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TELUS

Consolidated operating revenue up 2.6 per cent and EBITDA up 5.8 per cent
Strong customer loading in all key segments with 115,000 net new postpaid wireless, Internet and TELUS TV customer additions
Industry-leading wireless monthly postpaid churn of 0.94 per cent, ARPU growth of 3.8 per cent and best-in-class lifetime revenue per client of $5,650
Quarterly dividend increased to $0.48 per share – twelfth dividend increase since multi-year 10 per cent per annum dividend growth program commenced in May 2011 

 

Vancouver, B.C. – TELUS Corporation’s consolidated operating revenue grew 2.6 per cent to $3.2 billion in the third quarter of 2016 from a year earlier, reflecting higher data revenue and subscriber growth in both wireless and wireline operations. Earnings before interest, income taxes, depreciation and amortization (EBITDA)1 increased by 5.8 per cent to $1.1 billion. When excluding net gains and equity income related to real estate joint venture developments in the third quarter of 2016, as well as restructuring and other costs from both reporting periods, adjusted EBITDA was up 5.5 per cent to $1.2 billion. This growth reflects higher wireless and wireline revenue, as well as ongoing execution of operational efficiency and effectiveness initiatives.

 

“TELUS’ third quarter results reflect the company’s strong and disciplined performance across both our wireless and wireline operations,” said Darren Entwistle, President and CEO. “Our team once again delivered industry-leading results in wireless customer loyalty, ARPU growth and lifetime-revenue, as well as strong consolidated and segmented revenue and EBITDA growth. Importantly, these results are underpinned by a highly dedicated TELUS team that is committed to consistently providing exceptional customer experiences.”

 

“This strong performance underscores TELUS’ unique ability to return capital to investors through growing dividends, while simultaneously funding significant strategic growth investments. TELUS announced its twelfth dividend increase in the past six years as part of our multi-year, 10 per cent per annum dividend growth program launched in May 2011. Our consistent long-term track record of providing industry-leading shareholder-friendly initiatives is reflected in TELUS now having returned $13.6 billion to shareholders, including $8.4 billion in dividends and $5.2 billion in share purchases, representing $23 per share between 2004 and October 2016. This track record, combined with our strong operational results, further buttresses our next three-year capital return program targeted for 2017 through 2019,” Mr. Entwistle added.

 

Doug French, Executive Vice-President and CFO said, “TELUS’ third quarter results reflect the quality of TELUS’ asset base as we delivered healthy margin expansion in both wireless and wireline, along with strong subscriber growth. These results also reflect the benefits of our ongoing efficiency and effectiveness programs, highlighting our commitment to making smart investments that drive ongoing improvements in customer experience, and accelerate future cash flow generation. Anchored by our strong balance sheet, we remain focused on our generational investments in broadband technologies to drive continued growth, future-proof our network and deliver on our shareholder return initiatives.”

 

In wireless, higher data revenue was driven by a larger proportion of higher-rate two-year plans in the revenue mix, increased adoption of larger data buckets, continued subscriber growth, a more favourable postpaid subscriber mix, and increased data usage from the continued adoption of higher-end smartphones and other data-centric wireless devices, as well as greater use of data-intensive applications. Wireline data revenue growth was generated by growth in business process outsourcing revenues, an increase in Internet, TV and enhanced data service revenues from continued high-speed Internet and TV subscriber growth and higher revenue per customer.

 

In the quarter, TELUS attracted 115,000 net wireless postpaid, high-speed Internet and TV customers, up 23,000 sequentially over the second quarter of 2016. Net additions in the quarter included 87,000 wireless postpaid customers, 14,000 high-speed Internet subscribers, and 14,000 TELUS TV customers. These gains were partially offset by the ongoing loss of traditional telephone network access lines and a decline in wireless prepaid customers. TELUS’ total wireless subscriber base of over 8.5 million is up 1.0 per cent from a year ago, reflecting a 2.4 per cent increase in the postpaid subscriber base to 7.5 million. TELUS’ high-speed Internet connections have increased 5.6 per cent to 1.6 million, while TELUS TV subscribers are higher by 6.4 per cent to over 1 million.

 

TELUS’ continued focus on executing on its top corporate priority of putting customers first was demonstrated by delivering an industry-leading wireless monthly postpaid churn rate of 0.94 per cent. This is the twelfth quarter in the past 13 quarters that TELUS’ postpaid churn rate has been below the 1 per cent level. Blended churn of 1.18 per cent in the third quarter of 2016 is among TELUS’ lowest quarterly churn rates since becoming a national carrier 16 years ago.

