TELUS Corporation today released its unaudited results for the
second quarter of 2019. For the quarter, consolidated operating
revenue of $3.6 billion increased by 4.2 per cent over the same
period a year ago, driven by both wireless and wireline data
services revenue growth. Earnings before interest, income taxes,
depreciation and amortization (EBITDA) increased by 9.8 per cent to
$1.4 billion due to higher wireless network revenue growth and
wireless equipment margins, growth in wireline data service
margins, higher EBITDA contribution from our customer care and
business services (CCBS) and TELUS Health businesses, and the
effects of implementing IFRS 16. This growth was partly offset by
declines in wireline legacy voice and legacy data services. When
excluding restructuring and other costs, Adjusted EBITDA was up 9.0
per cent. Applying a retrospective IFRS 16 simulation to fiscal
2018 results, pro forma Adjusted EBITDA growth was approximately
4.5 per cent, representing a margin of 39.0 per cent, up 20 basis
points over last year.
For the quarter, net income of $520 million increased by 31 per
cent over the same period a year ago due to EBITDA growth and lower
income taxes, including a $121 million benefit from the revaluation
of the deferred income tax liability for the multi-year reduction
in the Alberta provincial corporate tax rate. This growth was
partly offset by higher depreciation and amortization due to growth
in our asset base, including from investments in our broadband
technologies and business acquisitions, as well as increased
financing costs, in part driven by higher foreign exchange losses
due to the fluctuation in the Canadian dollar relative to the U.S.
dollar. Additionally, $46 million of the increase in depreciation
and $16 million of the increase in financing costs resulted from
the application of IFRS 16 as we did not retrospectively adjust
amounts reported for periods prior to fiscal 2019. Basic earnings
per share (EPS) of $0.86 rose by 30 per cent over the same period
last year. When excluding restructuring and other costs, as well as
favourable income tax-related adjustments, Adjusted net income of
$416 million was essentially unchanged over the same period a year
ago, while adjusted basic EPS was $0.69.
“TELUS reported strong second quarter results, including robust
subscriber net additions across our portfolio of growth services.
This was anchored by the TELUS teams’ efforts to deliver a superior
performance in respect of wireless and wireline customer loyalty,”
said Darren Entwistle, President and CEO. “Industry-leading second
quarter mobile phone churn of 1.01 per cent, and continued
improvements in wireline loyalty, drove a low combined churn rate
across mobile phone, Internet and TV of 1.05 per cent.
Moreover, we realised the fewest residential voice losses in 15
years. These achievements contributed to strong customer growth in
concert with continued value-creating financial results, supported
by our team’s relentless focus on providing the best customer
experience on our world-leading broadband networks. Indeed, earlier
this week, TELUS was recognised as having the best mobile network
in Canada, inclusive of the fastest speed and most expansive
coverage, by Ookla. Furthermore, for the second quarter in a row,
Tutela ranked TELUS number one for mobile experience in Canada.
These accolades complement the additional major network awards
TELUS has earned from J.D. Power, PCMag and OpenSignal – each
received consecutively for two or more years – and reinforce the
consistent superiority of our networks and the value of the ongoing
generational investments we are making in broadband
technologies.”
Mr. Entwistle added, “In early July, TELUS took a significant
step forward in its unwavering commitment to put customers first by
becoming the first national carrier to launch three innovative
programs in combination, providing more value, simplicity and
transparency to Canadians than ever before. Thanks to the passion
and skill of our TELUS team, we launched Peace of Mind endless data
rate plans, alongside our TELUS Family Discount offering and Easy
Payment device financing. In addition to facilitating an enhanced
customer experience on the path to 5G, these new mobility service
offerings will support sustainable and profitable customer growth,
enhanced bundling options and long-term financial
performance. Moreover, the simplification attributes and
device payment transparency will enable significant opportunities
to further improve our cost structure and support operating
margins.”
Mr. Entwistle further commented, “Through the consistent
execution of our longstanding strategy, we are continuing to build
on our track record of providing investors with the industry’s best
multi-year dividend growth program, targeting annual dividend
growth between seven and 10 per cent through to 2022 that is
underpinned by our expectation of strong cash flow generation and
growth from TELUS over this period. Indeed, our proven history of
delivering on our industry-leading shareholder-friendly initiatives
from the strong cash flow generated by our strategic investments,
is underscored by TELUS having now returned $17 billion to
shareholders, representing approximately $28 per share since
2004.”
“Importantly, we believe there is a truly synergistic
relationship between what we do in business, in terms of driving
positive outcomes for our customers and shareholders, and what we
do to create healthier and more caring communities for our fellow
citizens. This year, we are celebrating our 14th annual TELUS
Days of Giving, and in the second quarter, more than 33,000 team
members, retirees, family and friends volunteered at events in
Canada and around the globe. Our team’s incredible compassion,
giving with their hearts and their hands, is helping to make TELUS
the most giving company in the world,” Mr. Entwistle concluded.
Doug French, Executive Vice-president and Chief Financial
Officer said, “Our strong second quarter results for 2019 build on
our solid execution in the first quarter and position our
year-to-date financial performance in line with our 2019
consolidated financial targets. Free cash flow before income taxes
is higher by 8 per cent for the first six months, driven by EBITDA
growth and stable capital expenditures as we continue to make the
right strategic investments to drive sustainable and profitable
subscriber growth across our diverse and expanding product
portfolios.”
