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Shaw Communications (NYSE:SJR)

Q2 2013 Earnings Call

April 12, 2013 3:30 pm ET

Executives

Bradley S. Shaw - Chief Executive Officer, Director and Member of Executive Committee

Steve Wilson - Chief Financial Officer and Senior Vice President

Jay Mehr - Senior Vice President of Operations

Jean Brazeau - Senior Vice President of Regulatory Affairs

Analysts

Glen Campbell - BofA Merrill Lynch, Research Division

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

Vince Valentini - TD Securities Equity Research

Tim Casey

Robert Goff - Byron Capital Markets Ltd., Research Division

Maher Yaghi - Desjardins Securities Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to Shaw Communications Fiscal 2013 Second Quarter Conference Call. As a reminder, this conference is being recorded. Today's call will be hosted by Mr. Brad Shaw, Chief Executive Officer of Shaw Communications. [Operator Instructions]

Before we begin, management would like to remind listeners that comments made during today's call will include forward-looking information, and there are risks that actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions and risks.

Mr. Shaw, I will now turn the call over to you. Please go ahead.

Bradley S. Shaw

Good afternoon. Thank you, operator, and thanks to everyone for joining us today to discuss our second quarter results for fiscal 2013. With me today are members of our senior management team, including Peter Bissonnette, President; Steve Wilson, Chief Financial Officer; Jay Mehr, Senior Vice President of Operations; Jean Brazeau, Senior Vice President of Regulatory; and Michael D'Avella, Senior Vice President of Planning.

Earlier today, we released our Q2 results, and I'll begin with some brief remarks regarding our performance before we discuss some of the details regarding the strategic transactions that we've announced over the last few months. We're pleased with this quarter's results as we leverage the underlying strength across our business to generate sustainable and profitable growth. We remain focused on providing exceptional customer experiences by taking advantage of our leading network infrastructure and high-quality content to enhance and expand our innovative offerings.

The operating environment in Western Canada, including pricing dynamics, continues to improve, and we remain confident in the value proposition that we are providing to our customers. Our strategy is to balance financial results while maintaining overall revenue-generating units. The Cable and Satellite divisions have over 6.3 million RGUs, which represents the number of products sold to our customers. During the quarter, overall RGUs declined marginally by approximately 8,000. Video RGUs declined more than expected as we reduced promotions and maintained tight discipline on customer equipment offers. This is reflected in our lower success base capital this quarter.

The operating environment requires us to be flexible on how we market our services to new and existing customers. Going forward, we intend to focus more on providing equipment to customers while refraining from overly promotional pricing. We plan to offer equipment contracts as an alternative for customers, and these packaging options will be introduced later in the spring.

We believe this is a natural extension of our strategic approach to the operating environment, which is focused on profitable and sustainable customer acquisition and retention initiatives. We believe this additional choice will be embraced by certain customer segments and, therefore, we expect success-based spending will increase in the second half of the year.

In Q2, we generated consolidated revenue and EBITDA growth of 2% and 9% to $1.3 billion and $538 million, respectively. During the quarter, we generated over $160 million in free cash flow, bringing our year-to-date amount to $405 million. The strength of our operations in the first half of the year has led us to increase our free cash flow guidance for fiscal 2013 to approximately $550 million. Our revised guidance takes into account our operating plan for the remainder of the year, as well as the impact of a series of transactions we recently announced. However, our free cash flow guidance excludes accelerated capital investments that we are funding from disposition proceeds. We believe it is important to provide disclosure that segments capital investments that are being funded via operations versus disposition proceeds.

Over the past few months, we have announced several strategic transactions that we believe have optimized our portfolio. We divested non-core assets at attractive valuations that enhanced our financial flexibility without significantly changing the operating profile of our company. These transactions demonstrate the ability of our leadership team to create value and sustainable long-term growth for our shareholders.

On January 14, we announced a series of transactions with Rogers. We sold our Hamilton cable system for $400 million, which is a 30% premium over our initial purchase price in 2009 and represents a 10x EBITDA transaction multiple. This transaction has received CRTC and Competition Bureau approvals, and we expect the sale to close at the end of the month. We also granted Rogers an option to acquire our AWS spectrum for $50 million, and we purchased Rogers' remaining stake in TVtropolis for $59 million.

