TELUS Reports Strong Results for First Quarter 2018 - Consolidated Revenue Increased 6% to $3.4 Billion in Q1Tuesday, May 15, 2018
Consolidated revenue and EBITDA growth of 6.0 per cent and 5.2 per cent respectively; Free cash flow of $443 million, up 104 per cent over last year
Strong customer growth including 76,000 new postpaid wireless, Internet and TV customer additions
Burnaby, BC, May 15, 2018--(T-Net)--TELUS Corporation today released its unaudited results for the first quarter of 2018 that reflect the January 1, 2018 adoption of IFRS 15, Revenue from contracts with customers (IFRS 15) and IFRS 9, Financial Instruments (IFRS 9).
Results for the comparative periods in 2017 have been adjusted to reflect the retrospective application of IFRS 15 and IFRS 9. The effects of IFRS 15 are most pronounced in our wireless and consolidated results, while IFRS 9 does not currently have a material effect on our financial performance. See note 2 in the 2018 first quarter interim consolidated financial statements for a full description and breakdown of the associated impacts.
For the quarter, consolidated operating revenue increased by 6.0 per cent to $3.4 billion in the first quarter of 2018, over the same quarter a year ago, primarily due to higher consolidated service revenues, reflecting continued growth in wireless network revenue and wireline data services revenue.
Earnings before interest, income taxes, depreciation and amortization (EBITDA) increased by 2.7 per cent to $1.3 billion due to higher service revenue growth, partially offset by increased costs to support higher wireless gross loading and retention volumes as well as from increased employee benefits expense due to recent acquisitions. Adjusted EBITDA was up 5.2 per cent when excluding restructuring and other costs. Excluding the effects of IFRS 15, consolidated revenue and adjusted EBITDA were higher by 6.2 per cent and 4.7 per cent respectively.
Darren Entwistle, President and CEO, TELUS
"TELUS' first quarter results reflect strong operational and financial performance, including healthy revenue and EBITDA expansion across both our wireless and wireline product portfolios in concert with robust customer growth", said Darren Entwistle, President and CEO.
"Our continued strong performance is owing in no small part to the TELUS team's unparalleled dedication to providing consistently exceptional customer experiences. We once again achieved industry-leading wireless churn, and we are now in our fifth year of earning a churn rate below one per cent. Our leadership in customer loyalty was further evidenced by the Commission for Complaints for Telecom-Television Services mid-year report, released in April, in which TELUS received the fewest complaints of any national carrier for the sixth consecutive year. This unrelenting commitment to our Customers First promise is buttressed by our highly differentiated product offerings, as well as the ongoing significant investments we are making in our leading broadband networks and technology. Notably, TELUS once again ranked number one in overall wireless download speeds on a national basis, and amongst the very fastest globally, in the 2018 OpenSignal report released in February. This acknowledgement builds on the significant recognition and numerous awards TELUS received in 2017 in respect of our network excellence."
Mr. Entwistle added, "Our team achieved an important milestone in the first quarter as we surpassed 50 per cent coverage of our Optik footprint with our broadband network build program. This ongoing expansion will enable more customers to access our leading fibre technology while supporting the continued sustainable growth of our wireline and wireless services, including the advent of 5G. Through the success of our broadband investments, we have demonstrated our ability to consistently drive long-term growth in revenue, EBITDA and EPS, while simultaneously delivering on our dividend growth model and maintaining a robust balance sheet."
Mr. Entwistle further commented, "Our dividend increase announced today reflects the fifteenth increase since 2011, and is the third in our most recent three-year dividend growth program targeting annual growth between seven and 10 per cent through 2019. Our track record of delivering on our industry-leading, shareholder-friendly initiatives continues to generate significant value for our shareholders. Notably, TELUS has now returned $15.4 billion to shareholders, including $10.2 billion in dividends, representing $26 per share since 2004."
Doug French, TELUS Executive Vice-President and CFO said, "Together, through our team's consistent execution of our growth strategy, TELUS once again delivered strong quarterly performance on both a pre and post IFRS 15 accounting change basis. Importantly, this includes free cash flow, which is not impacted by the accounting change, and which expanded by a strong 104 per cent over last year. This is on strategy and in line with our previously stated objective to be free cash flow positive after dividends for the year in 2018, after passing the peak year in our elevated capital investment program last year, and as our broadband network build passes the half-way fibre-optic coverage threshold."
