TELUS Corporation today released its unaudited results for the
third quarter of 2023. Consolidated operating revenues and other
income increased by 7.2 per cent over the same period a year ago to
$5.0 billion. This growth was driven by higher service revenues in
our two reportable segments: TELUS technology solutions (TTech) and
Digitally-led customer experiences – TELUS International (DLCX).
TTech service revenue growth was driven by: (i) growth in health
services revenues, mainly driven by our acquisition of LifeWorks on
September 1, 2022 and organic growth; (ii) higher mobile network
revenues attributable to subscriber and moderating roaming revenue
growth; and (iii) an increase in fixed data service revenues,
resulting from subscriber growth and higher, but moderating,
revenue per internet customer. These factors were partly offset by
lower TV and fixed legacy voice services revenues, primarily due to
technological substitution. Growth in DLCX operating revenues
resulted from expanded services for certain existing clients and
growth from new clients, including those from our acquisition of
WillowTree on January 3, 2023, and favourable foreign exchange
impacts, which collectively more than offset the impact of some
DLCX clients managing their own costs thus reducing our revenue.
See Third Quarter 2023 Operating Highlights within this news
release for a discussion on TTech and DLCX results.
"For the third quarter, our TELUS team once again demonstrated
execution strength in our TTech business segment, characterized by
the potent combination of leading customer growth, complemented by
strong operational and financial results, alongside improving
EBITDA growth and margin expansion in our DLCX segment," stated
Darren Entwistle, President and CEO. “Our robust performance in our
core telecom business is underpinned by our globally leading
broadband networks and customer-centric culture, which enabled our
strongest quarter on record, with total customer net additions of
406,000, up 17 per cent, year-over-year, driven by strong demand
for our leading portfolio of bundled services across Mobility and
Fixed services. This included strong mobile phone net additions of
160,000, our best third quarter on record and best quarterly result
since the second quarter of 2008; all-time record third quarter
connected device net additions of 179,000; and robust third quarter
total fixed net additions of 67,000, including 37,000 internet
customer additions, powered by leading customer loyalty in
combination with TELUS’ PureFibre network. Our leading customer
growth is reflective of our consistent, industry-best client
loyalty across our Mobile and Fixed product lines. Our team’s
passion for delivering customer experience excellence contributed
to continued strong loyalty across our key product lines, once
again this quarter. Notably, postpaid mobile phone churn is now in
the tenth consecutive year of less than one per cent.”
“Today, TI reported steady year-over-year revenue growth,
sequential profitability improvement, and reiterated its 2023 full
year outlook,” continued Darren. “Revenue growth was driven by a
combination of higher volumes and the ramp up of projects across
key clients, notably within TI AI Data Solutions, demonstrating the
significant potential for TI in the AI space. TI’s Adjusted EBITDA
margin increased meaningfully quarter-over-quarter, a positive
trend that we expect to see continue in the fourth quarter and into
2024. This strong improvement reflects the team’s considerable
efforts to realize the significant cost savings from our cost
efficiency program aimed at rebalancing supply and demand factors
across TI’s operations, most notably in Europe. Despite the
near-term challenges stemming from macroeconomic pressures that TI
has faced this year, we remain highly confident in TI’s strategy
and investment thesis. This is amplified by meaningful
opportunities in respect of digital transformation – particularly
with generative AI adoption – and the continuing critical
importance of differentiated digital customer experience solutions
in the market, which remains a vibrant tailwind for TI’s medium-
and long-term growth and profitability.”
“At our TELUS Health business unit, we achieved third quarter
revenues of $422 million, alongside 20 per cent EBITDA growth,
normalizing for LifeWorks. We continue to execute on our global
growth strategy and demonstrate our progress towards our goal to be
the most trusted wellbeing company in the world, accelerated by our
acquisition of LifeWorks in 2022. This includes our healthcare
services and programs now covering more than 69 million lives
around the world, an increase of more than 9 million
year-over-year; supporting health outcomes on nearly 151 million
digital health transactions during the third quarter, up more than
five per cent over the same period a year ago; and increasing our
virtual care membership to 5.5 million, up nearly 40 per cent over
the prior year. As we evolve alongside the needs of our customers,
world-wide, we foresee TELUS Health continuing its double-digit
growth over the long-term. Since acquiring LifeWorks, our team has
committed to driving $427 million in annualized synergies by the
end of 2025. This includes $327 million expected to be realized
through operating cost synergies from continued integration, and
optimizing our organizational structure, systems and real estate.
To date, we have achieved $194 million in combined annualized
synergies, towards our overall objective. Furthermore, we
anticipate $100 million from longer term revenue synergies driven
by cross-selling health services products within our TELUS Health
customer base, and throughout our TELUS portfolio of assets,
including TI. These synergies will allow us to re-invest in the
growth of our business and improve our profitability, while we
focus on delivering efficient, secure and best-in-class health and
wellness solutions to our customers.”
“Our all-time record customer growth is underpinned by our
dedicated team who are passionate about delivering superior service
offerings, and digital capabilities, over our world-leading
wireless and PureFibre broadband networks,” added Darren. “Notably,
in August, TELUS was named the Fastest Internet Service Provider
(ISP) in Canada, for the fourth consecutive year, and recognized as
the Best ISP for Alberta and British Columbia by U.S.-based PCMag.
This outstanding accomplishment illustrates the TELUS team’s
steadfast commitment to connecting Canadians to the people and
information that matter most, thanks to TELUS’ fast, expansive and
reliable PureFibre network. Moreover, this recognition of TELUS’
national broadband network leadership underscores the tremendous
value of our generational investments in world-leading wireless and
wireline network technologies, which will continue to drive
extensive socio-economic benefits for Canadians in communities from
coast-to-coast, for decades to come.”
“Importantly, our significant broadband network investments
enable the continued advancement of our financial and operational
performance, and the long-term sustainability of our
industry-leading dividend growth program,” continued Darren. “The
7.1 per cent year-over-year dividend increase announced today
represents the twenty-fifth increase since we initiated our
multi-year dividend growth program in 2011, with our program now in
its thirteenth year. Since 2004, TELUS has returned more than $24
billion to shareholders, including over $19 billion in dividends,
representing approximately $17 per share.”
“To buttress our consistently strong performance, against the
backdrop of the rapid transformation in our industry and evolving
regulatory, competitive and macroeconomic environment that we
currently face, we continue to focus on executing the extensive
efficiency and effectiveness initiative across TELUS, announced in
August. Importantly, the transformational investments we have
prudently made over the course of more than a decade in building
the best culture, and enabling industry-leading customer
experiences over our globally leading wireless and PureFibre
broadband networks, allowed us to accelerate our well-progressed
plans to digitally revolutionize our business and further
streamline our operating costs. Our team’s grit, resilience and
ability to embrace change and continuously evolve the way we
operate have enabled us to substantially complete the targeted team
member reductions. The incremental cost savings are expected to
begin to be realized in the fourth quarter, with the full run-rate
expected by the second quarter of next year. While this initiative
has come with many difficult decisions, we have leveraged our
decades-long track record of successfully navigating exogenous
factors, from regulatory and competitive, to macroeconomic, and
most recently, through the global pandemic, in order to rise to the
current challenges and future proof our business.”
“TELUS’ global leadership in social capitalism was exemplified
by the recent launch of the $50 million TELUS Student Bursary – the
largest bursary fund in Canada,” concluded Darren. “Created through
a $25 million endowment from TELUS, along with an additional $25
million fundraising commitment from the TELUS Friendly Future
Foundation, the TELUS Student Bursary will enable thousands of
young people — who might otherwise lack the means — to enrich their
lives through post-secondary education at a university, college or
technical vocational school. Importantly, the annual bursary
program will empower these leaders of tomorrow to pursue their
ambitions, realize their potential and create a brighter future for
themselves and their communities. Indeed, our TELUS team is helping
to make the future friendly by ensuring that no young person is
left behind.”
Doug French, Executive Vice-president and CFO said, “Our third
quarter results demonstrate our strong execution within a highly
competitive environment and evolving global macroeconomic climate.
In our domestic telecom business, our operating results showcase
the power of our brand, in the communities we serve, and the
strength of our leading bundled solutions across mobility and
fixed, and in turn how those results are delivering robust
financial outcomes as illustrated by seven per cent Adjusted EBITDA
growth in our TTech segment. Within our global businesses, TI
executed against its significant efficiency plans to meaningfully
right size its cost structure, in response to macroeconomic
pressures, as evidenced by the healthy sequential improvement in
Adjusted EBITDA margins, and furthermore, putting itself in a
strong position to elevate its margin profile as it exits 2023. Our
TELUS Health team continues to execute its integration plan with
LifeWorks, yielding significant cost efficiencies, positioning the
business for strong growth in 2024 and beyond.”