 

CONSOLIDATED FINANCIAL HIGHLIGHTS

 

C$ and in millions, except per share amounts

Three months ended

September 30

Per cent

(unaudited)

2016

2015

change 

Operating revenues

3,238

3,155

2.6

Operating expenses before depreciation and amortization

2,107

2,087

1.0

EBITDA(1)

1,131

1,068

5.8

EBITDA excluding restructuring and other costs(1)(2)

1,191

1,119

6.4

Adjusted EBITDA(1)(2)(3)

1,181

1,119

5.5

Net income

355

365

(2.7)

Net income attributable to common shares

348

365

(4.7)

Adjusted net income(4)

383

398

(3.8)

Basic earnings per share (EPS)

0.59

0.61

(3.3)

Adjusted basic EPS(4)

0.65

0.66

(1.5)

Capital expenditures

787

623

26.3

Free cash flow(5)

98

310

(68.4)

Total subscriber connections(6)

12.577

12.436

1.1

 

(1) EBITDA is a non-GAAP measure and does not have any standardized meaning prescribed by IFRS-IASB. TELUS issues guidance on and reports EBITDA because it is a key measure used to evaluate performance at a consolidated and segmented level. For further definition and explanation of this measure, see Section 11.1 in the accompanying 2016 third quarter Management’s discussion and analysis.
(2) For the third quarter of 2016 and 2015, restructuring and other costs were $60 million and $51 million respectively.
(3) Adjusted EBITDA for the third quarter of 2016 excludes:1) net gains and equity income of $10 million related to real estate joint venture developments; and 2) restructuring and other costs of $60 million.
(4) Adjusted net income and Adjusted basic EPS are non-GAAP measures and do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding from net income attributable to common shares and basic EPS (after income taxes), 1) net gains and equity income from real estate joint venture developments in the third quarter of 2016; 2) restructuring and other costs in the third quarter of 2016 and 2015; and 3) favourable income tax-related adjustments in the third quarter of 2016 and 2015. For further analysis of Adjusted net income and Adjusted basic EPS see Section 1.3 in the accompanying 2016 third quarter Management’s discussion and analysis.
(5) Free cash flow is a non-GAAP measure and does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation of this measure, see Section 11.1 in the accompanying 2016 third quarter Management’s discussion and analysis.
(6) The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers (Optik TV™ and TELUS Satellite TV® subscribers) measured at the end of the respective periods based on information in billing and other systems. Our January 1, 2015 opening reported subscriber balance has been retrospectively adjusted to exclude 1,613,000 business NALs due to its diminishing relevance as a key performance indicator. Subsequent to a review of our subscriber base, TELUS’ Q1 2016 beginning of period postpaid wireless subscriber base was reduced by 45,000 and its Q1 2016 beginning of period high-speed Internet subscriber base was increased by 21,000.

 

Net income of $355 million and basic earnings per share (EPS) of $0.59 were lower by 2.7 and 3.3 per cent, respectively, over the same period a year ago as higher EBITDA was offset primarily by higher depreciation and amortization expenses and increases in financing costs and income tax expense.

 

Free cash flow5 of $98 million in the third quarter was lower by $212 million from a year ago, primarily due to higher income taxes paid and capital expenditures, partially offset by adjusted EBITDA growth. 

 

In the third quarter of 2016, TELUS returned $293 million to shareholders including $274 million in dividends paid and $19 million in share purchases under its 2016 normal course issuer bid (NCIB) program. Through the end of October, TELUS has returned $1.2 billion to shareholders this year, including $1.07 billion in dividends paid and the purchase of approximately 3.35 million shares for $130 million.

 

Subsequent to September 30, 2016, TELUS made commitments to pay lump-sum amounts totaling approximately $300 million (inclusive of amounts proposed in an unratified tentative agreement), in respect of immediately-vesting, transformative compensation expense to the majority of its existing unionized and non-unionized Canadian-sited workforces; a portion of the net-of-tax amount for certain lump-sum recipients will be paid in Common Shares purchased in the market. If the tentative agreement is ratified, there will be a one-time payment to these unionized members in the fourth quarter of 2016. This payment represents increases that would have been otherwise awarded July 1, 2016, 2017 and 2018 (a period of 30 months) and compensation in consideration of collective agreement concessions that underpin future productivity improvements. A similar approach with respect to salary increases has been adopted for management employees. For most of TELUS’ current Canadian-sited management employees, there will be a one-time payment in the fourth quarter of 2016 in lieu of general salary increases for 2017 and 2018. The next salary increases will be awarded in 2019.

