TELUS Corporation today released its unaudited results for the
third quarter of 2019. Consolidated operating revenue of $3.7
billion increased by 2.6 per cent when excluding the non-recurrence
of equity income related to real estate joint ventures arising from
the sale of TELUS Garden of $171 million in the third quarter of
2018. Including this equity income, consolidated operating revenue
decreased by 2.0 per cent. Earnings before interest, income taxes,
depreciation and amortization (EBITDA) increased by 6.3 per cent to
$1.4 billion due to higher wireless network revenue growth, growth
in wireline data service margins, higher EBITDA contribution from
our customer care and business services (CCBS) and health
businesses, and the effects of implementing IFRS 16. This growth
was partly offset by declines in wireline legacy voice and legacy
data services and decline in EBITDA contribution from our legacy
business services. When excluding the equity income from the sale
of TELUS Garden in the third quarter of 2018, as well as
restructuring and other costs, including the $118 million donation
to the TELUS Friendly Future Foundation in the third quarter of
2018, Adjusted EBITDA was up 8.3 per cent. Applying a retrospective
IFRS 16 simulation to fiscal 2018 results, pro forma Adjusted
EBITDA growth was approximately 4.1 per cent, representing a margin
of 39.6 per cent, up 50 basis points over last year.
For the quarter, net income of $440 million decreased by 1.6 per
cent over the same period last year and Basic earnings per share
(EPS) of $0.72 decreased by 2.7 per cent as EBITDA growth was
primarily offset by higher depreciation and amortization due to
growth in our asset base, including from investments in our
broadband technologies and business acquisitions. When excluding
equity income related to the sale of TELUS Garden in the third
quarter of 2018, restructuring and other costs, including the
donation to the Friendly Future Foundation in the prior year
period, favourable income tax-related adjustments and long-term
debt prepayment premiums, adjusted net income of $458 million
increased by 2.9 per cent over the same period a year ago, while
adjusted basic EPS was $0.76, up 2.7 per cent.
“TELUS reported strong operational and financial results for the
third quarter, including robust customer growth across both our
wireless and wireline business segments. The expansion of our
subscriber base by 246,000 customers was driven by high-quality
mobile phone net additions, strong growth in connected device
subscribers and industry-leading wireline net additions. TELUS’
robust performance was backed by our team’s unwavering focus on
providing exceptional customer experiences, in combination with the
ongoing generational investments we are making in our leading
wireline and wireless broadband network, both of which are integral
to the continued success of our long-term growth strategy.”
Mr. Entwistle added, “The efficacy of our broadband technology
investments is reflected in TELUS being recognized once again as
having the fastest mobile network in Canada by Ookla as well as by
PCMag for the third year in a row. Additionally, our team once
again earned top marks from Opensignal for mobile network
experiences in Canada, winning four of five categories, including
4G availability, video experience, speed and latency. These
acknowledgements build on our outstanding record of achievement
with respect to network excellence, having earned the top spot in
all major mobile network reporting again this year, including J.D.
Power and Tutela. These leading network rankings reinforce the
consistent superiority of TELUS’ broadband network available to
Canadians across the country. Notably, in September, Opensignal
assessed the mobile network experience of rural Canadian wireless
consumers as compared to their urban counterparts across the
country and globally, concluding that rural Canadians have access
to speeds and availability that exceed or rival the overall figures
of developed countries, and indeed get what they pay for.
Opensignal went on to note that if rural Canada was a country, it
would rank 12th in download speeds with rural Canadian users, on
average, seeing faster 4G download speeds than mobile users in
Sweden, New Zealand, France and 73 of the other countries they
report on, including any region of the United States. We also
outperform our neighbours to the south in terms of rate plan
affordability, as our endless data plans are less expensive than
comparable U.S. data plans, despite the fact that Canada has a
larger, more challenging geography, and a smaller population
density.”
