TELUS reports third quarter 2013 results

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Nov 08, 2013, 08:30 ET

Double-digit net income and EPS growth driven by wireless and wireline
Returning more than $1.6 billion to shareholders year-to-date
Increasing quarterly dividend 12.5 per cent year-over-year to 36 cents per share

VANCOUVER, Nov. 8, 2013 /PRNewswire/ - TELUS Corporation's third quarter 2013 revenue increased by 3.6 per cent to $2.87 billion from a year earlier while earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 4.6 per cent to $1.04 billion. EBITDA excluding restructuring and other like costs increased by 5.7 per cent to $1.05 billion. Basic Earnings per share (EPS) rose by 14 per cent to $0.56, or 18 per cent to $0.58 on an adjusted basis.

The increase in consolidated revenue was generated by five per cent growth in wireless network revenue and three per cent growth in wireline revenue. Wireless revenue benefited from continued subscriber growth, higher average revenue per unit (ARPU) due to increased smartphone adoption and related increased use of data services. Wireline revenue growth was driven by a nine per cent increase in data revenue, generated by ongoing TELUS TV and high-speed Internet subscriber growth and increasing revenue per customer.

TELUS attracted 115,000 net new customer connections in the quarter, including 106,000 postpaid wireless customers, 34,000 TV subscribers and 19,000 high-speed Internet customers. The growth in TELUS' wireless customer base was supported by an 11 basis point year-over-year decline in monthly postpaid subscriber churn to just 0.99 per cent - the lowest level in over six years. This growth was partially offset by the modest loss of prepaid wireless customers and a continued decline in legacy wireline services. TELUS' total wireless customer base of 7.8 million is up over three per cent year-over-year, while the TELUS TV subscriber base of 776,000 is up 22 per cent and high-speed Internet connections are up more than five per cent to 1.37 million.

During the third quarter, TELUS returned $941 million to shareholders including $222 million in dividends and $719 million in share purchases. For the nine months ended September 2013, the company returned $1.639 billion to shareholders, including $639 million in dividend payments and $1.0 billion in share purchases.

Free cash flow of $365 million in the third quarter was down $61 million, largely reflecting increased capital investments to expand the capacity, speeds and coverage of TELUS' advanced broadband networks, as well as higher cash income taxes, which mitigated growth in EBITDA.

FINANCIAL HIGHLIGHTS
C$ and in millions, except per share amounts	Three months ended September 30		per cent
(unaudited)	2013	2012	change
Operating revenues	2,874	2,774	3.6
Operating expenses before depreciation and amortization⁽¹⁾	1,839	1,784	3.1
EBITDA⁽¹⁾⁽²⁾	1,035	990	4.6
EBITDA excluding restructuring and other like costs^(1)(2)(3)	1,050	993	5.7
Net income⁽¹⁾	356	323	10.2
Adjusted net income⁽¹⁾⁽⁴⁾	365	323	13.0
Basic earnings per share (EPS)⁽¹⁾	0.56	0.49	13.6
Adjusted EPS⁽¹⁾⁽⁴⁾	0.58	0.49	18.4
Capital expenditures	555	471	17.8
Free cash flow⁽⁵⁾	365	426	(14.3)
Total customer connections⁽⁶⁾	13.27	12.98	2.2


⁽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 third quarter Management's discussion and analysis (MD&A).
⁽³⁾	For the third quarter of 2013 and 2012 restructuring and other like costs were $15 million and $3 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) Restructuring and other like costs; 2) income tax-related adjustments. For further analysis of the aforementioned items see Section 1.3 in the accompanying 2013 third quarter MD&A.
⁽⁵⁾	Free cash flow does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation, see Section 11.1 in the accompanying 2013 third 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, President and CEO said, "TELUS once again delivered strong results, underpinned by our strategic investments in advanced broadband technology and services, coupled with our unwavering focus on putting customers first and realising operational efficiencies. Our customers first culture continues to attract new clients as evidenced by our third quarter addition of 106,000 new postpaid wireless customers, 34,000 new TV clients, and 19,000 new high-speed Internet connections. In addition to these strong growth numbers we are also reporting an industry-leading monthly postpaid wireless subscriber churn rate of only 0.99 per cent - our lowest since the first quarter of 2007. Gaining customers and earning their loyalty is critical to our ongoing success, so we were pleased with the results of the annual CCTS report on customer complaints issued earlier this week, which saw complaints by our customers decline significantly for the second year in a row. While we have more work to do on this front, we are clearly delivering a differentiated customer service experience and providing Canadians with a clear reason to choose TELUS.

