Consolidated operating revenue up 2.6 per cent, EBITDA up 3.1 per cent
Continued leadership in customer experience, with wireless postpaid churn of 0.97 per cent
Company confirms industry-leading 2016 financial growth targets
Quarterly dividend increased 10 per cent to 46 cents per share
Extending dividend growth program targeting 7 to 10 per cent annual growth for 2017 through 2019
Announces up to $250 million annual share purchase program targeted for 2017 through 2019
TELUS strikes deal to expand wireless customer base in Manitoba
Baring Private Equity Asia to acquire 35 per cent stake in TELUS International
Agreement with Baring Private Equity Asia values TELUS International at an enterprise value of $1.2 billion
TELUS to receive proceeds from TELUS International of approximately $600 million; proceeds support continued expansion of its broadband networks in Canada
Vancouver, B.C. – TELUS Corporation’s consolidated operating revenue grew 2.6 per cent to $3.1 billion in the first quarter of 2016 from a year earlier, driven by continued data revenue growth in both wireless and wireline operations. Wireline data revenue increased 10 per cent leading to 3.7 per cent growth in external wireline revenue. Wireless data revenue increased 8.3 per cent from a year ago, leading to overall wireless network revenue growth of 2.5 per cent. Earnings before interest, income taxes, depreciation and amortization (EBITDA)1 was impacted by a $31 million increase in restructuring and other costs. When excluding restructuring and other costs from both periods, EBITDA was up 3.1 per cent to $1.2 billion, reflecting growth in TELUS’ wireless and wireline operations and operational efficiencies. EBITDA including restructuring and other costs increased by 0.4 per cent from a year ago.
“Our revenue and EBITDA growth in the first quarter reflect the quality and resiliency of our operations despite ongoing economic challenges, most notably in Alberta. We continued to deliver on core elements of our consistent and winning strategy, including sustaining our leadership in customer loyalty, wireline EBITDA growth and wireless postpaid churn of 0.97 per cent,” said Darren Entwistle, President and CEO.
“The extension of our multi-year dividend growth program through 2019 reflects the Company’s confidence in future market opportunities stemming from our enduring growth strategy. Building on the consistency of previous multi-year dividend growth initiatives, our new program will target between seven and 10 per cent annual dividend growth from 2017 through to 2019, and will continue to be complemented by our synergistic discretionary share purchase program of up to $250 million per year over the next three years. We have established the balance sheet and operational performance to launch and complete these shareholder-friendly programs and are proud of our track record. Between 2004 and April 2016 TELUS has returned $13 billion to shareholders, including $7.9 billion in dividends and $5.1 billion in share buybacks, representing nearly $22 per share,” Mr. Entwistle added.
Mr. Entwistle also commented, “Today, we are announcing the next step in our company’s growth journey by way of an agreement with Baring Private Equity Asia, which will acquire a long-term, 35 per cent stake in TELUS International. This partnership will integrate TELUS International’s world class customer service and team engagement with Baring Private Equity Asia’s extensive Asian markets presence and worldwide experience to tap into new growth opportunities for TELUS International’s global business process outsourcing, IT and customer service operations. Importantly, the proceeds of approximately $600 million will further enhance TELUS’ already strong balance sheet and contribute to our long-standing strategy of advancing our broadband wireline and wireless networks to support Canada’s digital economy for generations to come.”
John Gossling, TELUS Executive Vice-President and CFO said, “Our results for the first quarter reflect strong execution by the TELUS team and ongoing benefits from our operational efficiency initiatives. Against the backdrop of a highly competitive marketplace, we continue to deliver on our balanced capital allocation strategy that not only supports our long-term growth objectives, but also allows us to consistently return capital to shareholders.”
Net income and basic earnings per share (EPS) were affected by higher restructuring and other costs; an increase in depreciation and amortization expense reflecting, in part, TELUS’ higher asset base from ongoing investments in its fibre optic and 4G LTE networks; and higher financing costs. Adjusted net income3, excluding the effects of restructuring and other costs, decreased 3.0 per cent to $414 million, while adjusted EPS3 of $0.70 was unchanged from the prior year. On a reported basis, net income decreased 9.1 per cent to $378 million, while basic earnings per share (EPS) decreased 6.8 per cent to $0.64.
