TELUS reports second quarter 2013 results

News provided by

Aug 08, 2013, 08:45 ET

Strong Consolidated Revenue growth driven by Wireless and Wireline
Normalized EBITDA up 6.5 per cent
Double digit Adjusted Net income and Adjusted EPS growth
Returning $1.175 billion of capital to shareholders through July

VANCOUVER, Aug. 8, 2013 /PRNewswire/ - TELUS Corporation's second quarter 2013 revenue increased by six per cent to $2.83 billion from a year earlier while earnings before interest, taxes, depreciation and amortization (EBITDA) increased by three per cent to $1.0 billion. Normalized EBITDA increased by 6.5 per cent to $1.04 billion. Basic Earnings per share (EPS) declined by two cents to $0.44, however, Adjusted EPS rose 12.5 per cent to $0.54.

The $161 million increase in consolidated revenue was generated by six per cent growth in both wireless and wireline revenue. This strong growth was supported by continued subscriber additions and higher average revenue per unit (ARPU) across all growth services including wireless, Optik TV and high-speed Internet services. Higher consolidated normalized EBITDA reflects growth in both normalized wireless and wireline EBITDA of six and seven per cent, respectively.

TELUS' total customer base of nearly 13.2 million increased by 83,000 customers in the second quarter and reflects the net addition of 100,000 postpaid wireless customers, 31,000 TV subscribers and 13,000 high-speed Internet customers. This was partially offset by the loss of prepaid wireless customers and legacy wireline services. TELUS' total wireless base of 7.7 million is up 3.5 per cent year-over-year, the TELUS TV subscriber base of 743,000 is up 25 per cent and high-speed Internet connections are up six per cent to 1.36 million.

Simple cash flow (EBITDA less capital expenditures) increased $65 million or 15 per cent to $487 million. However, free cash flow of $192 million in the second quarter was down 32 per cent, reflecting accelerated in-year contributions to defined benefit pension plans, as well as higher cash income taxes, as expected.

During the quarter TELUS returned $490 million to shareholders, including $209 million in dividends and $281 million in share purchases. For the seven months ended July 2013, the company has returned $1.175 billion to shareholders, including $639 million in dividend payments and $536 million in share purchases.

FINANCIAL HIGHLIGHTS


C$ and in millions, except per share amounts	Three months ended June 30		per cent
(unaudited)	2013	2012	change
Operating revenues	2,826	2,665	6.1
Operating expenses before depreciation and amortization⁽¹⁾	1,828	1,695	7.8
EBITDA⁽¹⁾⁽²⁾	998	970	2.9
Normalized EBITDA^(1)(2)(3)	1,037	975	6.5
Net income⁽¹⁾	286	299	(4.3)
Adjusted net income⁽¹⁾⁽⁴⁾	354	312	13.5
Basic earnings per share (EPS)⁽¹⁾	0.44	0.46	(4.4)
Adjusted EPS⁽¹⁾⁽⁴⁾	0.54	0.48	12.5
Capital expenditures	511	548	(6.6)
Free cash flow⁽⁵⁾	192	284	(32.4)
Total customer connections⁽⁶⁾	13.16	12.84	2.4

⁽¹⁾	Figures for 2012 have been adjusted for retrospective application of accounting standard IAS 19 Employee benefits (2011).
⁽²⁾	EBITDA does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation, see Section 11.1 in the accompanying 2013 second quarter Management's discussion and analysis (MD&A).
⁽³⁾	Normalized EBITDA does not have any standardized meaning prescribed by IFRS-IASB. This term is defined in this news release as EBITDA excluding Restructuring and other like costs, and the gain net of equity losses related to TELUS Garden residential real estate partnership. For the second quarter of 2013 and 2012 Restructuring and other like costs were $39 million and $13 million, respectively, while the gain net of equity losses related to TELUS Garden was $nil and $8 million, respectively.
⁽⁴⁾	Adjusted net income and Adjusted EPS do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding (after income taxes): 1) Gain net of equity losses related to TELUS Garden residential real estate partnership; 2) Restructuring and other like costs; 3) Long-term debt pre-payment premium; and 4) Income tax-related adjustments. For further analysis of the aforementioned items see Section 1.3 in the accompanying 2013 second quarter MD&A.
⁽⁵⁾	Free cash flow does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation, see Section 11.2 in the accompanying 2013 second quarter MD&A.
⁽⁶⁾	Sum of wireless subscribers, network access lines, total Internet subscribers and TELUS TV subscribers (IPTV and satellite TV). Effective with the second quarter of 2013 and on a prospective basis, machine-to-machine (M2M) subscriptions have been excluded from all subscriber-based measures. Cumulative subscribers include an April 1, 2013 opening balance adjustment to remove approximately 76,000 M2M subscriptions.

