VANCOUVER – The financial future looks friendly for Telus Corporation whose CEO has decided for the fourth consecutive year to take his salary in Telus shares. The move should come as no surprise given that Telus’ third quarter revenue increased 6% to $2.8 billion, while profit rose 7.7% from a year ago to $351 million. Earnings per share jumped 8% to $1.08 and free cash flow in Q3 increased 23% from a year ago to $426 million primarily due to higher EBITDA.
Smartphone subscribers now make-up 63% of the total postpaid subscriber base of 6.4 million at Telus compared to 48% a year ago. It noted that growth in wireless network revenues now more than offsets declining legacy wireline voice and other service and equipment revenues. It cautioned though that the “growing demand for wireless data may challenge network and spectrum capacity in the future.”
Telus attributes its growth to a 7% increase in wireless revenue and a 12% jump in wireless EBITDA, resulting from a 23% spike in data revenue due to continued smartphone adoption. It also reported that wireline revenue growth of 4% was generated by a 14% increase in data revenue driven by strong TV and high-speed Internet growth.
The company’s total customer base of 13 million grew with the addition this quarter of 116,000 new postpaid wireless customers, 42,000 new TV subscribers and 26,000 high-speed Internet customers. This was partially offset by a network access line loss of 39,000. Telus' total wireless subscriber base of 7.6 million is up 5% from last year and the average revenue per unit increased by 1.5%. The subscriber base for Telus TV of 637,000 is up 41% from a year ago, while high-speed Internet customers increased 7% to surpass 1.3 million.
"Our long-standing strategy to invest in broadband wireless and wireline data technology, services and applications within our core businesses coupled with a focus on putting customers first has resulted in strong quarterly operational and financial growth," said Darren Entwistle, Telus President and CEO.
"… Encouragingly we saw those customers continuing to stay with us longer, as evidenced by our industry leading 1.44% wireless churn rate. This strong performance translated this quarter into double-digit data revenue growth, 8% earnings per share growth and 23% free cash flow growth."
Entwistle added that Telus is increasing the dividend by three cents to 64 cents a quarter, or $2.56 annually, a 10.3% increase from a year ago.
Telus CFO McFarlane retiring
"I would like to take this opportunity to extend my deep gratitude to Bob McFarlane for his enormous commitment and extraordinary contributions to Telus. After an outstanding 12 year career at our company as CFO, Bob has decided to retire at the end of the year and devote more time to his family and community endeavours," said Entwistle.
"Bob's distinguished leadership of Telus' finance team has yielded a legacy that includes setting rigorous financial policies, achieving a stellar track record of disclosure transparency and helping Telus consistently deliver on our public commitments to the investment community. His efforts, alongside those of his colleagues across Telus, have contributed greatly to our company's business success, globally leading shareholder value creation amongst our peers and industry leading balance sheet. Bob and our Telus team have received countless Canadian and global awards for excellence in corporate disclosure, sustainability reporting, risk management and investor relations.”
Experienced communications industry CFO, John Gossling will succeed McFarlane as executive vice-president and chief financial officer on November 12th. He will work closely with McFarlane until the end of 2012 to ensure an effective transition said Telus. From 2008 to 2011 Gossling was the CFO of CTVglobemedia, leading all financial activities for the company.
"Telus has a strong financial position as reflected by the combination of continued good earnings and cash flow growth along with a 1.7 times net debt to EBITDA ratio, which is well within our policy range and represents the best such credit metric in the Canadian media and telecom industry. This positions Telus favourably for continued advantaged access to the capital markets and to be in a strong position for future wireless spectrum auctions, as well as for continued dividend growth, and builds on our track record of balancing the interests of debt and equity investors," explained McFarlane.
Telus wireless
• External wireless revenues increased by $104 million or 7.4% to $1.5 billion in the third quarter of 2012, compared to the same period a year ago. This growth was driven by continued subscriber and average revenue per unit (ARPU) growth.
• Data revenue increased by $102 million or 23% to $546 million. Data ARPU increased by $3.61 or 17% to $24.51. These increases were due to continued strong adoption of smartphones and related data plans, higher roaming volumes, growth in mobile Internet devices and tablets, and increased revenues from text messaging.
• Blended ARPU increased by $0.90 or 1.5% to $61.42 as 17% data ARPU growth more than offset a 6.8 % voice ARPU decline. This is the eighth consecutive quarter of year-over-year blended ARPU growth.
• Blended monthly subscriber churn decreased 23 basis points year-over-year to 1.44% – the lowest third quarter result in five years – reflecting the successful customers-first marketing and service approach, effective investments in retention and lower churn on smartphones. Postpaid churn was 1.1%, down 23 basis points from a year ago.
• Total wireless net additions of 111,000 were lower by 2.6% year-over-year from the addition of 116,000 postpaid subscribers and a loss of 5,000 lower-ARPU prepaid subscribers. Postpaid net additions, which declined by 13% from a year ago, were impacted by delayed customer purchase decisions ahead of the anticipated launch of the new iPhone 5 in late September.
• Total wireless subscribers were up 4.8% from a year ago to 7.56 million and the proportion of high-value postpaid subscribers increased by two points to 85%. Smartphone subscribers now make-up 63% of the total postpaid subscriber base of 6.4 million as compared to 48% a year ago.
• Wireless EBITDA of $640 million increased $70 million or 12% due to strong revenue network growth and expense control. The margin of 42.4% increased by 1.9 points over last year. Network service revenue margin was up 2.4 points to 46.6%.
• Simple cash flow (EBITDA less capital expenditures) increased by $52 million or 13% to $465 million in the quarter as EBITDA growth was partially offset by increased capital spending related to the ongoing expansion of Telus' new 4G LTE network, as well as investments in HSPA+ network capacity and coverage, and Internet data centres.
Telus wireline
• External wireline revenues increased by $48 million or 3.9% to $1.27 billion in the third quarter of 2012, when compared with same period a year ago. This growth was generated by increased data service and equipment revenues, partially offset by declines in local, long-distance, and other service and equipment revenues.
• Data service and equipment revenues increased by $93 million or 14%, due primarily to strong growth in the Telus TV subscriber base and high-speed Internet and enhanced data services, rate increases, and higher equipment sales.
• Telus TV additions of 42,000 were lower by 8,000 over the same quarter last year, as stable growth in new customers and a significantly lower churn rate were offset by a higher amount of deactivations from the increasing subscriber base. The total Telus TV subscriber base increased 41% to 637,000 up by 184,000 from a year ago.
• High-speed Internet net additions of 26,000 were 18% higher than a year ago and reflect successful promotions and the pull-through effect of Optik TV sales. Telus' high-speed subscriber base of 1.3 million is up 7% or 85,000 from a year ago.
• Total network access lines declined 5.3% from a year ago to 3.45 million. Residential line losses of 30,000 were unchanged year-over-year, showing an improving sequential trend from the previous two quarters. Residential lines are down 7.7% year-over-year, reflecting ongoing competition and wireless and Internet substitution. Business NAL losses of 9,000 reflect ongoing price based competition in the small and medium business market, and conversion from legacy voice services to IP services.
• Wireline EBITDA of $378 million decreased by $20 million or 5% due to ongoing declines in higher margin legacy voice services that were not offset by growth in lower margin data services.
• Simple cash flow (EBITDA less capital expenditures) declined slightly by $3 million to $82 million in the quarter as lower EBITDA was largely offset by lower capital spending.