“During the third quarter, we continued to execute against our
cost efficiency program, across our business, as outlined with the
release of our second quarter results in August. While these
efforts will continue into the fourth quarter of 2023 and into
early 2024, this significant program will drive permanent cost
reductions across our organization, supporting our growth profile
and cash flow generation, as well as our dividend growth program
and balance sheet deleveraging. Our team also successfully accessed
the capital markets during the third quarter, issuing $1.75 billion
in new debt securities across three different maturities, including
our fifth sustainability-linked bond. This offering was met with
strong investor demand, within a dynamic market environment, and
further demonstrates our strong access to the capital markets as we
further advance our growth strategy. Our balance sheet remains
strong with the average cost of our long-term debt at 4.33 per
cent, well below current rates, reflecting how our team has
successfully leveraged the ultra-low interest rate environment over
the last decade to accelerate our growth strategy, including our
generational PureFibre build. We have a strong debt maturity
schedule with the average maturity of our long-term debt at nearly
12 years and our ratio of fixed-to-floating stands at 85 per cent,
a strong mitigation measure in an elevated yield environment,”
concluded Doug.
As compared to the same period a year ago, net income in the
quarter of $137 million was down 75 per cent and Basic earnings per
share (EPS) of $0.09 decreased by 76 per cent. These decreases were
driven by the impacts from: (i) higher restructuring and other
costs related to our cost efficiency and effectiveness programs
including workforce reduction; (ii) higher depreciation and
amortization primarily due to growth in capital assets over the
past 12 months, including business acquisitions and our expanded
broadband footprint; increased depreciation on network leases;
increased depreciation from impairments arising from real estate
rationalization; and higher asset retirement activity; and (iii)
higher financing costs primarily from the estimated unrealized
decline recorded from our virtual power purchase agreements with
renewable energy projects as of September 30, 2023, as well as
greater long-term debt outstanding and an increase in the effective
interest rate. As it relates to EPS, the trends also reflect the
effect of a higher number of Common shares outstanding. When
excluding the effects of restructuring and other costs, income
tax-related adjustments, other equity income related to real estate
joint ventures and virtual purchase power agreements unrealized
change in forward element (see ‘Reconciliation of adjusted Net
income’ in this news release), adjusted net income of $373 million
decreased by 21 per cent over the same period last year, while
adjusted basic EPS of $0.25 was down 26 per cent over the same
period last year. Adjusted net income is a non-GAAP financial
measure and adjusted basic EPS is a non-GAAP ratio. For further
explanation of these measures, see ‘Non-GAAP and other specified
financial measures’ in this news release.
Compared to the same period last year, consolidated EBITDA
decreased by 7.9 per cent to more than $1.5 billion due to
significantly higher restructuring and other costs of $303 million
related to our cost efficiency and effectiveness programs,
including workforce reduction, and Adjusted EBITDA increased by 5.5
per cent to more than $1.8 billion. The growth in Adjusted EBITDA
reflects: (i) higher mobile network revenues driven by subscriber
growth and our moderating roaming recovery; (ii) growth in health,
inclusive of business acquisitions and organic growth; (iii) lower
headcount; and (iv) increased margins for internet and security,
driven by subscriber growth. These factors were partly offset by:
(i) merit-based compensation increases; (ii) higher costs related
to the scaling of our digital capabilities, inclusive of increased
subscription-based software licences, contractor and cloud usage
costs; (iii) declining TV and fixed legacy voice margins; and (iv)
a decline in DLCX contribution primarily due to cost imbalances
arising from reductions in service demand, principally in Europe,
from some of our larger technology clients, with the impacts being
more significant beginning in the second quarter of 2023, which
were partially offset by cost efficiency efforts initiated in the
second quarter of 2023.
In the third quarter, we added 406,000 net customer additions,
up 59,000 over the same period last year, and inclusive of 160,000
mobile phones and 179,000 connected devices, in addition to 37,000
internet, 20,000 TV and 18,000 security customer connections. This
was partly offset by residential voice losses of 8,000. Our total
TTech subscriber base of 18.9 million is up 7.2 per cent over the
last twelve months, reflecting a 4.0 per cent increase in our
mobile phone subscriber base to approximately 10 million and a 23
per cent increase in our connected devices subscriber base to more
than 2.9 million. Additionally, our internet connections grew by
9.2 per cent over the last twelve months to approximately 2.6
million customer connections, our TV subscriber base increased by
4.8 per cent to approximately 1.4 million customers, and our
security customer base expanded by 8.7 per cent to more than 1.0
million customers.
In health services, as of the end of the third quarter of 2023,
virtual care members were 5.5 million and healthcare lives covered
were 69.6 million, up 38 per cent and 15 per cent over the past
twelve months, respectively. Digital health transactions in the
third quarter of 2023 were 150.6 million, up 5.2 per cent over the
third quarter of 2022.
Cash provided by operating activities increased by $7 million
and free cash flow of $355 million increased by $24 million in the
third quarter of 2023 compared to the same period a year ago. The
increase in free cash flow was driven by higher Adjusted EBITDA and
lower capital expenditures, partially offset by higher cash
interest paid.
Consolidated capital expenditures of $769 million, including $22
million for real estate development, decreased by 17 per cent in
the third quarter of 2023. TTech operations drove $161 million of
the decrease in the third quarter of 2023 primarily due to the
planned slowdown of our fibre and wireless network build and
systems development, which is consistent with 2023 build targets
when compared to our accelerated investments in the comparative
period of 2022. Our capital investments have enabled: (i) our
internet, TV and security subscriber growth, as well as more
premises connected to our fibre network; (ii) increased coverage of
our 5G network; (iii) the expansion of our health product offerings
and capabilities, as well as to support business integration; and
(iv) enhancement of our product and digital development to increase
our system capacity and reliability. TTech real estate development
capital expenditures increased by $3 million in the third quarter
of 2023 due to increased capital investment to support construction
of multi-year development projects including TELUS Ocean and other
commercial buildings in B.C. By September 30, 2023, our 5G network
covered approximately 31.6 million Canadians, representing over 85
per cent of the population.
Consolidated Financial Highlights
|
C$ millions, except footnotes and unless noted otherwise |
Three months ended September 30 |
Per cent |
|
(unaudited) |
2023 |
|
2022 |
|
change |
|
Operating revenues (arising from contracts with customers) |
4,990 |
|
4,640 |
|
7.5 |
|
| Operating revenues and other
income |
5,008 |
|
4,671 |
|
7.2 |
|
| Total operating expenses |
4,491 |
|
3,875 |
|
15.9 |
|
| Net income |
137 |
|
551 |
|
(75.1 |
) |
| Net income attributable to
common shares |
136 |
|
514 |
|
(73.5 |
) |
| Adjusted net income(1) |
373 |
|
471 |
|
(20.8 |
) |
| Basic EPS ($) |
0.09 |
|
0.37 |
|
(75.7 |
) |
| Adjusted basic EPS(1) ($) |
0.25 |
|
0.34 |
|
(26.5 |
) |
| EBITDA |
1,517 |
|
1,646 |
|
(7.9 |
) |
| Adjusted EBITDA(1) |
1,820 |
|
1,724 |
|
5.5 |
|
| Capital expenditures(2) |
(769 |
) |
(925 |
) |
(16.9 |
) |
| Cash provided by operating
activities |
1,307 |
|
1,300 |
|
0.5 |
|
| Free cash flow(1) |
355 |
|
331 |
|
7.3 |
|
| Total telecom subscriber
connections(3) (thousands) |
18,935 |
|
17,670 |
|
7.2 |
|
| Healthcare lives covered(4)
(millions) |
69.6 |
|
60.4 |
|
15.2 |
|
Notations used in the table above: n/m – not meaningful.
|
(1) |
These are non-GAAP and other specified financial measures, which do
not have standardized meanings under IFRS-IASB and might not be
comparable to those used by other issuers. For further definitions
and explanations of these measures, see ‘Non-GAAP and other
specified financial measures’ in this news release. |
| (2) |
Capital expenditures include
assets purchased, excluding right-of-use lease assets, but not yet
paid for. Consequently, capital expenditures differ from Cash
payments for capital assets, excluding spectrum licences, as
reported in the condensed interim consolidated statements of cash
flows. Refer to Note 31 of the interim consolidated financial
statements for further information. |
| (3) |
The sum of active mobile phone
subscribers, connected device subscribers, internet subscribers,
residential voice subscribers, TV subscribers and security
subscribers, measured at the end of the respective periods based on
information in billing and other source systems. Effective January
1, 2023, on a prospective basis, we adjusted our mobile phone and
connected device subscriber bases to remove 50,000 subscribers and
add 82,000 subscribers, respectively, due to a review of our
subscriber bases. Effective January 1, 2023, on a prospective
basis, we adjusted our internet subscriber base to add 70,000
subscribers as a result of business acquisitions. |
Third Quarter 2023 Operating Highlights
TELUS technology solutions (TTech)
- TTech operating revenues (arising from contracts with
customers) increased by $311 million or 7.8 per cent in the third
quarter of 2023, primarily reflecting increases in mobile network
revenue, mobile equipment and other service revenues, fixed data
services revenues and health services revenues, as described below.
Decreases in fixed voice services revenues and agriculture and
consumer goods services revenues were partial offsets.
- TTech EBITDA decreased by $111 million or 7.7 per cent in the
third quarter of 2023, while TTech Adjusted EBITDA increased by
$109 million or 7.0 per cent, reflecting an increase in direct
contribution, lower headcount, inclusive of synergies achieved with
LifeWorks, and lower advertising and promotional costs. These
factors were partially offset by: (i) merit-based compensation
increases; (ii) higher costs related to business acquisitions;
(iii) increased services provided by the DLCX segment; and (iv)
higher costs related to the scaling of our digital capabilities,
inclusive of increased subscription-based licences, contractor and
cloud usage costs.
