II. Strategic Focus SHAW COMMUNICATIONS INC. INVESTOR …€¦ · Shaw EXO, and the rebranding of...

INVESTOR PRESENTATION | MAY 2012 | | 1 |

INVESTOR PRESENTATION

I. Investor Highlights

II. Strategic Focus

III. Operating Performance

Digital TV

Internet

Phone

Shaw Direct

IV. Review of F2011 Financial Results & F2012 Guidance

V. Shaw Media

VI. Leverage Review

VII. Conclusion

TABLE OF CONTENTS

SHAW COMMUNICATIONS INC.

INVESTOR UPDATE

MAY 2012



I. Investor Highlights

II. Update on Shaw’s Strategic Initiatives

III. Financial Information

IV. Conclusion

TABLE OF CONTENTS



Shaw Communications Inc. is a diversified communications and media

company, providing consumers with broadband cable television, High-Speed

Internet, Home Phone, telecommunications services, satellite direct-to-home

services and engaging programming content. Shaw serves almost 3.4 million

customers, through a reliable and extensive fibre network.

Shaw Media operates one of the largest conventional television networks in

Canada, Global Television, and 18 specialty networks including HGTV

Canada, Food Network Canada, History Television and Showcase.



Shaw’s portfolio of assets cements our status as one of the leading entertainment and communications

companies in Canada and as such, we believe that we are well positioned in a highly competitive

environment

We are the largest video distributor in Canada and we continue to have some of the most profitable

cable operations in North America

Including Shaw Direct, we distribute video services to almost 3.4 million customers which

represents approximately 30% of the Canadian Pay-TV market

Shaw Media operates Global Television, reaching over 98% of Canadians, and 18 of the country’s

most popular specialty channels

Ownership of content provides diversification benefits, helps protect profitability of video

services (i.e. hedge against programming cost inflation) and enables the creation of innovative

services for our customers (i.e. online and VOD opportunities, mobile application etc.)

Competition and convergence within our core cable business has intensified over recent years

However, the current “duopoly” structure within the Canadian communications industry remains

attractive for companies and investors

Shaw has a proven track record of prudently managing capital on behalf of our stakeholders

I. INVESTOR HIGHLIGHTS



Shaw has a substantial subscriber base in some of the most attractive economies in North America

The Western Canadian economy continues to be strong and growing


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1,283,083

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0

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1,500,000

2,000,000

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Subscriber Base as @ February 29, 2012



Our FCF profile remains robust and we have returned substantial capital to shareholders via dividends

In conjunction with our Q1/12 earnings release we announced a 5% increase to our dividend

At our current dividend rate ($0.97/share), Shaw shares yield 4.8% (based on a $20.00

share price)

Since 2007, Shaw has returned almost $2 billion to shareholders through dividends and share

repurchases


$201

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$372$391

$415

$0.16

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$0.82$0.88 $0.92

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Dividend Payments

Total Annual Dividend Payments Effective Dividend/Class B Share at end of fiscal year



Cable Overview:

We continue to make progress with respect to our technology initiatives, including our Wi-Fi and

Digital Network Upgrade (“DNU”) projects, and we are excited about some new product launches (i.e.

Motorola DreamGallery guide)

We believe these initiatives will support and increase the value proposition of our existing

products and services

Specifically we continue to focus on Broadband leadership and we believe that pricing

power within this product remains strong due to the differentiated experience Shaw’s

Internet service provides

Shaw EXO, and the rebranding of our network, will help position and maintain Shaw’s

technology superiority in the consumer market

The issues and disruptions to our customer care centers are largely behind us and we have begun

delivering an experience that Shaw customers expect

Shaw’s reputation of customer service has always been one of our key competitive advantages

Delivering an exceptional customer experience will be the foundation to our future success

II. UPDATE ON SHAW'S STRATEGIC INITIATIVES



Cable Overview:

The competitive environment has changed significantly over the last several years, as Telco’s continue to

build out their IPTV addressable market and technology trends & consumer demands continue to evolve

We face a highly competitive environment in North America with respect to IPTV overlap

TELUS has rolled out their Optik TV product across our major Western Canadian markets