On March 4, we announced an asset swap with Corus that resulted in Corus acquiring our 49% interest in ABC Spark and our 50% nonoperating interest in the French language specialty channels HiSToRiA and Series+. In return, we will acquire Corus' 20% interest in the Food Network and receive approximately $95 million in cash.

The transaction rationalizes our specialty portfolio and focuses on our strengths within certain genres. HiSToRiA and Series+ are subject to CRTC approval but we expect to close ABC Spark and the Food Network transactions by the end of this month. Net proceeds from these transactions are approximately $800 million. And as previously disclosed, we will be investing the majority of the proceeds back into our core business.

We believe these investments will reinforce and expand our infrastructure advantage. Accordingly, we have created an accelerated capital fund whereby we'll reinvest up to $500 million to accelerate certain capital initiatives. The investments will take place over the next 3 years, including $100 million in F '13, $250 million in F '14 and the remaining $150 million in F '15. By advancing these investments, we will be able to realize the benefits sooner than originally contemplated. Following completion of these initiatives, we expect annual Cable capital expenditures to approximately $750 million, which results in a declining capital-intensive profile for our Cable business.

The key investments to be accelerated over the next 3 years include $120 million towards the completion of our Calgary data center, $50 million related to the expansion of our WiFi network across Western Canada, and $50 million on the development of additional innovative product offerings related to Shaw Go and other applications that are focused on enhancing customer experience. We will also direct funds towards further digitization of our network and additional bandwidth upgrades, as well as capital relating to the initial development of IP delivery of video.

In addition to the core infrastructure and network investments we intend to make, earlier this week we announced that we have entered into an agreement to purchase Envision from ENMAX. This acquisition will strengthen our Shaw business initiatives and expand our market share in Calgary. Envision's asset provide an additional 800 route kilometers of fiber and connect over 560 buildings throughout Calgary and the surrounding area. There's very little overlap with our existing on-net building footprint in Calgary. The purchase price of $225 million represents approximately 11x EBITDA. Envision essentially provides connectivity and we believe there are significant synergy opportunities as we leverage our commercial Shaw business services.

This acquisition reflects our commitment to invest -- to investing and growing our business services, which is in line with our strategic plan. Our performance in the first half of 2013 is proof of our commitment to build sustainable value for shareholders by strengthening our competitive advantages and seizing opportunities. Our management team is committed to maintaining financial discipline, and our employees are focused on delivering exceptional customer experiences for our customers and viewers.

I want to conclude by noting that during the second quarter, Shaw was recognized by the Financial Post as one of the top 10 employers in Canada as the only company on the list from our sector. My family and our management team are proud of this recognition. Being on this list is a reflection of the entire Shaw team. We want to thank all of our employees for their dedication and commitment every day.

Thanks to everyone for joining us today. And we'd now like to open the phones to answer any questions, operator.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Glen Campbell of Bank of America.

Glen Campbell - BofA Merrill Lynch, Research Division

I wanted to ask about Cable subscriber trends and also about CapEx. So on the Cable subscribers, could you talk a little bit about the trend in the quarter and whether we're seeing any improvement in the trend going into the next quarter? And on CapEx, you've given sort of an out-year figure, if I got it right, of around $750 million as normal CapEx once this accelerated CapEx is done. Should we think of that as being the kind of number you're shooting for F '16? Does it include sort of success-based capital related to set-tops? And can you may be give us a bit of sense of what the network would look like then? Would node sizes be where you want them to be? Would that be a steady-state?

