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Consolidated revenue and EBITDA growth of 4.9 per cent and 4.7 per cent respectively Strong customer growth, including 156,000 postpaid wireless, Internet and TV customer additions, up 23 per cent over last year Postpaid wireless net additions of 121,000, up 39 per cent over last year; strongest quarterly result in five years Leading broadband networks delivering strong wireline subscriber growth of 21,000, up 17 per cent over last year, with lowest residential network access line losses in 13 years Industry-leading wireless postpaid churn of 0.99 per cent; fourth consecutive year churn below 1.00 per cent Targeting 2018 consolidated revenue and EBITDA growth of up to 6 and 7 per cent; Free cash flow outlook of up to $1.4 billion in 2018
Vancouver, B.C. – TELUS Corporation’s consolidated operating revenue increased by 4.9 per cent to $3.5 billion in the fourth quarter of 2017, over the same quarter a year ago, reflecting growth in wireless network revenue and wireline data services. Earnings before interest, income taxes, depreciation and amortization (EBITDA) increased by 46 per cent to $1.1 billion due to higher revenue growth and lower restructuring and other costs as compared to the same quarter last year, partially offset by higher acquisition and retention costs. Adjusted EBITDA was up 4.7 per cent when excluding certain costs, including restructuring and other costs, which was impacted by the transformative compensation expense of $305 million in the same period a year ago.
“TELUS delivered strong fourth quarter operational and financial results, reflecting robust customer growth alongside healthy revenue and EBITDA expansion across both our wireless and wireline businesses”, said Darren Entwistle, President and CEO. “Our continued strong performance is buttressed by the dedication of our incredible team to execute on our strategy in a highly competitive environment. The TELUS team’s unparalleled commitment to providing consistently exceptional customer experiences contributed to TELUS achieving our fourth consecutive year of wireless churn below one per cent, supported by our highly differentiated service offerings and the ongoing investments we are making in our globally leading broadband networks.”
Mr. Entwistle added, “The fourth quarter capped a strong year where we attained robust customer growth while achieving our annual revenue and EBITDA targets for the seventh consecutive year in a row. This proven, year-in-year-out execution by our team, gives us confidence in our 2018 targets announced today, including revenue growth up to 6 per cent and EBITDA growth up to 7 per cent. In addition, outlook for free cash flow is expected to be up to $1.4 billion.”
Mr. Entwistle further commented, “Through the success of our broadband investments, we have demonstrated our ability to consistently drive long-term revenue and EBITDA growth, while simultaneously delivering on our shareholder-friendly initiatives. TELUS returned over $1.1 billion to shareholders in 2017. This builds on the more than $15 billion TELUS has returned to shareholders since 2004, representing over $25 per share. Consistent with the 7 per cent dividend growth achieved in 2017, following six consecutive years of circa 10 per cent annual dividend growth, we continue to target an additional 7 to 10 percent increase in 2018.”
Doug French, TELUS Executive Vice-President and CFO said, “Our strong fourth quarter and 2017 results showcased the benefits of our strategic investments in our advanced broadband networks, strong asset mix geared towards the growth in data services, and proactive focus on operational effectiveness and margin accretion initiatives. As we head into 2018, we are well positioned to continue delivering strong financial and operating results as we build on our strong operating momentum. We remain focused on maintaining a strong balance sheet position as we continue to strategically invest in our broadband networks to support future profitable growth and increased free cash flow generation to support our dividend growth program. As previously announced, our capital investment program peaked in 2017, and is targeted to be $2.85 billion in 2018. Our free cash flow growth, and the objective to be free cash flow positive after dividends this year, will be driven by strong operational execution and focused capital spending.”
In wireless, our network revenue increased by 5.4 per cent to $1.8 billion, reflecting postpaid subscriber growth, including smartphone adoption and subscribers we acquired from Manitoba Telecom Services (MTS), higher ARPU as customers move to higher-rate plans, including Premium Plus, and increased data consumption. In wireline, our data services and equipment revenue increased by 6.0 per cent to $1.1 billion, reflecting 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 inclusive of recent acquisitions and foreign exchange impacts on foreign operations, higher TELUS Health revenues driven by organic growth through additional professional services and support revenue, and through acquisitions, and an increase in TELUS TV revenues from subscriber growth.
In the quarter, we attracted 156,000 new postpaid wireless, high-speed Internet and TELUS TV customers, up 29,000 over the same quarter a year ago. The higher net additions included 121,000 wireless postpaid net additions, 21,000 high-speed Internet subscribers, and 14,000 TELUS TV customers. Our total wireless subscriber base of 8.9 million is up 3.8 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 have increased 5.3 per cent to more than 1.7 million over the last twelve months, while our TELUS TV subscriber base of 1.1 million is higher by 3.7 per cent.
For the quarter, net income of $282 million increased by $195 million over the same period a year ago while basic earnings per share (EPS) of $0.47 increased by $0.33 cents due to significantly lower restructuring and other costs. Adjusted net income of $328 million and adjusted EPS of $0.55 both increased by 3.8 per cent 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 $274 million in the fourth quarter increased by $465 million over the same quarter a year ago mainly due to increased EBITDA, as the fourth quarter of 2016 included the impact of the $305 million transformative compensation expense, as well as lower capital expenditures and cash taxes paid.
