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TELUS Reports $285 Million Profit in Third Quarter 2008
Friday, November 7, 2008
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Vancouver, BC, November 7, 2008--(T-Net)--TELUS Corporation today reported its financial results for the third quarter of 2008, including revenue of $2.4 billion, a six per cent increase from a year ago. Wireless revenue grew nine per cent based on record year to date subscriber growth while wireline revenue grew four per cent driven by data growth. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted, decreased 0.6 per cent when compared to the same period a year ago due to higher costs including those supporting subscriber growth and implementing service for new large enterprise customers.
Net income in the quarter was $285 million and earnings per share (EPS) were $0.89, down 30 per cent and 28 per cent, respectively, compared to the same period in 2007. The third quarter of 2007 included favourable income tax-related adjustments of $93 million or 28 cents per share while the third quarter of 2008 includes an unfavourable after-tax adjustment for a provincial sales tax reassessment relating to prior years of approximately $8 million, or two cents per share. Excluding tax-related adjustments and the impact of adopting the net-cash settlement feature for options in 2007 and 2008, net income and EPS were lower by 5.3% and 4.2%, respectively.
Free cash flow of $452 million, excluding the payment for AWS spectrum licenses, decreased 10 per cent driven primarily by higher capital expenditures, lower EBITDA and higher interest and restructuring payments. Free cash flow including the $882 million payment for spectrum was negative $430 million. During the third quarter TELUS continued to repurchase shares under its normal course issuer bid, buying 1.97 million shares for $75 million.
Darren Entwistle, TELUS president and CEO said, "The third quarter saw continued revenue growth generated by our national strategy focused on data and wireless, highlighted by record wireless subscriber loading and excellent wireless data revenue growth."
Mr. Entwistle stated, "TELUS continues to progress investments that are strategic in nature but dilutive to earnings and cash flow in the near term. These investments are key to growing shareholder value over the longer term and includes launching a new basic wireless service under the Koodo brand, rolling out TELUS TV and implementing large, managed data network contracts for corporate and public sector clients. TELUS is determined to offset the costs associated with these strategic programs as well as the cash consumed by the advanced wireless spectrum auction and our recent wireless technology evolution to LTE (4G). Therefore, TELUS is augmenting its operating efficiency program to materially and sustainably rationalize costs over the remainder of 2008 and into 2009 and beyond. To this end, we are increasing our restructuring costs for 2008 by $20 million to $50 million."
Robert McFarlane TELUS executive vice president and CFO said, "As a result of prudent financial policies and stewardship, TELUS has maintained a strong balance sheet with ample liquidity and an enviable debt maturity profile. Traditional sources of capital have consistently been open and available to TELUS throughout the recent period of capital market volatility. The combination of our strong financial situation with confidence in our future prospects is the basis for the Board decision announced today to increase the TELUS dividend for the fifth consecutive year."
Full year 2008 guidance has been revised to reflect year to date results and an increase in the expected restructuring costs related to ongoing operating efficiency program initiatives.
OPERATING HIGHLIGHTS
TELUS wireless
- External revenues increased by $96.5 million or 8.7% to $1.2 billion in the third quarter of 2008, compared with the same period in 2007
- Wireless data revenue increased $65 million or 56% due to the continued adoption of full function smartphones and increased adoption of data services such as text messaging and e-mail
- ARPU (average revenue per subscriber unit per month) declined by 1% to $64.14 compared to the same quarter a year ago, but was up sequentially from the second quarter of 2008 by $1.41. The fast-growing data component of $10.19, represented 16% of ARPU, while the voice component continued to decline as a result of pricing pressure, lower Mike service ARPU, use of included-minute rate plans, subscriber loading from the new basic Koodo Mobile service and lower inbound roaming
- Total wireless subscriber base reached the 6 million milestone. Normalized net subscriber additions increased by 32% to 176,900 from the same quarter in 2007, a TELUS third quarter record. Postpaid net additions were 158,500, an increase of 61%, while net prepaid loading decreased to 18,400. When including the impact of the analogue network turndown, net additions increased 11% to 149,300. These results include those from TELUS' postpaid Koodo service launched in March 2008
- EBITDA as adjusted of $525 million increased slightly by $2 million over the third quarter of 2007, as increased network revenue was offset by higher cost of acquisition expense and network and other expenses to support the 11% growth in the wireless subscriber base, higher data revenue and the launch of the Koodo basic service brand. Retention expenses increased due to higher retention volumes and continued increases in smartphone adoption
- Cost of acquisition per gross addition decreased 10% year-over-year to $341 reflecting slightly higher advertising and promotions costs spread over the 23% increase in gross additions, a higher proportion of new subscribers from lower cost distribution channels and efficient marketing spending on a per-unit basis
- Normalized blended monthly subscriber churn increased slightly to 1.52% from 1.43% a year ago, excluding 27,600 deactivations from the analogue network turndown this quarter
- Simple cash flow (EBITDA as adjusted less capital expenditures) increased slightly by $1.2 million to $393 million in the quarter due to relatively flat EBITDA as adjusted and continued low level of capital spending.