(i.e. Vancouver, Calgary, Edmonton and Victoria) utilizing fibre-to-the-node (“FTTN”)

technologies while MTS has had a competing TV service in Winnipeg, and the surrounding

area, since 2003

However, while facing significant competition we continued to grow our cable business,

and in fact F2011 was the first year we actually lost cable subscribers


$-

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Cable Revenue & EBITDA(2009-2011)

Revenue EBITDA

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150,000

200,000

250,000

300,000

350,000

400,000

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Subscribers - Net Additions(2009-2011)

Basic Digital TV Phone Internet

10.8%

5.6%

6.2%

% Represents annual revenue & EBITDA growth respectivelyNote: F10 excludes impact of CRTC Part II Fee

11.3%

10.8%10.1%



Cable Overview:

Convergence of offerings has lead to aggressive price competition as providers compete for customers

with the goal of “owning-the-home”

We now have over 70% of our customers bundled in a triple or double-play package

Competition is not just within our own backyard as consumers are embracing innovation/technology (i.e.

Netflix and similar OTT-like services) and demanding greater flexibility and value with respect to their

telecommunication and entertainment services

Creative bundling packages have been a tool that we have utilized to meet the demands of our

customers

TELUS continues to focus on market share objectives and has employed a typical new entrant approach

through free and subsidized equipment (i.e. HDPVR/tablet/laptop offers) and aggressive promotional

pricing offers

TELUS launched their Optik TV product, utilizing the Microsoft Media platform, in 2009 and they now

have over 500,000 TV customers

This represents a 22% market share, based on their addressable market of 2.3 million households

(source: Telus recent Q4 conference call)

TELUS wireline profitability has been impacted, but the market continues to overlook financial

dilution of their TV strategy as TELUS’ wireless business continues to generate significant profits to

fund IPTV losses




Cable Overview:

Recent quarterly subscriber results have been pressured and core RGUs slowed in Q1/12 (note:

core RGUs = the summation of basic, Internet and phone customer additions)

We believe this is attributable to a number of factors, including:

Western Pay TV market is highly penetrated – however modest growth opportunities still

exist as housing market remains positive

Customer service disruptions that we encountered late in the fall

TELUS promotional tactics (note: mainly free hardware offers) continue to have an

impact




Cable Overview:

At the end of 2011 we had begun to put in place the necessary operational resources and strategic investments

required to address the customer service issues

However, the lingering effects of the customer service disruptions, combined with the intense competitive

environment, resulted in a loss of momentum within our cable business

In December, we made a strategic decision to modify our tactics in order to change the momentum and environment,

as we believe our subscriber base represents the long-term franchise value of our Company

We launched the Visa Gift card program and in January we initiated a variety of new packages and offers (i.e.

Simple Bundles)

These strategies were successful, as we added over 60K core RGU’s in Q2 compared to 11K in Q1 F12 and 30K a

year ago

Our basic subscriber loss moderated to less than 10K in Q2 compared to a loss of 23K in Q1 F12 and a loss of

almost 14K in Q2 F11

II. UPDATE ON SHAW'S STRATEGIC INITIATIVES (9

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Basic Internet Digital TV Phone Shaw Direct

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Core RGU Trend

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30K

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Cable Overview:

However, this approach to the competitive environment, including costs associated with staffing and

marketing expenditures over the last quarter, caused financial results to come under pressure

Q2 cable EBITDA margin compressed by 380 bps to 43.8% compared to a Q1 cable margin of

47.6%

However, some of the costs in the quarter were one-time in nature and we expect our cable cost

structure to moderate going forward

We tried many things in a short period of time; however it is clear from our financial results that our

subscriber acquisition activities were at a greater cost than what was acceptable to us

Some packages were pulled from the market at the end of February and new EXO bundles were

launched on March 14

New offers are still attractive from a value perspective but are less appealing to entice existing

customers to repackage their services

We have created positive momentum within our cable business and we will be more disciplined regarding

our approach to the market as we continue to believe that our subscriber base represents the long-term

profitability of our cable franchise and we need to protect our existing customers and compete for new

subscriber opportunities

Going forward we are focused on customer profitability and sustainable growth initiatives and we remain

confident about the long-term profitability and free cash flow profile of our consolidated business

