TELUS Reports Fourth Quarter Results
2008 results consistent with latest guidance
VANCOUVER, Feb. 13 -- TELUS Corporation today reported fourth quarter 2008 revenue of $2.45 billion, an increase of five per cent from a year ago. The performance was driven primarily by seven per cent growth in wireless revenue and 13 per cent growth in wireline data revenue, more than offsetting declines in local and long distance wireline revenues. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), decreased by $16 million due to increased investments in operating efficiency initiatives that resulted in restructuring costs increasing by $32 million.
Net income in the quarter was $285 million and earnings per share (EPS) were $0.90, down 29 per cent and 27 per cent respectively. Net income and EPS included favourable tax-related adjustments of approximately $32 million or 10 cents per share this quarter, compared to $143 million or 44 cents in the quarter a year ago. Excluding tax related adjustments in 2007 and 2008, net income and EPS were relatively unchanged.
For the full year, TELUS reported revenue growth of six per cent to $9.65 billion and five per cent growth in EBITDA. EBITDA growth when adjusted to exclude the 2007 net-cash settlement feature expense was one percent for the year. Excluding the $882 million paid for AWS wireless spectrum licences, TELUS generated free cash flow of $1.2 billion, which reflected a five per cent increase in capital expenditures and lower cash tax recoveries. TELUS met two of four original consolidated 2008 targets and three of four segmented targets (set in December 2007). Consolidated revenue and capital expenditure guidance was achieved, but a variance in wireless EBITDA caused a small miss in consolidated EBITDA and a 3.7 per cent shortfall to targeted EPS.
FINANCIAL HIGHLIGHTS
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C$ in millions, except per share amounts 3 months ended
December 31
(unaudited) 2008 2007 % Change
-------------------------------------------------------------------------
Operating revenues 2,454 2,330 5.3
EBITDA(1) 937 953 (1.7)
Income before income taxes and
non-controlling interest 373 384 (2.9)
Net income(2) 285 400 (29)
Net income (excluding income
tax-related adjustments)(2) 253 257 (1.6)
Earnings per share (EPS), basic(2) 0.90 1.23 (27)
Cash provided by operating activities 747 818 (8.7)
Capital expenditures 631 472 34
Free cash flow(3) 61 379 (84)
(1) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is defined as Operating revenues less Operations expense
less Restructuring costs. See Section 6.1 of Management's review of
operations.
(2) Net income and EPS for the three month period in 2008 included
favourable income tax-related adjustments of $32 million or 10 cents
per share, compared to $143 million or 44 cents for the same period
in 2007.
(3) See Section 6.2 of Management's review of operations.
"Fourth quarter results reflect our previously communicated intent to materially augment our ongoing operating efficiency program initiated in 2001, and accordingly restructuring costs tripled in 2008 to $59 million, including $38 million this quarter alone," said Darren Entwistle, TELUS president and CEO. "In addition, increased capital expenditures reflect TELUS' capability to fund future strategic growth initiatives such as the start of the joint build of a next generation wireless network and implementation of large managed data network contracts. The very fact we are able to invest in value-creating projects during this time of economic uncertainty speaks to the efficacy and robustness of our national growth strategy."
"The very fact we are able to invest in value-creating projects such as a new wireless network across Canada during this time of economic uncertainty and change in our industry speaks both to the efficacy of our national growth strategy focused on data solutions and to our company's financial strength," said Mr. Entwistle.
"These results are consistent with our most recent annual guidance for 2008. TELUS is entering 2009 with enviable financial strength and balance sheet flexibility, supported by long-standing, prudent financial policies and strong investment grade ratings," said Robert McFarlane, TELUS executive vice-president and CFO.
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This news release contains statements about expected future events
and financial and operating results of TELUS that are forward-looking. By
their nature, forward-looking statements require the Company to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that the forward-looking statements will not prove to be
accurate. Readers are cautioned not to place undue reliance on forward-
looking statements as a number of factors could cause actual future
results and events to differ materially from that expressed in the
forward-looking statements. Accordingly this news release is subject to
the disclaimer and qualified by the assumptions (including assumptions
for 2009 targets and share purchases), qualifications and risk factors
referred to in the Management's discussion and analysis in the 2007
annual report, the 2008 first, second and third quarter reports, and the
2008 fourth quarter Management's review of operations, and in other TELUS
public disclosure documents and filings with securities commissions in
Canada (on www.sedar.com) and in the United States (on EDGAR at
www.sec.gov). Except as required by law, TELUS disclaims any intention or
obligation to update or revise forward-looking statements, and reserves
the right to change, at any time at its sole discretion, its current
practice of updating annual targets and guidance.