Mobile products and services
- Mobile network revenue increased by $57 million or 3.4 per cent
in the third quarter of 2023, largely due to growth in our mobile
phone and connected device subscriber base as well as moderating
roaming revenue growth. These impacts were partly offset by the
impact of lower base rate plan prices and lower overage revenues,
as discussed in mobile phone ARPU below.
- Mobile equipment and other service revenues increased by $12
million or 2.2 per cent in the third quarter of 2023, largely
attributable to higher-value smartphones in the sales mix. This was
partly offset by a reduction in contracted volumes attributed to
increased promotional activity centred around rate plans and market
aggression, in addition to more customers taking advantage of
bring-your-own-device plan offerings.
- Mobile products and services direct contribution increased by
$65 million or 4.2 per cent in the third quarter of 2023, largely
reflecting mobile subscriber growth, higher roaming margins
associated with increased international travel volumes and higher
equipment margins. These were partly offset by higher commissions
attributed to increased levels of retail traffic.
- Mobile phone ARPU was $59.19 in the third quarter of 2023,
reflecting a decrease of $0.29 or 0.5 per cent for the quarter.
This decrease is attributed to lower base rate plan prices from
increased promotional activity and market aggression affecting both
new and existing customers, which first escalated in the second
quarter of 2023 and continued through the third quarter, in
addition to lower overage revenues as customers continue to adopt
larger or unlimited data and voice allotments in their rate plans.
These impacts are partly mitigated by our continued focus to drive
higher-value loading and realize higher, albeit moderating, roaming
revenues from increased travel.
- Mobile phone gross additions were 455,000 in the third quarter
of 2023, an increase of 34,000. These increases were largely driven
by growth in postpaid gross additions due to continued
market-driven promotional activity and market aggression which
first escalated in the second quarter of 2023 and continued through
the third quarter, increased retail and digital traffic, and growth
in the Canadian population.
- Mobile phone net additions were 160,000 in the third quarter of
2023, an increase of 10,000, driven by higher mobile phone gross
additions, partially offset by higher mobile phone churn, as
described below.
- Our mobile phone churn rate was 1.00 per cent in the third
quarter of 2023 compared to 0.95 per cent in the third quarter of
2022. This churn rate increased largely due to higher customer
switching activity corresponding with increased market-driven
promotions, as discussed above. These factors have been partly
mitigated by our continued focus on customer retention through our
industry-leading service and network quality, successful promotions
and bundled offerings.
- Connected device net additions were 179,000 in the third
quarter of 2023, an increase of 55,000, attributable to increased
IoT connections, as well as sales of other connected devices, such
as tablets and mobile internet.
Fixed products and services
- Fixed data services revenues increased by $54 million or 4.9
per cent in the third quarter of 2023. The increases were driven
by: (i) an increase in our internet, security and TV subscribers;
and (ii) higher, albeit moderating, revenue per customer as a
result of internet speed upgrades and rate changes. This growth was
partially offset by lower TV revenue per customer, reflecting an
increased mix of customers selecting smaller TV combination
packages and technological substitution.
- Fixed voice services revenues decreased by $7 million or 3.5
per cent in the third quarter of 2023, reflecting the ongoing
decline in legacy voice revenues as a result of technological
substitution and price plan changes. Declines were partly mitigated
by the success of our bundled product offerings, our retention
efforts and the migration from legacy to IP services
offerings.
- Fixed equipment and other service revenues were unchanged in
the third quarter of 2023.
- Fixed products and services direct contribution increased by
$89 million or 7.4 per cent in the third quarter of 2023,
reflecting growth in health, inclusive of business acquisitions and
organic growth, as well as increased margins for internet, data and
security, driven by subscriber growth. These were partly offset by
declining TV and legacy voice margins, principally due to
technological substitution.
- Internet net additions were 37,000 in the third quarter of
2023, an increase of 1,000 for the quarter. The increase was due to
our success in driving strong gross additions in the consumer
market through bundled product offerings, partly offset by a higher
churn rate from macroeconomic pressures impacting consumer
purchasing decisions.
- TV net additions were 20,000 in the third quarter of 2023, an
increase of 2,000 for the quarter, due to our diverse offerings,
partly offset by higher churn related to the same factors as
internet.
- Security net additions were 18,000 in the third quarter of
2023, a decrease of 7,000 for the quarter, due to higher churn
related to the same factors as internet, partly offset by increased
demand for our bundled product offerings and diverse suite of
products and services.
- Residential voice net losses were 8,000 in the third quarter of
2023 as compared to a net loss of 6,000 in the same period a year
ago. Our bundled product and lower-priced offerings have been
successful at mitigating losses and minimizing substitution to
mobile and internet-based services.
Health services
- Through TELUS Health, we are leveraging technology to deliver
connected solutions and services, improving access to care and
revolutionizing the flow of information while facilitating
collaboration, efficiency, and productivity across the healthcare
ecosystem, progressing our vision of transforming healthcare and
empowering people to live healthier lives.
- Health services revenues increased by $197 million in the third
quarter of 2023, driven by: (i) our acquisition of LifeWorks on
September 1, 2022, inclusive of organic growth in demand for our
integrated health, productivity, retirement and benefit solutions;
(ii) the continued adoption of our virtual care solutions; and
(iii) increased revenue associated with our pharmacy management
software.
- At the end of the third quarter of 2023, 5.5 million members
were enrolled in our virtual care services, an increase of 1.5
million over the past 12 months, attributable to the continued
adoption of virtual solutions that keep Canadians and others safely
connected to health and wellness care.
- At the end of the third quarter of 2023, our healthcare
programs covered 69.6 million lives as of the end of the third
quarter of 2023, an increase of 9.2 million lives over the past 12
months, mainly due to healthy growth in our employee and family
assistance programs from both new and existing clients across all
of our regions, in addition to continued demand for virtual
solutions.
- Digital health transactions were 150.6 million in the third
quarter of 2023, an increase of 7.4 million for the quarter,
largely driven by increased paid exchange of healthcare data
between our health benefits management system and care providers
resulting from higher patient demand for elective health
services.
Agriculture and consumer goods services
- Through TELUS Agriculture & Consumer Goods, we provide
innovative digital solutions and actionable data-insights that
better connect the global supply chain, driving more efficient
production processes and improving the safety, quality and
sustainability of food and consumer goods. Importantly, these
efforts are also enabling better traceability to the end consumer,
further supporting improved food outcomes.
- Agriculture and consumer goods services revenues decreased by
$2 million in the third quarter of 2023, reflecting transient
headwinds and macroeconomic challenges, including subscription
softness and churn in our Software-as-a-Service (SaaS)-based
revenue management software for consumer goods manufacturers. Our
agriculture and consumer goods revenues are largely earned in U.S.
dollars, and in 2023 compared to 2022, the Canadian dollar weakened
against the U.S. dollar, resulting in favourable impacts to
revenues.
Digitally-led customer experiences – TELUS International
(DLCX)
- DLCX operating revenues (arising from contracts with customers)
increased by $39 million or 5.8 per cent in the third quarter of
2023 attributable to growth in our tech and games, eCommerce and
fintech and other industry vertical clients, as discussed below.
This growth was partially offset by lower revenues from one of our
largest clients, a leading social media company, as well as a
global financial institution client. In addition, the strengthening
of both the U.S. dollar and the European euro against the Canadian
dollar resulted in a favourable foreign currency impact on our DLCX
operating results. Revenues from contracts denominated in U.S.
dollars, European euros and other currencies will be affected by
changes in foreign exchange rates.
- Revenue from our tech and games industry vertical increased by
$27 million or 7.2 per cent in the third quarter of 2023, due to
continued growth experienced with a number of our technology
clients and the addition of new clients, which was partially offset
by lower revenue from one of our largest clients, a leading social
media company.
- Revenue from our communications and media industry vertical
increased by $12 million or 6.1 per cent in the third quarter of
2023, driven primarily by more services provided to the TTech
segment and the addition of new clients from our acquisition of
WillowTree.
- Revenue from our eCommerce and fintech industry vertical
increased by $8 million or 9.2 per cent in the third quarter of
2023, due to the addition of new clients from our acquisition of
WillowTree, partially offset by a decline in service volumes from
fintech clients.
- Revenue from our healthcare industry vertical increased by $37
million in the third quarter of 2023, primarily due to more
services provided to the healthcare business unit of the TTech
segment.
- Revenue from our banking, financial services and insurance
industry vertical decreased by $9 million in the third quarter of
2023, due to lower service volumes from a global financial
institution client, partially offset by the addition of new clients
from our acquisition of WillowTree.
- DLCX EBITDA decreased by $18 million or 9.4 per cent in the
third quarter of 2023, while DLCX Adjusted EBITDA decreased by $13
million or 6.5 per cent for the same period. These decreases were
primarily due to cost imbalances arising from reductions in service
demand, principally in Europe, from some of our larger technology
clients, with the impacts being more significant beginning in the
second quarter of 2023, which were partially offset by cost
efficiency efforts initiated in the second quarter of 2023.