Notations used above: n/m - not meaningful
(1) 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 Section 3.1 in the accompanying 2017 fourth quarter Management's review of operations.
(2) Adjusted EBITDA is defined in this news release as excluding 1) restructuring and other costs; 2) net losses and equity losses (net gains and equity income) from real estate joint venture developments; and 3) the MTS net recovery.
(3) 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), 1) restructuring and other costs; 2) net losses and equity losses (net gains and equity income) from real estate joint venture developments; 3) unfavourable (favourable) income tax-related adjustments; and 4) the MTS net recovery. For further analysis of adjusted net income and adjusted basic EPS, see Section 1.2 in the accompanying 2017 fourth quarter Management's review of operations.
(4) 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 Section 3.1 in the accompanying 2017 fourth quarter Management's review of operations.
(5) 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. In relation to an acquisition and a divestiture that were both undertaken during the first quarter of 2017, January 1, 2017 residential NALs, high-speed Internet and TELUS TV subscriber balances were increased by a net 1,000, 6,000 and 5,000 respectively. Effective April 1, 2017, postpaid subscribers, total subscribers and associated operating statistics (gross additions, net additions, ARPU and churn) have been adjusted to include an estimated migration of 85,000 MTS subscribers in the opening subscriber balances. Subsequent to this, on October 1, 2017, total subscribers and associated operating statistics have been 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.
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 2018 annual targets, future dividend increases and capital investments plans. 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 2017 fourth quarter Management's review of operations. Forward-looking statements in this news release are made based on the assumptions (including assumptions regarding 2018 annual targets and semi-annual dividend increases through 2019), and subject to the qualifications and risk factors referred to in the accompanying Management's review of operations for the fourth quarter of 2017, in the 2017 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 2017 Operating Highlights
TELUS sets 2018 consolidated financial targets
TELUS' consolidated financial targets for 2018 reflect continued growth in data services across wireless and wireline, supported by our strategic investments in advanced broadband technologies and leading networks, a team member culture of delivering customer service excellence, and ongoing focus on operational effectiveness. TELUS' 2018 financial targets are supportive of the Company's multi-year dividend growth program first announced in May 2011, under which TELUS has since delivered 14 dividend increases.
In 2018, 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 continued customer growth. TELUS International and TELUS Health are also expected to contribute to TELUS' growth profile through organic growth and from recent acquisitions.
(1) 2018 targets exclude the impact of certain accounting policy developments, including IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers. Targets for 2018 will be updated to reflect the new accounting standards in May 2018 with the release of our Q1 2018 results.
(2) 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. In 2018, total restructuring and others costs are expected to be approximately $135 million, as compared to $139 million in 2017.
(3) Capital expenditure targets and results exclude expenditures for spectrum licences.
For 2018, TELUS is targeting consolidated annual revenue growth of between 4 and 6 per cent, driven by higher contribution from wireless network revenue, which reflects continued subscriber and ARPU growth, combined with growing wireline data services revenue inclusive of acquisitions.
Consolidated Adjusted EBITDA is targeted to be higher by 4 to 7 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. Wireless acquisition and retention expenses are expected to remain elevated due to ongoing demand for more expensive smartphones and increased competition.
Basic earnings per share (EPS) is targeted to increase by 3 to 9 per cent driven primarily by EBITDA growth, partially offset by higher depreciation and amortization reflecting the significant investments we have made in the past few years, including in our broadband networks, and from recent acquisitions, as well as higher interest costs, including from pensions.
Consolidated capital expenditures for 2018, excluding the purchase of spectrum licences, are targeted to be approximately $2.85 billion. In 2018, we expect to continue connecting more homes and businesses directly to our 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 continue supporting our small-cell technology strategy to improve coverage and prepare for a more efficient and timely evolution to 5G. We intend to continue investing in our 4G LTE expansion and upgrades, 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 be approximately $170 to $230 million, consistent with 2017 of $191 million.
The preceding disclosure respecting TELUS' 2018 financial targets is 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 2017 and in the full year 2017 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 2018' in the accompanying Management's review of operations for the fourth quarter of 2017.
The TELUS Board of Directors has declared a quarterly dividend of $0.5050 Canadian per share on the issued and outstanding Common Shares of the Company payable on April 2, 2018 to holders of record at the close of business on March 9, 2018.
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:
TELUS (TSX: T, NYSE: TU) is Canada's fastest-growing national telecommunications company, with $13.3 billion of annual revenue and 13 million subscriber connections, including 8.9 million wireless subscribers, 1.7 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 and video. 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.
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 review of operations, quarterly results slides, audio and transcript of the investor webcast call, supplementary financial information at telus.com/investors.
TELUS' fourth quarter 2017 conference call is scheduled for Thursday, February 8, 2018 at 12:00pm ET (9:00am 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. An audio recording will be available on February 8 until March 15, 2018 at 1-855-201-2300. Please use reference number 1227383# 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.