TELUS wireline
- External revenues increased by $43 million or 3.6% to $1.25 billion in the third quarter of 2008, when compared with the same period in 2007, as data growth more than offset the moderate declines in local and long distance revenues
- Data revenues increased by $69 million or 16% due to revenues from the two January acquisitions (Emergis and Fastvibe), increased enhanced data and hosting services, as well as high-speed Internet subscriber growth. When adjusted for the two acquisitions and a regulatory adjustment in the third quarter of 2008, underlying data growth was approximately 4%
- TELUS added 13,300 net high-speed Internet subscribers, a 58% decrease from a year ago, due to increased competition and a maturing market
- EBITDA as adjusted of $449 million declined by $7.4 million or 1.6% due primarily to increased cost of sales for TELUS TV and upfront costs for implementing large complex enterprise customer services and higher restructuring costs
- Network access lines (NALs) declined by 43,000 in the quarter, and 3.6% from a year ago. Consistent with experience in recent years, residential NAL losses were due to ongoing competitive activity and wireless substitution, partially mitigated by an increase in business access lines
- Simple cash flow (EBITDA as adjusted less capital expenditures) decreased $45 million to $109 million in the quarter due to lower EBITDA and a $37 million increase in capital expenditures. The increase in capital primarily relates to supporting new enterprise and broadband service customers
Corporate Developments
TELUS announces next generation network build
TELUS recently announced its commitment to Long Term Evolution (LTE) as the technology for its fourth generation wireless broadband network. In October, the Company announced it was beginning the immediate construction of a national next generation wireless network based on HSPA (high speed packet access) technology with service to be launched by early 2010. The HSPA network is expected to augment TELUS' existing wireless service portfolio and position the Company for a smoother future transition to LTE. The benefits of the investment in HSPA are expected to include: increased international roaming, access to increased global roaming revenues, fast network speeds, more devices and lower handset costs over time due to the larger HSPA device ecosystem, and lower network development and ongoing operating costs. TELUS plans to operate and support its CDMA and iDEN networks for the foreseeable future.
TELUS also announced it has entered into an HSPA network sharing agreement with Bell Canada, using existing 1900 MHz and 850 MHz spectrum. This agreement builds on and enhances an agreement signed in 2001 and is expected to enable TELUS to lower the cost, accelerate deployment of the next generation wireless voice and data services on a national basis, optimize cell-site utilization, and maximize potential operating efficiencies. Initial capital expenditures for the new network are included in TELUS' original capital expenditure guidance of approximately $1.9 billion for 2008. For 2009, TELUS expects total wireless capital expenditures, including those related to the HSPA network, of approximately $750 million, which would be temporarily higher than historic annual levels.
AWS spectrum developments
In early September, each of the successful Advanced Wireless Services (AWS) spectrum auction bidders, including TELUS, were required to make full payment for the licences, and demonstrate compliance with Canadian ownership requirements. In total, TELUS paid Industry Canada $882 million for the licences and related auction charges financed through a combination of a draw down on its credit facilities and cash on hand. Industry Canada is expected to turn over the licences to respective spectrum auction winners following an eligibility review process.
TELUS expects to face new competition in the future as a result of this auction. Notwithstanding, the number, geographic coverage, and timing of launch of new entrants remain to be determined.