Notably, Adjusted EBITDA and Adjusted EBITDA margin have shown
sequential improvement, reflecting the positive impacts realized
from cost efficiency efforts, including decreases in our team
member count within DLCX in response to the reduction in service
demand from some of our clients.
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. These include:
- Paying, collecting and remitting more than $1.8 billion in the
first nine months of 2023 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, we have remitted over $35
billion in these taxes.
- Investing $2.3 billion in capital expenditures primarily in
communities across Canada in the first nine months of 2023 and over
$53 billion since 2000.
- Disbursing spectrum renewal fees of approximately $53 million
to Innovation, Science and Economic Development Canada in the first
nine months of 2023. Since 2000, our total tax and spectrum
remittances to federal, provincial and municipal governments in
Canada have totalled approximately $43 billion.
- Spending $7.4 billion in total operating expenses in the first
nine months of 2023, including goods and services purchased of
approximately $4.8 billion. Since 2000, we have spent $156 billion
and $106 billion, respectively, in these areas.
- Generating a total team member payroll of approximately $3.1
billion in the first nine months of 2023, including wages and other
employee benefits, and payroll taxes of $178 million. Since 2000,
total team member payroll totalled $60 billion.
- Returning more than $1.5 billion in dividends declared in 2023
through October to individual shareholders, mutual fund owners,
pensioners and institutional investors. Since 2004, we have
returned more than $24 billion to shareholders, including over $19
billion in dividends and $5.2 billion in share purchases,
representing approximately $17 per share.
Consolidated financial targets for 2023TELUS
today reconfirmed its consolidated financial targets as presented
below. TELUS’ consolidated financial targets for 2023 are guided by
a number of long-term financial objectives, policies and
guidelines, which are detailed in Section 4.3 of the 2022 annual
MD&A.
|
|
2023 consolidatedfinancial
targets |
|
Operating revenues(1) |
Growth of 9.5 to 11.5% |
|
|
|
|
Adjusted EBITDA |
Growth of 7 to 8% |
|
|
|
|
Capital expenditures(2) |
Approximately $2.6 billion |
|
|
|
|
Free cash flow |
Approximately $1.5 billion |
|
|
|
(1) For 2023, we are guiding on operating revenues, which
excludes other income. Operating revenues for 2022 were $18,292
million.(2) Excludes approximately $75 million targeted towards
real estate development initiatives.
The preceding disclosure respecting TELUS’ 2023 financial
targets is forward-looking information and is fully qualified by
the ‘Caution regarding forward-looking statements’ in the 2022
annual MD&A filed on the date hereof on SEDAR+, especially
Section 10 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 9.3 TELUS
assumptions for 2023 in the 2022 annual MD&A and updated in
Sections 9 and 10 of our Q3 2023 interim MD&A. This disclosure
is presented for the purpose of assisting our investors and others
in understanding certain key elements of our expected 2023
financial results as well as our objectives, strategic priorities
and business outlook. Such information may not be appropriate for
other purposes.
Dividend Declaration The TELUS Board of
Directors declared a quarterly dividend of $0.3761 per share on the
issued and outstanding Common Shares of the Company payable on
January 2, 2024 to holders of record at the close of business on
December 11, 2023. This quarterly dividend reflects an increase of
7.1 per cent from the $0.3511 per share dividend declared one year
earlier and consistent with our multi-year dividend growth
program.
Our Board of DirectorsIn October 2023, Kathy
Kinloch stepped down from our Board. Kathy joined the Board in 2017
and during her tenure, served on the Audit, Corporate Governance
and People, Culture and Compensation Committees. We thank Kathy for
her outstanding contributions and service to TELUS.
Community HighlightsGiving Back to Our
Communities
- TELUS Friendly Future Foundation® (the Foundation) and Canadian
TELUS Community Boards continue to direct all financial support to
charitable initiatives that help youth and marginalized
populations. During the first nine months of 2023, the Foundation
had a direct impact on the lives of 800,000 youth by granting $8.6
million to over 500 projects delivered by registered charities.
Since its inception in 2018, the Foundation has provided $44.5
million in cash donations to our communities, helping 14.4 million
youth reach their full potential.
- In October 2023, the Foundation launched the TELUS Student
Bursary Fund, Canada’s largest bursary fund, supporting students
facing financial barriers that impact their ability to enrol or
continue their education. With bursaries valued at up to $5,000,
this new $50 million fund, created through an endowment gift of $25
million from TELUS and a $25 million commitment in fundraising from
the Foundation, will help hundreds of students each year access
post-secondary education to lead to a brighter future. Each bursary
recipient will also have access to free mobility and low-cost
internet plans through our Mobility for Good® and Internet for
Good® programs.
- Aligning with the start of the 2023 – 2024 school year, in
September, the Foundation awarded its first round of bursaries to
more than 400 students across the country.
- Our Canadian and global TELUS Community Boards entrust local
leaders to make recommendations on the allocation of local grants.
These grants support registered charities that offer health,
education or technology programs to help youth thrive. Since 2005,
our 19 TELUS Community Boards have contributed over $106 million in
cash donations to more than 9,500 initiatives, providing resources
and support for underserved citizens, especially young people,
around the world.
- During the third quarter of 2023, we announced the expansion of
our TELUS Community Boards in Alberta and Ontario.
- In Alberta, the community boards were formally changed to TELUS
Calgary and Southern Alberta Community Board and TELUS Edmonton and
Northern Alberta Community Board, with these expansions now
supporting more than 4.7 million Albertans.
- In Ontario, the community boards were formally changed to TELUS
Ottawa and Eastern Ontario Community Board, TELUS Barrie and
Central Ontario Community Board and TELUS Greater Toronto and
Hamilton Area Community Board, with these expansions now supporting
more than 8.6 million Ontarians.
- TELUS Indigenous Communities Fund offers grants for
Indigenous-led social, health and community programs. In July 2023,
we announced a doubling of our commitment to the Fund, raising the
investment from $1 million to $2 million over the next five years.
Since its inception in November 2021, the Fund has granted $425,000
in cash donations to 22 community programs supporting food
security, cultural revitalization, wildfire relief efforts and the
health, mental health and well-being of Indigenous Peoples across
Canada.
- During the first nine months of 2023, TELUS, our team members,
customers and the Foundation have committed $12.5 million, through
cash donations and in-kind contributions, to support 12
humanitarian and disaster relief efforts around the world. Third
quarter 2023 support included the wildfires in British Columbia and
Northwest Territories and the earthquake in Morocco.
Empowering Canadians with Connectivity
- We continue to leverage our Connecting for Good® programs to
support marginalized individuals by enhancing their access to both
technology and healthcare as well as our TELUS Wise® program to
improve digital literacy and online safety. Since the launch of our
programs, we have provided support for over one million
individuals.
- During the first nine months of 2023, we welcomed 6,250 new
households to our Internet for Good program. Since we launched the
program in 2016, we have connected 53,000 households and 168,000
low-income family members and seniors, in-need persons living with
disabilities, government-assisted refugees and youth leaving foster
care with low-cost internet service.
- Our Mobility for Good program offers free or subsidized
smartphones and mobile phone rate plans to all youth aging out of
foster care and to qualifying low-income seniors across Canada. In
the first nine months of 2023, we added 6,100 youth, seniors,
Indigenous women at risk, government-assisted refugees and other
marginalized individuals to the program. Since we launched Mobility
for Good in 2017, the program has provided support for 50,000
people.
- Our Health for Good® mobile health clinics supported over
41,000 patient visits in the first nine months of 2023. Since the
program’s inception, we have facilitated 185,000 cumulative patient
visits in 25 different communities across Canada, bringing primary
and mental healthcare to individuals experiencing homelessness.
- In July 2023, we launched a new mobile health clinic in
Victoria in partnership with Victoria Cool Aid Society to help
address the increasing need for primary healthcare and provide
support for people experiencing homelessness. Since its launch, the
clinic has supported over 2,000 patient visits, contributing to a
combined total of over 18,000 patient visits across both clinics
operating in Victoria.
- During the first nine months of 2023, our Tech for Good®
program provided access to personalized one-on-one training,
support and customized recommendations on mobile devices and
related assistive technology and/or access to discounted mobile
plans for 1,650 Canadians living with disabilities. Since the
program’s inception in 2017, we have provided professional
assistance for more than 8,000 individuals in Canada who are living
with disabilities to help them independently use or control their
mobile device and the TELUS Wireless Accessibility Discount.
- During the first nine months of 2023 97,000 individuals in
Canada and around the world participated in virtual TELUS Wise
workshops and events, bringing our cumulative participation to more
than 660,000 individuals since the program launched in 2013.
Investing in Social Impact
- During the third quarter of 2023, TELUS Pollinator Fund for
Good® made equity investments in three new clean technology
startups, Climate Robotics, erthos and Plentify, to strengthen
climate resilience with agricultural technologies sequestering
carbon, plant-powered alternatives to plastic and cleaner energy
solutions. In addition, the Fund also made an equity investment
into Dryad, a German startup that provides ultra-early wildfire
detection through large-scale IoT networks and sensors to help
reduce the risk of fires spreading out of control. Since inception
in 2020, the Fund has invested in 30 socially innovative companies,
with 40 per cent led by women and 50 per cent led by Indigenous or
racialized founders.