This excellence in customer service helped TELUS generate record earnings per share this quarter, with 14 per cent growth. Furthermore, we continue to produce robust free cash flow that will enable our organization to further invest in our growth whilst providing superior investment returns to our valued shareholders."

Mr. Entwistle added "In the first nine months of 2013, we returned $1.639 billion to our shareholders through our dividend growth and share purchase programs and today we raised our quarterly dividend by two cents to 36 cents a quarter, or $1.44 annually, a 12.5 per cent year-over-year increase. Our consistently strong execution combined with our balance sheet strength has placed TELUS in a unique position to successfully complete our unique multi-year shareholder friendly initiatives. This includes, through 2016, our dividend growth program targeting semi-annual increases of circa 10 per cent annually and share purchases totaling up to $2.5 billion."

John Gossling, TELUS Executive Vice-President and CFO said "TELUS' sustainable cash flow generation combined with our strong balance sheet enabled our organization to successfully and expeditiously complete our 2013 share purchase program announced in May and expanded in July. In total, we bought back and cancelled more than 31 million TELUS common shares for $1 billion, at an average cost of approximately $32 per share. This reduced shares outstanding by 4.8 per cent and enhanced both our earnings per share, and the affordability of future dividend increases."

Reflecting year-to-date results, TELUS updated its annual wireless external revenue guidance to reflect slightly lower than expected wireless equipment revenue. TELUS now expects external wireless revenue to be in the range of $6.1 to $6.2 billion from $6.2 to $6.3 billion previously. External wireline and consolidated revenue guidance remain unchanged. In addition, the capital expenditure target is being raised to approximately $2 billion from approximately $1.95 billion previously. Importantly, our guidance for 2013 EBITDA and EPS remain unchanged and are being reaffirmed today.

This news release contains statements about financial and operating performance of TELUS and future events, including with respect to future dividend increases and normal course issuer bids to 2016 and the annual 2013 guidance, 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 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, second and the accompanying third 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

Wireless network revenues increased by $71 million or 5.2 per cent to $1.44 billion in the third quarter of 2013, compared to the same period a year ago, driven by continued subscriber growth and higher ARPU driven by ongoing smartphone adoption and associated data services.
Data revenue increased by $91 million or 17 per cent to $637 million, representing 44 per cent of wireless network revenue in the quarter. Data ARPU increased by $3.21 or 13 per cent to $27.72. These increases were due to continued strong adoption and usage of smartphones and data applications as well as higher roaming volumes.
Blended ARPU increased by $1.07 or 1.7 per cent to $62.49 as data ARPU growth more than offset a 5.8 per cent voice ARPU decline. This is the twelfth consecutive quarter of year-over-year growth in blended ARPU.
Monthly postpaid subscriber churn declined 11 basis points to 0.99 per cent, the lowest in over six years, while blended monthly churn was down by eight basis points to 1.36 per cent. TELUS' industry-low churn reflects the company's successful Customers First service approach, investments in retention, and lower churn on smartphones.
Postpaid net additions of 106,000 were partially offset by a modest loss of 2,000 lower-ARPU prepaid subscribers for net additions of 104,000, compared to 111,000 a year ago. Total wireless subscribers was up 3.3 per cent from a year ago to 7.8 million, while the proportion of high-value postpaid subscribers grew to 86 per cent of the base. Smartphone subscribers now represent 75 per cent of TELUS' postpaid base, up from 63 per cent a year ago.
Reported wireless EBITDA of $680 million increased by $42 million or 6.6 per cent over last year due to network revenue growth. The wireless EBITDA margin, based on total network revenue, increased by 60 basis points to 46.8 per cent. EBITDA excluding restructuring and other like costs increased by $45 million or seven per cent to $684 million or 47.0 per cent on total network revenue.
Wireless simple cash flow (EBITDA less capital expenditures) increased by $23 million to $486 million in the quarter due to higher EBITDA.