“Our dividend increase announced today reflects the eighteenth
increase since 2011, and is the sixth in our most recent three-year
dividend growth program, targeting annual growth between seven and
10 per cent through 2019. We have established an enviable track
record in respect of an attractive balance sheet and strong
operational performance, which enable us to successfully execute on
our consistent, transparent and industry-leading
shareholder-friendly program thus generating significant value for
our shareholders,” added Mr. Entwistle. “Notably, TELUS has now
returned more than $17 billion to shareholders, including over $12
billion in dividends, representing approximately $29 per share
since 2004. In May, we announced the extension of our multi-year
dividend growth program from 2020 through 2022, again targeting
annual growth of seven to 10 per cent, reflecting TELUS’ confidence
in future market opportunities stemming from our longstanding and
successful growth strategy. Future dividend growth and
affordability will also be supported by lower expected capital
expenditures, in line with the preliminary guidance we are
providing today for 2020 and 2021, and the resulting free cash flow
expansion.”
“Importantly, reflecting our team’s belief that in order to do
well in business, we must do good in our communities, nearly 43,000
team members, family and friends celebrated diversity in nearly 20
Pride events in communities from coast to coast. In addition, we
continue to leverage our technology to create positive social
outcomes, as evidenced by our team’s efforts in the third quarter,
providing nearly 5,500 low income families with low-cost,
high-speed Internet; 1,000 youth aging out of foster care with a
free smartphone and data plan; and more than 2,500 patient visits
through our TELUS mobile health care clinics. In the third quarter
alone, we donated nearly $1 million through TELUS Friendly Future
Foundation grants, helping youth realize their potential. Thus far
in 2019, our team has contributed nearly 55,000 days of
volunteerism, bringing our total to 1.3 million days of giving
since 2000. Moreover, thanks to our team’s commitment to social and
environmental responsibility, TELUS was named to the Dow Jones
Sustainability World Index for the 4th consecutive year and to the
North America Index for the 19th year in a row – a feat unequalled
by any North American telecommunications or cable company,” Mr.
Entwistle concluded.
Doug French, Executive Vice-president and CFO said, “The
superior execution of our customer experience-focus and data growth
strategy, delivered another set of strong financial and operational
results that are in line with 2019 annual financial targets. Our
consistent strong performance is a testament to our ability to
operationally launch new customer friendly offerings and the
importance our customers place on the value of our superior
broadband network and the growing number of advanced, data-focused
services it enables – everything from TELUS PureFibre broadband
connectivity to next generation services, including home and
business security and automation.”
Mr. French added, “Earlier this week, TELUS completed the
acquisition of ADT Canada, the leading national provider of home
and business security and automation solutions. This builds on
TELUS’ strategy to leverage its world-leading wireless and
PureFibre network, supported by our industry-leading customer
service, to enhance connected home, business, security, IoT,
cybersecurity, smart buildings, smart cities and health services
for all Canadians. Importantly, the ADT Canada acquisition not only
expands and provides scale to TELUS’ growing security business, but
also supports the continued advancement of TELUS’ health strategy.
This includes enabling remote patient care with home health
monitoring; and helping Canadians, notably elderly citizens, enjoy
their independence with secure, connected technology in the comfort
of their own home.”
“As we look beyond the final quarter of 2019, we are announcing
preliminary capital expenditure guidance for 2020 and 2021 of
approximately $2.75 billion in each year. These investments reflect
the continued expansion of our leading fibre footprint, and
positions our converged network for the future capabilities that 5G
networks will enable, while supporting free cash flow expansion.
Looking further out we remain excited about the future cash flow
opportunities as we increasingly near the completion of our
generational fibre build, additionally supporting our dividend
growth program and commitment to balancing the interests of all
TELUS stakeholders,” concluded Mr. French.
In wireless, revenues arising from contracts with customers
increased by 1.1 per cent due to network revenue growth of 2.0 per
cent driven by a 5.5 per cent increase in our subscriber base,
partly offset by lower mobile phone ARPU from declining chargeable
data usage and the competitive environment putting pressure on rate
plans. External wireless operating revenue decreased by 2.9 per
cent due to the non-recurrence of equity income related to the sale
of TELUS Garden in the third quarter of 2018, of which 50 per cent
of the total $171 million was allocated to each of the wireless and
wireline segments. Excluding this non-recurring equity income of
$85 million, external wireless operating revenues increased by 1.1
per cent.