Steve Wilson

We well, first of all, Glen, let me just talk about subscriber trends and maybe just focus on that for a minute for the benefit of all of the investors listening on the call. What we see in some of the pre-reports here seems to be an inordinate focus on video subscribers as a separate and discrete item. As you know, and as many have discussed, we are moving towards becoming a broadband company. And so the focus on video seems to be in relation to the overall reporting of all the things we've done for the quarter to be a bit lost in the past and to be a bit out of place. As Brad said in his speech, we were disciplined on promotions. We're doing 3-month promotions now and are supporting discipline in the market. And we also had lower equipment activity, and you can see that from approximately an $80 million decline in success-based CapEx from this year, year-to-date to last year. If you look at how we think about our business and so people understand, our focus is to balance profitability and free cash flow while maintaining our overall base of RGUs. And to put it simply, RGUs is obviously an industry term. But if you think about it, it's 6.3 million products that we sell to customers. And out of that 6.3 million products, this quarter we lost 7,600 core RGUs. Our core RGU would be video plus Internet plus phone plus satellite. So in terms of maintaining that overall base, that's a 0.1% reduction in the base. Our focus is not specifically on video. We could manage video if we wanted to, to get to a higher number. But we're managing RGUs overall and we expect, as we do that, that we'll see a move to higher-margin Internet customers going forward away from video subscribers. So basically, the theme of this is that in the old days, you thought about the video customer as the base. But that's not the case now. The base customer is our Internet customer, and that's how we're looking at the overall mix of everything. I think what's really important to ensure that's how we're making sure that -- when we talk about that difference between balancing fee cash flow and profitability in the base is to ensure that there's not an overall erosion of the base. And the key also going forward, and I think this is important for analytical investor purposes, is it's really not subscriber growth that's going to drive results going forward. It's going to be more the ability to be able to price products and offer value to customer. And in our market out here in the west, certainly, there's been much more discipline. Our main competitor and us both recognize that there's a significant value in Internet, and that there's significant value going forward. And that we're lower than the east and that there are opportunities to monetize the value that we're providing, in part just to keep up with the significant network investments we're making to manage peak capacity. Peak capacity last year was up 50% in 1 year. It would be, I think, disadvantageous for us to focus on video specifically. I think that would be something that would not be worthwhile for us or investors. Our approach is to look holistically. And so I think we need to reset expectations a little bit here and say that's how we think about it. We think about it in overall RGU terms. Our goal is -- what we're trying to do is, for the year, to make sure that we don't lose more than 1% of that 6.3 million RGUs. So that's roughly our target for the year. To date, we've lost 12,600 or 12,200, but it's within the mix. We will see it moving to higher-margin products and it's not a focus on video. So I think people should take those comments back. With regard to CapEx, on the normalized side, this year, we'll see Cable CapEx at $750 million. That's a penetration of -- that's CapEx intensity of about 23%. Going forward, we see that being well a pretty stable amount, a stable amount for investors to consider. It will be a little bit higher next year simply because we've got a lot of the Shaw Court restoration costs in the next year, and so we will see a little blip specifically on that. If you look at it, that's really the baseline CapEx going forward out to 2015. Now when you get to 2015, that should get you down to about 20% CapEx intensity. And then from there forward, we see that reducing. We see it reducing in part because we're accelerating some very important strategic investments with very high returns. One is the data center, as Brad talked about, WiFi initiatives and our -- the applications, yes, sorry. And also then, the other side of that is looking at further hardening the network, further digitization, further capacity for broadband and HD and VOD. So what we're trying to do with the accelerated capital fund is we're saying we have sold off some assets that weren't strategic. We've made a 50% gain on our sale to Rogers on those assets. We've also had $100 million at Corus. So in total, we've got about $800 million of proceeds, and we're looking to invest $500 million of those sooner than they would've been invested in the past because they are important from a strategic viewpoint to get them done, and because they're high-return projects. We want a separate this out for investors so that they can see the 2 flows. So if we normalize the cable CapEx at $750 million, that will give you, on that free cash flow number, a good sense of free cash flow being generated by the business and how we expect to see that going forward. The other $500 million, notionally, we're saying, is coming out of cash that we have on hand as a result of these sales, and we're using the cash to do that rather than subtract it, and mishmash it all together from the operating free cash flow number. It was a lengthy answer to your question. Did I get there?

Operator

And we'll move to our next question, from Jeff Fan of Scotiabank.

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

Maybe just to follow on to that, Steve, you talked about the -- enhancing the return of the business once all the accelerated spending is done. Can you maybe talk a little bit about that? I know you probably don't want give too much specifics in terms of growth or margins. But can you help us understand what your network, you believe, will be look like once all this is done, the kind of service that you think that will allow you to be fully competitive and have the visibility on whether its subscriber, ARPU and growth going forward?