“During the quarter, we took advantage of strong credit market
conditions, successfully executing two financings used to early
redeem our $1 billion Series CH notes due in July 2020. Subsequent
to the early redemption and recent bond issues, the average term to
maturity of our long-term debt stands at 12.8 years, our average
weighted interest rate is down to a record low of 3.98 per cent,
and we have no maturities in 2020, all of which further strengthens
our balance sheet. As we look to the back half of 2019 and beyond,
we will strive to continue balancing the interests of all our
stakeholders as we execute on our strategy to further position
TELUS for long-term success,” concluded Mr. French.
In wireless, external revenue increased by 2.8 per cent,
reflecting network revenue growth of 1.7 per cent and equipment and
other service revenue growth of 7.3 per cent. Network revenue
growth was driven by a 5.4 per cent increase in our subscriber
base, partly offset by lower mobile phone ARPU from declining
chargeable data usage, the competitive environment and changes in
our customer mix.
In wireline, external revenue increased by 5.9 per cent driven
by data services revenue growth of 12 per cent, reflecting higher
customer care and business services (CCBS) revenues due to
increased business volumes from expanded services for existing
customers as well as customer growth, increased Internet and
enhanced data service revenues from higher revenue per customer and
continued Internet subscriber growth, increased TELUS Health
revenues driven by business acquisitions and expanded services for
existing customers, revenues from our home and business smart
technology (including security) service offerings and increased
TELUS TV revenues from subscriber growth.
In the quarter, we added 195,000 new wireless, Internet and
TELUS TV customers, up 45,000 or 30 per cent over the same quarter
a year ago. The higher net additions included 82,000 mobile phones,
72,000 mobile connected devices, 25,000 Internet subscribers and
16,000 TELUS TV customers. Our total wireless subscriber base of
9.9 million is up 5.4 per cent over the last twelve months,
reflecting a 3.2 per cent increase in our mobile phones subscriber
base to over 8.5 million and a 21 per cent increase to our mobile
connected devices subscriber base to more than 1.3 million. Our
Internet connections of 1.9 million are up 7.1 per cent and our
TELUS TV subscriber base of 1.1 million is higher by 7.1 per
cent.
Consolidated capital expenditures of $770 million declined by
2.7 per cent. At the end of the quarter, approximately 2.04 million
premises, or 64 per cent of our high-speed broadband footprint of
approximately 3.2 million premises, were covered by TELUS
PureFibre. This is an increase of approximately 390,000 PureFibre
premises over the last twelve months.
Free cash flow of $324 million decreased by 1.5 per cent over
the same period a year ago as EBITDA growth was offset by higher
cash income taxes paid and increased interest paid due to an
increase in our long-term debt balances outstanding, partly offset
by a decrease in the effective interest rate. Free cash flow before
income taxes increased by 17 per cent to $446 million.
Consolidated Financial
Highlights |
|
|
C$
millions, except per share amounts |
Three months ended June 30(1) |
Per cent |
(unaudited) |
2019 |
2018 |
change |
Operating revenues |
3,597 |
3,453 |
4.2 |
Operating expenses before
depreciation and amortization |
2,224 |
2,202 |
1.0 |
EBITDA(2) |
1,373 |
1,251 |
9.8 |
Adjusted EBITDA(2)(3) |
1,402 |
1,286 |
9.0 |
Net income |
520 |
397 |
31.0 |
Adjusted net income(4) |
416 |
414 |
0.5 |
Net income attributable to common
shares |
517 |
390 |
32.6 |
Basic EPS |
0.86 |
0.66 |
30.3 |
Adjusted basic EPS(4) |
0.69 |
0.70 |
(1.4) |
Capital expenditures(5) |
770 |
791 |
(2.7) |
Free cash flow before income
taxes(6) |
446 |
381 |
17.1 |
Free cash flow(6) |
324 |
329 |
(1.5) |
Total subscriber
connections(7)(8) (thousands) |
14,165 |
13,503 |
4.9 |
(1) |
Our results for 2019 reflect the application of IFRS 16, Leases.
Our results for periods prior to fiscal 2019 have not been
retrospectively adjusted. |
(2) |
EBITDA is a non-GAAP measure and does not have any standardized
meaning prescribed by IFRS-IASB. We issue guidance on and report
EBITDA because it is a key measure used to evaluate performance.