The Western Canadian economy continues to be strong and most believe that the competitive

landscape remains attractive in a more “normalized” duopoly environment going forward




Strategic Investments:

We continue to invest significant amounts of capital into our business so that our network is equipped to

handle increased capacity, support new technologies and provide greater options for our customers

Our digital network upgrade (“DNU”) project, which converts analog tiers into digital, increases

capacity for additional HD channels, VOD options and higher Internet speeds

The project will be completed in F13

Broadband speed is a key differentiator over our competitor as we have the ability to offer

speeds up to 250 Mbps and large data packages (i.e. 400 GB) without affecting the quality

of other Shaw services entering the home

Our fibre assets represent a strategic advantage and we have ownership of over 625,000

km of fibre across North America

We have also enhanced our set-top box line-up with the launch of the ARRIS Gateway box in May 2011

The Gateway delivers a whole home network PVR solution by combining broadband and HD

technology

This technology is the first of it’s kind in Canada and is being embraced by our “high-end”

customers





We partnered with Motorola and we will be launching our new “DreamGallery” guide and user interface

later in the year

The benefit of DreamGallery is its ability to support HTML5 interfaces where a large part of the

functionality of services is moved from the box to the back-office

This allows for personalization and other enhanced customization tools

This improved interface will also be made available on Android and iOS tablets

We still maintain our ownership of AWS spectrum and continue to view the spectrum as an appreciating

asset from a value perspective

We also continue to view ownership of spectrum as providing tremendous flexibility regarding

strategic options

We believe the value of our AWS spectrum, both financially and strategically, increases materially

once the restrictions governing the spectrum expire in 2014

The rules for the 700 MHz auction were released on March 14th, which laid out the framework for

“spectrum caps” as opposed to “set asides” (note: essentially 4 blocks of “usable” spectrum in each

geographical area)

We continue to view the economics of a traditional wireless network as unattractive and have no

intention of building such infrastructure





During the course of our strategic wireless review (April – September 2011) we spent a considerable

amount of time exploring the merits of a comprehensive Wi-Fi strategy

We announced our strategic intentions regarding a Wi-Fi build in September 2011 and since then

there has been a number of bullish articles and positive press coverage in North America and

Internationally regarding the potential benefits of Wi-Fi going forward

Recent reports have discussed the benefits of Cablecos (i.e. Cablevision, Charter, etc.)

owning a Wi-Fi network, as it allows the cablecos to differentiate their broadband services

from their telco competitors, and provides incremental revenue opportunities

As a technology, Wi-Fi is gathering a lot of attention regarding its role within the broadband

and wireless ecosystem

These include cellular backhaul opportunities, open access Wi-Fi network to non-Shaw

customers (i.e. pay per hour/day etc.), targeted advertising etc.

Discussions and speculation regarding the potential “disruptive” element of a Wi-Fi strategy,

where it essentially acts as a substitute to expensive data packages provided by the wireless

company and impacts an wireless data ARPU, is intensifying

Device manufacturers are de-emphasizing the carrier networks as it has been reported that a

majority of data usage takes place where Wi-Fi hotspots exist

Some industry experts suggest that ultimately significant of wireless usage will take place

indoors and that subscribers have been educated to actively look for Wi-Fi connectivity for

offloading

Note: our Wi-Fi strategy is consistent with all of the major carriers in the US (i.e. Cablevision,

Comcast, etc..)





We believe there are numerous benefits for Shaw to build a Wi-Fi network that is exclusive to Shaw customers

in our key markets in Western Canada

Extension of our broadband service beyond the home increases the value proposition of our Internet

product and supports future pricing power

Further differentiates our Internet service, which is a key consideration in the context of the competitive

realities of the Western Canadian market

Internet is our highest margin product and is the stickiest component of our bundle

Reduction of churn

A presentation by Motorola in the US suggests a 10% reduction in Internet churn in the context of

roll out of a Wi-Fi network by a cable operator 1

Creates a disruptive threat to the incumbents wireless business

Encourages wireless customers to use our Wi-Fi network to reduce wireless data charges

Complements our TV Everywhere strategy

Enabling customers to view all of their TV services inside and outside the home on Shaw’s

infrastructure where content rights have been secured

Increasing the value proposition of Shaw services and again supports pricing power