Access to Quarterly results
informationInterested 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 at telus.com/investors.
TELUS’ third quarter 2023 conference call is scheduled for
Friday, November 3, 2023 at 11:00 am ET (8:00 am
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 approximately 60 minutes after the call until December
3, 2023 at 1-855-201-2300. Please quote conference access code
76246# and playback access code 0114094#. 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.
Caution regarding forward-looking
statements
This news release contains forward-looking statements about
expected events and the financial and operating performance of
TELUS Corporation. The terms TELUS, the Company, we, us and our
refer to TELUS Corporation and, where the context of the narrative
permits or requires, its subsidiaries.
Forward-looking statements include any statements that do not
refer to historical facts. They include, but are not limited to,
statements relating to our objectives and our strategies to achieve
those objectives, our expectations regarding trends in the
telecommunications industry (including demand for data and ongoing
subscriber base growth), and our financing plans (including our
multi-year dividend growth program). Forward-looking statements are
typically identified by the words assumption, goal, guidance,
objective, outlook, strategy, target and other similar expressions,
or future or conditional verbs such as aim, anticipate, believe,
could, expect, intend, may, plan, predict, seek, should, strive and
will. These statements are made pursuant to the “safe harbour”
provisions of applicable securities laws in Canada and the United
States Private Securities Litigation Reform Act of 1995.
By their nature, forward-looking statements are subject to
inherent risks and uncertainties and are based on assumptions,
including assumptions about future economic conditions and courses
of action. These assumptions may ultimately prove to have been
inaccurate and, as a result, our actual results or events may
differ materially from expectations expressed in or implied by the
forward-looking statements.
The assumptions for our 2023 outlook, as described in Section 9
in our 2022 annual MD&A, remain the same, except for the
following:
- Our revised estimates for 2023 economic
growth in Canada, B.C., Alberta, Ontario and Quebec are 1.2%, 0.8%,
2.1%, 1.2% and 0.6%, respectively (compared to 0.6%, 0.4%, 1.5%,
0.3% and 0.5%, respectively, as reported in our 2022 annual
MD&A).
- Our revised estimates for 2023 annual
inflation rates in Canada, B.C., Alberta and Quebec are 3.9%, 3.9%,
3.4% and 4.2%, respectively (compared to 3.7%, 3.7%, 3.8% and 3.7%,
respectively, as reported in our 2022 annual MD&A).
- Our revised estimates for 2023 annual
unemployment rates in Canada, B.C., Ontario and Quebec are 5.5%,
5.3%, 5.6% and 4.4%, respectively (compared to 6.1%, 5.6%, 6.6% and
5.5%, respectively, as reported in our 2022 annual MD&A).
- Our revised estimates for 2023 annual
rates of housing starts on an unadjusted basis in Canada, B.C.,
Alberta, Ontario and Quebec are 236,000 units, 47,000 units, 32,000
units, 86,000 units and 41,000 units, respectively (compared to
212,000 units, 34,000 units, 31,000 units, 71,000 units and 50,000
units, respectively, as reported in our 2022 annual MD&A).
The extent to which these economic estimates affect us and the
timing of their impact will depend upon the actual experience of
specific sectors of the Canadian economy.
- Regarding our digitally-led customer
experiences (DLCX) segment, we anticipate continued optimization of
its cost structure enabled by automation and generative AI
solutions to mitigate near-term challenges from persistent global
macroeconomic pressures. Long-term growth and profitability will be
supported by the differentiation of digital customer experience
solutions.
- Defined benefit pension plan funding
has been revised to approximately $28 million from approximately
$35 million due to improvements in the funded statuses of the
plans.
- Our restructuring and other costs
assumption has been revised to up to $750 million from
approximately $275 million. This was driven by accelerated cost
efficiency programs implemented to drive EBITDA expansion, margin
accretion and accelerated cash flow growth.
- Our income taxes computed at an
applicable statutory rate assumption has been revised downward to a
range of 23.3 to 23.9% from a range of 24.7 to 25.3%, and our cash
income tax payments assumption has been further revised downward to
a range of approximately $375 million to $425 million, from a range
of approximately $420 million to $500 million as disclosed in our
second quarter 2023 MD&A, and from a range of approximately
$550 million to $630 million as disclosed in our 2022 annual
MD&A. The decrease in applicable statutory rate assumption is
primarily due to lower income earned in jurisdictions with higher
statutory income tax rates. The decrease in our cash income tax
payments range is due to lower forecasted net income before tax, in
part due to increased restructuring and other costs supporting our
efficiency and effectiveness initiatives.
- We anticipate a 2023 European euro to
U.S. dollar average exchange rate of €1.00: US$1.09 compared to our
original European euro to U.S. dollar average exchange rate of
€1.00: US$1.08 assumption.
Risks and uncertainties that could cause actual performance or
events to differ materially from the forward-looking statements
made herein and in other TELUS filings include, but are not limited
to, the following:
- Regulatory matters including: changes to our regulatory regime
(the timing of announcement or implementation of which are
uncertain) or the outcomes of proceedings, cases or inquiries
relating to its application, including but not limited to those set
out in Section 9.1 Communications industry regulatory developments
and proceedings in our Q3 2023 MD&A, such as the potential for
government to allow consolidation of competitors in our industry or
conversely for government to intervene with the intent of further
increasing competition, for example, through mandated wholesale
access; the potential for additional government intervention on
pricing, including internet overage charges and roaming fees;
federal and provincial consumer protection legislation; the
introduction of new privacy legislation by the federal, provincial
or territorial governments or in non-Canadian jurisdictions where
we do business that could materially expand or alter the scope of
consumer privacy rights, include significant administrative
monetary penalties and a private right of action, and implement a
new regulatory regime for the use of artificial intelligence (AI)
in the private sector, with significant enforcement powers;
amendments to existing federal legislation; potential threats to
unitary federal regulatory authority over communications in Canada;
potential threats to the CRTC’s ability to enforce competitive
safeguards such as the Standstill Rule and the Wholesale Code,
which aim to ensure the fair treatment by vertically integrated
firms of rival competitors operating as both broadcasting
distributors and programming services; regulatory action by the
Competition Bureau or other regulatory agencies; spectrum
allocation and compliance with licences, including our compliance
with licence conditions, changes to spectrum licence fees, spectrum
policy determinations such as restrictions on the purchase, sale,
subordination, use and transfer of spectrum licences, the cost and
availability of spectrum and timing of spectrum allocation, and
ongoing and future consultations and decisions on spectrum
licensing and policy frameworks, auctions and allocation; draft
legislation permitting the government to restrict the use in
telecommunications networks of equipment made by specified
companies, including Huawei and ZTE; draft legislation imposing new
cybersecurity reporting requirements; the request by the Minister
of Innovation, Science and Industry to telecommunications service
providers, including TELUS, to improve network resiliency, along
with CRTC proceedings to investigate network reliability and
resiliency; potential limitations on international roaming fees and
ancillary service fees; restrictions on non-Canadian ownership and
control of the common shares of TELUS Corporation (Common Shares)
and the ongoing monitoring of, and compliance with, such
restrictions; unanticipated changes to the current copyright
regime, which could impact obligations for internet service
providers or broadcasting undertakings; our ability to comply with
complex and changing regulation of the healthcare, virtual care,
and medical devices industries in the jurisdictions in which we
operate, including as an operator of health clinics; and risks
related to the quality of care and provision of insured/uninsured
services. The jurisdictions in which we operate, as well as the
contracts that we enter into (particularly contracts entered into
by TELUS International (Cda) Inc. (TELUS International or TI)),
require us to comply with, or facilitate our clients’ compliance
with, numerous, complex and sometimes conflicting legal regimes,
both domestically and internationally. See TELUS International’s
financial performance which impacts our financial performance
below.
- Competitive environment including: our ability to continue to
retain customers through an enhanced customer service experience
that is differentiated from our competitors, including through the
deployment and operation of evolving network infrastructure;
intense competition, including the ability of industry competitors
to successfully combine a mix of new service offerings, in some
cases under one bundled and/or discounted monthly rate, along with
their existing services; the success of new products, services and
supporting systems, such as home automation, security and Internet
of Things (IoT) services for internet-connected devices; continued
intense competition across all services among telecommunications
companies, cable companies, other communications companies and
over-the-top (OTT) services, which, among other things, places
pressures on current and future average revenue per subscriber per
month (ARPU), cost of acquisition, cost of retention and churn
rates for all services, as do market conditions, government
actions, customer usage patterns, increased data bucket sizes or
flat-rate pricing trends for voice and data, inclusive rate plans
for voice and data, and availability of Wi-Fi networks for data;
consolidation, mergers and acquisitions of industry competitors
(including the acquisition of Shaw by Rogers and associated assets
divested to Videotron) as well as any related regulatory actions;
subscriber additions, losses and retention volumes; our ability to
obtain and offer content on a timely basis across multiple devices
on mobile and TV platforms at a reasonable cost as content costs
per unit continue to grow; vertical integration in the broadcasting
industry resulting in competitors owning broadcast content
services, and timely and effective enforcement of related
regulatory safeguards; TI’s ability to compete with professional
services companies that offer consulting services, information
technology companies with digital capabilities, and traditional
contact centre and business process outsourcing companies that are
expanding their capabilities to offer higher-margin and
higher-growth digital services; in our TELUS Health business, our
ability to compete with other providers of employee and family
assistance programs, benefits administration, electronic medical
records and pharmacy management products, claims adjudicators,
systems integrators and health service providers, including
competitors with a vertically integrated mix of health services
delivery, IT solutions and related services, global providers that
could achieve expanded Canadian footprints, and providers of
virtual healthcare services, preventative health services and
personal emergency response services; and in our TELUS Agriculture
& Consumer Goods business, our ability to compete with focused
software and IoT competitors.