For further definition and explanation of this measure, see
‘Non-GAAP and other financial measures’ in this news release. |
(3) |
Adjusted EBITDA for the second quarters of 2019 and 2018 excludes
restructuring and other costs of $29 million and $35 million
respectively. |
(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), restructuring and other costs and favourable income
tax-related adjustments. For further analysis of adjusted net
income and adjusted basic EPS, see ‘Non-GAAP and other financial
measures’ in this news release. |
(5) |
Capital expenditures include assets purchased, excluding
right-of-use lease assets, but not yet paid for, and consequently
differ from Cash payments for capital assets, excluding spectrum
licences, as reported in the interim consolidated financial
statements. Refer to Note 31 of the interim consolidated financial
statements for further information. |
(6) |
Free cash flow is a non-GAAP measure and does not have any
standardized meaning prescribed by IFRS-IASB. For further
definition and explanation of this measure, see ‘Non-GAAP and other
financial measures’ in this news release. |
(7) |
The sum of active mobile phone subscribers, mobile connected device
subscribers, Internet access subscribers, residential voice
subscribers and TELUS TV subscribers, measured at the end of the
respective periods based on information in billing and other
systems. Fourth quarter 2018 opening mobile phone subscriber
connections have been adjusted to exclude an estimated 23,000
subscribers impacted by the CRTC’s final pro-rating ruling in June
2018, which was effective October 1, 2018. In addition, second
quarter of 2018 mobile phones were corrected to reflect an
adjustment for temporary subscribers in connected devices, instead
of mobile phones. All associated second quarter of 2018 operating
statistics (average revenue per subscriber per month, or ARPU,
average billing per subscriber per month, or ABPU and churn) were
also updated. During the first quarter of 2019, we adjusted
cumulative Internet subscriber connections to add approximately
16,000 subscribers from acquisitions undertaken during the
quarter. |
(8) |
Effective for the first quarter of 2019, with retrospective
application, we have revised our definition of a wireless
subscriber and now report mobile phones and mobile connected
devices as separate subscriber bases. As a result of the change,
total subscribers and associated operating statistics (gross
additions, net additions, churn, ABPU and ARPU) were adjusted to
reflect (i) the movement of certain subscribers from the mobile
phones subscriber base to the newly created mobile connected
devices subscriber base, and (ii) the inclusion of previously
undisclosed IoT and mobile health subscribers in our mobile
connected devices subscriber base. For additional information on
our subscriber definitions, see Section 11.2 Operating indicators
in our second quarter 2019 Management’s discussion and analysis
(MD&A). |
Second Quarter 2019 Operating Highlights
TELUS wireless
- External operating revenue increased by $54 million or 2.8 per
cent driven by higher network and equipment revenues.
- Network revenue increased by $26 million or 1.7 per cent
year-over-year to $1.5 billion. This growth was driven by 5.4 per
cent subscriber growth, partly offset by declining mobile phone
ARPU as discussed below.
- Equipment and other service revenues increased by $31 million
or 7.3 per cent mainly due to greater volumes of higher-value
smartphones in the sales mix as well as growth in revenue per
handset.
- Mobile phone ABPU of $73.43 increased slightly by 0.5 per cent
as growth from customers selecting plans with larger data buckets
or periodically topping up their data buckets, the introduction of
our Platinum rate plan and higher-value smartphones in the sales
mix was partly offset by declines in chargeable data usage, the
impact of the competitive environment putting pressure on base rate
plan prices in the current and prior periods and changes in our
customer mix.
- Mobile phone ARPU of $60.30 declined by 1.2 per cent as the
declines in chargeable data usage and competitive pressures on base
rate plan prices and changes in our customer mix as mentioned above
more than offset the increased number of customers selecting plans
with larger data buckets.
- Mobile phone churn rate of 1.01 per cent increased slightly by
2 basis points over the same period a year ago due to increased
competitive intensity, partly offset by our focus on executing
customers first initiatives and retention programs, as well as our
leading network quality.
- Total subscriber net additions of 154,000 increased by 48,000
over the same period a year ago. Mobile phone net additions of
82,000 were higher by 13,000 over last year, driven by higher gross
additions from growth in high-value customer additions, including
demographic shifts, and growth, in the Canadian population, as well
as successful promotions and expanded channels. Mobile connected
device net additions of 72,000 increased by 35,000 year-over-year,
driven by growth in our Internet of Things (IoT) offerings
including the connected device growth arising from our subscribers
expanding their IoT services to their growing customer bases,
partly offset by less focus on lower-margin subsidized tablet
loading.
- EBITDA of $919 million increased by $75 million or 8.9 per
cent, while Adjusted EBITDA of $924 million increased by $73
million or 8.6 per cent over last year, reflecting higher network
revenue growth, savings from cost reduction programs, higher
equipment margins which includes our strategic focus away from
non-accretive prepaid-to-postpaid migrations and the implementation
of IFRS 16. Applying a retrospective IFRS 16 simulation to fiscal
2018 results, pro forma wireless Adjusted EBITDA growth was
approximately 5.1 per cent.
TELUS wireline
- External operating revenue increased by $90 million or 5.9 per
cent to $1.6 billion. This growth was driven by higher data
services revenue growth, partly offset by declining legacy voice
and legacy data services revenue.
- Data services revenues increased by $134 million or 12 per
cent, reflecting growth in CCBS revenues, primarily due to growth
in business volumes resulting from expanded services for existing
customers as well as customer growth, and increased Internet and
enhanced data service revenues, reflecting higher revenue per
customer, as well as an increase in our Internet subscriber base.
Additionally, increased TELUS Health revenues, driven by both
business acquisitions and expanded services for existing customers,
revenues from our home and business smart technology (including
security) lines of business and increased TELUS TV revenues,
reflecting subscriber growth, also supported data services revenue
growth. This growth was partly offset by the ongoing decline in
legacy data service revenues.
- Internet net additions of 25,000 were lower by 4,000 as
consistent customer demand for our high-speed broadband services,
including fibre to the premises, was partly offset by increased
competitive intensity.
- TELUS TV net additions of 16,000 increased slightly by 1,000
over the same quarter a year ago due to a lower customer churn rate
from stronger retention efforts.
