VANCOUVER – Revenues and earnings climbed for Telus Corp. in the first quarter of 2005, despite losses in the residential local line market.
Consolidated operating revenues of nearly $2 billion in the quarter increased almost 10% from a year ago and operating income was up 46%. Earnings per share for the first quarter were 67 cents, up 139% compared with 28 cents for the same period a year ago. Earnings per share for the first quarter benefited from 15 cents in positive tax related adjustments versus four cents for the first quarter of 2004.
Free cash flow increased $123 million to $567 million during the quarter, a 28% improvement from a year ago.
“First quarter results were exceedingly strong for both Telus Communications and Telus Mobility,” said Darren Entwistle, president and CEO. “Moreover, bottom line earnings increased 117% year over year after adjusting for non-recurring tax benefits. These outstanding results are underpinned by Telus’ consistent execution of our data and wireless growth strategy. We are striving to bring the collective bargaining process to a positive conclusion for all stakeholders so that our unionized team members can also share more fully in our ongoing success."
Telus is facing an acrimonious labor dispute at the moment where workers in BC fear they will soon be locked out.
Robert McFarlane, executive vice president and CFO, said that while pleased with results, he warned investors about looking too far ahead. “These ahead of plan results and improved outlook have led to our raising guidance for most full year targets in 2005. However, we must remain cautious about projecting results into the future. Future expectations should be tempered by the potential impact of ongoing trends of increased competitive and technological threats, higher restructuring costs in the remainder of the year and the recognition that we still face an as yet unresolved labour relations challenge,” he said.
Telus is retaining existing customers and positioning itself for future revenue growth, particularly in the areas of data and IP. This is in the face of continued competitive pressures including launch this quarter of local service in Calgary by the cable-TV operator. Measures taken for consumer services include new Future Friendly Home services last year and the introduction of a three-year contract option for consumer optional features bundles. This initiative was launched to help retain customers, lock in revenues over the contract period, and delay or reduce churn to competitors.
Residential network access lines continued to decrease as a result of competitive activity and technological substitution, including substitution to wireless services, says the company. Residential line losses were primarily to existing resellers and VoIP competitors, in comparison to losses incurred as a result of introduction of cable telephony in Calgary. Business lines decreased nominally in the first quarter of 2005, as incumbent local exchange carrier (ILEC) Centrex line losses to competition and migration to more efficient ISDN data services were nearly offset by temporary ILEC line gains for the upcoming May 2005 B.C. provincial election and non-incumbent local exchange carrier ("non-ILEC") gains.
“It is expected that the trend of declining residential network access lines will worsen in the future due to new voice telephony service offers from cable-TV competitors, and continued competition from other resale and VoIP competitors.
Telus Mobility saw strong cash flow improvement of $80 million driven by 19% revenue growth and significant margin expansion during Q1. Revenues increased by $121 million or 19% to $758 million in the first quarter of 2005, when compared with the same period in 2004. EBITDA increased by $90 million or 36% to $337 million and EBITDA margin expanded by 6.7 points to 49% of network revenue and by 5.6 points to 45% of total revenue
ARPU (average revenue per subscriber unit) increased by $1 to $58, and cost of acquisition ("COA") per gross subscriber improved to $355 from $383. Net subscriber additions of 80,200 in the quarter, improved 5% from a year ago. Notably, higher revenue-generating postpaid subscriber net additions of 74,800 increased by 16%, representing 93% of total net additions.
Blended monthly churn improved to 1.45% from 1.49% when compared to the same quarter a year ago. Postpaid churn was 1.12% this quarter, down from 1.17% a year ago. Cash flow (EBITDA less capital expenditures) increased by $80 million to a quarterly record of $278 million
Telus Communications – the wireline division – saw strong cash flow improvement driven by 4% revenue growth with EBITDA growth of 10%. Revenues increased by $49 million or 4% in the first quarter of 2005, when compared with the same period in 2004 representing a third quarter of year-over-year growth
Data revenue increased 11% driven by a 18% increase in the high-speed Internet subscriber base and non-incumbent growth in Central Canada. The company posted a strong 24% increase in non-incumbent revenues in Ontario and Quebec to $160 million creating another quarter of profitability
Long-distance revenue declined 1%, the second consecutive quarter of a modest 1% year-over-year decline. High-speed Internet net additions were 22,200 in the first quarter, bringing Telus’ total high-speed Internet subscriber base to 711,900, an 18% increase from last year.
On the labor front, Telus and the Telecommunications Workers Union (TWU) continue to attempt to reach a replacement collective agreement, says the company. However, it has made early moves towards locking workers out.
In early February, the Canada Industrial Relations Board (CIRB) issued a decision overturning its year old ruling that imposed binding arbitration on Telus, and returned the parties to the collective bargaining process while reinstating a narrower communications ban on the company.
The TWU appealed this CIRB decision to the Federal Court of Appeal and it is scheduled to be heard on May 31, 2005. Since the release of that decision in February, the parties have been in negotiations under the supervision of a federally appointed Mediator.
On April 18 the company, noting that negotiations were at an impasse, delivered a first notice of lockout and the planned imposition of six specific lockout measures (suspension of grievance and arbitration processes, joint Union management committees, scheduling of accumulated time off, payment of the first day of sickness, and the deferral of wage progression increases and increases in vacation entitlements), says the Telus release.
These measures implemented on April 25, did not include closing any operations and were intended to bring pressure to bear at the negotiating table. In addition, with the announcement of these specific lockout measures, the communications ban was lifted and Telus on April 21 communicated its comprehensive offer, previously made available to the TWU at the negotiating table, directly to unionized team members. Negotiations have continued to date.
After four and half years without a new contract, Telus is attempting to bring resolution to the collective bargaining process and reach a replacement collective agreement for the benefit of team members, customers and investors, it says.