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OPERATING HIGHLIGHTS
TELUS wireless
- External revenues increased by $77 million or 6.9% to $1.2 billion in
the fourth quarter of 2008, compared with the same period in 2007
- Wireless data revenue increased $72 million or 55% due to the
continued adoption of full function smartphones and increased
adoption of data services including messaging and social networking
- ARPU (average revenue per subscriber unit per month) declined by 2.4%
to $62.16 compared to the same quarter a year ago. The fast-growing
data component of $11.17, represented 18% of ARPU, while the voice
component continued to decline as a result of competitive pricing
pressure
- Net subscriber additions were 148,000 representing a decrease of 8.6%
from the same period a year ago. Postpaid net additions were 119,000,
an increase of 11%, while prepaid loading decreased by 47% to 29,000.
Postpaid additions represented 80% of total net additions
- EBITDA of $492 million was unchanged over the fourth quarter of 2007,
as increased network revenue was offset by higher cost of acquisition
and retention expenses, and network and other expenses to support the
10% growth in the wireless subscriber base, higher data revenue and
the launch of the Koodo basic service brand. Retention expenses
increased due to higher retention volumes and continued increases in
smartphone adoption
- Cost of acquisition per gross addition increased 10% year-over-year
to $388 reflecting slightly higher seasonal advertising, launch
advertising for the BlackBerry Storm for which only limited shipments
were received in 2008, and higher subsidies on smartphones in
response to competitor pricing
- Blended monthly subscriber churn increased slightly to 1.62% from
1.59% a year ago
- Simple cash flow (EBITDA less capital expenditures) decreased by 28%
to $256 million in the quarter due to planned higher capital spending
to support the start of the HSPA network build-out.
TELUS wireline
- External revenues increased by $47 million or 3.9% to $1.27 billion
in the fourth quarter of 2008, when compared with the same period in
2007, as data and other growth more than offset the moderate declines
in local and long distance revenues
- Data revenues increased by $62 million or 13% due to higher revenues
primarily from the January acquisition of Emergis, increased enhanced
data and hosting services, as well as high-speed Internet and TELUS
TV subscriber growth. When adjusted for Emergis and mandated
regulatory adjustments, underlying data growth was approximately 3%
- TELUS added 19,000 net high-speed Internet subscribers, a 27%
decrease from a year ago, due to increased competition and a maturing
market
- EBITDA of $445 million declined by $16 million or 3.5% due primarily
to higher restructuring costs, increased cost of sales for TELUS TV,
and upfront costs for implementing large complex enterprise customer
services
- Network access lines (NALs) declined by 36,000 in the quarter, and
3.6% from a year ago. Consistent with past experience, residential
NAL losses include the effect of ongoing competitive activity and
wireless substitution, partially mitigated by an increase in business
access lines
- Simple cash flow (EBITDA less capital expenditures) decreased
$74 million to $50 million in the quarter due to lower EBITDA and a
$58 million increase in capital expenditures. The increase in capital
primarily relates to supporting new enterprise customers and
enhancing the broadband network.
Corporate and Business Developments
TELUS awarded Government of Quebec contract
TELUS was selected by the Government of Quebec to deliver and manage the province's next generation data network, the Reseau integre de telecommunication multimedia (RITM), through a competitive bid process. This provincial infrastructure will provide data connections to some 160 ministries and agencies, and 350 health institutions across the province. The initial contract term is five years with the option to extend for another three years, and a transition of two additional years. The contract is expected to be worth up to approximately $900 million over 10 years.
This project will consolidate the Government of Quebec's two largest existing telecommunications networks, the Reseau de telecommunication multimedia de l'administration publique (RETEM) and the Reseau de telecommunications sociosanitaire (RTSS), into one that is secure, robust and designed to accommodate the constantly growing needs of its new electronic health and e.government services plans. In addition, the Government of Quebec will make the RITM available to all provincial public and parapublic institutions including municipalities and educational institutions.
TELUS named 2008 Health Company of the Year
The Information Technology Association of Canada named TELUS the 2008 Health Company of the Year. The award honours TELUS as a distinguished for-profit healthcare information technology company that has demonstrated excellence in the Canadian health informatics industry within the past 12 months. TELUS was nominated as a private sector company that has excelled in corporate initiatives and client satisfaction, delivering exceptional quality of service.
Sunnybrook Health Sciences Centre contracts with TELUS
In January, TELUS Health Solutions announced a multi-million dollar deal with Sunnybrook Health Sciences Centre to upgrade the hospital's existing electronic medical record system to TELUS' advanced web-based platform. The new system, Oacis, allows healthcare providers to capture and display every aspect of patient care from admission to discharge in one simple platform. At Sunnybrook the technology has been used to support a patient-controlled life-long health record.
TELUS has also acquired the intellectual property rights for MyChart, Sunnybrook Health Science's innovative electronic continuity-of-care record system for patients. Personal electronic health records allow patients to manage their health by giving them immediate access to their personal health information as well as improving the information exchange between them and their healthcare providers. MyChart currently has over 1,000 users including doctors, clinicians, patients and family members.