- Technology including: reduced utilization and increased
commoditization of traditional fixed voice services (local and long
distance) resulting from impacts of OTT applications and mobile
substitution; a declining overall market for TV services, resulting
in part from content piracy and signal theft, a rise in OTT
direct-to-consumer video offerings and virtual multichannel video
programming distribution platforms; the increasing number of
households with only mobile and/or internet-based telephone
services; potential decline in ARPU as a result of, among other
factors, substitution by messaging and OTT applications;
substitution by increasingly available Wi-Fi services; disruptive
technologies, such as OTT IP services, including software-defined
networks in the business market that may displace or cause us to
reprice our existing data services, and self-installed technology
solutions; and any failure to innovate, maintain technological
advantages or respond effectively and in a timely manner to changes
in technology.Challenges to our ability to deploy technology
including: high subscriber demand for data that challenges wireless
networks and spectrum capacity levels and may be accompanied by
increases in delivery cost; our reliance on information technology
and our ability to continually streamline our legacy systems; the
roll-out, anticipated benefits and efficiencies, and ongoing
evolution of wireless broadband technologies and systems, including
video distribution platforms and telecommunications network
technologies, broadband initiatives (such as fibre-to-the-premises
(FTTP), wireless small-cell deployment and 5G wireless);
availability of resources and our ability to build out adequate
broadband capacity; our reliance on wireless network access
agreements, which have facilitated our deployment of mobile
technologies; our choice of suppliers and those suppliers’ ability
to maintain and service their product lines, which could affect the
success of upgrades to, and evolution of, technology that we offer;
supplier limitations and concentration and market power for
products such as network equipment, TELUS TV® and mobile handsets;
our expected long-term need to acquire additional spectrum capacity
through future spectrum auctions and from third parties to address
increasing demand for data, and our ability to utilize spectrum we
acquire; deployment and operation of new fixed broadband network
technologies at a reasonable cost and the availability and success
of new products and services to be rolled out using such network
technologies; network reliability and change management; and our
deployment of self-learning tools and automation, which may change
the way we interact with customers.Capital expenditure levels and
potential outlays for spectrum licences in auctions or purchases
from third parties affect and are affected by: our broadband
initiatives, including connecting more homes and businesses
directly to fibre; our ongoing deployment of newer mobile
technologies, including wireless small cells that can improve
coverage and capacity; investments in network technology required
to comply with laws and regulations relating to the security of
cyber systems, including bans on the products and services of
certain vendors; investments in network resiliency and reliability;
the allocation of resources to acquisitions and future spectrum
auctions held by Innovation, Science and Economic Development
Canada (ISED), including the auction of 3800 MHz spectrum that
commenced in October 2023, and the millimetre wave spectrum
auction, which is expected to commence in 2024. Our capital
expenditure levels could be impacted if we do not achieve our
targeted operational and financial results or if there are changes
to our regulatory environment.
- Operational performance and business combination risks
including: our reliance on legacy systems and our ability to
implement and support new products and services and business
operations in a timely manner; our ability to manage the
requirements of large enterprise deals; our ability to implement
effective change management for system replacements and upgrades,
process redesigns, cost efficiency programs and business
integrations (such as our ability in a timely manner to
successfully complete and integrate acquisitions into our
operations and culture, complete divestitures or establish
partnerships and realize expected strategic benefits, including
those following compliance with any regulatory orders); our ability
to identify and manage new risks inherent in new service offerings
that we may provide, including as a result of acquisitions, which
could result in damage to our brand, our business in the relevant
area or as a whole, and additional exposure to litigation or
regulatory proceedings; our ability to effectively manage the
growth of our infrastructure and integrate new team members; and
our reliance on third-party cloud-based computing services to
deliver our IT services.
- Security and data protection including: risks that malfunctions
or unlawful acts could result in unauthorized access or change to,
or loss or distribution of, data that may compromise the privacy of
individuals and could result in financial loss and harm to our
reputation and brand.Security threats including: intentional
damage, unauthorized access or attempted access to our physical
assets or our IT systems and network, or those of our customers or
vendors, which could prevent us from providing reliable service or
result in unauthorized access to our information or that of our
customers.Business continuity events including: our ability to
maintain customer service and operate our network in the event of
human error or human-caused threats, such as cyberattacks and
equipment failures that could cause various degrees of network
outages; technical disruptions and infrastructure breakdowns;
supply chain disruptions, delays and rising costs, including as a
result of government restrictions or trade actions; natural
disaster threats; extreme weather events; epidemics; pandemics
(including the COVID-19 pandemic); political instability in certain
international locations, including war and other geopolitical
developments; information security and privacy breaches, including
loss or theft of data; and the completeness and effectiveness of
business continuity and disaster recovery plans and responses.
- Our team including: recruitment, retention and appropriate
training in a highly competitive industry (including retention of
team members leading recent acquired businesses in emerging areas
of our business), the level of our employee engagement and impact
on engagement or other aspects of our business or any unresolved
collective agreements, our ability to maintain our unique culture
and team member engagement as we grow and implement organizational
changes and cost reduction initiatives, the risk that certain
independent contractors in our business could be classified as
employees, and the physical and mental health of our team, which
are critical to engagement and productivity.
- Environment, health and safety including: loss of employee work
time as a result of illness or injury; public concerns related to
radio frequency emissions; environmental issues including
climate-related risks (such as extreme weather events and other
natural hazards), waste and waste recycling, risks relating to fuel
systems on our properties and the environmental impact of our
network including legacy network equipment, changing government and
public expectations regarding environmental matters and our
responses; and challenges associated with epidemics or pandemics,
including the COVID-19 pandemic and our response to it, which may
add to or accentuate these factors.Energy use including: our
ability to identify, procure and implement solutions to reduce
energy consumption and adopt cleaner sources of energy; our ability
to identify and make suitable investments in renewable energy,
including in the form of virtual power purchase agreements; our
ability to continue to realize significant absolute reductions in
energy use and the resulting greenhouse gas (GHG) emissions in our
operations (in part as a result of programs and initiatives focused
on our buildings and network); and other risks associated with
achieving our goals to achieve carbon neutrality and reduce our GHG
emissions by 2030.
- Real estate matters including: risks associated with our real
estate investments, such as financing risks and uncertain future
demand, occupancy and rental rates, especially as a result of the
COVID-19 pandemic.
- Financing, debt and dividend requirements including: our
ability to carry out financing activities, refinance our maturing
debt, lower our net debt to EBITDA ratio to our objective range
given the cash demands of spectrum auctions, and/or our ability to
maintain investment-grade credit ratings. Our business plans and
growth could be negatively affected if existing financing is not
sufficient to cover our funding requirements.Lower than planned
free cash flow could constrain our ability to invest in operations,
reduce leverage or return capital to shareholders. This program may
be affected by factors such as the competitive environment,
fluctuations in the Canadian economy or the global economy, our
earnings and free cash flow (which may be affected by restructuring
and other costs resulting from initiatives such as post-acquisition
integration and cost efficiency programs), our levels of capital
expenditures and spectrum licence purchases, acquisitions, the
management of our capital structure, regulatory decisions and
developments, and business continuity events. Quarterly dividend
decisions are subject to assessment and determination by our Board
of Directors based on our financial position and outlook. There can
be no assurance that our dividend growth program will be maintained
through 2025 or renewed.
- Tax matters including: interpretation of complex domestic and
foreign tax laws by the relevant tax authorities that may differ
from our interpretations; the timing and character of income and
deductions, such as depreciation and operating expenses; tax
credits or other attributes; changes in tax laws, including tax
rates; tax expenses that are materially different than anticipated,
including the taxability of income and deductibility of tax
attributes or retroactive application of new legislation;
elimination of income tax deferrals through the use of different
tax year-ends for operating partnerships and corporate partners;
and changes to the interpretation of tax laws, including those
resulting from changes to applicable accounting standards or the
adoption of more aggressive auditing practices by tax authorities,
tax reassessments or adverse court decisions impacting the tax
payable by us.