CONSOLIDATED FINANCIAL HIGHLIGHTS
C$ and in millions, except per share amounts
Three months ended
March 31
Per cent
(unaudited)
2016
2015
change
Operating revenues
3,108
3,028
2.6
Operating expenses before depreciation and amortization
1,968
1,893
4.0
EBITDA(1)
1,140
1,135
0.4
EBITDA excluding restructuring and other costs(1)(2)
1,188
1,152
3.1
Net income
378
415
(9.1)
Adjusted net income(3)
414
427
(3.0)
Basic earnings per share (EPS)
0.64
0.68
(6.8)
Adjusted basic EPS(3)
0.70
0.70
-
Capital expenditures
618
635
(2.7)
Free cash flow(4)
108
271
(60.1)
Total subscriber connections(5)
12.443
12.260
1.5
(1) EBITDA does not have any standardized meaning prescribed by IFRS-IASB. TELUS issues guidance on and reports EBITDA because it is a key measure used to evaluate performance at a consolidated and segmented level. For further definition and explanation, see Section 11.1 in the accompanying 2016 first quarter Management’s discussion and analysis.
(2) For the first quarter of 2016 and 2015, restructuring and other costs were $48 million and $17 million, respectively.
(3) Adjusted net income and Adjusted basic EPS do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding (after income taxes), restructuring and other costs. For further analysis of Adjusted basic EPS see Section 1.3 in the accompanying 2016 first quarter Management’s discussion and analysis.
(4) Free cash flow does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation, see Section 11.1 in the accompanying 2016 first quarter Management’s discussion and analysis.
(5) The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers (Optik TV™ and TELUS Satellite TV® subscribers) measured at the end of the respective periods based on information in billing and other systems. Our January 1, 2015 opening reported subscriber balance has been retrospectively adjusted to exclude 1,613,000 business NALs due to its diminishing relevance as a key performance indicator. Subsequent to a review of our subscriber base, TELUS’ Q1 2016 beginning of period postpaid wireless subscriber base was reduced by 45,000 and its Q1 2016 beginning of period high-speed Internet subscriber base was increased by 21,000.
In wireless, data revenue was driven by subscriber growth, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and increased data usage, partially offset by the effects of an economic slowdown, particularly in Alberta. Wireline data revenue growth was generated by growth in TELUS International’s business process outsourcing services, an increase in Internet and enhanced data service revenue from continued high-speed Internet subscriber growth and higher revenue per customer, continued TELUS TV subscriber growth and higher TELUS Health revenues.
In the first quarter of 2016, TELUS attracted 31,000 net wireless postpaid, high-speed Internet and TV customers. This included 12,000 high-speed Internet subscribers, 11,000 TELUS TV customers and 8,000 wireless postpaid customers. These gains were partially offset by the ongoing loss of traditional telephone network access lines and a decline in wireless prepaid customers. TELUS’ total wireless subscriber base is up 1.2 per cent from a year ago to 8.4 million, high-speed Internet connections have increased 6.7 per cent to 1.6 million, and TELUS TV subscribers are higher by 8.4 per cent to just over 1 million.
In the quarter, TELUS continued to deliver leading wireless customer churn on a national basis with a monthly postpaid churn rate of 0.97 per cent. This is the tenth quarter in the past 11 that TELUS’ postpaid churn rate was below 1 per cent, despite increasing competitive pressures due to the simultaneous expiration of two-year and three-year contracts commencing in June 2015. Blended churn of 1.26 per cent in the first quarter of 2016 is TELUS’ lowest first quarter churn rate since becoming a national carrier 16 years ago. This further exemplifies the success of TELUS’ differentiated customers first culture and its ongoing focus on delivering outstanding customer service, coupled with attractive new products and services.
Free cash flow4 of $108 million in the first quarter was lower by $163 million from a year ago, primarily due to higher income tax payments, mainly reflecting a higher final income tax payment for the 2015 income tax year, an increase in interest paid, and higher restructuring disbursements partially offset by lower share-based compensation payments.
In the first quarter of 2016, TELUS returned $313 million to shareholders including $263 million in dividends paid and $50 million in share purchases under its 2016 normal course issuer bid (NCIB) program. Through the end of April, TELUS has returned $574 million to shareholders, including $524 million in dividends paid and the purchase of 1.3 million shares for $50 million.