- Residential voice net losses of 9,000, our fewest quarterly net
losses since 2004, improved by 1,000 over the same quarter a year
ago. Residential voice subscriber losses continue to reflect the
trend of substitution to wireless and Internet-based services,
partially offset by bundling opportunities from our expanded fibre
footprint and the success of our stronger retention efforts,
including lower-priced offerings.
- EBITDA of $454 million increased by $47 million or 12 per cent,
while Adjusted EBITDA of $478 million increased by $43 million or
9.9 per cent, reflecting an increased contribution from our CCBS
business from expanded services for existing customers, higher
Internet margins, and higher TELUS Health margins inclusive of
business acquisitions, and the implementation of IFRS 16 on certain
expenses. Applying a retrospective IFRS 16 simulation to fiscal
2018 results, pro forma wireline Adjusted EBITDA growth was
approximately 3.5 per cent.
Dividend Declaration The TELUS Board of
Directors has declared a quarterly dividend of $0.5625 per share on
the issued and outstanding Common Shares of the Company payable on
October 1, 2019 to holders of record at the close of business on
September 10, 2019.
TELUS amends pricing of shares under the dividend
reinvestment programEffective October 1, 2019 TELUS will
issue shares from treasury at a two per cent discount from the
average market price for shares acquired through the reinvestment
of dividends. These changes will apply to the dividends payable on
October 1, 2019 to shareholders of record on September 10, 2019.
Shares acquired with optional cash payments will be issued from
treasury at 100 per cent of the average market price.
Shareholders who currently participate in the dividend
reinvestment and share purchase plan (DRISP) will automatically
have the discount applied to the reinvestment of their dividends on
the October 1, 2019 payment date. Registered shareholders of record
residing in Canada and the United States wishing to join the plan
can enrol online or access the DRISP enrollment form at
Computershare’s shareholder services website
www.investorcentre.com, by calling 1-800-558-0046 or by visiting
TELUS.com/drisp. In order to participate in time for the October 1,
2019 dividend payment date, enrollment forms from registered
holders must be received by Computershare Trust Company of Canada,
8th floor, 100 University Avenue, Toronto, Ontario M5J 2Y1 before
the close of business on September 10, 2019.
Non-registered beneficial holders of TELUS shares (i.e.
shareholders who hold their shares through a financial institution,
broker, nominee or other intermediary) should consult with that
intermediary to determine the procedures for participation in the
plan.
Under the plan, shareholders who reside in Canada and in the
United States may elect to have the dividends paid on their shares
reinvested in shares of TELUS. Holders of shares residing outside
of Canada or the United States may be eligible to participate in
the plan, subject to proof of compliance with any restrictions in
the laws of their country. Full details of the plan are available
at telus.com/drisp.
This does not constitute an offer to sell or a solicitation to
buy such securities in the United States. TELUS has filed with the
U.S. Securities and Exchange Commission a registration statement on
Form F-3, and a related prospectus, each dated February 26, 2013
with respect to the DRISP. A copy of these filings and any
additional registration statements or prospectuses that may be
filed from time to time in connection with the DRISP may be
obtained under the Company’s profile on the U.S. Securities and
Exchange Commission’s website at http://www.sec.gov.
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. These include:
- Paying, collecting and remitting a total of $1.3 billion in
taxes in the first half of 2019 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, we have remitted
approximately $26 billion in these taxes.
- Disbursing spectrum renewal fees of approximately $50 million
to Innovation, Science and Economic Development Canada in the first
half of 2019, as well as paying $931 million for 600 MHz spectrum
licenses. Since 2000, our total tax and spectrum remittances to
federal, provincial and municipal governments in Canada have
totaled more than $31 billion.
- Investing approximately $1.4 billion in capital expenditures
primarily in communities across Canada in the first half of 2019
and approximately $40 billion since 2000.
- Spending $3.8 billion in total operating expenses in the first
half of 2019, including goods and service purchased of
approximately $2.8 billion. Since 2000, we have spent $119 billion
and $80 billion respectively in these areas.
- Generating a total team member payroll of $1.3 billion in the
first half of 2019, including payroll taxes of $93 million. Since
2000, total team member payroll totals $46 billion.
- Returning $994 million in dividends year-to-date through three
quarterly dividend payments through July 2019 to individual
shareholders, mutual fund owners, pensioners and institutional
investors. Since 2004, we have returned $17 billion to shareholders
through our dividend and share purchase programs, including $11.8
billion in dividends, representing approximately $28 per
share.
Access to Quarterly results
informationInterested 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 at
telus.com/investors.
TELUS’ second quarter 2019 conference call is scheduled
for Friday, August 2, 2019 at 12:00pm ET (9:00am 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.
An audio recording will be available on August 2 until September
15, 2019 at 1-855-201-2300. Please use reference number 1247457#
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 business days.
Caution regarding forward-looking
statementsThis news release contains forward-looking
statements about expected events and the financial and operating
performance of TELUS Corporation. The terms TELUS, we, us and our
refer to TELUS Corporation and, where the context of the narrative
permits or requires, its subsidiaries.
Forward-looking statements include any statements that do not
refer to historical facts. They include, but are not limited to,
statements relating to our objectives and our strategies to achieve
those objectives, our outlook, updates, capital expenditure
targets, and our multi-year dividend growth program.