Mr. French added, "Our thoughtful investments in advanced broadband technologies and customer service excellence continue to advance our network leadership and differentiated value proposition. Our long-standing focus on building leading networks and relentless focus on operational efficiency, combined with maintaining a strong balance sheet, is fueling strong and profitable growth while supporting our leading and long-standing dividend growth program."
In wireless, our network revenue increased by 4.0 per cent to $1.5 billion, reflecting continued postpaid subscriber growth, including subscribers we acquired from Manitoba Telecom Services (MTS), and a higher proportion of customers selecting plans with larger data buckets or periodically topping up their data buckets.
In wireline, our data services revenue increased by 9.8 per cent to $1.1 billion, due to growth in customer care and business service (CCBS) outsourcing revenues primarily due to growth in business volumes from recent acquisitions, increased Internet and enhanced data service revenues from continued high-speed Internet subscriber growth and higher revenue per customer, higher TELUS TV revenues from subscriber growth, increased equipment revenues in the business market and revenues from our recently acquired home security business.
In the quarter, we attracted 76,000 new postpaid wireless, high-speed Internet and TELUS TV customers, essentially flat over the same quarter a year ago. The higher net additions included 48,000 wireless postpaid net additions, 22,000 high-speed Internet subscribers, and 6,000 TELUS TV customers. Our total wireless subscriber base of 8.9 million is up 4.0 per cent from a year ago, reflecting a 5.7 per cent increase in our postpaid subscriber base to 8.0 million. Our high-speed Internet connections are up 4.7 per cent over the last twelve months and approaching 1.8 million, while our TELUS TV subscriber base of 1.1 million is higher by 3.2 per cent.
For the quarter, net income of $412 million decreased by $10 million over the same period a year ago due to a $30 million increase to restructuring and other costs driven by efficiency initiatives, increased financing costs, as well as higher income taxes reflecting an increase to the B.C. corporate income tax rate. Basic earnings per share (EPS) of $0.69 was essentially unchanged over last year. Adjusted net income of $435 million and adjusted EPS of $0.73 increased by 4.1 per cent and 2.8 per cent respectively as EBITDA growth was partially offset by higher depreciation and amortization reflecting the significant investments we have made in the past few years, including our broadband networks, as well as those arising from business acquisitions.
Free cash flow of $443 million increased by $226 million over the same quarter a year ago due to lower cash taxes, a decline in capital expenditures and higher EBITDA. The application of IFRS 15 reflects a non-cash accounting change. As such, the underlying economics and free cash flow generated by the business are not impacted by the change.
CONSOLIDATED FINANCIAL HIGHLIGHTS
|C$ and in millions,
except per share amounts
|Three months ended
|Operating expenses before depreciation and amortization||2,108||1,948||8.2|
|Adjusted net income(4)||435||418||4.1|
|Net income attributable to common shares||410||414||(1.0||)|
|Adjusted basic EPS(4)||0.73||0.71||2.8|
|Capital expenditures (excluding spectrum licences)||650||724||(10.2||)|
|Free cash flow(5)||443||217||104.1|
|Total subscriber connections(6)||13,067||12,683||3.0|
|(1)||Our results for 2017 have been adjusted to reflect the retrospective application of IFRS 15 and IFRS 9, which were adopted January 1, 2018. For further information, see the 2018 first quarter interim consolidated financial statements.|
|(2)||EBITDA is a non-GAAP measure and does not have any standardized meaning prescribed by IFRS-IASB. TELUS issues guidance on and reports EBITDA because it is a key measure used to evaluate performance. For further definition and explanation of this measure, see 'Non-GAAP and other financial measures' in this news release or Section 11.1 in the 2018 first quarter Management's discussion and analysis.|
|(3)||Adjusted EBITDA for the first quarters of 2018 and 2017 excludes restructuring and other costs.|
|(4)||Adjusted net income and adjusted basic EPS are non-GAAP measures and do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding from net income attributable to common shares and basic EPS (after income taxes), restructuring and other costs. For further analysis of adjusted net income and adjusted basic EPS, see 'Non-GAAP and other financial measures' in this news release or Section 1.3 in the 2018 first quarter Management's discussion and analysis.|