Dividend Declaration - increased to 46 cents per quarter
The TELUS Board of Directors has declared a quarterly dividend of 46 cents ($0.46) Canadian per share on the issued and outstanding Common Shares of the Company payable on July 4, 2016 to holders of record at the close of business on June 10, 2016.
This second quarter dividend represents a four cent increase from the $0.42 quarterly dividend paid on July 2, 2015 and is the eleventh dividend increase since TELUS announced its original multi-year dividend growth program in May 2011. Over this period, TELUS’ dividend is higher by 75 per cent.
TELUS announces intention to extend multi-year dividend growth and share purchase programs
TELUS announced its intention to target ongoing semi-annual dividend increases, with the annual increase in the range of seven to 10 per cent from 2017 through to the end of 2019. This announcement further extends TELUS’ multi-year dividend growth program originally announced in May 2011 and initially extended in May 2013 and provides investors with ongoing clarity with respect to TELUS’ dividend growth model.
Notwithstanding this target, dividend decisions will continue to be subject to our Board’s assessment and the determination of our financial situation and outlook on a quarterly basis. Our long-term dividend payout ratio guideline is 65 to 75 per cent of prospective net earnings. There can be no assurance that we will maintain a dividend growth program through 2019.
TELUS also announced its intention to renew its normal course issuer bid (NCIB) program in each year of the next three years in order to permit purchases for up to $250 million in each such calendar year. This announcement extends TELUS’ share purchase program originally announced in May 2013. There can be no assurance that TELUS will complete its 2016 NCIB or that it will renew and complete its NCIB program in each of the next three years as these decisions depend on the assessment and determination of TELUS’ Board of Directors from time to time on the basis of TELUS’ financial position and outlook.
TELUS to expand wireless customer base in Manitoba
TELUS has reached an agreement in principle with Bell Canada Enterprises (BCE) that will see approximately one-third of Manitoba Telecom Services (MTS) postpaid wireless customers become TELUS customers once the purchase of MTS by BCE concludes. As part of the agreement, Bell will also assign one-third of MTS’ dealer locations in Manitoba to TELUS. Thanks to the skill and passion of our team members, TELUS has earned one of the world’s best levels of customer loyalty. TELUS intends to bring the same outstanding customer service it offers across Canada to the benefit of clients in Manitoba. The agreement is subject to approval from the Competition Bureau and other conditions.
TELUS announces Baring Private Equity Asia to acquire 35 per cent stake in TELUS International; agreement with Baring Private Equity Asia values TELUS International at $1.2 billion
TELUS has entered into an agreement with Baring Private Equity Asia, an Asian-based investment firm which advises funds that manage over $13 billion (U.S.$10 billion) in assets, for it to acquire a 35 per cent non-controlling interest in TELUS International (TI), a global provider of customer service, IT and business process outsourcing services. The agreement values TI at $1.2 billion. Through this collaboration, TI is well positioned to leverage Baring Private Equity Asia’s deep Asian markets presence and worldwide experience, and tap into its global network in order to further expand TI’s operations. In addition, this transaction will allow TELUS to direct substantial capital to investments throughout Canada, including the expansion of its fibre-optic network to more communities, its advanced wireless network and the support of healthcare. TELUS will retain majority ownership and control of TI and does not expect significant changes in the support it provides to TI, including services such as facilities, network, IT, branding and media support. In connection with the transaction, TELUS has also arranged an incremental $425 million in bank financing, which is secured by assets of TI and its subsidiaries, expires in 2021 and is non-recourse to TELUS Corporation. Through this transaction and the incremental debt within TI, TELUS will receive proceeds of approximately $600 million. The agreement is subject to customary closing conditions.