- The economy including: the state of the economy in Canada,
which may be influenced by economic and other developments outside
of Canada, including potential outcomes of future policies and
actions of foreign governments, as well as public and private
sector, responses to pandemics; expectations regarding future
interest rates; inflation; unemployment levels; immigration levels;
effects of volatility in oil prices; effects of low business
spending (such as reducing investments and cost structure); pension
investment returns and factors affecting pension benefit
obligations, funding and solvency discount rates; fluctuations in
exchange rates of the currencies of various countries in which we
operate; sovereign credit ratings and effects on the cost of
borrowing; the impact of tariffs on trade between Canada and the
United States; and global implications of the dynamics of trade
relationships among major world economies.Ability to successfully
implement cost reduction initiatives and realize planned savings,
net of restructuring and other costs, without losing customer
service focus or negatively affecting business operations. Examples
of these initiatives are: our operating efficiency and
effectiveness program to drive improvements in financial results;
business integrations; business product simplification; business
process automation and outsourcing; offshoring and reorganizations;
procurement initiatives; and real estate rationalization.
- Litigation and legal matters including: our ability to
successfully respond to investigations and regulatory proceedings;
our ability to defend against existing and potential claims and
lawsuits (including intellectual property infringement claims and
class actions based on consumer claims, data, privacy or security
breaches and secondary market liability), or to negotiate and
exercise indemnity rights or other protections in respect of such
claims and lawsuits; and the complexity of legal compliance in
domestic and foreign jurisdictions, including compliance with
competition, anti-bribery and foreign corrupt practices laws.
- Foreign operations and our ability to successfully manage
operations in foreign jurisdictions, including managing risks such
as currency fluctuations and exposure to various economic,
international trade, political and other risks of doing business
globally. See also Section 10.3 Regulatory matters in our 2022
annual MD&A and TELUS International’s financial performance
which impacts our financial performance.
- TELUS International’s financial performance which impacts our
financial performance. Factors that may affect TI’s financial
performance are described in TI’s public filings available on
SEDAR+ and EDGAR and may include: intense competition from
companies offering similar services; our ability to expand and
retain existing client relationships and attract new clients;
attracting and retaining qualified team members to support its
operations; the inelasticity of TI’s labour costs relative to
short-term movements in client demand could have adverse impacts on
the business; TI’s ability to grow and maintain profitability if
changes in technology or client expectations outpace service
offerings and internal tools and processes; the timing and success
of TI’s cost efficiency programs; TI maintaining its culture as it
grows; the effects of global economic and geopolitical conditions
on TI and its clients’ businesses and demand for its services; TI’s
ability to respond to reductions in client demand in a timely and
cost-effective manner whether due to labour and employment laws or
otherwise; the significant portion of TI’s revenue that is
dependent on a limited number of large clients, two of which
(excluding TELUS) each accounted for more than 10% of our
digitally-led customer experiences – TELUS International (DLCX)
revenue; continued consolidation in many of the verticals in which
TI offers services resulting in potential client loss; the adverse
impact on TI’s business if certain independent contractors were
classified as employees, and the costs associated with defending,
settling or resolving any future lawsuits (including demands for
arbitration) relating to the independent contractor classification;
TI’s ability to successfully identify, complete, integrate and
realize the benefits of acquisitions and manage associated risks;
cyberattacks or unauthorized disclosure resulting in access to
sensitive or confidential information and data of its clients or
their end customers, which could have a negative impact on its
reputation and client confidence; TI’s business not developing in
ways it currently anticipates due to negative public reaction to
offshore outsourcing, proposed legislation or otherwise; ability to
meet client expectations regarding its content moderation services
being adversely impacted due to factors beyond its control and its
content moderation team members suffering adverse emotional or
cognitive effects in the course of performing their work; and TI’s
short history operating as a separate, publicly traded company.
TELUS International’s primary functional and reporting currency is
the U.S. dollar and the contribution to our consolidated results of
positive results in our DLCX segment may be offset by any
strengthening of the Canadian dollar (our reporting currency)
compared to the U.S. dollar, the European euro, the Philippine peso
and the currencies of other countries in which TI operates. The
trading price of the subordinate voting shares of TI (TI
Subordinate Voting Shares) may be volatile and is likely to
fluctuate due to a number of factors beyond its control, including
actual or anticipated changes in profitability; general economic,
social or political developments; changes in industry conditions;
changes in governance regulation; inflation; low trading volume;
the general state of the securities markets; and other material
events. TI may choose to publicize targets or provide other
guidance regarding its business and it may not achieve such
targets. Failure to do so could also result in a decline in the
trading price of the TI Subordinate Voting Shares. A decline in the
trading price of the TI Subordinate Voting Shares due to these or
other factors could result in a decrease in the fair value of TI
multiple voting shares held by TELUS.
These risks are described in additional detail in Section 9
General trends, outlook and assumptions, and regulatory
developments and proceedings and Section 10 Risks and risk
management in our 2022 annual MD&A. Those descriptions are
incorporated by reference in this cautionary statement but are not
intended to be a complete list of the risks that could affect the
Company.
Many of these factors are beyond our control or outside of our
current expectations or knowledge. Additional risks and
uncertainties that are not currently known to us or that we
currently deem to be immaterial may also have a material adverse
effect on our financial position, financial performance, cash
flows, business or reputation. Except as otherwise indicated in
this document, the forward-looking statements made herein do not
reflect the potential impact of any non-recurring or special items
or any mergers, acquisitions, dispositions or other business
combinations or transactions that may be announced or that may
occur after the date of this document.
Readers are cautioned not to place undue reliance on
forward-looking statements. Forward-looking statements in this
document describe our expectations, and are based on our
assumptions, as at the date of this document and are subject to
change after this date. Except as required by law, we disclaim any
intention or obligation to update or revise any forward-looking
statements. The forward-looking statements in this news release are
presented for the purpose of assisting our investors and others in
understanding certain key elements of our expected 2023 financial
results as well as our objectives, strategic priorities and
business outlook. Such information may not be appropriate for other
purposes.
This cautionary statement qualifies all of the forward-looking
statements in this document.
Non-GAAP and other specified financial
measures
We have issued guidance on and report certain non-GAAP measures
that are used to evaluate the performance of TELUS, as well as to
determine compliance with debt covenants and to manage our capital
structure. As non-GAAP measures generally do not have a
standardized meaning, they may not be comparable to similar
measures presented by other issuers. For certain financial metrics,
there are definitional differences between TELUS and TELUS
International reporting. These differences largely arise from TELUS
International adopting definitions consistent with practice in its
industry. Securities regulations require such measures to be
clearly defined, qualified and reconciled with their nearest GAAP
measure. Certain of the metrics do not have generally accepted
industry definitions.
Adjusted Net income and adjusted basic earnings per
share (EPS): These are non-GAAP measures that do not have
any standardized meaning prescribed by IFRS-IASB and are therefore
unlikely to be comparable to similar measures presented by other
issuers. Adjusted Net income excludes the effects of restructuring
and other costs, income tax-related adjustments, other equity
(income) losses related to real estate joint ventures, long-term
debt prepayment premium and other adjustments (identified in the
following tables). Adjusted basic EPS is calculated as adjusted net
income divided by the basic weighted-average number of Common
Shares outstanding. These measures are used to evaluate performance
at a consolidated level and exclude items that, in management’s
view, may obscure underlying trends in business performance or
items of an unusual nature that do not reflect our ongoing
operations. They should not be considered alternatives to Net
income and basic EPS in measuring TELUS’ performance.
Reconciliation of adjusted Net income
|
|
Three months ended September 30 |
|
C$ and in millions |
2023 |
|
2022 |
|
|
Net income attributable to Common Shares |
136 |
|
514 |
|
| Add (deduct) amounts of net of
amount attributable to non-controlling interests: |
|
|
|
Restructuring and other costs |
297 |
|
73 |
|
|
Tax effects of restructuring and other costs |
(71 |
) |
(18 |
) |
|
Real estate rationalization-related restructuring impairments |
13 |
|
— |
|
|
Tax effect of real estate rationalization-related restructuring
impairments |
(3 |
) |
— |
|
|
Income tax-related adjustments |
(23 |
) |
13 |
|
|
Virtual power purchase agreements unrealized change in forward
element |
33 |
|
(151 |
) |
|
Tax effect of virtual power purchase agreements unrealized change
in forward element |
(9 |
) |
40 |
|
|
Adjusted Net income |
373 |
|
471 |
|
Reconciliation of adjusted basic EPS
|
|
Three months ended September 30 |
|
C$ |
2023 |
|
2022 |
|
|
Basic EPS |
0.09 |
|
0.37 |
|
| Add (deduct) amounts of net of
amount attributable to non-controlling interests: |
|
|
|
Restructuring and other costs, per share |
0.20 |
|
0.05 |
|
|
Tax effect of restructuring and other costs, per share |
(0.05 |
) |
(0.01 |
) |
|
Income tax-related adjustments, per share |
(0.01 |
) |
0.01 |
|
|
Virtual power purchase agreements unrealized change in forward
element, per share |
0.03 |
|
(0.11 |
) |
|
Tax effect of virtual power purchase agreements unrealized change
in forward element, per share |
(0.01 |
) |
0.03 |
|
|
Adjusted basic EPS |
0.25 |
|
0.34 |
|
EBITDA (earnings before interest, income taxes,
depreciation and amortization): We have issued guidance on and
report EBITDA because it is a key measure used to evaluate
performance at a consolidated level. EBITDA is commonly reported
and widely used by investors and lending institutions as an
indicator of a company’s operating performance and ability to incur
and service debt, and as a valuation metric. EBITDA should not be
considered as an alternative to Net income in measuring TELUS’
performance, nor should it be used as a measure of cash flow.