|(5)||Free cash flow is a non-GAAP measure and does not have any standardized meaning prescribed by IFRS-IASB. For further definition and explanation of this measure, see 'Non-GAAP and other financial measures' in this news release or Section 11.1 in the 2018 first quarter Management's discussion and analysis.|
|(6)||The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers, measured at the end of the respective periods based on information in billing and other systems. Effective April 1, 2017, postpaid subscribers, total subscribers and associated operating statistics (gross additions, net additions, average billing per user per month (ABPU), average revenue per subscriber unit per month (ARPU) and churn) were adjusted to include an estimated migration of 85,000 Manitoba Telecom Services Inc. (MTS) subscribers in the opening subscriber balances. Subsequent to this, on October 1, 2017, postpaid and total subscribers and associated operating statistics were adjusted to reduce estimated migrations of MTS subscribers down by 11,000 to 74,000. Cumulative subscriber connections also include an April 1, 2017, adjustment to remove approximately 19,000 prepaid and 25,000 postpaid subscriptions from the respective subscriber bases, primarily due to our national CDMA network shutdown.|
First Quarter 2018 Operating Highlights
TELUS 2018 consolidated financial targets to reflect overlay of IFRS 15
TELUS' consolidated financial targets for 2018, including revenue, adjusted EBITDA and basic earnings per share, are being updated to reflect the adoption of IFRS 15. Importantly, the application of IFRS 15 reflects a non-cash accounting change. As such, the underlying economics and free cash flow generated by the business are not impacted by the change.
|C$ and in billions,
except per share amounts
|Revenues||$13.304||4 to 6%
$13.835 to $14.100
|$13.408||4 to 6%|
|Adjusted EBITDA(1)||$4.891||4 to 7%
$5.105 to $5.230
|$5.005||3 to 6%|
|Basic earnings per share||$2.46||3 to 9%
$2.53 to $2.68
|$2.63||Up to 6%|
|Capital expenditures(2)||$3.094||Approximately $2.85||$3.094||Approximately $2.85|
|1)||Adjusted EBITDA for all periods excludes the following: restructuring and other costs, and net gains and equity income or net losses and equity losses related to real estate joint venture developments. Adjusted EBITDA for 2017 excludes the MTS net recovery. 2018 total restructuring and others costs are expected to be approximately $135 million, as compared to $139 million in 2017.|
|2)||Capital expenditure targets and results exclude expenditures for spectrum licences.|
The disclosure respecting TELUS' 2018 financial targets is forward-looking information and is fully qualified by the 'Caution regarding forward-looking statements' included in this first quarter of 2018 news release and in the 2017 annual Management's discussion and analysis, especially Section 10 entitled 'Risks and Risk Management' thereof which is hereby incorporated by reference, and is based on management's expectations and assumptions as set out in Section 9 of the 2017 annual Management's discussion and analysis entitled 'General trends, outlook and assumptions'. This disclosure updates Section 1.7 entitled 'Financial and operating targets for 2018' of TELUS' fourth quarter 2017 results and 2018 financial targets news release dated February 8, 2018.
The TELUS Board of Directors has declared a quarterly dividend of $0.525 Canadian per share on the issued and outstanding Common Shares of the Company payable on July 3, 2018 to holders of record at the close of business on June 8, 2018.
This second quarter dividend represents an increase of $0.0325 or 6.6 per cent from the $0.4925 quarterly dividend paid on July 3, 2017 and is the fifteenth dividend increase since TELUS announced its original multi-year dividend growth program in May 2011. Over this period, TELUS' dividend is higher by 100 per cent.
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:
Access to Quarterly results information
Interested investors, the media and others may review this quarterly earnings news release, management's review of operations, quarterly results slides, audio and transcript of the investor webcast call, supplementary financial information at telus.com/investors.
Caution regardingforward-looking statements
This 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, our multi-year dividend growth program, and our updated consolidated financial targets for 2018 (revenue, adjusted EBITDA, basic earnings per share and capital expenditures). 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.