In wireline, revenues arising from contracts with customers
increased by 4.8 per cent due to data services revenue growth of
8.4 per cent. Data revenue growth was driven by 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 third wave data
service revenues, reflecting higher revenue per customer and
continued Internet subscriber growth. Additionally, increased
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 TV revenues from subscriber growth also contributed
to data services revenue growth. External wireline operating
revenue decreased by 0.9 per cent due to the non-recurrence of
equity income related to the sale of TELUS Garden in the third
quarter of 2018, of which $86 million was allocated to the wireline
segment. Excluding this non-recurring equity income, wireline
external operating revenues increased by 4.7 per cent.
In the quarter, we added 258,000 new wireless, Internet, TV and
security customers, up 31,000 or 14 per cent over the same quarter
a year ago. The higher net additions included 111,000 mobile
phones, 82,000 mobile connected devices, as well as 32,000
Internet, 19,000 TV and 14,000 Security customers. Our total
wireless subscriber base of more than 10 million is up 5.5 per cent
over the last twelve months, reflecting a 3.1 per cent increase in
our mobile phones subscriber base to nearly 8.7 million and a 23
per cent increase to our mobile connected devices subscriber base
to more than 1.4 million. Additionally, our Internet connections
are up 6.7 per cent over the last twelve months, approaching 2
million customers, our TV subscriber base of 1.1 million is higher
by 7.1 per cent and our security customer base is up 52 per cent to
over 100,000.
Consolidated capital expenditures of $748 million declined by
1.8 per cent primarily due to the timing of our fibre build
activities. At the end of the quarter, approximately 2.14 million
premises, or 67 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 400,000 PureFibre
premises over the last twelve months.
Free cash flow of $320 million increased by 5.6 per cent over
the same period a year ago, largely from EBITDA growth and the
timing of device subsidy repayments and associated revenue
recognition, including the introduction of TELUS Easy Payment
device financing, partially offset by higher cash income taxes paid
and increased interest paid. The higher interest paid was 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 18 per cent to $417 million.
Consolidated Financial Highlights
C$
millions, except per share amounts |
Three months ended September 30(1) |
Per cent |
|
(unaudited) |
2019 |
2018 |
change |
|
Operating revenues(2) |
3,697 |
3,774 |
(2.0 |
) |
Operating expenses before
depreciation and amortization(3) |
2,263 |
2,425 |
(6.7 |
) |
EBITDA(4) |
1,434 |
1,349 |
6.3 |
|
Adjusted EBITDA(4)(5) |
1,463 |
1,351 |
8.3 |
|
Net income |
440 |
447 |
(1.6 |
) |
Adjusted net income(4) |
458 |
445 |
2.9 |
|
Net income attributable to common
shares |
433 |
443 |
(2.3 |
) |
Basic EPS |
0.72 |
0.74 |
(2.7 |
) |
Adjusted basic EPS(4) |
0.76 |
0.74 |
2.7 |
|
Capital expenditures(6) |
748 |
762 |
(1.8 |
) |
Free cash flow before income
taxes(4) |
417 |
352 |
18.5 |
|
Free cash flow(4) |
320 |
303 |
5.6 |
|
Total subscriber
connections(7)(8) (thousands) |
14,500 |
13,784 |
5.2 |
|
(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) |
Consolidated operating revenue for the third quarter of 2018
included non-recurring equity income related to real estate joint
ventures of $171 million arising from the sale of TELUS Garden.