Steve Wilson

I think it's early days for that, Jeff. As we said in our press release, we're talking up to $500 million and we've given investors the ability to understand how we're thinking about the timing of that, $100 million this year, $250 million next year, and then $150 million the following year. Now all of that can change as we go through. One of the big buckets, of course, is looking at the further digitization of the network, what comes out of that in terms of capacity for additional broadband and how we're set up for customers. We've got our existing bog [ph] strategy, which we'll talk little bit about further along. So it's hard to actually define that in specific terms. We'll see -- one of the things we're saying here that we're beginning an exploration of IPTV, and we'll see the speed and time of that and where we come out. But we recognize that looking at IPTV is an important function of the business going forward. And that's part of the proceeds that we will be using here.

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

Okay, maybe to touch on another area, on your business segment, with the acquisition of Envision, can you maybe talk a little bit about what it adds to that particular strategy in going after some of the business businesses in your area?

Jay Mehr

Yes, for sure, Jeff. It's Jay. In terms of the Envision deal, it's modest in scope and impact, but we really like to deal on a whole bunch of levels. It certainly gives us growth opportunity, provides us with fiber network. As Brad says, it connects us to over 560 buildings in Calgary. It's -- the replacement value that network would be substantial if you could even replace it. And from an access point of view, it would take many years and we couldn't get access to all those buildings. What's fantastic about the network is when you layer it on top of our network, as we did in the process, we're delighted to see it really is hand-in-glove, and we didn't have very much duplication between our 2 networks at all. We're excited that we're adding a great team. We've had a chance to meet with every employee and 40 staff that fit perfectly into our growth plans and some of the needs we had for our team, so we're excited about that. Long-term agreement with ENMAX Power that is both a win-win for us and extends our relationship with the city of Calgary. And this big growth opportunity, this has been a data-only play, Calgary-only play. So when you bring it together with Shaw -- and by the way, the team has done an extraordinary job of building this business. When you bring it together with Shaw, you can add voice services, long-haul to other markets, and really the strength of our combined products. We think it's a nice tuck-in acquisition for us.

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

Can you help me understand why the overlap is actually not as big because, being in Calgary, why isn't your network where they are?

Jay Mehr

Yes, go ahead.

Steve Wilson

A lot of the reason is that we have some overlap in the downtown core in certain areas. But our network was built as a residential network. So we're not -- we don't have fiber in any extensive capacity out into business parks and that. This also includes that. And I think one of the important things in this deal is we're picking up 360 customers, but we're also picking up access to 560 buildings here. And the importance of fiber given the symmetrical nature of fiber, where co-ax is not symmetrical, you have a great download speed but not always as good a upload speed. Fiber gives you that symmetry which really allows us to sell other services to customers in a much more effective way. But it's really just a focus of our cable base, having been more residential, has resulted in a little overlap here.

Operator

We'll move to our next question, from Vince Valentini of TD Securities.

Vince Valentini - TD Securities Equity Research

First thing, on the Envision as well. 560 buildings just seemed like a lot to me for a city of Calgary. Do you know how many buildings there are? Like, would you have virtually every building covered now with that network?

Jay Mehr

I don't have a stat for exactly how many buildings there are. It's a significant network and if you think about it, that's an organization that has access to these buildings and being the power provider. That was a very strategic choice to leverage that excess and build fiber. That choice has worked out very well for ENMAX and the citizens of Calgary because they built a real nice business off that. It's a very, very strong fiber network. And I think it really enhances our ability to compete, particularly in the Oil and Gas segment.

Steve Wilson

And it's not just downtown [indiscernible] as you might think of Toronto Hydro or something, because it is so extensive in the industrial parks as well. That's where you get access to a lot of areas where we would have had to build fiber to be able to compete effectively.

Vince Valentini - TD Securities Equity Research

That's good. Are there any of these type of assets in any of your other major centers, Vancouver Edmonton, specifically, maybe that you could look to acquire as well?

Steve Wilson

There's no blip on the radar screen but if anybody wants to give us a phone call, we'll be glad to listen.