Extends our home phone product with a SIP based service

Attractive to our Shaw Business customers

Enables portability of their data services

Creates the possibility of a unique Shaw system

Aligns with our strategy of providing on-demand services – customers get what they want, when

they want it, all from Shaw


1 Scotia Capital Equity Research Biweekly Report dated July 25, 2011 – Converging Networks




We continue to make progress in rolling out our Wi-Fi network (note: still in trial mode and we have

not marketed the service to-date)

We currently have over 600 sites and 1,200 access points providing service in Calgary,

Edmonton and Vancouver

Improved functionality (i.e. Shaw EXO Wi-Fi iPad application, linkage to user home Internet

package, etc.) is a key priority

We will scale the network based on usage, however we believe the Wi-Fi network be

substantially complete by the end of F2014

Shaw Business:

Shaw Business remains a near-term growth opportunity and has been a focus in F12

This segment delivers over $200M in revenue and has experienced 20% growth the last

couple of years

Recent success in this segment includes the City of Calgary, Husky Oilsands Camp

and BC Biomedical Laboratories

We believe there is significant long term opportunity as the business telecom market in

Western Canada is estimated to be worth approximately $6B, while we currently hold an

approximate 5% market share

Growth will eventually shift to mid market businesses and thus more complex service

offerings will be required

Strategic builds will be necessary to increase addressable market




Customer Service Discussion:

We believe that exceptional customer service is a differentiator in this competitive environment and

we continue to re-build our reputation after experiencing some difficulties during the second half of

2011

A number of factors contributed to an increase in call volumes into our call centres which

resulted in long wait times

Since then, we have hired an additional 1,000 employees and opened 3 new call centres to restore

and enhance customer service and current call/wait times have improved

The call centres, known as Customer Solutions Centres, are located in Calgary, Vancouver

and Edmonton

The intent of these groups is to be trained on telemarketing/sales however, they will switch

over to in-bound calls when our call volumes increase to help manage the “peak periods”

We also began national call pooling in November to streamline calls and balance the

customer experience across all regions

In addition, we are developing a more comprehensive on-line experience where customers will

have greater “self-serve options”

Provides alternatives for customers to contact Shaw instead of having to phone into a call

centre




Marketing Initiatives / Packages:

Increased competition has led us to spend more on our marketing and branding initiatives as we

compete for customers

Our business is increasingly becoming a more “consumer” centric business and we believe

that an effective marketing and brand awareness campaign is an important pillar in the

competitive fight

With the launch of our new network, EXO, we had the opportunity to re-confirm our technology

leadership position to the market and create additional brand awareness with existing and new

customers

We believe that increased spending on customer awareness will continue as we roll-out new

products/features such as the EXO bundles, Wi-Fi, DreamGallery, etc.

Our commitment to these marketing/branding initiatives is also evident with the recent hire of

Jim Little as our new Chief Marketing Officer

Our new EXO bundles that were launched on March 14 are attractive from a value perspective for

both new and existing customers

This “customer-focused” strategy will enable long-term success as pricing rationality within

our industry materializes under a more rationale duopoly environment




Satellite:

Shaw Direct is focused on a number of items to drive our business forward, including; HD

leadership (launch of ANIK G1), service (lower churn than our competitor) and technology

leadership (new Gateway, VOD opportunities)

With the launch of ANIK G1 expected in November, we have the capacity for an additional

100 HD channels allowing us to offer over 200 HD channels to our customers

A new Gateway/portal, in development with Motorola, is expected in early 2013 and offers

whole home capabilities (shared PVR, pause, resume etc.) and will utilize the DreamGallery

software

On April 4th we announced a strategic partnership with Xplornet

This enablesus to offer our DTH customers a bundle that now includes Xplornet’s broadband

service (fixed wireless or satellite)




Media:

Applying a 10x EBITDA multiple that Bell paid for CTV and Astral to Shaw Media’s F11 financial

results, Shaw’s purchase of Canwest represents over $1 billion of additional value compared to the

original purchase price of $2 billion

Media growth in F11 was better than anticipated with 25% EBITDA growth YoY to $325

million, however market softness due to continued economic volatility will keep EBITDA

relatively flat in F12

Note: specialty remains strong but conventional is being pressured

Shaw Media maintains the strongest specialty portfolio of any broadcaster with leading

positions in lifestyle and dramatic programming and we are excited about the launch of

our BC regional news network that will further enhance Global’s dominant position in

Western Canada

We also believe that the ownership of content has helped protect the profitability of Shaw’s

distribution business

Shaw Media has provided additional negotiating leverage in programming rate renewal

discussions with other broadcasters

We believe one of the benefits of owning content is to enhance our “TV Everywhere” initiatives,

which is a key strategic priority for our Company going forward




Media:

Content will continue to be a the key factor influencing our Media business and we need to ensure

we effectively monetize this asset across multiple platforms

It also gives us more leverage as we negotiate on demand/multi-platform rights, which are

critical to mitigating the impact of Netflix and other OTT entrants

Consumption of content via VOD and through online services continues to increase and we

need to ensure we are “measuring and monetizing” these viewers

We are deepening our relationships with key channel partners and we are leveraging our US

studio relationships with co-production opportunities as we continue to be the broadcast partner of

choice for the best Canadian producers

Continued focus on our core program genres of Food, Home Improvement and History

Allows us to further leverage our brand with advertising partners




III. FINANCIAL INFORMATION

Notes: Figures exclude wireless investments

*2010 figures exclude CRTC Part II Fee recovery

**2011 figures reflect 10-months impact of Shaw Media

$2,774

$3,105$3,391

$3,718 $3,850

$1,240$1,408

$1,541$1,685 $1,779

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2007 2008 2009 2010 * 2011A**

$C

DN

MM

Consolidated Annual Revenue and EBITDA(Fiscal Year Ending August 31)

Core Revenue Core EBITDA

$891

$4,741

$252

$2,031

Media Revenue Media EBITDA



Our consolidated business continues to generate substantial FCF

F12 FCF is expected to be approximately $450 million

We will continue to invest in our strategic initiatives and focus on sustainable growth

III. FINANCIAL INFORMATION

*2011A FCF includes 10-months of Media contribution

2010 adjusted for CRTC Part II Fee Recovery

$355

$451$505 $514

$603$529

$601

$843

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2007A 2008A 2009A 2010A 2011A*

(C$ m

illi

on

s)

Consolidated Free Cash Flow (ex. wireless)(2007A - 2012E)

FCF Adjusted Untaxed FCF



We believe our approach to the competitive environment is the appropriate strategy for the benefit

of our stakeholders over the long-term

Protecting and growing our subscriber base will enhance the long-term value of our cable

franchise

Broadband leadership continues to be a differentiator and with more online data being consumed

we believe we have an opportunity to monetize our network advantage

While our Wi-Fi ambitions are largely defensive (i.e. reduce churn), we do believe the product will

help protect and grow our residential broadband offering

We also believe that an extensive Wi-Fi network in our core cities in Western Canada will

enable pricing power within our residential bundle, disrupt incumbent wireless operators data

plans and present other revenue opportunities for Shaw in the future

Shaw Business represents one of our largest near-term growth opportunities and will become a

material component of our consolidated financial picture

Currently contributes in excess of $200 million of revenue

IV. CONCLUSION



Shaw Media’s financial performance continues to be strong and we are excited about exploiting the

opportunities with respect to being a vertically integrated provider in Canada

Extended reach creates an opportunity to brand Shaw coast-to-coast and create more

customer awareness/brand loyalty throughout Canada

Ownership of content provides opportunities to develop a robust TV Everywhere/OTT

strategy, enables innovative channel packaging and provides the ability for differentiated

content over broadband and Wi-Fi platforms

While we are bullish regarding the numerous opportunities that present themselves, we also

recognize that considering the maturity of our consolidated business & industry and the

competitive environment, growth rates will not be as robust compared to historical levels

We continue to believe that our business will generate significant amounts of FCF going

forward which will help support return of capital initiatives to shareholders

IV. CONCLUSION

II. Strategic Focus SHAW COMMUNICATIONS INC. INVESTOR …€¦ · Shaw EXO, and the rebranding of...

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