Forward-looking statements are typically identified by the words
assumption, goal, guidance, objective, outlook, strategy, target
and other similar expressions, or future or conditional verbs such
as aim, anticipate, believe, could, expect, intend, may, plan,
predict, seek, should, strive and will.
By their nature, forward-looking statements are subject to
inherent risks and uncertainties and are based on assumptions,
including assumptions about future economic conditions and courses
of action. These assumptions may ultimately prove to have been
inaccurate and, as a result, our actual results or events may
differ materially from our expectations expressed in or implied by
the forward-looking statements.
The assumptions for our 2019 outlook, as described in Section 9
General trends, outlook and assumptions, and regulatory
developments and proceedings of our 2018 annual MD&A, remain
the same, except for the following as updated in our first quarter
2019 MD&A:
- Our revised estimate for economic growth in Canada in 2019 is
1.5% (previously 2.0% as reported in our 2018 annual MD&A). For
our incumbent local exchange carrier provinces in Western Canada,
we currently estimate that annual rates of economic growth will be
1.9% in 2019 in B.C. (previously 2.3% as reported in our 2018
annual MD&A) and 1.2% in Alberta (previously 2.1% as reported
in our 2018 annual MD&A).
- Our revised estimate for the unemployment rate will be 4.5% in
2019 in B.C. (previously 4.9% as reported in our 2018 annual
MD&A) and 6.8% in Alberta (previously 6.2% as reported in our
2018 annual MD&A).
The extent to which these economic growth estimates affect us
and the timing of their impact will depend upon the actual
experience of specific sectors of the Canadian economy.
Risks and uncertainties that could cause actual performance or
events to differ materially from the forward-looking statements
made herein and in other TELUS filings include, but are not limited
to, the following:
- Regulatory decisions and developments including changes to our
regulatory regime or the outcomes of proceedings, cases or
inquiries relating to its application, including but not limited to
those set out in Section 9.1 Communications industry regulatory
developments and proceedings in our second quarter 2019 MD&A,
such as the potential for government intervention to further
increase competition, for example, through mandated wholesale
access; CRTC consumer protection regulations; amendments to
existing federal legislation; changes to the cost burden associated
with CRTC-mandated network interconnections; potential threats to
unitary federal regulatory authority over telecommunications;
regulatory action by the Competition Bureau or other regulatory
agencies; spectrum and compliance with licences, including our
compliance with licence conditions, changes to spectrum licence
fees, spectrum policy determinations such as restrictions on the
purchase, sale and transfer of spectrum licences, and the cost and
availability of spectrum; the federal government’s announcement of
a formal consultation on the auctioning of 3800 MHz spectrum,
expected to take place in 2022; the impact on us and other Canadian
telecommunications carriers of government or regulatory actions
with respect to certain countries or suppliers, including the
executive order signed by U.S. President Donald Trump permitting
the Secretary of Commerce to block certain technology transactions
deemed to constitute national security risks and the imposition of
additional license requirements on the export, re-export and
transfer of goods, services and technology to Huawei Technologies
Co. Ltd. and its non-U.S. affiliates; restrictions on non-Canadian
ownership and control of TELUS common shares and the ongoing
monitoring and compliance with such restrictions; and our ability
to comply with complex and changing regulation of the healthcare
and medical devices industry in the provinces of Canada in which we
operate, including as an operator of health clinics.
- Competitive environment including: our ability to continue to
retain customers through an enhanced customer service experience,
including through the deployment and operation of evolving wireless
and wireline infrastructure; intense wireless competition,
including the ability of industry competitors to successfully
combine a mix of Internet services and, in some cases, wireless
services under one bundled and/or discounted monthly rate, along
with their existing broadcast or satellite-based TV services; the
success of new products, new services and supporting systems, such
as home automation security and Internet of Things (IoT) services
for Internet-connected devices; wireline voice and data
competition, including continued intense rivalry across all
services among wireless and wireline telecommunications companies,
cable-TV providers, other communications companies and over-the-top
(OTT) services, which, among other things, places pressures on
current and future mobile phone average billing per subscriber per
month (ABPU), mobile phone average revenue per subscriber per month
(ARPU), cost of acquisition, cost of retention and churn rate for
all services, as do customer usage patterns, increased data bucket
sizes or flat-rate pricing trends for voice and data, inclusive
rate plans for voice and data and availability of Wi-Fi networks
for data; mergers and acquisitions of industry competitors;
pressures on Internet and TV ARPU and churn rate resulting from
market conditions, government actions and customer usage patterns;
residential voice and business network access line losses;
subscriber additions and retention volumes, and associated costs
for wireless, TV and Internet services; our ability to obtain and
offer content on a timely basis across multiple devices on wireless
and TV platforms at a reasonable cost; vertical integration in the
broadcasting industry resulting in competitors owning broadcast
content services, and timely and effective enforcement of related
regulatory safeguards; our ability to compete successfully in
customer care and business services (CCBS) given our competitors’
brand recognition, consolidation and strategic alliances, as well
as technology development and, in our TELUS Health business, our
ability to compete with other providers of electronic medical
records and pharmacy management products, systems integrators and
health service providers including those that own a vertically
integrated mix of health services delivery, IT solutions, and
related services, and global providers that could achieve expanded
Canadian footprints.