TELUS acquires Remote Patient Monitoring solution
In January, TELUS announced the strategic acquisition of the rights to a Remote Patient Monitoring solution developed by Quebec-based New IT Technologies. The system gives Canadians receiving homecare tools to stay in touch with their healthcare providers, and for those providers to actively monitor critical data like blood pressure, insulin levels, vital signs medication and fluid intakes. Patient information can be communicated via phone, Internet and through wireless devices.
TELUS inaugurates new call centre in Rimouski, Quebec
After transforming four local offices into future friendly work spaces for its 1,300 team members in Rimouski, TELUS inaugurated a new call centre in the Edifice TELUS T.-A.-Bernier in early February. The remodelled location is now home to 250 team members, most of whom are wireline customer care agents for TELUS TV, Internet and home phone service subscribers. By uniting these teams, TELUS has added capacity in its wireless call centre. TELUS remains a leading employer for the region.
TELUS expands international call centre capabilities providing
Spanish-language support
TELUS is opening a contact centre in Clark County, Nevada this spring to provide bilingual English and Spanish language service for U.S.-based corporate clients. We also augmented our contact centre outsourcing capabilities recently by acquiring a minority investment in a company with call centre operations in three Central American countries. These new sites augment TELUS' existing international business process outsourcing (BPO) capabilities allowing TELUS to offer clients Spanish-English language call centre support from a variety of diverse locations, thereby enhancing TELUS' ability to offer services from a variety of time zones and shift calls to alternate sites in the case of a business interruption affecting one area of the world.
TELUS already provides a broad suite of call centre and BPO services to some of the world's largest telecommunications companies, utilities, financial services corporations, and consumer electronic companies. As the contact centre and BPO industry evolves, more corporations are seeking one service provider to meet their business needs. Spanish-English language service is increasingly a prerequisite for meeting the needs of U.S.-based multinational clients of TELUS and the new investments improve TELUS' competitive offering for this growing line of business.
Wireless Products & Services
TELUS brings Canadians the BlackBerry Storm smartphone
In December, TELUS launched the much anticipated touchscreen BlackBerry Storm 9530 smartphone with exclusive content from independent music label Arts & Craft. The BlackBerry Storm smartphone's SurePress touchscreen depresses slightly when pressed, giving customers tactile feedback and making navigation and typing more precise. It also sports the features and reliability BlackBerry smartphone users have come to expect - easy-to-use email and instant messaging, full HTML Internet browsing, and integrated access to Facebook and MySpace, all on TELUS' 3G network. Limited supplies of the handset received in mid-December, were boosted with further deliveries in late December and January.
Also in the quarter TELUS launched the BlackBerry Pearl 8130 in new colours, red and blue, and the HTC Touch Pro with Windows Mobile 6.1.
TELUS launches BlackBerry Curve 8350i smartphone with Push to Talk on
Mike Network
In January, TELUS launched the new BlackBerry Curve 8350i smartphone, the ultimate productivity tool for professionals in the field and on the go who need instant communication with their teams along with instant access to their e-mail. The new smartphone is packed with functionality, including built-in Wi-Fi and GPS, and combines the industry-leading BlackBerry communications and multimedia capabilities with Mike's Direct Connect Push to Talk.
Awards and Community Investment
Aberdeen Group selects TELUS for case study
In January, global research company the Aberdeen Group selected TELUS for its annual case study on how technology improves learning. One company is highlighted each year for best-in-class practices as a benchmark for other companies. TELUS was selected from a pool of 535 companies due to its ability to align business priorities with learning and performance development to produce results. As a learning-focused technology company, TELUS is committed to investing in professional growth for team members.
Canadian Institute of Chartered Accountants presents TELUS with five
awards
In December, the Canadian Institute of Chartered Accountants (CICA) presented TELUS with the Overall Award of Excellence for Corporate Reporting, at its annual awards. The CICA judged TELUS' 2007 financial reporting package, which includes its annual report to shareholders, information circular, corporate social responsibility report and online investor relations and corporate governance information, the best across all industries. TELUS also received the Award of Excellence for Financial Reporting, the Award of Excellence for Corporate Reporting in the Communications and Media category, Honourable Mention for Corporate Governance Disclosure, and Honourable Mention for Excellence in Sustainable Development Reporting.
TELUS directory assistance service tops U.S. and Canadian ranking
In November, TELUS was recognized by the Paisley Group, a directory assistance and operator services consulting company, for the best wholesale directory assistance service in both the United States and Canada. The Paisley Group conducts annual audits of customer service in the directory assistance industry and announced their 2008 results in November. In addition to being ranked Canada's best national directory assistance provider for the sixth consecutive year, and now the top wholesale directory assistance provider in the U.S., TELUS won the 2008 award for Excellence in Automation in Directory Information Services at the DIS Awards of Excellence and was named Best Wholesaler at the Information Services Conference.