Darren Entwistle, TELUS President and CEO said, "TELUS continues to generate strong operating and financial results driven by both the wireless and wireline segments of our business, which is significantly differentiating us from our global peers. Our steadfast focus on making investments in advanced broadband data technology and services coupled with our unwavering commitment to putting customers first continues to enhance the loyalty of our existing client base, attract new customers and generate strong bottom line growth. This is evidenced in our second quarter results that realised 100,000 new postpaid wireless customers, 31,000 additional TV subscribers, 13,000 more high-speed Internet customers and an industry-leading low postpaid wireless churn rate of only 1.03 per cent per month. Revenue and normalized EBITDA growth of more than six per cent were driven by both wireless and wireline and clearly demonstrate the growing robustness of our wireline financial results."

Mr. Entwistle noted, "Supported by our strong cash flow position and balance sheet, we have returned $1.175 billion to our shareholders in the first seven months of 2013 through dividends and share purchases. Additionally, we have recently received regulatory approval to double our share purchase program in 2013 to up to $1 billion or 31.9 million shares. It is our intention, subject to on-going Board assessment, to continue this share purchase program for up to $500 million in 2014, 2015 and 2016 for a total of up to $2.5 billion. These initiatives, coupled with our multi-year 10 per cent annual dividend growth program, are consistent with our goal of providing on-going and superior investment returns to TELUS shareholders. Owing to the excellence of our winning strategy since 2000, TELUS has earned the position of being one of the few companies in the world that can simultaneously make significant investments in broadband technology and client services that underpin our future success and as well, return cash to investors on a material and sustained basis."

Mr. Entwistle added, "Recent reports from the OECD and the CRTC-commissioned Wall Report confirm that Canadians have access to the best quality wireless service in the world, reflecting the significant investments made by TELUS and other Canadian carriers in network coverage and technology. The OECD report ranked Canada first in investment per capita amongst the 34 countries in their study. By contrast, the European Commission recently issued a report that cited that three-quarters of Europeans have no access to the 4G LTE wireless service that is already available to nearly 80 per cent of Canadians. Moreover, Canada's superior investment in wireless technology has led to our country being ranked second in mobile data speeds, surpassing the U.S. and the U.K. by being three to nine times faster, respectively. Finally, these reports show that wireless pricing in Canada falls in the middle compared with its G7 peers across all combinations of voice and data services."

John Gossling, TELUS Executive Vice-President and CFO said "TELUS' robust cash flow, strong financial position and modest debt leverage ratio support our increased return of cash to shareholders while giving TELUS ample flexibility to invest in our business operations and participate in future spectrum auctions. Solid year-to-date results put TELUS on track to achieve our revenue and profitability targets set out for 2013, which we reaffirmed today."

Mr. Gossling added, "The entire TELUS leadership team continues to focus on streamlining our business to focus resources on key growth areas of our business while adapting to declining revenue from traditional phone services. We tripled our restructuring investments to $39 million in the second quarter compared to a year ago and have raised our restructuring estimate for the full year by $25 million to $100 million."