Excluding this equity income, operating revenues for the third
quarter of 2019 increased by 2.6 per cent. |
(3) |
Operating expenses before depreciation and amortization for the
third quarter of 2018 includes a $118 million donation to the TELUS
Friendly Future Foundation. Excluding the donation, Operating
expenses before depreciation and amortization decreased by 1.9 per
cent. |
(4) |
EBITDA, Adjusted net income, adjusted basic EPS and Free cash flow
are non-GAAP measures and do not have any standardized meaning
prescribed by IFRS-IASB. For further definitions and explanations
of these measures, see ‘Non-GAAP and other financial measures’ in
this news release. |
(5) |
Adjusted EBITDA for the third quarters of 2019 and 2018 excludes
restructuring and other costs of $29 million and $173 million
respectively. In the third quarter of 2018, the $118 million
donation to the TELUS Friendly Future Foundation was recorded as
part of other costs. |
(6) |
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. |
(7) |
The sum of active mobile phone subscribers, mobile connected device
subscribers, Internet access subscribers, residential voice
subscribers, TV subscribers and security 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. During the first
quarter of 2019, we adjusted cumulative Internet subscriber
connections to add approximately 16,000 subscribers from
acquisitions undertaken during the quarter. Effective for the third
quarter of 2019, with retrospective application to the launch of
TELUS-branded security services at the beginning of the third
quarter of 2018, we have added security subscriber connections to
our total subscriber connections. |
(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 third quarter 2019 Management’s discussion and analysis
(MD&A). |
Third Quarter 2019 Operating Highlights
TELUS wireless
- Revenues arising from contracts with customer increased by $23
million or 1.1 per cent due to growth in network revenue from a
growing subscriber base. External operating revenue decreased by
$62 million or 2.9 per cent in the third quarter of 2019 driven by
lower Other operating income resulting from non-recurring equity
income arising from the sale of TELUS Garden in third quarter of
2018. Excluding this non-recurring equity income, external wireless
revenue was higher by 1.1 per cent due to aforementioned network
revenue growth.
- Network revenue increased by $31 million or 2.0 per cent
year-over-year to $1.6 billion. This growth was driven by a 5.5 per
cent increase in our subscriber base, partly offset by declining
mobile phone ARPU as discussed below. Equipment and other service
revenues decreased by $8 million or 1.6 per cent mainly due to
lower volumes.
- Mobile phone ABPU of $75.06 increased by 0.5 per cent due to
our combined TELUS Easy Payment device financing, Peace of Mind
endless data plans and TELUS Family Discounts offerings, with
customers selecting plans with endless data or larger data buckets
and higher value smartphones in the sales mix. These drivers were
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 $61.64 declined by 1.1 per cent as the
declines in chargeable data usage, competitive pressures on base
rate plan prices and changes in our customer mix mentioned above
more than offset the increased number of customers selecting plans
with endless or larger data buckets.
- Mobile phone churn rate of 1.09 per cent increased by 6 basis
points over the same period a year ago due to heightened
competitive intensity during the seasonal promotional period and
not matching uneconomic market offers by instead utilizing our
innovative Easy Payment device financing program, Peace of Mind
endless data plans, Bring-it-Back and TELUS Family Discounts
offerings. The increase in the mobile phone churn rate was
partially mitigated by our focus on executing customers first
initiatives and retention programs, as well as our leading network
quality.
- Total subscriber net additions of 193,000 increased by 22,000
over the same period a year ago. Mobile phone net additions of
111,000 were lower by 10,000 over last year, as higher mobile phone
gross additions were offset by higher mobile phone churn,
reflecting our continued focus on margin accretive growth with the
focus away from lower economic loading. Mobile connected device net
additions of 82,000 increased by 32,000 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 low or negative-margin tablet loading.
- EBITDA of $970 million increased by $49 million or 5.3 per
cent, while Adjusted EBITDA of $976 million increased by $64
million or 7.0 per cent over last year, reflecting higher network
revenue growth driven by a larger subscriber base, savings from
cost efficiency programs and the implementation of IFRS 16.
Applying a retrospective IFRS 16 simulation to fiscal 2018 results,
pro forma wireless Adjusted EBITDA growth was approximately 4.0 per
cent.
TELUS wireline
- Revenues arising from contracts with customers increased by $73
million or 4.8 per cent driven by higher data services revenue.
External operating revenue decreased by $14 million or 0.9 per cent
in the third quarter of 2019 mainly driven by lower Other operating
income resulting from the non-recurring equity income arising from
the sale of TELUS Garden in third quarter of 2018. Excluding this
non-recurring equity income, external wireline revenue was higher
by 4.7 per cent due to the aforementioned growth in data services
revenue.
- Data services revenues increased by $98 million or 8.4 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
third wave data service revenues, reflecting higher revenue per
customer, as well as an increase in our Internet subscriber base.
