw," said the CEO. "We’re removing any subsidy from any product we sell, across the board.. so (customers) pay the exact cost and Shaw does not subsidize that box."
"It increases our margin and slows our growth a bit across the board," he added. The company used to support more than $10 million a year in set top box subsidies and eliminating box subsidies is something Shaw figures the entire TV distribution industry will gradually move towards "in the next year or two."
"We fail to understand why ExpressVu would give away four boxes in a home with a return that would be three years out and not make a dime. We just can’t follow that model," added Shaw.
Plus, analog cable is something the company is committed to. "We’re a strong believer that analog will continue to play a major role in Canada," said Shaw. "It’s a massive advantage over the telcos or satellitecos that have to have a box on every unit," whereas analog cable is easily available from any coax spigot in a home. (However, the newest telco TV services, such as the one being deployed by Telus, can serve three televisions from one box, so that built in protection is changing.)
As for the 18-months-young telephony service, "we are pleased with the customer response," said Shaw. "We have added over 210,000 digital phone lines… since our initial launch of the product. This confirms that people appreciate having a real choice and that, given a chance, new entrants like Shaw can open up the market to future competition that is real and sustainable," said Jim Shaw, CEO of Shaw Communications Inc.
Consolidated service revenue of $631.9 million and $2.5 billion for the three and twelve month periods, respectively, increased 12.2% and 11.3% over the prior year. Total service operating income before amortization of $275.1 million and $1.08 billion improved by 9.7% and 9.8%, respectively, over the comparable periods. Funds flow from operations increased to $220.6 million and $847.2 million for the quarter and year compared to $191.5 million and $728.5 million for the same periods last year.
Free cash flow for the quarter and year was $54.9 million and $265.4 million, respectively, compared to $81.7 million and $277.3 million for the same periods last year. Free cash flow was marginally lower in the current year despite increased capital spending of $120.6 million during this same period.
Cable division service revenue increased 14.2% for the quarter to $467.3 million and 13.2% on an annual basis to $1.81 billion primarily as a result of customer growth and rate increases. Service operating income before amortization for the three and twelve month periods increased 8% and 7.5% to $216.8 million and $857.5 million, respectively.
Satellite division service revenue increased 7% for the quarter to $164.6 million and 6.4% on an annual basis to $650.7 million primarily due to rate increases and customer growth in DTH. Service operating income before amortization for the quarter increased by 16.5% to $58.3 million and by 19.5% to $220.5 million on an annual basis. The improvement was largely due to growth in DTH revenues while the annual period also benefited from reduced costs.
The company announced preliminary guidance for fiscal 2007 based on continued growth. "The preliminary view is for service operating income before amortization to range from $1.17 to $1.2 billion. As previously announced, the preliminary view calls for fiscal 2007 capital investment to range from $600 – $630 million and, accordingly, the company expects free cash flow to range from $300 – $320 million. Capital will be used to continue the roll-out of digital phone and fund ongoing upgrades to support growth and the delivery of new services to customers," says the press release.
Thanks to these numbers, the company’s dividend payout to shareholders is on the way up. "With the company’s strong performance over the last year and prospects for continued growth in fiscal 2007, our board approved a 67% increase in the annual equivalent dividend rate from $0.60 per class b non-voting share to $1 per class b non-voting share. At the current share price of approximately $34, this represents a yield of approximately 3% which makes us a leader among North American cable companies," said Shaw.
"For the coming year we plan to focus on deployment of Digital Phone and enhancements to service offerings through new products, bundled offers, and the delivery of superior customer service. We believe the combination of value, products and service has been and will continue to be a successful strategy for both customers and shareholders," said the CEO.