Vince Valentini - TD Securities Equity Research

Okay, 2 more just quick follow-ups. The $250 million for strategic CapEx, obviously, the biggest year is 2014 in your guidance you've given us. Is that in some way contingent on the spectrum sale to Rogers going through? Because, obviously, Industry Canada still has to approve that deal. If that doesn't go through for some reason, would you consider cutting back on that $250 million amount for next year or is that pretty much committed in your mind whether that sale goes through or not?

Steve Wilson

Well, maybe we should talk about this. Why don't we talk about the sale going through first and our opinion of the sale going through and then go from there?

Jean Brazeau

Vince, Jean here. The agreement we've entered into with Rogers is in full compliance with the conditions, the license conditions on their AWS. And as you know, those conditions were debated and it took almost 4 years in the making. And the only restriction is for the Minister to approve these licenses, and we could sell it to anyone after 2014. So I think we're in full compliance. Changing those rules retroactively, I think, and the general comments on the consultations certainly whereas a consensus around this issue that this would really fly in the face of the principle of contractual certainty and really devalue the whole AWS spectrum and any future spectrum auction. So I think we understand that why the minister is looking into this, but at the end of the day, I think they will comply with the framework of the AWS license regime. And I think the transaction will be approved by the minister.

Steve Wilson

Vince, just to fill that out. So basically, we expect to close Hamilton. We've had the CRTC approval. Hamilton will close at the end of April for $400 million. We've got the $100 million from the Corus asset swap coming in. We have the $50 million already from the Rogers option premium and, of course, we spent just a little bit over that on TVtrop. So we already have essentially $500 million of net proceeds from those strategic transactions today. So I wouldn't see that changing. We don't believe there's a likelihood that the option will be exercised. But all of this, again, to say that we're giving you up 2 numbers here. And particularly in the outlying years, we'll be reviewing those as we go, and what we want to do in the network, what we want to do in IPTV and those kinds of things.

Vince Valentini - TD Securities Equity Research

And one last one last little one for me, you were nice enough to share that $750 million long-term CapEx figure, Steven. You mentioned that would be about 20% of revenue. Obviously, that points to a potential revenue figure in 2016. When you think about that, is that all organic growth to get to that level? Or would you possibly begin considering other acquisitions in your mind when you think about that longer term plan?

Steve Wilson

That's largely, in our business model that, that would be basically organic growth. Envision only adds about $35 million of revenue. And I say, we're getting around $20 million. The point is, once you've done these hump investments and you push them forward strategically, not only do you benefit strategically by having them done, and they're good return investments, but you also get to a point, say, when you can actually begin to reduce your CapEx intensity. So it's around 20% in 2015. In 2016, we have the potential then to see that coming down further. And if there are any other businesses out there for sale, we're happy to take a phone call.

Operator

[Operator Instructions] And we'll move to our next question, from Tim Casey of BMO.

Tim Casey

A couple things on CapEx. One, I'm just confused why you would increase your CapEx and increase your free cash flow guidance given that the CapEx items you're talking of are core to the network. Those are operating items that are strategic. So I'm just struggling with your definition of free cash flow.

Steve Wilson

Well, our definition of free cash flow was developed through our planning process. And in our planning process, we identified that there would be certain things that we'd be able to do going forward if we wanted to keep free cash flow around the $485 million, $500 million area and cover dividends. The strategic sales here were very beneficial and weren't done for the reason of investing, but gave us the opportunity to do that. When you look in the data center under our model without strategic proceeds, we would have run that over a longer period. Now we have the opportunity to basically accelerate those. Nobody's saying that they're not strategic, but it's just that the process of doing it is accelerated. And it's really looking at it, saying, Tim, these are amounts that, as a result of this money and as a result of the returns from those investments, that we're able to lever on top of the free cash flow that comes from our base business based on the CapEx that we have, the base CapEx that we expect.

Tim Casey

But really, we're just talking semantics here. I mean, these are core investments that you're funding through operations. You've sold some strategic assets, bought another strategic asset, but your core CapEx is going up here. You were going to spend it anyway, so I just -- anyway I'll move on. Just on...