Our general outlook and assumptions for 2018 are presented in Section 9 General trends, outlook and assumptions in the Management's discussion and analysis (MD&A) in our 2017 Annual Report and updated in Section 9 Update to general trends, outlook and assumptions and regulatory developments and proceedings in our MD&A for the first quarter of 2018. Our key assumptions for 2018 include the following:
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:
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 2017 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 2018 financial results as well as our objectives, strategic priorities and business outlook. Such information may not be appropriate for other purposes.
This cautionary statement qualifies all of the forward-looking statements in this document.
Non-GAAP and other financial measures
We have issued guidance on and report certain non-GAAP measures that are used to evaluate the performance of TELUS, as well as to determine compliance with debt covenants and to manage our capital structure. As non-GAAP measures generally do not have a standardized meaning, they may not be comparable to similar measures presented by other issuers. Securities regulations require such measures to be clearly defined, qualified and reconciled with their nearest GAAP measure.
Adjusted Net income and adjusted basic earnings per share: These measures are used to evaluate performance at a consolidated level and exclude items that may obscure the underlying trends in business performance. These measures should not be considered alternatives to Net income and basic earnings per share in measuring TELUS' performance. Items that may, in management's view, obscure the underlying trends in business performance include significant gains or losses associated with real estate redevelopment partnerships, gains on the exchange of wireless spectrum licences, restructuring and other costs, long-term debt prepayment premiums (when applicable), income tax-related adjustments and asset retirements related to restructuring activities.
|Reconciliation of adjusted Net income|
|C$ and in millions
||Three months ended
|Net income attributable to Common Shares||410||414||(4||)|
|Restructuring and other costs, after income taxes||25||5||21|
|Adjusted Net income||435||418||17|
|Reconciliation of adjusted basic EPS|
|C$, per share amounts
||Three months ended
|Restructuring and other costs, after income taxes, per share||0.04||0.01||0.03|
|Adjusted basic EPS||0.73||0.71||0.02|
EBITDA (earnings before interest, income taxes, depreciation and amortization): We have issued guidance on and report EBITDA because it is a key measure used to evaluate performance at a consolidated level. EBITDA is commonly reported and widely used by investors and lending institutions as an indicator of a company's operating performance and ability to incur and service debt, and as a valuation metric. EBITDA should not be considered an alternative to Net income in measuring TELUS' performance, nor should it be used as an exclusive measure of cash flow. EBITDA as calculated by TELUS is equivalent to Operating revenues less the total of Goods and services purchased expense and Employee benefits expense.
We also calculate Adjusted EBITDA to exclude items of an unusual nature that do not reflect our ongoing operations and should not, in our opinion, be considered in a valuation metric, or should not be included in an assessment of our ability to service or incur debt.
|Reconciliation of Adjusted EBITDA|
|C$ and in millions
||Three months ended
|Amortization of intangible assets||139||130|
|Add back restructuring and other costs included in EBITDA||34||4|
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 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 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. Free cash flow may be supplemented from time to time by proceeds from divested assets or financing activities.
|Calculation of free cash flow|
|C$ and in millions
||Three months ended
|Deduct non-cash gains from the sale of property, plant and equipment||(8||)||(1||)|
|Restructuring and other costs, net of disbursements||(4||)||(46||)|
|Effects of contract asset, acquisition and fulfilment||18||26|
|Items from the condensed interim consolidated statements of cash flows:|
|Net employee defined benefit plans expense||25||21|
|Employer contributions to employee defined benefit plans||(21||)||(22||)|
|Capital expenditures (excluding spectrum licences)||(650||)||(724||)|
|Free cash flow before income taxes||499||363|
|Income taxes paid, net of refunds||(56||)||(146||)|
|Free cash flow||443||217|
TELUS (TSX:T) (NYSE:TU) is Canada's fastest-growing national telecommunications company, with $13.6 billion of annual revenue and 13.1 million subscriber connections, including 8.9 million wireless subscribers, 1.8 million high-speed Internet subscribers, 1.3 million residential network access lines and 1.1 million TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment, video and home security. TELUS is also Canada's largest healthcare IT provider, and TELUS International delivers business process solutions around the globe.
In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed over $525 million to charitable and not-for-profit organizations and volunteered more than 8.7 million hours of service to local communities since 2000. Created in 2005 by President and CEO Darren Entwistle, TELUS' 13 Canadian community boards and 5 International boards have led the Company's support of grassroots charities and have contributed more than $67 million in support of 6,283 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.
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