Additionally, increased 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 TV revenues also contributed to
data services revenue growth. This growth was partly offset by the
ongoing decline in legacy data service revenues.
- Internet net additions of 32,000 were lower by 4,000 as
consistent demand from consumers and businesses for our high-speed
broadband services, partly due to the launch of our unlimited home
Internet data offerings, as well as our continued focus on
connecting more homes and businesses directly to fibre, was offset
by heightened competitive intensity.
- TV net additions of 19,000 increased slightly by 1,000 over the
same quarter a year ago due to higher gross additions as a result
of our diverse product offerings, partly offset by heightened
competitive intensity.
- Security net additions of 14,000 increased by 12,000 over last
year driven by growth in our security products and services with
enhanced bundling opportunities following the launch of our
SmartHome Security and Secure Business lines of business in July
2018.
- Residential voice net losses of 12,000 were flat 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 $464 million increased by $36 million or 8.4 per
cent, while Adjusted EBITDA of $487 million increased by $48
million or 10.9 per cent. This growth reflects an increased
contribution from our CCBS business from expanded services for
existing customers, higher Internet margins and higher health
margins mainly from expanded services for existing customers and
operational efficiencies, as well as the implementation of IFRS 16.
This growth was partly offset by continued declines in legacy voice
and legacy data services, higher employee benefits expense and
other costs related to business acquisitions, and a decline in the
EBITDA contribution from our legacy business services. Applying a
retrospective IFRS 16 simulation to fiscal 2018 results, pro forma
wireline Adjusted EBITDA growth was approximately 4.3 per
cent.
Dividend Declaration The TELUS Board of
Directors has declared a quarterly dividend of $0.5825 per share on
the issued and outstanding Common Shares of the Company payable on
January 2, 2020 to holders of record at the close of business on
December 11, 2019. This fourth quarter dividend represents an
increase of 6.9 per cent from the $0.545 quarterly dividend paid on
January 2, 2019 and is the eighteenth dividend increase since TELUS
announced its original multi-year dividend growth program in May
2011.
TELUS sets preliminary capital expenditure guidance for
2020 and 2021Capital expenditures for both 2020 and 2021,
excluding the purchase of spectrum licences, are estimated to be
approximately $2.75 billion in each year. These investments reflect
the continued expansion of our fibre-optic network as we expect to
continue connecting more homes and businesses directly to our
leading network, while continuing to advance our small-cell
technology strategy to improve coverage and pre-positioning for the
launch of 5G. Additionally, we plan to continue investing in our
support systems to drive ongoing operational effectiveness and
efficiency in serving our growing customer base.
TELUS completes acquisition of ADT CanadaOn
November 6, 2019, TELUS announced that it has completed the
acquisition of ADT Security Services Canada, Inc. (ADT Canada). ADT
Canada is one of Canada’s leading providers of security and
automation solutions serving residential and business customers,
with approximately 500,000 customers and approximately 1,000 team
members across the country. This agreement accelerates growing
scale and leadership in the SmartHome Security and Secure Business
space.
Juggy Sihota named to Vancouver Magazine’s Power
50Juggy Sihota, TELUS vice president, Consumer Health, has
been named one of Vancouver Magazine’s Power 50. From the creation
of TELUS’ compelling Painkiller: Inside the Opioid Crisis
documentary and the launch of the fastest growing and highest
customer-rated virtual care service in Canada through Babylon by
TELUS Health, to the ongoing expansion of our Health For Good
mobile health clinics across the country and leading the largest
Canadian-owned personal emergency response service in Canada, TELUS
LivingWell Companion, Juggy’s passionate leadership is helping
Canadians live healthier, happier lives. Juggy is currently a Board
Director on the VGH & UBC Hospital Foundation Board as well as
on the Canadian Men’s Health Foundation. She is an advisor to the
City of Vancouver on racial and ethno-cultural equity issues and
previously served as a director on the TELUS Vancouver Community
Board from 2008 to 2011. Juggy also served on the Justice Institute
of British Columbia and the Vancouver Board of Trade’s Women’s
Leadership Council.