TELUS and its team members donate $7.1 million to Canadian charities
TELUS employees, retirees, board members and retailers pledged $3.4 million to more than 2,900 charities across Canada. As a result of these pledges, $7.1 million will be donated in 2009 as part of the TELUS Employee Charitable Giving program. TELUS team members and alumni make donations through payroll and pension deduction to 48,000 eligible registered Canadian charities such as the Canadian Cancer Society, BC Children's Hospital Foundation and the Canadian Breast Cancer Foundation. TELUS matches donations dollar for dollar to provide financial support for eligible charities. TELUS and its team members have contributed $135 million to charitable and not-for-profit organizations and volunteered more than 2.6 million hours of service to local communities since 2000.
TELUS employees contribute $1 million to juvenile diabetes research
In November, to celebrate National Diabetes Awareness Month, the Juvenile Diabetes Research Foundation (JDRF) announced nearly $8 million was raised in 2008 through the annual TELUS Walk to Cure Diabetes. Hundreds of TELUS employees took part in the Walk, while TELUS matched each dollar they donated for a total $1 million contribution towards research to find a cure for juvenile diabetes. The annual TELUS Walk to Cure Diabetes is JDRF's biggest fundraising event and took place in more than 60 communities across the country this summer, raising money for much needed research to help the more than 200,000 Canadians living with type 1 diabetes.
National Junior Hockey's PK Subban joins HEROS kids in Toronto
Adding to the excitement around Team Canada winning the IIHF World Junior Championship, TELUS brought some of Canada's hockey heroes to children involved in the HEROS (Hockey Education Reaching Out Society) program. In January, the Toronto Community Board arranged for children at Brookview Middle School, in the economically disadvantaged area of Jane and Finch, to meet Team Canada hero PK Subban. PK communicated the importance of perseverance, education and setting goals on and off the ice. TELUS is a sponsor of Hockey Canada and a supporter of HEROS.
Dividend Declaration
The Board of Directors has declared a quarterly dividend of forty-seven and one half cents ($0.475) Canadian per share on the issued and outstanding Common shares and forty-seven and one half cents ($0.475) Canadian per share on the issued and outstanding Non-Voting shares of the Company payable on April 1, 2009 to holders of record at the close of business on March 11, 2009.
This quarterly dividend represents a two and one half cent (ten cents annualized) or 5.6 per cent increase from the $0.45 quarterly dividend paid on April 1, 2008.
About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with $9.7 billion of annual revenue and 11.6 million customer connections including 6.1 million wireless subscribers, 4.2 million wireline network access lines and 1.2 million Internet subscribers. TELUS provides a wide range of communications products and services including data, Internet protocol (IP), voice, entertainment and video. Committed to being Canada's premier corporate citizen, we give where we live. Since 2000, TELUS and our team members have contributed $135 million to charitable and not-for-profit organizations and volunteered more than 2.6 million hours of service to local communities. Nine TELUS Community Boards across Canada lead our local philanthropic initiatives. For more information about TELUS, please visit telus.com.
TELUS Corporation
consolidated statements of income and
other comprehensive income (unaudited)
Periods ended December 31
(millions except per Three months Twelve months
share amounts) 2008 2007 2008 2007
-------------------------------------------------------------------------
OPERATING REVENUES $ 2,454 $ 2,330 $ 9,653 $ 9,074
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OPERATING EXPENSES
Operations 1,479 1,371 5,815 5,465
Restructuring costs 38 6 59 20
Depreciation 351 386 1,384 1,355
Amortization of
intangible assets 84 68 329 260
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1,952 1,831 7,587 7,100
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OPERATING INCOME 502 499 2,066 1,974
Other expense, net 11 6 36 36
Financing costs 118 109 463 440
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INCOME BEFORE INCOME
TAXES AND NON-CONTROLLING
INTEREST 373 384 1,567 1,498
Income taxes 88 (19) 436 233
Non-controlling interests - 3 3 7
-------------------------------------------------------------------------
NET INCOME AND COMMON SHARE
AND NON-VOTING SHARE
INCOME 285 400 1,128 1,258
OTHER COMPREHENSIVE INCOME
Change in unrealized fair
value of derivatives
designated as cash flow
hedges (21) 18 (26) 82
Foreign currency
translation adjustment
arising from translating
financial statements of
self-sustaining foreign
operations 4 (2) 2 (7)
Change in unrealized fair
value of
available-for-sale
financial assets - (1) (2) (1)