 

Dividend Declaration – increased to 48 cents per quarter, up four cents from a year ago

The TELUS Board of Directors has declared a quarterly dividend of 48 cents ($0.48) Canadian per share on the issued and outstanding Common Shares of the Company payable on January 3, 2017 to holders of record at the close of business on December 9, 2016.

 

This fourth quarter dividend represents a four cent increase from the $0.44 quarterly dividend paid on January 4, 2016.

 

This news release contains statements about financial and operating performance of TELUS (the Company) and future events, including with respect to future dividend increases and normal course issuer bids through 2019, the 2016 annual targets and guidance that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. The forward-looking statements contained in this news release describe our expectations at the date of this news release and, accordingly, are subject to change after such date. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for the 2016 annual targets and guidance, semi-annual dividend increases through 2019 and our ability to sustain and complete our multi-year share purchase program through 2019), qualifications and risk factors referred to in the accompanying third quarter Management’s discussion and analysis and in the 2015 annual report, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.


Third Quarter 2016 Operating Highlights

 

 

TELUS wireless
• Wireless network revenues increased by $79 million or 4.9 per cent year-over-year to $1.7 billion. This growth was driven by an increase in data revenue due to a larger proportion of higher-rate two-year plans in the revenue mix, increased adoption of larger data buckets, subscriber growth, a more favourable postpaid subscriber mix, and increased data usage from the continued adoption of higher-end smartphones and other data-centric wireless devices. This growth was partially offset by the ongoing decline in voice revenue from increased adoption of unlimited nationwide voice plans and continued but moderating substitution to data services.
• Blended ARPU was higher by 3.8 per cent to $66.67. This represents TELUS’ twenty-fourth consecutive quarter of year-over-year growth. The growth was driven by data network revenue growth as described above.
• Monthly postpaid subscriber churn of 0.94 per cent improved by three basis points year-over-year. The decline reflects our customers first focus and retention programs, partly offset by competitive intensity and the effects of the economic slowdown, particularly in Alberta. Blended monthly churn improved by 10 basis points to 1.18 per cent reflecting improvements in both postpaid and prepaid churn rates.
• Postpaid net additions of 87,000 were higher year-over-year by 18,000 due to higher gross additions, reflecting the success of targeted promotions and marketing efforts, and lower churn. Total wireless net additions of 80,000 were higher by 11,000 over a year ago as higher postpaid net additions were slightly offset by higher prepaid losses of 7,000.
• Adjusted wireless EBITDA (EBITDA excluding the net gains and equity income from real estate joint venture developments, as well as restructuring and other costs) increased by $44 million or 6.1 per cent over last year to $773 million. The growth reflects higher network revenue as well as ongoing operational efficiency and effectiveness initiatives, partly offset by higher acquisition and retention spending reflecting higher per-unit subsidies due to customer preference for higher-value smartphones and competitive intensity.
• Wireless EBITDA less capital expenditures decreased year-over-year by $42 million to $464 million as higher EBITDA was offset by higher capital expenditures. Capital expenditures increased over the same period a year ago due to ongoing investments in TELUS’ fibre-optic network to support its small-cell technology strategy to improve coverage and prepare for a more efficient and timely evolution to 5G, as well as increased investment on the deployment of 700 MHz and 2500 MHz spectrum licences. 

 

TELUS wireline
• External wireline revenues increased by $32 million or 2.3 per cent to $1.4 billion. This growth was generated primarily by higher data service and equipment revenue.
• Data service and equipment revenues increased by $75 million or 7.9 per cent, due to growth in business process outsourcing services, higher Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, and higher TELUS TV revenues from continued subscriber growth and higher revenue per customer.
• High-speed Internet net additions of 14,000 were down 10,000 from the same quarter a year ago, reflecting heightened competitive intensity and the impact of the economic slowdown, leading to lower gross additions and a higher customer churn rate. This was partly offset by the ongoing expansion of TELUS’ high-speed broadband footprint, including fibre-to-the-premises, and the pull-through effect of bundling with Optik TV.
• Total TV net additions of 14,000 were lower by 12,000 over the same quarter a year ago, as a result of lower gross additions, a higher customer churn rate and a decline in satellite subscribers due to the effects of heightened competitive intensity including OTT services, slower subscriber growth for paid TV services, the economic slowdown, and a high rate of market penetration for TV services. These factors were partly offset by the ongoing expansion of our addressable high-speed broadband footprint and increasing broadband speeds.
• Residential network access lines (NALs) declined by 25,000 in the quarter, consistent with the decline in the same quarter a year ago. Residential NAL losses continue to reflect the ongoing trend towards wireless and Internet substitution, partly mitigated by the success of TELUS’ bundled service offerings.
• Adjusted wireline EBITDA (EBITDA excluding the net gains and equity income from real estate joint venture developments as well as restructuring and other costs) increased by $18 million or 4.2 per cent over last year to $408 million. Adjusted EBITDA would have been up 5.8 per cent had certain business acquisition-related provisions been excluded. The improvement reflects execution on operating efficiency and effectiveness initiatives, as well as improving margins in data services, including Internet, business process outsourcing services, TELUS TV, and TELUS Health services.
• Wireline EBITDA less capital expenditures decreased by $59 million to $(120) million as higher EBITDA was more than offset by higher capital expenditures that support TELUS’ long-term growth. Capital expenditures increased over the same period a year ago due to continued strategic investments in broadband network infrastructure, including connecting more homes and businesses directly to TELUS’ fibre-optic network and investments in system and network resiliency and reliability.