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 $1.9 billion in
taxes in the first three quarters 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
three quarters 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 $2.2 billion in capital expenditures
primarily in communities across Canada in the first three quarters
of 2019 and more than $40 billion since 2000.
- Spending $5.8 billion in total operating expenses in the first
three quarters of 2019, including goods and service purchased of
approximately $4.2 billion. Since 2000, we have spent $121 billion
and $81 billion respectively in these areas.
- Generating a total team member payroll of $2.0 billion in the
first three quarters of 2019, including payroll taxes of $120
million. Since 2000, total team member payroll totals $47
billion.
- Returning $1.3 billion in dividends year-to-date through four
quarterly dividend payments through October 2019 to individual
shareholders, mutual fund owners, pensioners and institutional
investors. Since 2004, we have returned more than $17 billion to
shareholders through our dividend and share purchase programs,
including over $12 billion in dividends, representing approximately
$29 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’ third quarter 2019 conference call is scheduled
for Thursday, November 7, 2019 at 9:00am ET (6:00am 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 November 7 until December
15, 2019 at 1-855-201-2300. Please use reference number 1249738#
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 updates:
- Our revised estimate for 2019 GDP growth in Canada is 1.6%
(2.0% as reported in our 2018 annual MD&A), in B.C. is 1.9% as
updated our first quarter 2019 MD&A (2.3% as reported in our
2018 annual MD&A), and in Alberta is 0.7% (2.1% as reported in
our 2018 annual MD&A).
- Our revised estimate for the 2019 annual unemployment rate in
Canada is 5.7% (5.8% as reported in our 2018 annual MD&A), in
B.C. is 4.6% (4.9% as reported in our 2018 annual MD&A), and in
Alberta is 6.8% as updated in our first quarter 2019 MD&A (6.2%
as reported in our 2018 annual MD&A).
- Our revised estimate for the 2019 annual rate of housing starts
on an unadjusted basis in Canada is 207,000 units (196,000 units 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 this MD&A, such as the
potential for government intervention to further increase
competition, for example, through mandated wholesale access; the
potential for additional government intervention on pricing further
to the October 2019 federal election; 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,
subordination and transfer of spectrum licences, the cost and
availability of spectrum, and ongoing and future consultations and
decisions on spectrum allocation; 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; changes
to the current copyright regime; and our ability to comply with
complex and changing regulation of the healthcare and medical
devices industry in the jurisdictions 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, such as our
Peace of Mind plans and comparable plans recently launched,
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; 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; and our ability to
successfully develop our smart data solutions business.
- Technological substitution including: reduced utilization and
increased commoditization of traditional wireline voice services
(local and long distance) from impacts of OTT applications and
wireless substitution, a declining overall market for paid TV
services, 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,
together with content costs per unit continuing to grow; 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 leverage 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; expectations
of 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 the trade dynamic 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 and our
2020 and 2021 capital expenditure plans 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 September 30 |
|
C$ and in millions |
2019 |
|
2018 |
|
Change |
Net income attributable to Common Shares |
433 |
|
443 |
|
(10 |
) |
Add (deduct): |
|
|
|
Restructuring and other costs, after income taxes1 |
22 |
|
130 |
|
(108 |
) |
Favourable income tax-related adjustments |
(17 |
) |
(3 |
) |
(14 |
) |
Non-recurring gains and equity income related to real estate joint
ventures, after income taxes2 |
— |
|
(150 |
) |
150 |
|
Long-term debt prepayment premium, after income taxes |
20 |
|
25 |
|
(5 |
) |
Adjusted Net income |
458 |
|
445 |
|
13 |
|
1
Includes our third quarter of 2018 donation to the TELUS Friendly
Future Foundation of $90 million after income taxes. |
2 Includes
equity income arising from the third quarter of 2018 sale of TELUS
Garden of $150 million after income taxes. |
Reconciliation of adjusted basic EPS |
|
Three months ended September 30 |
|
C$, per share amounts |
2019 |
|
2018 |
|
Change |
Basic EPS |
0.72 |
|
0.74 |
|
(0.02 |
) |
Add (deduct): |
|
|
|
Restructuring and other costs, after income taxes, per
share1 |
0.04 |
|
0.22 |
|
(0.18 |
) |
Favourable income tax-related adjustments, per share |
(0.03 |
) |
(0.01 |
) |
(0.02 |
) |
Non-recurring gains and equity income related to real estate joint
ventures, after income taxes, per share2 |
— |
|
(0.25 |
) |
0.25 |
|
Long-term debt prepayment premium, after income taxes, per
share |
0.03 |
|
0.04 |
|
(0.01 |
) |
Adjusted basic EPS |
0.76 |
|
0.74 |
|
0.02 |
|
1 Includes our
third quarter of 2018 donation to the TELUS Friendly Future
Foundation of $0.15 per share after income taxes. |
2 Includes
equity income arising from the third quarter of 2018 sale of TELUS
Garden of $0.25 per share after income taxes. |
|
EBITDA (earnings before interest, income taxes,
depreciation and amortization): We have issued guidance on and
report EBITDA because it is a key measure used to evaluate
performance at a consolidated level. EBITDA is commonly reported
and widely used by investors and lending institutions as an
indicator of a company’s operating performance and ability to incur
and service debt, and as a valuation metric. EBITDA should not be
considered an alternative to Net income in measuring TELUS’
performance, nor should it be used as a measure of cash flow.
