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Friday, August 5, 2016

Telus reports strong results for second quarter of 2016


TELUS Corporation via Marketwired  - TELUS Corporation's consolidated operating revenue grew 1.5 per cent to $3.1 billion in the second quarter of 2016 from a year earlier, driven by continued higher data revenue and subscriber additions in both wireless and wireline operations. Earnings before interest, income taxes, depreciation and amortization (EBITDA) increased by 10 per cent to $1.2 billion. When excluding gains from the exchange of wireless spectrum licences and net gains and equity income related to real estate joint venture developments in the second quarter of 2016, as well as restructuring and other costs from both reporting periods, adjusted EBITDA was up 4.3 per cent to $1.2 billion. This growth reflects higher wireless and wireline revenue, as well as execution on operational efficiency and effectiveness initiatives.

Highlights:
  • Strong customer loading in all key segments with 92,000 net new postpaid wireless, Internet and TELUS TV customer additions 
  • Industry-leading wireless monthly postpaid churn of 0.90 per cent, ARPU growth of 1.4 per cent and best-in-class lifetime revenue per client at $5,600
  • Consolidated operating revenue up 1.5 per cent and EBITDA up 4.3 per cent
  • $1 billion returned to shareholders year-to-date

"TELUS' strong second quarter results and improved outlook reflect the effectiveness of our company's industry-leading customer service and the robustness of our multi-tenet growth strategy," said Darren Entwistle, President and CEO. "Impressively, our team continues to deliver strong subscriber, revenue and EBITDA growth in both our wireless and wireline businesses despite the economic challenges in Alberta."

"Importantly, our strong financial performance further demonstrates TELUS' ability to fund simultaneously our strategic growth investments as well as the TSX and NYSE's only multi-year dividend growth and discretionary share purchase programs now running through 2019. Our consistent track record in this regard is unequivocal, as reflected by TELUS having returned $13.3 billion to shareholders, including $8.2 billion in dividends and $5.2 billion in share purchases, representing over $22 per share between 2004 and July 2016," Mr. Entwistle added.

Doug French, TELUS Executive Vice-President and CFO said, "Our second quarter results are reflective of our team's commitment to delivering growth, driving our efficiency and effectiveness initiatives, as well as continually putting our customers first. As we deliver on these key priorities, we also remain firmly committed to maintaining our balance sheet strength during this unique investment cycle, where we are making the critical network investments that are essential to driving customer satisfaction, delivering balanced long-term growth, and supporting our shareholder friendly initiatives."

In wireless, data revenue was driven by continued subscriber growth, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and increased data usage from the continued adoption of smartphones and other data-centric wireless devices, as well as greater use of applications and the expansion of TELUS' LTE network. Wireline data revenue growth was generated by growth in business process outsourcing revenues, an increase in Internet and enhanced data service revenues from continued high-speed Internet subscriber growth and higher revenue per customer, and continued TELUS TV subscriber growth.

In the quarter, TELUS attracted 92,000 net wireless postpaid, high-speed Internet and TV customers, up 61,000 from the first quarter of 2016. Net additions in the quarter included 61,000 wireless postpaid customers, 18,000 high-speed Internet subscribers, and 13,000 TELUS TV customers. These gains were partially offset by the ongoing loss of traditional telephone network access lines and a decline in wireless prepaid customers. TELUS' total wireless subscriber base is up 0.9 per cent from a year ago to 8.4 million, reflecting a 2.1 per cent increase in the postpaid subscriber base to 7.4 million. TELUS' high-speed Internet connections have increased 6.4 per cent to 1.6 million, while TELUS TV subscribers are higher by 7.9 per cent to over 1 million.

TELUS' continued focus on customer service excellence was evident once again this quarter by delivering industry-leading wireless customer churn on a national basis with a monthly postpaid churn rate of 0.90 per cent. This is the eleventh quarter in the past 12 quarters that TELUS' postpaid churn rate was below 1 per cent, despite competitive pressures from the coterminous expirations of two-year and three-year contracts commencing in June 2015. Blended churn of 1.15 per cent in the second quarter of 2016 is among TELUS' lowest quarterly churn rates since becoming a national carrier 16 years ago. This result exemplifies the success of TELUS' differentiated customers first culture and its ongoing focus on delivering outstanding customer service, coupled with attractive new products and services.

