TELUS reports strong results for fourth quarter 2016, Announces 2017 financial targets
Thursday, February 9, 2017 12:00 AM PST
Strong customer loading across key growth segments with 127,000 net new postpaid wireless, Internet and TELUS TV customer additions, up 17 per cent from last year. Industry-leading wireless monthly postpaid churn of 0.98 per cent, third consecutive year with churn below 1.00 per cent. Strong ARPU growth of 3.9 per cent and best-in-class lifetime revenue per client of $5,300. $1.2 billion returned to shareholders in 2016; 7 to 10 per cent annual dividend increase targeted in 2017. Targeting 2017 revenue growth of up to 3.5 per cent and EBITDA growth of up to 6.0 per cent on a consolidated basis.
Vancouver, B.C. – TELUS Corporation’s consolidated operating revenue increased 2.7 per cent to $3.3 billion in the fourth quarter of 2016, over the same period a year ago, reflecting higher data revenue and subscriber growth in both wireless and wireline operations. Earnings before interest, income taxes, depreciation and amortization (EBITDA)1 decreased by 21 per cent to $769 million due to significantly higher restructuring and other costs which included the immediately vesting transformative compensation expense (transformative compensation) of $305 million.
When excluding restructuring and other costs as well as net gains and equity income related to real estate joint venture developments in the fourth quarter of 2016, adjusted EBITDA was up 3.1 per cent to $1.1 billion, and up 5.1 per cent when excluding a non-recurring gain on certain real estate assets in the fourth quarter of 2015. This growth reflects higher wireless and wireline revenue, as well as ongoing execution of operational efficiency and effectiveness initiatives.
“TELUS delivered robust fourth quarter results reflecting strong revenue, EBITDA and subscriber growth across both of our wireless and wireline businesses,” said Darren Entwistle, President and CEO. “Our exceptional team continued to demonstrate their ability to navigate successfully the competitive environment, delivering the best customer experience and shareholder value in the industry.”
Mr. Entwistle added “TELUS built upon our track record of delivering industry-leading shareholder-friendly initiatives in 2016. Notably, we returned over $1.2 billion to shareholders in both dividends and share purchases and we are targeting another 7 to 10 per cent increase in dividends in 2017. TELUS has now returned approximately $14 billion to shareholders, including $8.7 billion in dividends and $5.2 billion in share purchases, representing $24 per share since 2004.”
Mr. Entwistle further commented “As we look to 2017, TELUS is once again providing industry-leading revenue, EBITDA and dividend growth targets, highlighting the confidence we have in the entire global TELUS organization. These targets are representative of the ongoing excellence of our long-term strategy, reflecting the consistency, diversity and combined strength of both our wireless and wireline operating segments that underpin our shareholder-friendly initiatives.”
Doug French, TELUS Executive Vice-President and CFO said, “TELUS’ fourth quarter results demonstrated a strong finish to 2016, reflecting our team’s consistent execution against our long-standing strategy along with maintaining an organization-wide focus on operational efficiency and effectiveness. Looking forward into 2017, we remain focused on delivering strong financial and operating performance, leading customer experience and maintaining our strong balance sheet position while we continue to make the generational investments in broadband and wireless networks. Through these investments, TELUS will continue to enhance its network leadership driving profitable growth and free cash flow to support ongoing investor returns well into the future.”
In wireless, network revenue growth was driven by an 11 per cent increase in data revenue, reflecting a larger proportion of higher-rate two-year plans in the revenue mix, increased adoption of larger data buckets or topping up of data buckets, continued subscriber growth, a more favourable postpaid subscriber mix, and increased data usage from data-intensive devices. In wireline, data revenue growth of 6.1 per cent was generated by increased Internet and enhanced data service revenues from continued high-speed Internet subscriber growth and higher revenue per customer, growth in business process outsourcing revenues, and an increase in TELUS TV revenues from subscriber growth and higher revenue per customer.
In the quarter, TELUS attracted 127,000 new wireless postpaid, high-speed Internet and TV customers, up 18,000 over the same quarter a year ago and up 12,000 sequentially over the prior quarter. Net additions in the quarter included 87,000 wireless postpaid customers, 24,000 high-speed Internet subscribers, and 16,000 TELUS TV customers. These gains were partially offset by the ongoing loss of traditional telephone network access lines and a moderating decline in wireless prepaid customers. TELUS’ total wireless subscriber base of 8.6 million is up 1.5 per cent from a year ago, reflecting a 2.7 per cent increase in the postpaid subscriber base to more than 7.5 million. TELUS’ high-speed Internet connections have increased 5.7 per cent to 1.7 million, while TELUS TV subscribers are higher by 5.4 per cent to more than 1 million.