 

Corporate Highlights
TELUS makes significant contributions and investments in the communities where team members live, work and serve and to the Canadian economy on behalf of customers, shareholders and team members by:

 

• Paying, collecting and remitting a total of approximately $1.8 billion in taxes during the first nine months of 2016 to federal, provincial and municipal governments in Canada consisting of corporate income taxes, sales taxes, property taxes, employer portion of payroll taxes and various regulatory fees. Since 2000, the Company has remitted more than $20 billion in these taxes.
• Disbursing spectrum renewal fees of $53 million to Innovation, Science and Economic Development Canada (formerly Industry Canada) during the first nine months of 2016. Since 2002, TELUS’ total tax and spectrum remittances to federal, provincial and municipal governments in Canada have totaled more than $25 billion.
• Investing $2.2 billion in capital expenditures primarily in communities across Canada in the first nine months of 2016 and more than $30 billion since 2000.
• Spending $5.6 billion in total operating expenses in the first nine months of 2016, including goods and service purchased of $3.9 billion. Since 2000, TELUS has spent $97 billion and $64 billion respectively in these areas.
• Generating a total team member payroll of $2.1 billion in the first nine months of 2016, including payroll taxes of $118 million. Since 2000, total team member payroll totals $39 billion.
• Paying $1.07 billion in dividends in 2016 through the end of October to individual shareholders, mutual fund owners, pensioners and institutional investors, and purchasing approximately 3.35 million shares for $130 million on behalf of shareholders under TELUS’ multi-year share purchase program.
• Returning $13.6 billion to shareholders through TELUS’ dividend and share purchase programs from 2004 to the end of October 2016, including $8.4 billion in dividends and $5.2 billion in share buybacks, representing $23 per share.

 

About TELUS
TELUS (TSX: T, NYSE: TU) is Canada’s fastest-growing national telecommunications company, with $12.7 billion of annual revenue and 12.6 million subscriber connections, including 8.5 million wireless subscribers, 1.6 million high-speed Internet subscribers, 1.4 million residential network access lines and more than 1.0 million TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video, and is Canada's largest healthcare IT provider.

 

In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed $440 million to charitable and not-for-profit organizations and volunteered more than 6.8 million hours of service to local communities since 2000. Created in 2005 by President and CEO Darren Entwistle, TELUS’ 12 Canadian community boards and 5 International boards have led the Company’s support of grassroots charities and have contributed more than $54 million in support of over 4,900 local charitable projects, enriching the lives of more than 2 million children and youth, annually. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition.

 

For more information about TELUS, please visit telus.com.


Media relations:
Shawn Hall
(604) 619-7913
shawn.hall@telus.com 


Investor relations:
Paul Carpino
(647) 837-8100
ir@telus.com

 

Access to Quarterly results information
Interested investors, the media and others may review this quarterly earnings news release, management’s discussion and analysis, quarterly results slides, audio and transcript of the investor webcast call, supplementary financial information, and our full 2015 annual report at telus.com/investors.

 

TELUS’ third quarter 2016 conference call is scheduled for Friday, November 4, 2016 at 10:00am ET (7:00am PT) and will feature a presentation followed by a question and answer period with investment analysts. Interested parties can access the webcast at telus.com/investors. A telephone playback will be available on November 4 until December 15, 2016 at 1-855-201-2300. Please use reference number 1206674# and access code 77377#. An archive of the webcast will also be available at telus.com/investors and a transcript will be posted on the website within a few