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(17) 15 (26) 74
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COMPREHENSIVE INCOME $ 268 $ 415 $ 1,102 $ 1,332
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NET INCOME PER COMMON
SHARE AND NON-VOTING SHARE
- Basic $ 0.90 $ 1.23 $ 3.52 $ 3.79
- Diluted $ 0.89 $ 1.22 $ 3.51 $ 3.76
DIVIDENDS DECLARED PER
COMMON SHARE AND
NON-VOTING SHARE $ 0.475 $ 0.45 $ 1.825 $ 1.575
TOTAL WEIGHTED AVERAGE
COMMON SHARES AND
NON-VOTING SHARES
OUTSTANDING
- Basic 318 326 320 332
- Diluted 319 328 322 334
TELUS Corporation
consolidated statements of financial position (unaudited)
As at December 31 (millions) 2008 2007
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ASSETS
Current Assets
Cash and temporary investments, net $ 4 $ 20
Short-term investments - 42
Accounts receivable 966 711
Income and other taxes receivable 25 121
Inventories 333 243
Prepaid expenses and other 220 200
Derivative assets 10 4
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1,558 1,341
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Capital Assets, Net
Property, plant, equipment and other 7,317 7,196
Intangible assets subject to amortization 1,317 959
Intangible assets with indefinite lives 3,849 2,967
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12,483 11,122
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Other Assets
Deferred charges 1,513 1,318
Investments 42 39
Goodwill 3,564 3,168
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5,119 4,525
-------------------------------------------------------------------------
$ 19,160 $ 16,988
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 1,465 $ 1,476
Income and other taxes payable 163 7
Restructuring accounts payable and accrued
liabilities 51 35
Dividends payable 151 -
Advance billings and customer deposits 689 632
Current maturities of long-term debt 4 5
Current portion of derivative liabilities 75 27
Current portion of future income taxes 459 504
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3,057 2,686
-------------------------------------------------------------------------
Long-Term Debt 6,348 4,584
-------------------------------------------------------------------------
Other Long-Term Liabilities 1,295 1,718
-------------------------------------------------------------------------
Future Income Taxes 1,255 1,048
-------------------------------------------------------------------------
Non-Controlling Interests 23 26
-------------------------------------------------------------------------
Shareholders' Equity 7,182 6,926
-------------------------------------------------------------------------
$ 19,160 $ 16,988
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TELUS Corporation
consolidated statements of cash flows (unaudited)
Periods ended Three months Twelve months
December 31 (millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income 285 $ 400 $ 1,128 $ 1,258
Adjustments to reconcile
net income to cash
provided by operating
activities:
Depreciation and
amortization 435 454 1,713 1,615
Future income taxes (129) (16) 161 377
Share-based compensation (20) (30) 5 96
Net employee defined
benefit plans expense (27) (23) (102) (92)
Employer contributions
to employee defined
benefit plans (26) (26) (104) (93)
Restructuring costs,
net of cash payments 30 3 16 (18)
Amortization of deferred
gains on sale-leaseback
of buildings, amortization
of deferred charges and
other, net 8 3 3 4
Net change in non-cash
working capital 191 53 (1) 25
-------------------------------------------------------------------------
Cash provided by operating
activities 747 818 2,819 3,172
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INVESTING ACTIVITIES
Capital expenditures
excluding advanced
wireless services
spectrum licences (631) (472) (1,859) (1,770)
Payment for advanced
wireless services
spectrum licences - - (882) -
Acquisitions - - (696) -
Proceeds from the sale of
property and other assets - 2 13 7
Change in non-current
materials and supplies,
purchase of investments
and other (12) (2) (9) (9)
-------------------------------------------------------------------------
Cash used by investing
activities (643) (472) (3,433) (1,772)
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FINANCING ACTIVITIES
Common Shares and
Non-Voting Shares issued - - - 1
Dividends to shareholders (144) (270) (433) (521)
Purchase of Common Shares
and Non-Voting Shares for
cancellation (6) (147) (280) (750)
Long-term debt issued 3,438 2,989 12,983 7,763
Redemptions and repayment
of long-term debt (3,424) (2,899) (11,667) (7,857)
Dividends paid by a
subsidiary to
non-controlling interests - - (5) (4)
Other - - - (1)
-------------------------------------------------------------------------
Cash provided (used) by
financing activities (136) (327) 598 (1,369)
-------------------------------------------------------------------------
CASH POSITION
Increase (decrease) in
cash and temporary
investments, net (32) 19 (16) 31
Cash and temporary
investments, net,