TELUS invests in Quebec to open greenest Internet data centre
In October, TELUS announced an investment of more than $33 million in the company's greenest Internet data centre (IDC), which will be located in Laval, Quebec. IDCs are highly secure buildings housing extremely powerful computer servers hosting data on behalf of clients around the world. TELUS currently operates eight interconnected IDCs across Canada, each serving as a secure platform for providing Managed Information Technology (IT), Unified Communications and Contact Centre Solutions.
TELUS' newest IDC in Laval is expected to be a 44,500 square foot facility connected to six mega-volt-amps of power, equivalent to the needs of more than 5,000 homes. To counter the heat generated by the computer servers, its high-density power design and efficient heat exchange system will turn Quebec's cold climate into "free cooling" during two thirds of the year. Large, highly efficient air conditioning units will be used when "free cooling" is unavailable. The state-of-the-art facility is being designed according to the Leadership in Energy and Environmental Design (LEED) standards. Retrofitting of the existing structure has begun and hosting new clients will begin in 2010.
TELUS TV now available in high definition in Eastern Quebec
TELUS is pleased to announce the availability of its high definition television service to all TELUS TV users in Eastern Quebec. Thanks to an exceptional sound and image quality, an innovative, user-friendly interactive guide, and access to 25 high definition channels, TELUS subscribers can enjoy a larger-than-life TV experience.
City of Vancouver awards TELUS IP telephony system contract
The City of Vancouver awarded TELUS a $7 million contract to supply, install and support the City's new IP telephony system and contact centre suite. TELUS' system will support 200 city sites including City Hall, the 311 Contact Centre, the Vancouver Police Department, the Vancouver Fire and Rescue Department, the Vancouver Board of Parks and Recreation, and the Vancouver Public Library. TELUS was awarded the contract after an extensive RFP review process. Implementation is expected to be complete in 2011.
TELUS selected to provide Keal Technology with data management services
TELUS and Keal Technology have signed a $3 million agreement whereby TELUS Internet data centres will manage Keal's data technology solutions, providing increased information security and efficiency for both Keal and its clients. Since 2003, Keal has created and maintained numerous hosted data sites acting as an Application Service Provider for brokers throughout Canada. With the demand for hosted solutions increasing, Keal chose to outsource and consolidate its hosting services through TELUS to achieve increased stability and redundancy for its clients. Keal has already begun migrating clients to TELUS, and expects to be complete by year-end. Initially, TELUS will host more than 500 Keal users with capacity for future expansion
TELUS launches advanced business centre in Toronto
In October, TELUS announced the launch of the new TELUS Business Centre at the Toronto Board of Trade. The Business Centre will provide local businesses with advanced communications solutions such as work stations, thin-client computers, access to video and audio conferencing, and printing facilities to help them optimize operations and grow their business. The Business Centre will also demonstrate the latest in technology applications for business including GPS and TELUS Visual Voice Mail.
TELUS believes in smartphones for all!
In August, TELUS launched its "smartphone for all" campaign and announced it would be the first North American carrier to offer the HTC Touch Diamond smartphone. When combined with the flexibility of TELUS' affordable rate plans and access to Canada's largest 3G network, TELUS' wide range of smartphones and touchscreen handsets give TELUS clients the freedom to choose the phone reflecting their own needs and lifestyle.
Also in the quarter, TELUS launched TELUS Quick Find, its new search engine for phones operating on the PCS network. Service is available on the HTC Touch dual and MOTORAZR VE20, with more devices scheduled to launch in the near future. TELUS also launched the Samsung Instinct, the LG KEYBO, the LG Dare, and the LG Voyager.
TELUS launching Blackberry Storm smartphone
TELUS announced that it expects to offer customers Research In Motion's first touchscreen device, the BlackBerry(R) Storm 9530 smartphone, in time for the holiday season. The Storm is the world's first BlackBerry smartphone delivering a high resolution display with an innovative, clickable touchscreen giving users precise and responsive text input. It promises to deliver a rich multimedia experience combined with the excellent communications experience expected from BlackBerry smartphones - email, messaging, reliability, security. The BlackBerry Storm smartphone is a world edition device, so it can be used almost everywhere customers travel.
Clients interested in learning more about the BlackBerry Storm 9530 from TELUS can visit and register online at www.telus.com/storm.