EBITDA as calculated by TELUS is equivalent to Operating revenues
less the total of Goods and services purchased expense and Employee
benefits expense.
We also calculate Adjusted EBITDA to exclude
items of an unusual nature that do not reflect our ongoing
operations and should not, in our opinion, be considered in a
valuation metric, or should not be included in an assessment of our
ability to service or incur debt.
EBITDA reconciliation |
|
|
|
Third quarters ended September 30 |
($ millions) |
2019 |
2018 |
|
Net income |
440 |
447 |
|
Financing costs |
201 |
196 |
|
Income taxes |
144 |
134 |
|
Depreciation |
489 |
419 |
|
Amortization of intangible assets |
160 |
153 |
|
EBITDA |
1,434 |
1,349 |
|
Add restructuring and other costs included in EBITDA |
29 |
173 |
|
EBITDA – excluding restructuring and other costs |
1,463 |
1,522 |
|
Deduct non-recurring gains and equity income related to real estate
joint ventures |
— |
(171 |
) |
Adjusted EBITDA |
1,463 |
1,351 |
|
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 |
|
|
|
Third quarters ended September 30 |
($ millions) |
2019 |
|
2018 |
|
EBITDA |
1,434 |
|
1,349 |
|
Deduct non-cash gains from the
sale of property, plant and equipment |
(3 |
) |
(3 |
) |
Restructuring and other costs,
net of disbursements |
(3 |
) |
42 |
|
Effects of contract asset,
acquisition and fulfilment (IFRS 15 impact) and TELUS Easy Payment
device financing |
(31 |
) |
(56 |
) |
Effects of lease principal
(IFRS 16 impact) |
(62 |
) |
— |
|
Leases formerly accounted for
as finance leases (IFRS 16 impact) |
13 |
|
— |
|
Deduct non-recurring gains and
equity income related to real estate joint ventures |
— |
|
(171 |
) |
Donation to TELUS Friendly
Future Foundation in TELUS Common Shares |
— |
|
100 |
|
Items from the condensed
interim consolidated statements of cash flows: |
|
|
Share-based compensation, net |
14 |
|
34 |
|
Net employee defined benefit plans expense |
20 |
|
24 |
|
Employer contributions to employee defined benefit plans |
(11 |
) |
(9 |
) |
Interest paid1 |
(208 |
) |
(198 |
) |
Interest received |
2 |
|
2 |
|
Capital expenditures (excluding spectrum licences)2 |
(748 |
) |
(762 |
) |
Free cash flow before income taxes |
417 |
|
352 |
|
Income taxes paid, net of refunds |
(97 |
) |
(49 |
) |
Free cash flow |
320 |
|
303 |
|
1 Includes $17 million interest paid on lease
liabilities for the three months ended September 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 14.5 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.
Investor RelationsRobert Mitchell (647)
837-1606ir@telus.com
Media relationsFrancois Gaboury(438)
862-5136Francois.Gaboury@telus.com
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