TELUS delivered an industry-leading wireless monthly postpaid churn rate of 0.98 per cent. TELUS’ postpaid churn rate has now been below the 1 per cent level for 13 of the past 14 quarters. For the year, postpaid monthly churn was 0.95 per cent.
Consolidated financial highlights
|C$ and in millions — except per share amounts||Three months ended December 31|
|(unaudited)||2016||2015||Per cent change|
|Operating expenses before depreciation and amortization||2,536||2,239||13.3|
|EBITDA – excluding restructuring and other costs||1,117||1,077||3.7|
|Net income attributable to common shares||81||261||-69.0|
|Adjusted net income||316||324||-2.5|
|Basic earnings per share (EPS)||0.14||0.44||-68.2|
|Adjusted basic EPS||0.53||0.54||-1.9|
|Free cash flow||(191)||197||n/m|
|Total subscriber connections||12.673||12.495||1.4|
For the quarter, net income of $87 million and basic earnings per share (EPS) of $0.14 were impacted by significantly higher restructuring and others costs, primarily reflecting the transformative compensation expense. When excluding restructuring and other costs, net gains and equity income from real estate joint venture developments, and favourable income tax-related adjustments, adjusted net income declined by 2.5 per cent, while adjusted basic EPS of $0.53 decreased slightly from the same period a year ago.
Free cash flow5 of $(191) million in the fourth quarter declined from $197 million a year ago, primarily due to payments in respect of transformative compensation and higher capital expenditures.
In the fourth quarter of 2016, TELUS returned $311 million to shareholders including $272 million in dividends paid and $39 million in share purchases under its 2017 normal course issuer bid (NCIB) program. In 2016, TELUS returned more than $1.2 billion to shareholders, including $1.07 billion in dividends paid and the purchase of approximately 4.3 million shares for $169 million.
This news release contains statements about financial and operating performance of TELUS (the Company) and future events that are forward looking, including with respect to the Company’s 2017 annual targets and guidance and future dividend increases. 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 those expressed in the forward-looking statements.
Accordingly, the forward-looking statements in this news release should be read together with the cautionary note in the accompanying fourth quarter Management’s review of operations. Forward-looking statements in this news release are made based on the assumptions (including assumptions regarding the 2017 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), and subject to the qualifications and risk factors referred to in the Management’s review of operations, in the 2016 annual Management’s discussion and analysis, 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).
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. 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.
Fourth quarter 2016 operating highlights
- Wireless network revenues increased by $86 million or 5.4 per cent year-over-year to $1.7 billion. This growth was driven by a larger proportion of higher-rate two-year plans in the revenue mix, increased adoption of larger data buckets or topping up of data buckets, continued subscriber growth, a more favourable postpaid subscriber mix, and increased data usage from data-intensive devices. This growth was partially offset by the ongoing decline in voice revenue from increased adoption of unlimited nationwide voice plans and continued but moderating substitution to data services.
- Blended ARPU was higher by 3.9 per cent to $66.24. This represents TELUS’ twenty-fifth consecutive quarter of year-over-year growth. The growth was driven by data network revenue growth as described above.
- Monthly postpaid subscriber churn of 0.98 per cent improved by three basis points year-over-year. The decline reflects our focus on executing on customers first initiatives and retention programs, partly offset by competitive intensity and the effects of the economic slowdown, particularly in Alberta. Blended monthly churn improved by 7 basis points to 1.25 per cent reflecting improvements in both postpaid and prepaid churn rates, as well as an increase in the mix of postpaid subscribers.
- Postpaid net additions of 87,000 were higher year-over-year by 25,000 due to higher gross additions, reflecting the success of targeted promotions and marketing efforts, and lower churn. Total wireless net additions of 78,000 were higher by 42,000 over a year ago due to higher postpaid net additions and improved prepaid losses of 9,000.
- Adjusted wireless EBITDA (EBITDA excluding the net gains and equity income from real estate joint venture developments, as well as restructuring and other costs) increased by $26 million or 4.0 per cent over last year to $679 million. When excluding a non-recurring gain on certain real estate assets in the fourth quarter of 2015, adjusted wireless EBITDA would have increased by 5.1 per cent in the fourth quarter 2016. The growth reflects higher network revenue as well as ongoing operational efficiency and effectiveness initiatives, partly offset by higher acquisition and retention spending reflecting higher per-unit subsidies due to customer preference for higher-value smartphones and competitive intensity.