New contract ratified by members of the Syndicat des agents de maîtrise de TELUS
A majority of the members of the Syndicat des agents de maîtrise de TELUS (SAMT) voted to accept the Memorandum of Agreement reached with TELUS on July 4, 2008. The SAMT represents more than 500 TELUS team members employed in professional and supervisory positions working in the Lower Saint Lawrence, the Gaspé, Montreal, Quebec, Sainte-Marie, Saint-Georges, Baie-Comeau and Sept-Iles regions. Under the terms of the new contract, SAMT members will enjoy a progressive performance bonus increase based on meeting personal and corporate objectives and more flexible insurance coverage. The terms of the new collective agreement will remain in effect until December 31, 2011.
TELUS creating jobs in Quebec
In order to continue offering superior client care to its growing customer base across Canada, TELUS announced the creation of 149 new jobs in the Quebec technical support team. The wide array of TELUS wireless phones and the diverse functions they offer call for advanced technical skills and specialized training for technicians assisting customers. TELUS will therefore also be investing more than $1.6 million in a value-added training program, $405,000 of which will come from Emploi-Québec. Emploi-Québec's support will go toward improving TELUS' training to increasingly incorporate a greater number of interactive and multimedia tools.
TELUS World Skins Game to be held in Quebec's capital region in
June, 2009
TELUS will host elite golfers from around the globe next June when the TELUS World Skins Game is played at La Tempête Golf Club in the Quebec City region. Next year's game should improve the quality of life for thousands of sick kids for years to come as the money raised during the event will support Opération Enfant Soleil, an organization that invests in the development of quality paediatric care in Quebec. The charity will use the money raised to equip the Centre hospitalier universitaire de Québec's Centre mère-enfant's surgical unit with the latest in multimedia technology to facilitate complex pediatric heart surgeries. This will be the popular Canadian golf event's first visit to the Quebec City region in its 16-year history.
TELUS hooks up with the Quebec City Remparts hockey club
TELUS became a major partner and the official provider of telecommunications services to the Québec City Remparts hockey club for the next three years. TELUS has been supporting junior hockey in Quebec for eight years through its partnerships with the Québec Major Junior Hockey League (QMJHL), the Montréal Junior, the Rimouski Océanic, the Baie-Comeau Drakkar and, now, the Québec City Remparts. Remparts games, like all those of the QMJHL, may be viewed free of charge, live or delayed, on telus.com/lhjmq. Québec City Remparts ring tones and images are available exclusively to TELUS wireless subscribers.
Awards/Recognition
TELUS annual report ranked No. 3 in world
TELUS was recognized for having produced one of the best annual reports in the world, according to a global survey of annual reports. The Annual Report on Annual Reports 2008 gave TELUS a rating of A+ (up from last year's A rating) and listed the TELUS report as the third best in the world. TELUS is one of only 25 Canadian companies on the list and the only telecommunications company globally to achieve the A+ rating.
TELUS named to global Dow Jones Sustainability Index for eighth year
For eight years in a row TELUS has been listed on the North American and World Dow Jones Sustainability Indexes (DJSI). These indexes recognize companies from around the world that demonstrate operational excellence from a combined economic, social and environmental perspective. TELUS is the only North American telecommunications company and one of only 10 Canadian companies on the World Index. TELUS' overall score improved over last year, placing the company just behind industry leader, BT Group. TELUS scored the highest in the overall economic dimension among industry peers and the areas of corporate citizenship/philanthropy and privacy protection.
TELUS named best in directory assistance
TELUS has been recognized as the top national directory assistance provider in Canada by The Paisley Group. The TELUS Operator Services team's drive for continuous improvement helped it to achieve its best results in three years. TELUS placed first in passed calls, the key benchmark of directory assistance. This measure combines customer fulfillment and customer care to measure whether a customer received correct information while being treated in a professional manner by call answer agents. The Paisley Group, a directory assistance/operator services consulting company, conducts an annual audit of directory customer service.
In addition, TELUS Operator Services also won an "Excellence in Directory Information Services Automation" Award from the Pelorus Group in September. The Pelorus Group is an independent market research and consultancy company in the financial services and telecommunications industries.