Steve Wilson

Well, what would have happen was within that $750 million of core, there would have been a reallocation perhaps of being able to do less other core investments. And look, basically, the way we're looking at this, Tim, is this is supplemental disclosure. So if you look at our core base today in terms of CPE, engineering spend, IT spend, facility spend, and then the regular spend on network upgrades, new housing, mainline new, drops, all that kind of stuff, that gets you to roughly the $750 million amount. So if you take the view that you subtract it from free cash flow, that's fine. This is supplementary. It's just important to keep in mind then that if you're looking at it that way, then essentially we're paying dividends out of cash on hand.

Bradley S. Shaw

I guess we'll have to agree to disagree on that, I guess. Just on the CapEx, just a clarification. So core Cable CapEx is $750 million and then in '14 -- or '13 and '14. And then there's another $100 million this year and another $250 million next year. And then on top of that, there would be satellite and media CapEx. Have I got those notionally correct?

Steve Wilson

You've got those notionally correct. So if you look at this year, there was about $750 million of Cable CapEx, about $120 million of satellite, which is the normalized amount for satellite for subsidies about $90 million, plus we've got the Anik G1 cost to get it up and running and to launch it. And Media CapEx tends to run around $30 million. So our overall CapEx for this year will be about $900 million, which will be down marginally from last year, as we said in our guidance. But we're looking at the number that people tend to focus on and rightfully so, fairly so, is Cable CapEx intensity.

Tim Casey

Right. But there's another $100 million on top of that $750 million, right? So we're about $1 billion this year? All in?

Bradley S. Shaw

No, we're $900 million this year.

Tim Casey

I thought it was $750 million base plus the accelerated CapEx.

Bradley S. Shaw

Yes, $1 billion.

Tim Casey

So $1 billion this year and $1.1 billion or $1.2 billion next year. Have I notionally got that right?

Steve Wilson

Yes, that's notionally correct.

Operator

And we'll move onto our next question, from Rob Goff of Byron Capital Markets.

Robert Goff - Byron Capital Markets Ltd., Research Division

Two, if I may. The first one would be on the accelerated capital fund. Should we consider those expenditures to be a nonfactor when we pontificate about potential dividend payouts or dividend changes? And then secondly, does your move to put marketing more onto equipment subsidies reflect what you have seen in the external market, or perhaps an assessment of what you liked or didn't like in past promotions?

Bradley S. Shaw

So in the first one -- and this is one of the reasons why I think what we're trying to do here is we're trying to say, look, $750 million is Cable CapEx. And of course, there's others, but looking at the $750 million as a key number here is CapEx intensity. That gives you a sense as you model this out in terms of free cash flow that's being generated by the business in the absence of these other investments that are being funded by cash of the capacity of the business to be able to increase dividends. And so we think that's why that's good disclosure, and then you can look at the others and say that's being funded by, notionally, by cash as a result of these sales.

Robert Goff - Byron Capital Markets Ltd., Research Division

I just wanted to confirm that. That's good.

Bradley S. Shaw

Okay. And in terms of equipment subsidies -- and I will turn this over to Jay just to talk about it. The one thing I'd want confirm is that equipment subsidies are in our equipment spending and customer premise equipment spending, not just subsidies but also, as we move forward, we talk about contracts. All of those numbers are in that base $750 million.

Jay Mehr

So just building on what Steve said, Rob. It's Jay. If you look at what happened in the marketplace we've led a promotional and pricing correction in the market that really started in March 2012. And over that period of time, as you've seen, we've moved from 12-month promotions to 6-month promotions and now to really quite modest 3-month promotional offers. As we follow the plan, and we believe the marketplace is responding well to the plan, and it's very much anchored that in the theory that last in, best served is the opposite of how we're going to operate our business. So our focus on the next phase of the strategy is offering our customers greater choice with both no contract and contract equipment included pricing while staying away from overly promotional pricing. So if you think about that, our customer proposition really includes equipment today. We don't sell analog cable to any customers today. And so if you look at some of the opportunity in terms of pricing power in the marketplace, we think we now, having settled the marketplace down, having got significant operational efficiency and procurement savings in the supply chain, we think we're now in the position to step in to some of that pricing power and move to contract-included equipment and also no-contract equipment by perhaps the end of this quarter or certainly late spring.

Operator

And we'll move to our next question, from Maher Yaghi of Desjardins Capital Markets.