TELUS has reaffirmed its full year 2013 targets on all eight financial metrics announced in mid-February 2013. The Company is increasing its full year 2013 restructuring and other like costs assumption by $25 million to $100 million after recording $50 million in the first half of the year. With the increase in the B.C. corporate income tax rate, the Company is raising its blended statutory income tax rate assumption to between 25.5 and 26.5 per cent, up by 0.5 points on both the low and high end of the original range. The Company is increasing its assumption for net financing costs by $40 million to $440 million, after our second quarter financing activities, including the $23 million second quarter long-term debt prepayment premium. In addition, the Company lowered its assumption for depreciation and amortization expense from approximately $1.9 billion to approximately $1.85 billion primarily due to adjustments resulting from the Company's continuing program of asset life studies.

This news release contains statements about financial and operating performance of TELUS and future events, including with respect to future normal course issuer bids, 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 is significant risk that the forward-looking statements will not prove to be accurate. 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 that expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for 2013 annual guidance, CEO three-year goals to 2013 for EPS and free cash flow growth to 2013 excluding spectrum costs, semi-annual dividend increases to 2016, ability to sustain and complete multi-year share purchase programs to 2016), qualifications and risk factors referred to in the first and second quarter Management's discussion and analysis, in the 2012 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.

OPERATING HIGHLIGHTS

TELUS wireless

External wireless revenues increased by $82 million or 5.9 per cent to $1.5 billion in the second quarter of 2013, compared to the same period a year ago, driven by continued growth in data services and postpaid subscribers.
Data revenue increased by $89 million or 17 per cent to $601 million, representing 43 per cent of wireless network revenue in the quarter. Data ARPU increased by $3.12 or 13 per cent to $26.44. These increases were due to continued strong adoption and usage of smartphones and data applications and higher roaming volumes.
Blended ARPU increased by $0.83 or 1.4 per cent to $61.12 as data ARPU growth more than offset a 6.2 per cent voice ARPU decline. This is the eleventh consecutive quarter of year-over-year growth in blended ARPU.
Monthly postpaid subscriber churn was 1.03 per cent, up three basis points from a year ago, while blended churn increased slightly by one basis point to 1.40 per cent. TELUS' stable churn reflects the Company's successful Customers First service approach, investments in retention and lower churn on smartphones.
Postpaid net additions of 100,000 were partially offset by a loss of 21,000 lower-ARPU prepaid subscribers for net additions of 79,000 as compared to 86,000 a year ago. Total wireless subscribers were up 3.5 per cent from a year ago to 7.7 million, while the proportion of high-value postpaid subscribers grew to 86 per cent of the base. Smartphone subscribers now represent 71 per cent of TELUS' postpaid base, up from 59 per cent a year ago.
Reported wireless EBITDA of $666 million increased by $32 million or 5.1 per cent over last year due to network revenue growth. The EBITDA margin based on total network revenue increased slightly to 47.4 per cent. EBITDA excluding restructuring and other like costs increased by $38 million or six per cent to $676 million or 48.1 per cent on total network revenue.
Wireless simple cash flow (EBITDA less capital expenditures) increased by $55 million to $495 million in the quarter due to higher EBITDA and $23 million lower capital expenditures.

TELUS wireline

External wireline revenues increased by $79 million or 6.3 per cent to $1.3 billion in the second quarter of 2013, when compared with the same period a year ago. This growth was generated by increased data service revenue, partially offset by declines in legacy voice revenues.
Data service and equipment revenues increased by $103 million or 15 per cent, due primarily to strong growth in TELUS TV subscribers, high-speed Internet and enhanced data services, combined with TV and high-speed Internet rate increases.
Total TV additions of 31,000 were lower by 12,000 over the same quarter last year partly due to lower gross additions. The total TV subscriber base of 743,000 increased by 148,000 or 25 per cent from a year ago.
High-speed Internet net additions of 13,000 were lower by 7,000 over the same quarter a year ago due to lower gross additions, partially offset by an improvement in churn. TELUS' high-speed subscriber base of 1.36 million is up 78,000 or 6.1 per cent from a year ago.
Total network access lines declined by 4.7 per cent from a year ago to 3.3 million. Residential lines were down 7.2 per cent over last year, reflecting ongoing wireless and Internet substitution and competition. Business lines were down 1.9 per cent over last year, reflecting ongoing price-based competition in the small and medium business market and customer adoption of IP services.
Reported wireline EBITDA of $332 million decreased by $4 million or 1.4 per cent year over year due to significantly higher restructuring and other like costs of $29 million. Normalized EBITDA increased by $24 million or 7.3 per cent to $361 million, reflecting improving Optik TV and Internet margins helped by a lower cost of subscriber acquisition and subscriber and ARPU growth.
Wireline simple cash flow (EBITDA less capital expenditures) improved year-over-year by $10 million due to lower capital expenditures. Normalized EBITDA less capital expenditures of $21 million increased by $38 million in the quarter due to growth in normalized EBITDA and lower capital expenditures.