beginning of period 36 1 20 (11)
-------------------------------------------------------------------------
Cash and temporary
investments, net, end of
period 4 20 $ 4 $ 20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
OF CASH FLOWS
Interest (paid) (193) (171) $ (457) $ (454)
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Interest received 1 33 $ 3 $ 42
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income taxes (inclusive of
Investment Tax Credits
(paid) received, net (2) 122 $ (10) $ 123
-------------------------------------------------------------------------
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TELUS Corporation
segmented information (unaudited)
Quarters ended December 31 Wireline Wireless
(millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating revenues
External revenue $ 1,266 $ 1,219 $ 1,188 $ 1,111
Intersegment revenue 35 31 7 7
-------------------------------------------------------------------------
1,301 1,250 1,195 1,118
-------------------------------------------------------------------------
Operating expenses
Operations expense 824 783 697 626
Restructuring costs 32 6 6 -
-------------------------------------------------------------------------
856 789 703 626
-------------------------------------------------------------------------
EBITDA(1) $ 445 $ 461 $ 492 $ 492
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 395 $ 337 $ 236 $ 135
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ 50 $ 124 $ 256 $ 357
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses (as
adjusted)(3)
Operations expense (as
adjusted)(3) 824 781 697 627
Restructuring costs 32 6 6 -
-------------------------------------------------------------------------
856 787 703 627
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ 445 $ 463 $ 492 $ 491
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 395 $ 337 $ 236 $ 135
-------------------------------------------------------------------------
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EBITDA (as adjusted) less
CAPEX $ 50 $ 126 $ 256 $ 356
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited)
Quarters ended December 31 Eliminations Consolidated
(millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating revenues
External revenue $ - $ - $ 2,454 $ 2,330
Intersegment revenue (42) (38) - -
-------------------------------------------------------------------------
(42) (38) 2,454 2,330
-------------------------------------------------------------------------
Operating expenses
Operations expense (42) (38) 1,479 1,371
Restructuring costs - - 38 6
-------------------------------------------------------------------------
(42) (38) 1,517 1,377
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 937 $ 953
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 631 $ 472
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 306 $ 481
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses (as
adjusted)(3)
Operations expense (as
adjusted)(3) (42) (38) 1,479 1,370
Restructuring costs - - 38 6
-------------------------------------------------------------------------
(42) (38) 1,517 1,376
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ - $ - $ 937 $ 954
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 631 $ 472
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ - $ - $ 306 $ 482
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted)
(from above) $ 937 $ 954
Incremental charge(3) - (1)
----------------------------------------------
EBITDA (from above) 937 953
Depreciation 351 386
Amortization 84 68
----------------------------------------------
Operating income 502 499
Other expense, net 11 6
Financing costs 118 109
----------------------------------------------
Income before income
taxes and
non-controlling
interests 373 384
Income taxes 88 (19)
Non-controlling
interests - 3
----------------------------------------------
Net income $ 285 $ 400
----------------------------------------------
----------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is a measure that does not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers; EBITDA is defined by the
Company as operating revenues less operations expense and
restructuring costs. The Company has issued guidance on, and reports,
EBITDA because it is a key measure used by management to evaluate
performance of its business segments and is utilized in measuring
compliance with certain debt covenants.
(2) Capital expenditures ("CAPEX").
(3) Substantially all of the Company's share option awards that were
granted prior to January 1, 2005, and which were outstanding on
January 1, 2007, were amended by adding a net-cash settlement
feature; such amendment resulted in an incremental charge to
operations of $NIL (2007 - $1) and did not result in an immediate
cash outflow. In respect of 2008 and 2007 results provided to the
Company's chief operating decision maker, operations expense and
EBITDA are being presented both with, and without, the impact of such
amendment.