This news release contains statements about financial and operating performance of TELUS (the Company) and future events, including with respect to future dividend increases and normal course issuer bids through 2019, the 2016 annual targets and guidance, the proposed purchase of MTS by BCE and the transfer of a certain portion of MTS’ postpaid wireless subscribers and retail locations to TELUS (the “Transaction”) and the agreement between TELUS International and Baring Private Equity Asia (the “TI-Baring Transaction”) that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There can be no assurance that the conditions to closing of the MTS-BCE transaction will be satisfied, including, without limitation, the relevant regulatory approvals or that the conditions to closing of the Transaction will be satisfied or that the associated benefits for TELUS shareholders and customers of the Transaction will be realized or that the Transaction will occur on the terms contemplated in this news release. Furthermore, there can be no assurance that the conditions to closing of the TI-Baring Transaction will be satisfied, that the associated benefits of the transaction for TELUS shareholders and customers will be realized or that growth plans for TELUS International will be realized. There is significant risk that the forward-looking statements will not prove to be accurate. The forward-looking statements contained in this news release describe our expectations at the date of this news release and, accordingly, are subject to change after such date. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for the 2016 annual targets and guidance, semi-annual dividend increases through 2019 and our ability to sustain and complete our multi-year share purchase program through 2019), qualifications and risk factors referred to in the accompanying first quarter Management’s discussion and analysis and in the 2015 annual report, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.
First Quarter 2016 Operating Highlights
TELUS wireless
• Wireless network revenues increased by $38 million or 2.5 per cent to $1.6 billion in the first quarter of 2016, when compared to the same period a year ago. This growth was driven by an 8.3 per cent increase in data revenue due to subscriber growth, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and higher data usage, partially offset by the effects of the economic slowdown, particularly in Alberta, and ongoing decline in voice revenue from increased adoption of unlimited nationwide voice plans.
• Blended ARPU increased by 1.2 per cent to $63.08, TELUS’ twenty-second consecutive quarter of year-over-year growth.
• Monthly postpaid subscriber churn of 0.97 per cent increased 6 basis points year-over-year. The increase reflects increased competitive intensity resulting from two-year and three-year customer contracts expiring simultaneously starting in June 2015, as well as the effects of the economic slowdown, particularly in Alberta. Blended monthly churn improved two basis points to 1.26 per cent reflecting an increasing proportion of postpaid subscribers in the subscriber base and TELUS’ continued focus on customers first initiatives and retention programs.
• Postpaid net additions of 8,000 were lower year over year by 29,000 due to lower gross additions resulting primarily from the economic slowdown, particularly in Alberta, moderating growth in postpaid market penetration, higher competitive intensity, the effect of higher handset and rate plan prices on customer demand and higher churn. Total wireless net losses were 25,000 compared to net additions of 8,000 a year ago reflecting lower postpaid net additions and higher prepaid losses of 33,000
• Wireless EBITDA excluding restructuring and other costs increased by $15 million or 2.0 per cent over last year to $765 million as network revenue growth and operational efficiency initiatives were partially offset by higher retention costs and increased external labour and distribution channel expenses. Retention costs as a percentage of network revenue were 13.5 per cent, reflecting a $26 million increase over the same period a year ago, as higher subsidy costs reflecting the continued customer preference for more expensive smartphone devices were partly offset by lower retention volumes.
• Wireless EBITDA excluding restructuring and other costs less capital expenditures increased year over year by $83 million to $585 million due to higher EBITDA and lower capital expenditures.
TELUS wireline
• External wireline revenues increased by $50 million or 3.7 per cent to $1.4 billion in the first quarter of 2016, when compared with the same period a year ago. This growth was generated primarily by higher data service and equipment revenue.
• Data service and equipment revenues increased by $90 million or 10 per cent, due to growth in business process outsourcing services, higher Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, higher TELUS TV revenues from continued subscriber growth, and increased TELUS Health revenues.
• High-speed Internet net additions of 12,000 were down 11,000 from the same quarter a year ago, reflecting increased competitive intensity leading to a higher customer churn rate and lower gross loading in the quarter, and the impact of the economic slowdown on the business market, partly offset by the ongoing expansion of TELUS’ high-speed broadband footprint in urban and rural communities, including fibre to the premises, and the pull-through effect of bundling with Optik TV.
• Total TV net additions of 11,000 were lower by 10,000 over the same quarter a year ago, reflecting a higher customer churn rate, lower gross loading and a decline in satellite subscribers as the effects of slower subscriber growth for paid TV services and increased competitive intensity, including OTT services, were partly offset by ongoing expansion of TELUS’ addressable high-speed broadband footprint and increasing broadband speeds.