CORPORATE AND BUSINESS DEVELOPMENTS

TELUS increases share purchase program to $1 billion for 2013
In May 2013, the Toronto Stock Exchange (TSX) approved the our Normal course issuer bid (NCIB) to purchase up to 15 million of TELUS' outstanding Common Shares (up to $500 million), until December 31, 2013. On July 23, the TSX authorized an amendment to the NCIB to increase the maximum number of Common Shares we may purchase for cancellation to 31.9 million (up to $1.0 billion) until December 31, 2013. All other terms of the NCIB remain unchanged.

As of July 31, TELUS has purchased for cancellation approximately 16.5 million of its common shares for over $536 million under the share purchase program.

TELUS' Board of Directors believes that such share purchases are in the best interest of TELUS and that such purchases constitute an attractive investment opportunity and desirable use of TELUS' funds that should enhance the value of the remaining shares.

In addition, TELUS currently intends to renew its NCIB share purchase program in each of the next three years in order to permit purchases for up to $500 million in each calendar year. Future NCIBs will be dependent on earnings and free cash flow, subject to Board assessment and determination, and obtaining regulatory (including TSX) approvals. There cannot be any assurance as to how many shares, if any, will ultimately be acquired by TELUS under any NCIB.

Experienced executive Raymond Chan joins TELUS Board of Directors
TELUS is pleased to announce Baytex Executive Chairman Raymond Chan has been appointed to the TELUS Board of Directors. This appointment furthers TELUS' commitment to recruit outstanding board members that make TELUS stronger through their wide range of experience across Canada. The Alberta-based Mr. Chan is a Chartered Accountant and has held senior executive positions in Canada's oil and gas industry since 1982. He first joined Baytex as senior vice-president and Chief Financial Officer in 1998 and went on to serve as President and Chief Executive Officer from 2003 through 2007, then Chief Executive Officer from November of 2007 through December of 2008. He transitioned to Executive Chairman in January of 2009 and continues to serve in that role. He has served on numerous boards in the last 15 years including the TMX Group and the Alberta Children's Hospital Foundation. He is also Chairman of TORC Oil & Gas.

Dividend Declaration
The Board of Directors has declared a quarterly dividend of thirty-four cents ($0.34) Canadian per share on the issued and outstanding Common Shares of the Company payable on October 1, 2013 to holders of record at the close of business on September 10, 2013.

This third quarter dividend represents a 3.5 cent or 11.5 per cent increase from the $0.305 quarterly dividend per share paid a year ago on October 1, 2012.

About TELUS
TELUS (TSX: T, NYSE: TU) is a leading national telecommunications company in Canada, with $11.2 billion of annual revenue and 13.2 million customer connections, including 7.7 million wireless subscribers, 3.3 million wireline network access lines, 1.4 million Internet subscribers and 743,000 TELUS TV customers. Led since 2000 by President and CEO, Darren Entwistle, TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video.

In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed more than $300 million to charitable and not-for-profit organizations and volunteered 4.8 million hours of service to local communities since 2000. Fourteen TELUS Community Boards lead TELUS' local philanthropic initiatives. 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.

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 investor webcast call, supplementary financial information and our full 2012 annual report at telus.com/investors.

Full quarterly earnings release available at: http://www.newswire.ca/en/releases/archive/August2013/08/c3380.html

TELUS' second quarter 2013 conference call is scheduled for August 8, 2013 at 12 p.m. (noon) ET 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 August 8 until November 7 at 1-855-201-2300. Please use reference number 1045101# and access code 35175. 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.

SOURCE TELUS Corporation