- Technological substitution including: reduced utilization and
increased commoditization of traditional wireline voice local and
long distance services from impacts of OTT applications and
wireless substitution, a declining overall market for paid TV
services while content costs per unit continue to grow, including
as a result of content piracy and signal theft and as a result of a
rise in OTT direct-to-consumer video offerings and virtual
multichannel video programming distribution platforms; the
increasing number of households that have only wireless and/or
Internet-based telephone services; potential mobile phone ABPU and
mobile phone ARPU declines as a result of, among other factors,
substitution to messaging and OTT applications; substitution to
increasingly available Wi-Fi services; and disruptive technologies,
such as OTT IP services, including Network as a Service in the
business market, that may displace or re-rate our existing data
services.
- Technology including: high subscriber demand for data that
challenges wireless networks and spectrum capacity levels and may
be accompanied by increases in delivery cost; our reliance on
information technology and our need to streamline our legacy
systems; the roll-out and evolution of wireless broadband
technologies and systems, including video distribution platforms
and telecommunications network technologies (broadband initiatives,
such as fibre to the premises (FTTP), wireless small-cell
deployment, 5G wireless and availability of resources and ability
to build out adequate broadband capacity); our reliance on wireless
network access agreements, which have facilitated our deployment of
wireless technologies; choice of suppliers and those suppliers’
ability to maintain and service their product lines, which could
affect the success of upgrades to, and evolution of, technology
that we offer; supplier limitations and concentration and market
power for network equipment, TELUS TV® and wireless handsets; the
performance of wireless technology; our expected long-term need to
acquire additional spectrum capacity through future spectrum
auctions and from third parties to address increasing demand for
data; deployment and operation of new wireline broadband network
technologies at a reasonable cost and availability and success of
new products and services to be rolled out using such network
technologies; network reliability and change management;
self-learning tools and automation that may change the way we
interact with customers; and uncertainties around our strategy to
replace certain legacy wireline network technologies, systems and
services to reduce operating costs.
- Capital expenditure levels and potential outlays for spectrum
licences in spectrum auctions or from third parties, due to: our
broadband initiatives, including connecting more homes and
businesses directly to fibre; our ongoing deployment of newer
wireless technologies, including wireless small cells to improve
coverage and capacity and prepare for a more efficient and timely
evolution to 5G wireless services; utilizing acquired spectrum;
investments in network resiliency and reliability; subscriber
demand for data; evolving systems and business processes;
implementing efficiency initiatives; supporting large complex
deals; and future wireless spectrum auctions held by Innovation,
Science and Economic Development Canada (ISED), including the
3500 MHz and millimetre wave spectrum auctions expected to
take place in 2020 and 2021, respectively, and the announcement of
a formal consultation on the auctioning of 3800 MHz spectrum,
expected to take place in 2022. Our capital expenditure levels
could be impacted if we do not achieve our targeted operational and
financial results.
- Operational performance and business combination risks
including: our reliance on legacy systems and ability to implement
and support new products and services and business operations in a
timely manner; our ability to implement effective change management
for system replacements and upgrades, process redesigns and
business integrations (such as our ability to successfully
integrate acquisitions, complete divestitures or establish
partnerships in a timely manner and realize expected strategic
benefits, including those following compliance with any regulatory
orders); our ability to identify and manage new risks inherent to
new service offerings that we may provide, including as a result of
acquisitions, which could result in damage to our brand, our
business in the relevant area or as a whole, additional exposure to
litigation or regulatory proceedings; and real estate joint venture
risks.
- Data protection including risks that malfunctions or unlawful
acts could result in the unauthorized access to, change, loss, or
distribution of data, which may compromise the privacy of
individuals and could result in financial loss and harm to our
reputation and brand.
- Security threats including intentional damage or unauthorized
access to our physical assets or our IT systems and networks, which
could prevent us from providing reliable service or result in
unauthorized access to our information or that of our
customers.
- Ability to successfully implement cost reduction initiatives
and realize planned savings, net of restructuring and other costs,
without losing customer service focus or negatively affecting
business operations. Examples of these initiatives are: our
operating efficiency and effectiveness program to drive
improvements in financial results; business integrations; business
product simplification; business process outsourcing; offshoring
and reorganizations, including any full-time equivalent (FTE)
employee reduction programs; procurement initiatives; and real
estate rationalization.
- Implementation of large enterprise deals, which may be
adversely impacted by available resources, system limitations and
degree of co-operation from other service providers.
- Foreign operations and our ability to successfully manage
operations in foreign jurisdictions, including managing risks such
as currency fluctuations.
- Business continuity events including: our ability to maintain
customer service and operate our network in the event of human
error or human-caused threats, such as cyberattacks and equipment
failures that could cause various degrees of network outages;
supply chain disruptions, delays and economics, including as a
result of government restrictions or trade actions; natural
disaster threats; epidemics; pandemics; political instability in
certain international locations; information security and privacy
breaches, including data loss or theft of data; and the
completeness and effectiveness of business continuity and disaster
recovery plans and responses.
- Human resource matters including: recruitment, retention and
appropriate training in a highly competitive industry, and the
level of our employee engagement.
- Financing and debt requirements including: our ability to carry
out financing activities, refinance our maturing debt and/or
maintain investment grade credit ratings in the range of BBB+ or
the equivalent. Our business plans and growth could be negatively
affected if existing financing is not sufficient to cover our
funding requirements.