• Residential network access lines (NALs) declined by 26,000 in the quarter compared to a loss of 20,000 in the same quarter a year ago. Residential NAL losses continue to reflect the ongoing trend of wireless and Internet substitution, partly offset by the success of TELUS’ bundling strategy.
• Wireline EBITDA excluding restructuring and other costs of $423 million increased by $21 million or 5.1 per cent year-over-year. The improvement reflects growth in operating revenues, improving margins in data services, including Internet, business process outsourcing services, TELUS TV, and TELUS Health, as well as ongoing operating efficiency initiatives.
• Wireline EBITDA excluding restructuring and other costs less capital expenditures decreased by $30 million to $(15) million as higher EBITDA excluding restructuring and other costs was more than offset by higher capital expenditures that support TELUS’ long-term growth. Capital expenditures increased over the same period last year due to continued strategic investments in broadband network infrastructure, including connecting more homes and businesses directly to TELUS’ fibre optic network and investments in system and network resiliency and reliability.
Corporate Highlights
TELUS makes significant contributions and investments in the communities where team members live, work and serve and to the Canadian economy on behalf of customers, shareholders and team members by:
• Paying, collecting and remitting a total of $689 million in taxes during the first quarter of 2016 to federal, provincial and municipal governments in Canada consisting of corporate income taxes, sales taxes, property taxes, employer portion of payroll taxes and various regulatory fees. Since 2000, the Company has remitted more than $19 billion in these taxes.
• Disbursing spectrum renewal fees of $53 million to Innovation, Science and Economic Development Canada (formerly Industry Canada) during the first quarter of 2016. Since 2002, TELUS’ total tax and spectrum remittances to federal, provincial and municipal governments in Canada have totaled over $23 billion.
• Investing $618 million in capital expenditures primarily in communities across Canada in the first quarter of 2016 and more than $29 billion since 2000.
• Spending $1.8 billion in total operating expenses in the first quarter of 2016, including goods and service purchased of $1.2 billion. Since 2000, TELUS has spent $93 billion and $61 billion respectively in these areas.
• Generating a total team member payroll of $706 million in the first quarter of 2016, including payroll taxes of $58 million. Since 2000, total team member payroll totals $37 billion.
• Paying $263 million in dividends in the first quarter of 2016 to individual shareholders, mutual fund owners, pensioners and institutional investors, and purchasing 1.3 million shares for $50 million on behalf of shareholders under TELUS’ multi-year share purchase program.
• Returning $13 billion to shareholders through TELUS’ dividend and share purchase programs from 2004 to the end of April 2016, including $7.9 billion in dividends and $5.1 billion in share buybacks, representing nearly $22 per share.
About TELUS
TELUS (TSX: T, NYSE: TU) is Canada’s fastest-growing national telecommunications company, with $12.6 billion of annual revenue and 12.4 million subscriber connections, including 8.4 million wireless subscribers, 1.4 million residential network access lines, 1.6 million high-speed Internet subscribers and 1.0 million TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video, and is Canada's largest healthcare IT provider.
In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed $440 million to charitable and not-for-profit organizations and volunteered more than 6.8 million hours of service to local communities since 2000. Created in 2005 by President and CEO Darren Entwistle, TELUS’ 11 Canadian community boards and 4 International boards have led the Company’s support of grassroots charities and have contributed more than $54 million in support of over 4,900 local charitable projects, enriching the lives of more than 2 million children and youth, annually. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition.
For more information about TELUS, please visit telus.com.
Media relations:
Shawn Hall
(604) 619-7913
shawn.hall@telus.com
Investor relations:
Paul Carpino
(647) 837-8100
ir@telus.com
Access to Quarterly results information
Interested investors, the media and others may review this quarterly earnings news release, management’s discussion and analysis, quarterly results slides, audio and transcript of the investor webcast call, supplementary financial information, and our full 2015 annual report at telus.com/investors.
TELUS’ first quarter 2016 conference call is scheduled for May 5, 2016 at 3:00pm ET (12:00pm PT) and will feature a presentation followed by a question and answer period with investment analysts. Interested parties can access the webcast at telus.com/investors. A telephone playback will be available on May 5 until June 15, 2016 at 1-855-201-2300. Please use reference number 1196520# 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.