Maher Yaghi - Desjardins Securities Inc., Research Division

I just wanted to ask you about your pricing elasticity, and I commend you on your strong job in emerging with the growth in Cable even though, as you mentioned, your Cable subs declined over 100,000 over the last year. So can you talk a little bit about the pricing elasticity in your Cable business? And how much can you sustain in pricing increases to continue to show top line revenue growth in that business? And the second question on the capital, accelerated capital budget, the way I see it and initially you took on debt to buy the Spectrum assets. When you sold them, it's kind of similar to -- you had the option of repaying the debt that you took to buy these assets but you're deciding to use the proceeds to invest in your business. So in a way it looks like, to me, it's a decision to take on debt to finance CapEx. And usually, those are operating CapEx. So again, I'm trying to understand the concept that you're saying that these are additional CapEx that's going to be invested over the next few years above our operating cash flow, but they're supported by the company's operating cash flow through debt financing.

Maher Yaghi - Desjardins Securities Inc., Research Division

It's Jay. I'll start with the first question around pricing and value for money and where we see all that going. I mean I think it's important if you look at -- well, let's stop and go back originally, as Brad articulated in the last call, to the 4 areas of focus in terms of our strategy and they are: delivering an exceptional customer experience, leading technology, customer profitability and operational efficiency. And so if you're work into the customer profitability phase and all the work that's been done, and we're already proud of the work that the team has done both in a planning and an execution side here, the revenue story is both fairly dramatic reductions and promotional offerings and some increasing in pricing and also some upgrades in terms of the level of service that our customers are taking. So if you take the first path, we think the moving away from promotions and as we indicated to you before, last in, best served, best priced is the opposite of the approach that we're going to take in the business. And we think that's -- that portion of the revenue, customer profitability, is healthy on so many levels and we're seeing it in reduced churn and in other factors, and we think there's lots of opportunity there. In terms of overall pricing power, really it's a combination of the fact that we're coming out of an intensely competitive price war and offering value for money. And I think if you look at the value for money that we're offering to our customers in terms of value-added services, we're completely focused on what we've done with the sports programming, on the entire WiFi project is value for money for our Internet products. Shaw Go is value for money for our Internet products. Our catch-up TV offering right now is a tremendous customer experiences. And all our new user experiences are value-added services. So we're building the value for our customers, and will that give a bit of an umbrella in terms of pricing power? It's certainly our view that it will.

Steve Wilson

In terms of the second question, Maher, if you look -- I'll just give a little rundown of the year in terms what we've been able to accomplish here when you look at debt and cash. So we started the year with just over $400 million of cash. We're going to generate $500 million of -- $550 million of free cash flow. Our dividend payable will be $445 million, less about $120 million for cash savings from the DRIP. So that brings that down about $320 million, let's say. We bought product -- we bought Envision for a $225 million, TVtrop for $60 million and we've realized $50 million from the spectrum premium, $400 million from Hamilton and $100 million from Corus. So when you look at all that, we had a debt repayment in November. We did not refinance that. So we've reduced debt by $450 million. And we still have cash of $100 million today at the end of the quarter. We also funded our SERP, $300 million, and for that, we get a $65 million or $65 million tax deduction. The $65 million tax deduction is not included in the free cash flow because we don't include other items that are nonoperating in free cash flow. But you can basically add that on to the $550 million if you want. And then including the accelerated CapEx of $100 million and the base CapEx numbers that I told you in the free cash flow guidance, we're still going to end up positive cash this year, somewhere between $50 million to $100 million. So we are paying off debt. We've paid off the SERP, substantial portion of SERP liability. We bought Envision and we're funding the accelerated capital fund and all the rest through that. And we'll start the year with cash and end the year with cash.

Maher Yaghi - Desjardins Securities Inc., Research Division

For 2014, you expect to be also flat year-on-year or maybe a slight decline given your accelerated investment?

Steve Wilson

No, even with the accelerated for next year, we expect, we still expect to be cash positive.

Operator

Mr. Brad Shaw, there are no further questions at this time.

Bradley S. Shaw

Thank you, operator. Thanks, everyone. See you next call.

Operator

Ladies and gentlemen, this does conclude your conference call for today. Thank you for your participation. You may now disconnect your lines, and have a great day.

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