- Lower than planned free cash flow could constrain our ability
to invest in operations, reduce debt or return capital to
shareholders, and could affect our ability to sustain our dividend
growth program through 2022. This program may be affected by
factors such as the competitive environment, economic performance
in Canada, our earnings and free cash flow, our levels of capital
expenditures and spectrum licence purchases, acquisitions, the
management of our capital structure, and regulatory decisions and
developments. Quarterly dividend decisions are subject to
assessment and determination by our Board of Directors based on our
financial position and outlook. Shares may be purchased under our
normal course issuer bid (NCIB) when and if we consider it
opportunistic, based on our financial position and outlook, and the
market price of TELUS common shares. There can be no assurance that
our dividend growth program or any NCIB will be maintained, not
changed and/or completed.
- Taxation matters including: interpretation of complex domestic
and foreign tax laws by the relevant tax authorities that may
differ from our interpretations; the timing and character of income
and deductions, such as tax depreciation and operating expenses;
tax credits or other attributes; changes in tax laws, including tax
rates; tax expenses being materially different than anticipated,
including the taxability of income and deductibility of tax
attributes; elimination of income tax deferrals through the use of
different tax year-ends for operating partnerships and corporate
partners; and changes to the interpretation of tax laws, including
as a result of changes to applicable accounting standards or tax
authorities adopting more aggressive auditing practices, tax
reassessments or adverse court decisions impacting the tax payable
by us.
- Litigation and legal matters including: our ability to
successfully respond to investigations and regulatory proceedings;
our ability to defend against existing and potential claims and
lawsuits (including intellectual property infringement claims and
class actions based on consumer claims, data, privacy or security
breaches and secondary market liability), or to negotiate and
execute upon indemnity rights or other protections in respect of
such claims and lawsuits; and the complexity of legal compliance in
domestic and foreign jurisdictions, including compliance with
competition, anti-bribery and foreign corrupt practices
laws.
- Health, safety and the environment including: lost employee
work time resulting from illness or injury, public concerns related
to radio frequency emissions, environmental issues affecting our
business including climate change, waste and waste recycling, risks
relating to fuel systems on our properties, and changing government
and public expectations regarding environmental matters and our
responses.
- Economic growth and fluctuations including: the state of the
economy in Canada, which may be influenced by economic and other
developments outside of Canada, including potential outcomes of yet
unknown policies and actions of foreign governments; future
interest rates; inflation; unemployment levels; effects of
fluctuating oil prices; effects of low business spending (such as
reducing investments and cost structure); pension investment
returns, funding and discount rates; fluctuations in foreign
exchange rates of the currencies in the regions in which we
operate, the impact of tariffs on trade between Canada and the
U.S., and global implications of a trade conflict between the U.S.
and China.
These risks are described in additional detail in Section 9
General trends, outlook and assumptions, and regulatory
developments and proceedings and Section 10 Risks and risk
management in our 2018 annual MD&A. Those descriptions are
incorporated by reference in this cautionary statement but are not
intended to be a complete list of the risks that could affect
TELUS.
Many of these factors are beyond our control or our current
expectations or knowledge. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also have a material adverse effect on our financial position,
financial performance, cash flows, business or reputation. Except
as otherwise indicated in this document, the forward-looking
statements made herein do not reflect the potential impact of any
non-recurring or special items or any mergers, acquisitions,
dispositions or other business combinations or transactions that
may be announced or that may occur after the date of this
document.
Readers are cautioned not to place undue reliance on
forward-looking statements. Forward-looking statements in this
document describe our expectations and are based on our assumptions
as at the date of this document and are subject to change after
this date. Except as required by law, we disclaim any intention or
obligation to update or revise any forward-looking statements. The
forward-looking statements in this news release are presented for
the purpose of assisting our investors and others in understanding
certain key elements of our expected 2019 financial results as well
as our objectives, strategic priorities and business outlook. Such
information may not be appropriate for other purposes.
This cautionary statement qualifies all of the forward-looking
statements in this document.
Non-GAAP and other financial measures
We have issued guidance on and report certain non-GAAP measures
that are used to evaluate the performance of TELUS, as well as to
determine compliance with debt covenants and to manage our capital
structure. As non-GAAP measures generally do not have a
standardized meaning, they may not be comparable to similar
measures presented by other issuers. Securities regulations require
such measures to be clearly defined, qualified and reconciled with
their nearest GAAP measure.
Adjusted Net income and adjusted basic earnings per
share: These measures are used to evaluate performance at
a consolidated level and exclude items that may obscure the
underlying trends in business performance. These measures should
not be considered alternatives to Net income and basic earnings per
share in measuring TELUS’ performance. Items that may, in
management’s view, obscure the underlying trends in business
performance include significant gains or losses associated with
real estate development partnerships, gains on exchange of wireless
spectrum licences, restructuring and other costs, long-term debt
prepayment premiums (when applicable), income tax-related
adjustments, asset retirements related to restructuring activities
and gains arising from business combinations.