- Wireless capital expenditures increased by 19 per cent over the same period a year ago due to ongoing investments in TELUS’ fibre-optic network to support its small-cell technology strategy to improve coverage and prepare for a more efficient and timely evolution to 5G, as well as investments in systems and cost efficiency initiatives.
- External wireline revenues increased by $19 million or 1.3 per cent to $1.5 billion. This growth was generated primarily by higher data service and equipment revenue.
- Data service and equipment revenues increased by $60 million or 6.1 per cent, due to increased Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, growth in business process outsourcing services, and increased TELUS TV revenues from continued subscriber growth and higher revenue per customer.
- High-speed Internet net additions of 24,000 were up 2,000 from the same quarter a year ago, reflecting the ongoing expansion of TELUS’ high-speed broadband footprint, including fibre-to-the-premises and the pull-through effect of bundling with Optik TV.
- Total TV net additions of 16,000 were lower by 9,000 over the same quarter a year ago, as a result of lower gross additions, a higher customer churn rate and a decline in satellite subscribers due to the effects of heightened competitive intensity including OTT services, slower subscriber growth for paid TV services, the economic slowdown, and a high rate of market penetration for TV services. These factors were partly offset by the ongoing expansion of our addressable high-speed Internet and Optik TV footprint, connecting more homes and businesses directly to fibre and bundling of these services together.
- Residential network access lines (NALs) declined by 22,000 in the quarter, an improvement of 2,000 over the same quarter a year ago. Residential NAL losses continue to reflect the economic slowdown, the ongoing trend towards wireless and Internet substitution, partly mitigated by the success of TELUS’ bundled service offerings.
- Adjusted wireline EBITDA (EBITDA excluding the net gains and equity income from real estate joint venture developments as well as restructuring and other costs) increased by $7 million or 1.7 per cent over last year to $431 million. When excluding a non-recurring gain on certain real estate assets in the fourth quarter of 2015, adjusted wireline EBITDA would have increased by 5.0 per cent in the fourth quarter 2016. The improvement reflects execution on operating efficiency and effectiveness initiatives, as well as improving margins in data services, including Internet, business process outsourcing services, TELUS TV, and TELUS Health services.
- Capital expenditures increased 22 per cent over the same period a year ago due primarily to continued strategic investments in broadband network infrastructure, including connecting more homes and businesses directly to TELUS’ fibre-optic network. This investment supports high-speed Internet and Optik TV subscriber growth, as well as TELUS’ growing customer demand for faster Internet speeds, and extends the reach and functionality of TELUS’ business and healthcare solutions.
TELUS sets 2017 consolidated financial targets
TELUS’ consolidated financial targets for 2017 are reflective of the company’s strategic investments in advanced broadband technology and wireless infrastructure, a commitment by the TELUS team to deliver client service excellence and continued focus on cost efficiency and effectiveness. TELUS’ 2017 financial targets are supportive of the Company’s multi-year dividend growth program first announced in May 2011, under which TELUS has since delivered 12 dividend increases. TELUS plans to continue delivering on its dividend growth program in 2017 through 2019, targeting annual dividend growth between 7 and 10 per cent.
In 2017, TELUS plans to continue generating positive subscriber growth in its key growth segments, including wireless, high-speed Internet and TELUS TV. Increasing customer demand for reliable access and fast data services are expected to support wireless and Internet growth. TELUS International and TELUS Health are also expected to contribute to TELUS’ diversified growth profile.
|Consolidated||2017 Targets||2016 Results||Growth|
|Revenues||$13.120 to $13.250 billion||$12.799 billion||2.5 to 3.5%|
|EBITDA excluding restructuring and other costs||$4.850 to $4.995 billion||$4.708 billion||3.0 to 6.0%|
|Basic earnings per share||$2.49 to $2.64||$2.44||2.0 to 8.0%|
|Capital expenditures||Approximately $2.9 billion||$2.968 billion|
For 2017, TELUS is targeting consolidated annual revenue growth of between 2.5 and 3.5 per cent, driven by higher contribution from wireless network revenue reflecting continued subscriber and ARPU growth as well as ongoing wireline revenue growth from higher data services revenue.