TELUS Corporation
segmented information (unaudited)
Years ended December 31 Wireline Wireless
(millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating revenues
External revenue $ 5,021 $ 4,810 $ 4,632 $ 4,264
Intersegment revenue 131 114 28 27
-------------------------------------------------------------------------
5,152 4,924 4,660 4,291
-------------------------------------------------------------------------
Operating expenses
Operations expense 3,327 3,222 2,647 2,384
Restructuring costs 51 19 8 1
-------------------------------------------------------------------------
3,378 3,241 2,655 2,385
-------------------------------------------------------------------------
EBITDA(1) $ 1,774 $ 1,683 $ 2,005 $ 1,906
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital expenditures $ 1,311 $ 1,219 $ 548 $ 551
Advanced wireless services
spectrum licences - - 882 -
-------------------------------------------------------------------------
CAPEX(2) $ 1,311 $ 1,219 $ 1,430 $ 551
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ 463 $ 464 $ 575 $ 1,355
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses (as
adjusted)(3)
Operations expense (as
adjusted)(3) 3,327 3,077 2,647 2,360
Restructuring costs 51 19 8 1
-------------------------------------------------------------------------
3,378 3,096 2,655 2,361
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ 1,774 $ 1,828 $ 2,005 $ 1,930
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital expenditures $ 1,311 $ 1,219 $ 548 $ 551
Advanced wireless services
spectrum licences - - 882 -
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CAPEX(2) $ 1,311 $ 1,219 $ 1,430 $ 551
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ 463 $ 609 $ 575 $ 1,379
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-------------------------------------------------------------------------
(unaudited)
Years ended December 31 Eliminations Consolidated
(millions) 2008 2007 2008 2007
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Operating revenues
External revenue $ - $ - $ 9,653 $ 9,074
Intersegment revenue (159) (141) - -
-------------------------------------------------------------------------
(159) (141) 9,653 9,074
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Operating expenses
Operations expense (159) (141) 5,815 5,465
Restructuring costs - - 59 20
-------------------------------------------------------------------------
(159) (141) 5,874 5,485
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 3,779 $ 3,589
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-------------------------------------------------------------------------
Capital expenditures $ - $ - $ 1,859 $ 1,770
Advanced wireless services
spectrum licences - - 882 -
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 2,741 $ 1,770
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 1,038 $ 1,819
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses (as
adjusted)(3)
Operations expense (as
adjusted)(3) (159) (141) 5,815 5,296
Restructuring costs - - 59 20
-------------------------------------------------------------------------
(159) (141) 5,874 5,316
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ - $ - $ 3,779 $ 3,758
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital expenditures $ - $ - $ 1,859 $ 1,770
Advanced wireless services
spectrum licences - - 882 -
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 2,741 $ 1,770
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ - $ - $ 1,038 $ 1,988
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted)
(from above) $ 3,779 $ 3,758
Incremental charge(3) - 169
----------------------------------------------
EBITDA (from above) 3,779 3,589
Depreciation 1,384 1,355
Amortization 329 260
----------------------------------------------
Operating income 2,066 1,974
Other expense, net 36 36
Financing costs 463 440
----------------------------------------------
Income before income
taxes and
non-controlling
interests 1,567 1,498
Income taxes 436 233
Non-controlling
interests 3 7
----------------------------------------------
Net income $ 1,128 $ 1,258
----------------------------------------------
----------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is a measure that does not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers; EBITDA is defined by the
Company as operating revenues less operations expense and
restructuring costs. The Company has issued guidance on, and reports,
EBITDA because it is a key measure used by management to evaluate
performance of its business segments and is utilized in measuring
compliance with certain debt covenants.
(2) Total capital expenditures ("CAPEX") are the sum of capital
expenditures and advances wireless services spectrum licences.
(3) Substantially all of the Company's share option awards that were
granted prior to January 1, 2005, and which were outstanding on
January 1, 2007, were amended by adding a net-cash settlement
feature; such amendment resulted in an incremental charge to
operations of $NIL (2007 - $169) and did not result in an immediate
cash outflow. In respect of 2008 and 2007 results provided to the
Company's chief operating decision maker, operations expense and
EBITDA are being presented both with, and without, the impact of such
amendment.
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TELUS CORPORATION
Management's review of operations
2008 Q4
-------------------------------------------------------------------------
Caution regarding forward-looking statements
-------------------------------------------------------------------------
This report contains forward-looking statements about expected future
events and financial and operating results of TELUS Corporation (TELUS or
the Company, and where the context of the narrative permits, or requires,
its subsidiaries). By their nature, forward-looking statements require
the Company to make assumptions, and forward-looking statements are
subject to inherent risks and uncertainties. There is significant risk
that assumptions (see Section 1.5 Financial and operating targets for
2009), predictions and other forward-looking statements will not prove to
be accurate. Readers are cautioned not to place undue reliance on
forward-looking statements as a number of factors could cause actual
future results, conditions, actions or events to differ materially from
the targets, expectations, estimates or intentions expressed. Except as
required by law, the Company disclaims any intention or obligation to
update or revise any forward-looking statements, and reserves the right
to change, at any time at its sole discretion, its current practice of
updating annual targets and guidance. Targets for 2009 and assumptions
are described in Section 1.5.