TELUS wireline

External wireline revenues increased by $38 million or 3.0 per cent to $1.31 billion in the third 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 $64 million or 8.7 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 ARPU growth, and TELUS Health services.
Total TV additions of 34,000 were lower by 8,000 from the same quarter last year, while the total TV subscriber base of 776,000 increased by 139,000 or 22 per cent from a year ago.
High-speed Internet net additions of 19,000 were lower by 7,000 from the same quarter a year ago, while TELUS' high-speed subscriber base of 1.37 million is up 71,000 or 5.4 per cent from a year ago.
Total network access lines declined by 4.8 per cent from a year ago to 3.3 million. Residential lines were down 7.4 per cent over last year, reflecting ongoing wireless and Internet substitution and competition. Business lines were down 1.8 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 $355 million increased by $3 million or 0.8 per cent year over year, reflecting improving Optik TV and Internet margins helped by subscriber and ARPU growth, as well as ongoing operating efficiency initiatives. EBITDA excluding restructuring and other like costs increased by $12 million or 3.4 per cent to $366 million.
Wireline simple cash flow (EBITDA less capital expenditures) decreased year-over-year by $62 million due to higher capital expenditures to support business service growth and investments in broadband infrastructure including connecting more homes and businesses directly to fibre optic cable.

CORPORATE AND BUSINESS DEVELOPMENTS

TELUS named as a 2013 component of the Dow Jones Sustainability North America Index
TELUS has been named to the Dow Jones Sustainability North America Index (DJSI North America) for the 13th consecutive year. TELUS is the only Canadian telecom company and one of three North American telecom companies to be named to the index. TELUS received a score of 100 per cent in both Risk and Crisis Management as well as in Corporate Citizenship and Philanthropy. TELUS also had the best industry score for Codes of Conduct/Compliance/Corruption and Bribery. The DJSI North America tracks the performance of the top 20 per cent of the 600 largest Canadian and American companies in the S&P Global Broad Market Index that lead the field in terms of sustainability.

Dividend Declaration - increased to 36 cents per quarter, up 12.5 percent from a year ago
The TELUS Board of Directors has declared a quarterly dividend increase of two cents to 36 cents ($0.36) Canadian per share on the issued and outstanding common shares of the Company payable on January 2, 2014 to holders of record at the close of business on December 11, 2013. The new dividend represents a four cent or 12.5 per cent increase from the $0.32 quarterly dividend paid on January 2, 2013.

This new quarterly dividend is the sixth increase under TELUS' dividend growth program originally announced in May 2011 and recently extended through 2016, wherein the company plans to continue with two dividend increases per year, normally announced in May and November, of circa 10 per cent annually. Notwithstanding this, dividend decisions will continue to be dependent on earnings and free cash flow and subject to the Board's assessment and determination of TELUS' financial situation and outlook on a quarterly basis. There can be no assurance that the company will maintain its dividend growth program through to 2016.

About TELUS
TELUS (TSX: T, NYSE: TU) is a leading national telecommunications company in Canada, with $11.3 billion of annual revenue and 13.3 million customer connections, including 7.8 million wireless subscribers, 3.3 million wireline network access lines, 1.4 million Internet subscribers and 776,000 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/November2013/08/c5618.html

TELUS' third quarter 2013 conference call is scheduled for November 8, 2013 at 11 a.m. 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 November 8 until December 7 at 1-855-201-2300. Please use reference number 1052450# 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