EBITDA as calculated by TELUS is equivalent to Operating revenues
and other income less the total of Goods and services purchased
expense and Employee benefits expense.
We calculate EBITDA – excluding restructuring and other
costs, as it is a component of the EBITDA – excluding
restructuring and other costs interest coverage ratio and the Net
debt to EBITDA – excluding restructuring and other costs ratio.
We also calculate Adjusted EBITDA to exclude
items of an unusual nature that do not reflect our ongoing
operations and should not, in our opinion, be considered in a
long-term valuation metric or should not be included in an
assessment of our ability to service or incur debt.
|
EBITDA and Adjusted EBITDA reconciliations |
|
|
|
|
|
|
|
|
TTech |
DLCX |
Total |
|
Three-month periods ended September 30(C$ millions) |
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|
Net income |
|
|
|
|
137 |
551 |
| Financing costs |
|
|
|
|
352 |
34 |
| Income
taxes |
|
|
|
|
28 |
211 |
|
EBIT |
454 |
688 |
63 |
108 |
517 |
796 |
| Depreciation |
563 |
511 |
48 |
39 |
611 |
550 |
|
Amortization of intangible assets |
329 |
258 |
60 |
42 |
389 |
300 |
|
EBITDA |
1,346 |
1,457 |
171 |
189 |
1,517 |
1,646 |
| Add
restructuring and other costs included in EBITDA |
287 |
67 |
16 |
11 |
303 |
78 |
|
EBITDA – excluding restructuring and other costs
and Adjusted EBITDA |
1,633 |
1,524 |
187 |
200 |
1,820 |
1,724 |
Adjusted EBITDA less capital expenditures is
calculated for our reportable segments, as it represents a simple
cash flow view that may be more comparable to other issuers.
|
Adjusted EBITDA less capital expenditures
reconciliations |
|
|
|
|
|
|
TTech |
DLCX |
Total |
|
Three-months ended September 30 (C$ millions) |
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
Adjusted EBITDA |
1,633 |
|
1,524 |
|
187 |
|
200 |
|
1,820 |
|
1,724 |
|
| Capital
expenditures |
(734 |
) |
(892 |
) |
(35 |
) |
(33 |
) |
(769 |
) |
(925 |
) |
|
Adjusted EBITDA less capital expenditures |
899 |
|
632 |
|
152 |
|
167 |
|
1,051 |
|
799 |
|
Free cash flow: We report this measure as a
supplementary indicator of our operating performance, and there is
no generally accepted industry definition of free cash flow. It
should not be considered as an alternative to the measures in the
condensed interim consolidated statements of cash flows. Free cash
flow excludes certain working capital changes (such as trade
receivables and trade payables), proceeds from divested assets and
other sources and uses of cash, as found in the condensed interim
consolidated statements of cash flows. It provides an indication of
how much cash generated by operations is available after capital
expenditures that may be used to, among other things, pay
dividends, repay debt, purchase shares or make other investments.
We exclude impacts of accounting standards that do not impact cash,
such as IFRS 15 and IFRS 16. Free cash flow may be supplemented
from time to time by proceeds from divested assets or financing
activities.
|
Free cash flow calculation |
|
|
|
|
Three months ended September 30 |
|
C$ and in millions |
2023 |
|
2022 |
|
|
EBITDA |
1,517 |
|
1,646 |
|
| Restructuring and other costs,
net of disbursements |
90 |
|
4 |
|
| Effects of contract asset,
acquisition and fulfilment (IFRS 15 impact) and TELUS Easy Payment
device financing |
(17 |
) |
(37 |
) |
| Effects of lease principal
(IFRS 16 impact) |
(135 |
) |
(118 |
) |
| Items from the condensed
interim consolidated statements of cash flows: |
|
|
|
Share-based compensation, net |
27 |
|
30 |
|
|
Net employee defined benefit plans expense |
15 |
|
24 |
|
|
Employer contributions to employee defined benefit plans |
(7 |
) |
(9 |
) |
|
Interest paid |
(307 |
) |
(203 |
) |
|
Interest received |
4 |
|
10 |
|
| Capital
expenditures1 |
(769 |
) |
(925 |
) |
|
Free cash flow before income taxes |
418 |
|
422 |
|
| Income
taxes paid, net of refunds |
(63 |
) |
(91 |
) |
|
Free cash flow |
355 |
|
331 |
|
|
Free cash flow reconciliation with Cash provided by
operating activities |
|
|
|
|
Three months ended September 30 |
|
C$ and in millions |
2023 |
2022 |
|
|
Free cash flow |
355 |
331 |
|
| Add (deduct): |
|
|
|
Capital expenditures1 |
769 |
925 |
|
|
Effects of lease principal |
135 |
118 |
|
|
Net change in non-cash operating working capital not included in
preceding line items and other individually
immaterial items included in Net income neither
providing nor using cash |
48 |
(74 |
) |
|
Cash provided by operating activities |
1,307 |
1,300 |
|
(1) Refer to Note 31 of the interim consolidated financial
statements for further information.
Mobile phone average revenue per subscriber per month
(ARPU) is calculated as network revenue derived from
monthly service plan, roaming and usage charges; divided by the
average number of mobile phone subscribers on the network during
the period, and is expressed as a rate per month.
Appendix
Operating revenues and other income – TTech
segment
|
C$ millions, except footnotes and unless noted otherwise |
Three months ended September 30 |
Per cent |
|
(unaudited) |
2023 |
2022 |
change |
|
Mobile network revenue |
1,753 |
1,696 |
3.4 |
|
| Mobile equipment and other
service revenues |
557 |
545 |
2.2 |
|
| Fixed data services(1) |
1,153 |
1,099 |
4.9 |
|
| Fixed voice services |
191 |
198 |
(3.5 |
) |
| Fixed equipment and other
service revenues |
125 |
125 |
- |
|
| Health services |
422 |
225 |
87.6 |
|
|
Agriculture and consumer goods services |
83 |
85 |
(2.4 |
) |
|
Operating revenues (arising from contracts with
customers) |
4,284 |
3,973 |
7.8 |
|
| Other
income |
18 |
31 |
(41.9 |
) |
|
External Operating revenues and other income |
4,302 |
4,004 |
7.4 |
|
|
Intersegment revenues |
4 |
5 |
(20.0 |
) |
|
TTech Operating revenues and other income |
4,306 |
4,409 |
7.4 |
|
(1) Excludes health services and agriculture and consumer goods
services.Operating revenues and other income – DLCX
segment
|
C$ millions, except footnotes and unless noted otherwise |
Three months ended September 30 |
Per cent |
|
(unaudited) |
2023 |
2022 |
change |
|
Operating revenues (arising from contracts with customers) |
706 |
667 |
5.8 |
| Intersegment revenues |
183 |
136 |
34.6 |
|
DLCX Operating revenues and other income |
889 |
803 |
10.7 |
About TELUS TELUS (TSX: T, NYSE: TU) is a
dynamic, world-leading communications technology company with more
than $18 billion in annual revenue and 18 million customer
connections spanning wireless, data, IP, voice, television,
entertainment, video, and security. Our social purpose is to
leverage our global-leading technology and compassion to drive
social change and enable remarkable human outcomes. Our
longstanding commitment to putting our customers first fuels every
aspect of our business, making us a distinct leader in customer
service excellence and loyalty. The numerous, sustained accolades
TELUS has earned over the years from independent, industry-leading
network insight firms showcase the strength and speed of TELUS’
global-leading networks, reinforcing our commitment to provide
Canadians with access to superior technology that connects us to
the people, resources and information that make our lives
better.
Operating in 31 countries around the world, TELUS International
(TSX and NYSE: TIXT) is a leading digital customer experience
innovator that designs, builds, and delivers next-generation
solutions, including AI and content moderation, for global and
disruptive brands across strategic industry verticals, including
tech and games, communications and media and eCommerce and
fintech.
TELUS Health is a global health care leader, which provides
employee and family primary and preventive health care and wellness
solutions. Our TELUS team, along with our 100,000 health
professionals, are leveraging the combination of TELUS’ strong
digital and data analytics capabilities with our unsurpassed client
service to dramatically improve remedial, preventive and mental
health outcomes covering more than 69 million lives, and growing,
around the world. As the largest provider of digital solutions and
digital insights of its kind, TELUS Agriculture & Consumer
Goods enables efficient and sustainable production from seed to
store, helping improve the safety and quality of food and other
goods in a way that is traceable to end consumers.
Driven by our determination and vision to connect all citizens
for good, our deeply meaningful and enduring philosophy to give
where we live has inspired TELUS and our team to contribute $1.5
billion, including 2 million days of service since 2000. This
unprecedented generosity and unparalleled volunteerism have made
TELUS the most giving company in the world. Together, let’s make
the future friendly.
For more information about TELUS, please visit telus.com, follow
us at @TELUSNews on X and @Darren_Entwistle on Instagram.
Investor RelationsRobert Mitchell (647)
837-1606ir@telus.com
Media RelationsSteve Beisswanger(514) 865-2787
Steve.Beisswanger@telus.com
Telus (TSX:T)
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