Factors that could cause actual results to differ materially include,
---------------------------------------------------------------------
but are not limited to:
-----------------------
Competition (including more active price competition and from the
likelihood of new wireless competitors beginning to offer services in
late 2009 and into 2010 resulting from the 2008 advanced wireless
services (AWS) spectrum auction); economic growth and fluctuations
(including the global credit crisis, and pension performance, funding and
expenses); capital expenditure levels (increased in 2009 and potentially
future years due to the Company's fourth generation (4G) wireless
deployment strategy and any new Industry Canada wireless spectrum
auctions); financing and debt requirements (including ability to carry
out refinancing activities and fund share repurchases); tax matters
(including acceleration or deferral of required payments of significant
amounts of cash taxes); human resource developments; business
integrations and internal reorganizations (including ability to
successfully implement cost reduction initiatives); technology (including
reliance on systems and information technology, broadband and wireless
technology options, choice of suppliers and suppliers' ability to
maintain and service their product lines, expected technology and
evolution path and transition to 4G technology, expected future benefits
and performance of HSPA (high speed packet access)/LTE (long-term
evolution) wireless technology, successful implementation of the network
build and sharing arrangement with Bell Canada to achieve cost
efficiencies and reduce deployment risks, successful deployment and
operation of new wireless networks and successful introduction of new
products, services and supporting systems); regulatory approvals and
developments (including interpretation and application of tower sharing
and roaming rules, the design and impact of future spectrum auctions, the
review of new media and Internet traffic management practices, and
possible changes to foreign ownership restrictions); process risks
(including conversion of legacy systems and billing system integrations,
and implementation of large complex deals); health, safety and
environmental developments; litigation and legal matters; business
continuity events (including manmade and natural threats); any
prospective acquisitions or divestitures; and other risk factors
discussed herein and listed from time to time in TELUS' reports and
public disclosure documents including its annual report, annual
information form, and other filings with securities commissions in Canada
(on www.sedar.com) and in its filings in the United States including Form
40-F (on EDGAR at www.sec.gov).
For further information, see Risks and risk management in Section 10 of
TELUS' 2007 annual and 2008 first, second and third quarter Management's
discussion and analyses, as well as updates reported in Section 5 of this
document.
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Management's review of operations
February 11, 2009
The following is a discussion of the consolidated financial position and results of operations of TELUS Corporation for the three-month periods and years ended December 31, 2008 and 2007. This discussion contains forward- looking information that is qualified by reference to, and should be read together with, the Caution regarding forward-looking statements above. Accounting policies are consistent with those described in Note 1 of TELUS' 2007 Consolidated financial statements and developments set out in TELUS' 2008 first, second and third quarter Management's discussions and analyses.
TELUS has issued guidance on and reports on certain non-GAAP measures used by management to evaluate performance of business units, segments and the Company. Non-GAAP measures are also used to determine compliance with debt covenants and manage the capital structure. Because non-GAAP measures do not have a standardized meaning, securities regulations require that non-GAAP measures be clearly defined and qualified, and reconciled with their nearest GAAP measure. For the reader's reference, the definition, calculation and reconciliation of consolidated non-GAAP measures are provided in Section 6: Reconciliation of non-GAAP measures and definition of key operating indicators.
Management's review of operations
-------------------------------------------------------------------------
Section Description
-------------------------------------------------------------------------
1. Introduction, performance A summary of TELUS' consolidated results
summary and targets for 2008, performance against 2008
targets, and presentation of targets for
2009
-------------------------------------------------------------------------
2. Results from operations A detailed discussion of operating results
for the fourth quarter and year ended
December 31, 2008
-------------------------------------------------------------------------
3. Changes in financial A discussion of changes in the
position consolidated statements of financial
position for the year ending December 31,
2008
-------------------------------------------------------------------------
4. Liquidity and capital A discussion of cash flow, liquidity,
resources credit facilities and other disclosures
-------------------------------------------------------------------------
5. Risks and risk management An update of certain risks and
uncertainties facing TELUS and how the
Company manages these risks
-------------------------------------------------------------------------
6. Reconciliation of A description, calculation and
non-GAAP measures and reconciliation of certain measures used by
definition of key management
operating indicators
-------------------------------------------------------------------------
1. Introduction, performance summary and targets
The following discussion is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of Management's review of operations and risk updates in Section 5. It is also qualified by Section 10: Risks and risk management of TELUS' 2007 annual Management's discussion and analysis, and updates in TELUS' 2008 first, second and third quarter Management's discussions and analyses.
1.1 Materiality for disclosures
Management determines whether or not information is material based on whether it believes a reasonable investor's decision to buy, sell or hold securities in the Company would likely be influenced or changed if the information were omitted or misstated.
1.2 Canadian economy and telecommunications industry
Economic and telecom industry growth
In early 2009, economic uncertainty related to tightening of credit markets worldwide remains. The credit situation remains fluid and it is difficult to predict future outcomes. TELUS' capital structure financial policies were designed with credit cycles in mind (see Capabilities - Section 4.3 Liquidity and capital resources in TELUS' annual 2007 Management's discussion and analysis). The Company believes that these financial policies and guidelines, and maintaining credit ratings in the range of BBB+ to A , or the equivalent, provide reasonable access to capital markets.
The Government of Canada, in its January 2009 public budget documents, noted there was a broad-based consensus that the Canadian economy entered into recession in the fourth quarter of 2008, and that private sector forecasters expected the recession to last three quarters. The economic weakness and stock market decline that began in 2008 is expected to increase TELUS' net defined benefits plans expense and funding in 2009, as reflected in the Company's public targets for 2009. See Section 1.