Karen Radford named Woman of Distinction by YWCA
Karen Radford, executive vice-president and president of TELUS Québec and TELUS Partner Solutions, was recognized in the Business and Professions category at the Women's Y Foundation's Women of Distinction Gala in September. Radford, who has distinguished herself through her personality and actions in the advancement of women and the enrichment of the community, was one of 11 women who made their mark in different sectors of activity in 2008. This award is another in a series of honours bestowed upon Karen in recent years, recognizing her leadership and her support for women in business and in the community. This Gala is one of the principal sources of fundraising for the Women's Y Foundation, and it raised $230,000 to help finance programs offered to the 36,000 Montreal women who use the YWCA services each year.
TELUS receives videoconferencing award
Consulting firm Frost & Sullivan selected TELUS as the recipient of the 2008 North American Award for Market Leadership in the Canadian videoconferencing services market. Each year Frost & Sullivan presents this award to the company that has exhibited market share leadership through the implementation of market strategy. TELUS has consistently had excellent results in terms of market share, revenues, installed base, and breadth of solution offerings in this fast evolving market.
Community investment
TELUS and Opération Enfant Soleil: partnering for a healthy Quebec
TELUS has again made a commitment to Opération Enfant Soleil to support the development of quality pediatric care and to contribute to social intervention projects for children across Quebec. As a major partner of Opération Enfant Soleil since 1998, TELUS has committed to donate more than $375,000 to the organization by the end of 2010. This new contribution will bring TELUS' total donation to more than $1.1 million since the partnership was formed.
General Rick Hillier named chair of new TELUS Atlantic Canada Community Board
Through a newly created TELUS Atlantic Canada Community Board, TELUS team members and Atlantic Canada community leaders will collaborate to donate $250,000 to local charities each year on TELUS' behalf. General Rick Hillier will be the Chairman of the Board, working with TELUS and the Board members to develop a charitable giving and community program in Atlantic Canada. Local charitable organizations are invited to apply for up to $20,000 in one-time funding for projects in the areas of health and well-being in our environment, education and sport, and arts and culture, with a focus on young Canadians and the innovative use of technology.
The TELUS Atlantic Canada Community Board is part of a national philanthropic program that now includes nine TELUS community boards across Canada. Since their inception in 2005, the TELUS Community Boards have allocated $11.5 million to local charities, supporting more than 800 community projects.
TELUS technology helps to preserve 32 B.C. First Nations' languages
FirstVoices is an online archive that brings First Nations' youth and elders together to keep their languages and cultures vibrant and accessible for future generations. The site's administrator, the First Peoples' Council, is working with TELUS to create more than 225 short video clips illustrating phrases and words of everyday activities. Once integrated into FirstVoices this winter, the video clips will provide valuable visual cues to assist language learners with the meanings of verbs and phrases. TELUS has funded the entire $25,000 budget of this project for FirstVoices and hired two First Nations youths as apprentices during the production process.
Dividend Declaration - fifth increase in five years
The Board of Directors has declared a quarterly dividend of forty-seven and one half cents ($0.475) Canadian per share on the issued and outstanding Common shares and forty-seven and one half cents ($0.475) Canadian per share on the issued and outstanding Non-Voting shares of the Company payable on January 2, 2009 to holders of record at the close of business on December 11, 2008.
This quarterly dividend represents a two and one half cent (10 cents annualized) or 5.6 per cent increase from the $0.45 quarterly dividend paid on January 1, 2008. This is the fifth annual increase in five years.
About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with $9.5 billion of annual revenue and 11.5 million customer connections including 6 million wireless subscribers, 4.3 million wireline network access lines and 1.2 million Internet subscribers. TELUS provides a wide range of communications products and services including data, Internet protocol (IP), voice, entertainment and video. Committed to being Canada's premier corporate citizen, we give where we live. Since 2000, TELUS and our team members have contributed $113 million to charitable and not-for-profit organizations and volunteered more than 2.1 million hours of service to local communities. Nine TELUS Community Boards across Canada lead our local philanthropic initiatives. For more information about TELUS, please visit telus.com.
For further information
Media relations: Allison Vale, (416) 629-6425, allison.vale@telus.com
Investor relations: Robert Mitchell, (416) 684-3219, ir@telus.com
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