Second Quarter 2016 Operating Highlights

TELUS wireless
  • Wireless network revenues increased by $40 million or 2.6 per cent to $1.6 billion in the second quarter of 2016, when compared to the same period a year ago. This growth was driven by an increase in data revenue due to subscriber growth, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and increased data usage from the continued adoption of smartphones and other data-centric wireless devices, as well as greater use of applications and the expansion of TELUS' LTE network. 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 increased by 1.4 per cent to $64.38, TELUS' twenty-third consecutive quarter of year-over-year growth.
  • Monthly postpaid subscriber churn of 0.90 per cent increased four basis points year-over-year. The increase reflects competitive intensity resulting from two-year and three-year customer contracts expiring simultaneously starting in June 2015, as well as the effects of the economic slowdown, particularly in Alberta. Blended monthly churn improved two basis points to 1.15 per cent reflecting improvements in the prepaid churn rates and TELUS' continued focus on customers first initiatives and retention programs.
  • Postpaid net additions of 61,000 were lower year over year by 15,000 due to lower gross additions resulting primarily from the economic slowdown, particularly in Alberta, competitive intensity, and the effect of higher handset prices on customer demand as well as higher monthly churn. Total wireless net additions were 40,000 compared to net additions of 63,000 a year ago reflecting lower postpaid net additions and higher prepaid losses of 21,000
  • Adjusted wireless EBITDA (EBITDA excluding the gain on the exchange of wireless spectrum licences, the net gains and equity income from real estate joint venture developments, as well as restructuring and other costs) increased by $28 million or 3.6 per cent over last year to $783 million. The growth reflects network revenue growth driven by higher ARPU and a larger customer base, as well as ongoing operational efficiency and effectiveness initiatives, partly offset by higher retention spend and increased external labour and distribution channel expenses. Retention costs as a percentage of network revenue were 12.9 per cent, reflecting a $17 million increase over the same period a year ago, as higher subsidy costs reflecting the continued customer preference for more expensive smartphone devices were partly offset by lower retention volumes.
  • Wireless EBITDA less capital expenditures increased year over year by $43 million to $535 million as higher EBITDA was partially offset by higher capital expenditures. Capital expenditures increased 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. 
TELUS wireline
  • External wireline revenues increased by $14 million or 1.0 per cent to $1.4 billion in the second quarter of 2016, when compared with the same period a year ago. This growth was generated primarily by higher data service and equipment revenue.
  • Data service and equipment revenues increased by $62 million or 6.7 per cent, due to growth in business process outsourcing services, higher Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, and higher TELUS TV revenues from continued subscriber growth.
  • High-speed Internet net additions of 18,000 were down 4,000 from the same quarter a year ago, reflecting increased competitive intensity, the impact of the economic slowdown leading to a higher customer churn rate, partly offset by the ongoing expansion of TELUS' high-speed broadband footprint in urban and rural communities, including fibre to the premises, and the pull-through effect of bundling with Optik TV.
  • Total TV net additions of 13,000 were lower by 4,000 over the same quarter a year ago, reflecting a higher customer churn rate and a decline in satellite subscribers, as the effects of slower subscriber growth for paid TV services and increased competitive intensity, including OTT services, were partly offset by ongoing expansion of TELUS addressable high-speed broadband footprint and increasing broadband speeds.
  • Residential network access lines (NALs) declined by 20,000 in the quarter, consistent with the decline in the same quarter a year ago. Residential NAL losses continue to reflect the ongoing trend of wireless and Internet substitution, partly mitigated by the success of TELUS' bundling strategy.
  • 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 $20 million or 5.5 per cent over last year to $405 million. 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.
  • Wireline EBITDA less capital expenditures decreased by $40 million to $(115) million as higher EBITDA was more than offset by higher capital expenditures that support TELUS' long-term growth. Capital expenditures increased over the same period a year ago due to continued strategic investments in broadband network infrastructure, including connecting more homes and businesses directly to TELUS' fibre optic network and investments in system and network resiliency and reliability.
Corporate Highlights

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 $1.3 billion in taxes during the first six months of 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 more than $19 billion in these taxes.
  • Disbursing spectrum renewal fees of $53 million to Innovation, Science and Economic Development Canada (formerly Industry Canada) during the first six months of 2016. Since 2002, TELUS' total tax and spectrum remittances to federal, provincial and municipal governments in Canada have totaled more than $24 billion.
  • Investing $1.4 billion in capital expenditures primarily in communities across Canada in the first six months of 2016 and more than $30 billion since 2000.
  • Spending $3.7 billion in total operating expenses in the first six months of 2016, including goods and service purchased of $2.5 billion. Since 2000, TELUS has spent $95 billion and $62 billion respectively in these areas.
  • Generating a total team member payroll of $1.4 billion in the first six months of 2016, including payroll taxes of $91 million. Since 2000, total team member payroll totals $38 billion.
  • Paying $798 million in dividends in 2016 through the end of July to individual shareholders, mutual fund owners, pensioners and institutional investors, and purchasing approximately 3 million shares for $111 million on behalf of shareholders under TELUS' multi-year share purchase program.
  • Returning $13.3 billion to shareholders through TELUS' dividend and share purchase programs from 2004 to the end of July 2016, including $8.2 billion in dividends and $5.2 billion in share buybacks, representing over $22 per share.

About TELUS

TELUS (TSX:T)(NYSE:TU) is Canada's fastest-growing national telecommunications company, with $12.6 billion of annual revenue and 12.5 million subscriber connections, including 8.4 million wireless subscribers, 1.6 million high-speed Internet subscribers, 1.4 million residential network access lines and 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 $440 million to charitable and not-for-profit organizations and volunteered more than 6.8 million hours of service to local communities since 2000. Created in 2005 by President and CEO Darren Entwistle, TELUS' 11 Canadian community boards and 4 International boards have led the Company's support of grassroots charities and have contributed more than $54 million in support of over 4,900 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.

This news release contains statements about financial and operating performance of TELUS (the Company) and future events, including with respect to future dividend increases and normal course issuer bids through 2019, the 2016 annual targets and 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. 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. 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, this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for the 2016 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), qualifications and risk factors referred to in the accompanying second quarter Management's discussion and analysis and in the 2015 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.

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