Reconciliation of
adjusted Net income |
|
|
|
Three months ended June 30 |
|
C$ and in millions |
2019 |
2018 |
Change |
Net income attributable
to Common Shares |
517 |
390 |
127 |
Add (deduct): |
|
|
|
Restructuring and other costs, after income taxes |
22 |
25 |
(3) |
Favourable income tax-related adjustments |
(123) |
(1) |
(122) |
Adjusted Net income |
416 |
414 |
2 |
Reconciliation of
adjusted basic EPS |
|
|
|
Three months ended June 30 |
|
C$, per share amounts |
2019 |
2018 |
Change |
Basic EPS |
0.86 |
0.66 |
0.20 |
Add (deduct): |
|
|
|
Restructuring and other costs, after income taxes, per share |
0.03 |
0.04 |
(0.01) |
Favourable income tax-related adjustments, per share |
(0.20) |
— |
(0.20) |
Adjusted basic EPS |
0.69 |
0.70 |
(0.01) |
EBITDA (earnings before interest, income taxes,
depreciation and amortization): We have issued guidance on and
report EBITDA because it is a key measure used to evaluate
performance at a consolidated level. EBITDA is commonly reported
and widely used by investors and lending institutions as an
indicator of a company’s operating performance and ability to incur
and service debt, and as a valuation metric. EBITDA should not be
considered an alternative to Net income in measuring TELUS’
performance, nor should it be used as an exclusive measure of cash
flow. EBITDA as calculated by TELUS is equivalent to Operating
revenues less the total of Goods and services purchased expense and
Employee benefits expense.
We also calculate Adjusted EBITDA to exclude
items of an unusual nature that do not reflect our ongoing
operations and should not, in our opinion, be considered in a
valuation metric, or should not be included in an assessment of our
ability to service or incur debt.
EBITDA
reconciliation |
|
|
Three months ended June 30 |
C$ and in millions |
2019 |
2018 |
Net income |
520 |
397 |
Financing costs |
189 |
150 |
Income taxes |
31 |
145 |
Depreciation |
470 |
411 |
Amortization of intangible
assets |
163 |
148 |
EBITDA |
1,373 |
1,251 |
Add restructuring and other costs included in EBITDA |
29 |
35 |
Adjusted EBITDA |
1,402 |
1,286 |
Free cash flow: We report this measure as a
supplementary indicator of our operating performance. It should not
be considered an alternative to the measures in the condensed
interim consolidated statements of cash flows. Free cash flow
excludes certain working capital changes (such as trade receivables
and trade payables), proceeds from divested assets and other
sources and uses of cash, as found in the condensed interim
consolidated statements of cash flows. It provides an indication of
how much cash generated by operations is available after capital
expenditures (excluding purchases of spectrum licences) that may be
used to, among other things, pay dividends, repay debt, purchase
shares or make other investments. We exclude impacts of accounting
changes that do not impact cash, such as IFRS 15 and IFRS 16. Free
cash flow may be supplemented from time to time by proceeds from
divested assets or financing activities.
Free cash flow calculation |
|
Three months ended June 30 |
C$ and in millions |
2019 |
2018 |
EBITDA |
1,373 |
1,251 |
Deduct non-cash gains from the
sale of property, plant and equipment |
(5) |
(8) |
Restructuring and other costs,
net of disbursements |
1 |
7 |
Effects of contract asset,
acquisition and fulfilment (IFRS 15) |
15 |
4 |
Effects of lease principal
(IFRS 16) |
(64) |
— |
Leases formerly accounted for
as finance leases (IFRS 16) |
13 |
— |
Items from the condensed
interim consolidated statements of cash flows: |
|
|
Share-based compensation, net |
20 |
35 |
Net employee defined benefit plans expense |
19 |
24 |
Employer contributions to employee defined benefit plans |
(12) |
(14) |
Interest paid(1) |
(147) |
(130) |
Interest received |
3 |
3 |
Capital expenditures
(excluding spectrum licences)(2) |
(770) |
(791) |
Free cash flow before income taxes |
446 |
381 |
Income taxes paid, net of
refunds received |
(122) |
(52) |
Free cash flow |
324 |
329 |
(1) |
Includes $16 million interest paid on lease liabilities for the
three months ended June 30, 2019. |
(2) |
Refer to Note 31 of the interim consolidated financial statements
for further information. |
About TELUS TELUS (TSX: T, NYSE: TU) is a
dynamic, world-leading communications and information technology
company with $14.6 billion in annual revenue and 14.2 million
customer connections spanning wireless, data, IP, voice,
television, entertainment, video and security. We leverage our
global-leading technology to enable remarkable human outcomes. Our
longstanding commitment to putting our customers first fuels every
aspect of our business, making us a distinct leader in customer
service excellence and loyalty. TELUS Health is Canada's largest
healthcare IT provider, and TELUS International delivers the most
innovative business process solutions to some of the world’s most
established brands.
Driven by our passionate social purpose to connect all Canadians
for good, our deeply meaningful and enduring philosophy to give
where we live has inspired our team members and retirees to
contribute more than $700 million and 1.3 million days of service
since 2000. This unprecedented generosity and unparalleled
volunteerism have made TELUS the most giving company in the
world.
For more information about TELUS, please visit telus.com, follow
us @TELUSNews on Twitter and @Darren_Entwistle on Instagram.
For more information about TELUS, please visit telus.com.
Investor RelationsRobert Mitchell (647)
837-1606ir@telus.com
Media relationsFrancois Gaboury(438)
862-5136Francois.Gaboury@telus.com
Telus (NYSE:TU)
Historical Stock Chart
From Aug 2024 to Sep 2024
Telus (NYSE:TU)
Historical Stock Chart
From Sep 2023 to Sep 2024