Consolidated EBITDA excluding restructuring and other costs is targeted to be higher by 3.0 to 6.0 per cent driven by higher wireless network revenue growth, margin improvements from wireless and wireline data services and savings from ongoing cost efficiency and effectiveness initiatives. Higher subsidies for smartphones are expected to continue pressuring cost of acquisition and retention expense.
Basic earnings per share (EPS) is targeted to increase by 2.0 to 8.0 per cent driven primarily by EBITDA growth.
Consolidated capital expenditures for 2017, excluding the purchase of spectrum licences, are targeted to be approximately $2.9 billion. TELUS plans to continue connecting more homes and businesses directly to its fibre-optic network, to support ongoing high-speed Internet and Optik TV subscriber growth and faster Internet broadband speeds. The investments in fibre will also support our small-cell technology strategy to improve coverage and prepare for a more efficient and timely evolution to 5G. We also intend to continue investing in our wireless network for 4G LTE expansion and upgrades, including the ongoing deployment of 700 MHz and 2500 MHz spectrum, as well as invest in network and system resiliency and reliability to support our ongoing customers first initiatives and ready the network and systems for future retirement of legacy assets.
TELUS’ cash income tax payments for the full year are estimated to decline over 2016 levels to between $300 million and $360 million (2016 – $600 million). The decline in cash tax payments reflects both lower instalment payments for 2017 based on 2016 income and a lower final instalment payment for 2016 to be made in early 2017, partly offset by a decrease in income tax recoveries.
The preceding disclosure respecting TELUS’ 2017 financial targets contains forward-looking information and is fully qualified by the ‘Caution regarding forward-looking statements’ at the beginning of the accompanying Management’s review of operations for the fourth quarter of 2016 and in the full year 2016 Management’s discussion and analysis filed on the date hereof on SEDAR, 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 1.7 entitled ‘Financial and operating targets for 2017’ in the accompanying Management’s review of operations for the fourth quarter of 2016.
- 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 approximately $2.2 billion in taxes in 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 approximately $21 billion in these taxes.
- Disbursing spectrum renewal fees of $53 million to Innovation, Science and Economic Development Canada in 2016. Since 2002, TELUS’ total tax and spectrum remittances to federal, provincial and municipal governments in Canada have totaled approximately $26 billion.
- Investing $3.0 billion in capital expenditures primarily in communities across Canada in 2016 and more than $32 billion since 2000.
- Spending $8.0 billion in total operating expenses in 2016, including goods and service purchased of $5.7 billion. Since 2000, TELUS has spent $99 billion and $65 billion respectively in these areas.
- Generating a total team member payroll of $2.8 billion in 2016, including payroll taxes of $137 million. Since 2000, total team member payroll totals $39 billion.
- Paying $1.07 billion in dividends in 2016 to individual shareholders, mutual fund owners, pensioners and institutional investors, and purchasing approximately 4.3 million shares for $169 million on behalf of shareholders under TELUS’ share purchase program.
- Returning approximately $14 billion to shareholders through TELUS’ dividend and share purchase programs from 2004 to the end of 2016, including $8.7 billion in dividends and $5.2 billion in share purchases, representing nearly $24 per share.
The TELUS Board of Directors has declared a quarterly dividend of 48 cents ($0.48) Canadian per share on the issued and outstanding Common Shares of the Company payable on April 3, 2017 to holders of record at the close of business on March 10, 2017.
This first quarter dividend represents a four cent increase from the $0.44 quarterly dividend paid on April 1, 2016.
TELUS (TSX: T, NYSE: TU) is Canada’s fastest-growing national telecommunications company, with $12.8 billion of annual revenue and 12.7 million subscriber connections, including 8.6 million wireless subscribers, 1.7 million high-speed Internet subscribers, 1.4 million residential network access lines and more than 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 over $482 million to charitable and not-for-profit organizations and volunteered more than 7.7 million hours of service to local communities since 2000. Created in 2005 by President and CEO Darren Entwistle, TELUS’ 12 Canadian community boards and 5 International boards have led the Company’s support of grassroots charities and have contributed more than $60 million in support of 5,595 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.
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, the 2016 annual Management’s discussion and analysis and financial statements, and our full 2016 annual report at telus.com/investors.
TELUS’ fourth quarter 2016 and 2017 targets conference call is scheduled for Thursday, February 9, 2017 at 11:00am ET (8:00am 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 February 9 until March 15, 2017 at 1-855-201-2300. Please use reference number 1211356# 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.