Actionable news
0
All posts from Actionable news
Actionable news in T: AT&T Inc,

TELUS Reports Results for First Quarter 2016

VANCOUVER, BRITISH COLUMBIA, May 05, 2016 (Marketwired via COMTEX) -- VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 5, 2016) - (T) TU, -0.61% - TELUS Corporation

Consolidated operating revenue up 2.6 per cent, EBITDA up 3.1 per cent

Continued leadership in customer experience, with wireless postpaid churn of 0.97 per cent

Company confirms industry-leading 2016 financial growth targets

Quarterly dividend increased 10 per cent to 46 cents per share

Extending dividend growth program targeting 7 to 10 per cent annual growth for 2017 through 2019

Announces up to $250 million annual share purchase program targeted for 2017 through 2019

TELUS strikes deal to expand wireless customer base in Manitoba

Baring Private Equity Asia to acquire 35 per cent stake in TELUS International

Agreement with Baring Private Equity Asia values TELUS International at an enterprise value of $1.2 billion

TELUS to receive proceeds from TELUS International of approximately $600 million; proceeds support continued expansion of its broadband networks in Canada

TELUS Corporation's consolidated operating revenue grew 2.6 per cent to $3.1 billion in the first quarter of 2016 from a year earlier, driven by continued data revenue growth in both wireless and wireline operations. Wireline data revenue increased 10 per cent leading to 3.7 per cent growth in external wireline revenue. Wireless data revenue increased 8.3 per cent from a year ago, leading to overall wireless network revenue growth of 2.5 per cent. Earnings before interest, income taxes, depreciation and amortization (EBITDA) was impacted by a $31 million increase in restructuring and other costs. When excluding restructuring and other costs from both periods, EBITDA was up 3.1 per cent to $1.2 billion, reflecting growth in TELUS' wireless and wireline operations and operational efficiencies. EBITDA including restructuring and other costs increased by 0.4 per cent from a year ago.

"Our revenue and EBITDA growth in the first quarter reflect the quality and resiliency of our operations despite ongoing economic challenges, most notably in Alberta. We continued to deliver on core elements of our consistent and winning strategy, including sustaining our leadership in customer loyalty, wireline EBITDA growth and wireless postpaid churn of 0.97 per cent," said Darren Entwistle, President and CEO.

"The extension of our multi-year dividend growth program through 2019 reflects the Company's confidence in future market opportunities stemming from our enduring growth strategy. Building on the consistency of previous multi-year dividend growth initiatives, our new program will target between seven and 10 per cent annual dividend growth from 2017 through to 2019, and will continue to be complemented by our synergistic discretionary share purchase program of up to $250 million per year over the next three years. We have established the balance sheet and operational performance to launch and complete these shareholder-friendly programs and are proud of our track record. Between 2004 and April 2016 TELUS has returned $13 billion to shareholders, including $7.9 billion in dividends and $5.1 billion in share buybacks, representing nearly $22 per share," Mr. Entwistle added.

Mr. Entwistle also commented, "Today, we are announcing the next step in our company's growth journey by way of an agreement with Baring Private Equity Asia, which will acquire a long-term, 35 per cent stake in TELUS International. This partnership will integrate TELUS International's world class customer service and team engagement with Baring Private Equity Asia's extensive Asian markets presence and worldwide experience to tap into new growth opportunities for TELUS International's global business process outsourcing, IT and customer service operations. Importantly, the proceeds of approximately $600 million will further enhance TELUS' already strong balance sheet and contribute to our long-standing strategy of advancing our broadband wireline and wireless networks to support Canada's digital economy for generations to come."

John Gossling, TELUS Executive Vice-President and CFO said, "Our results for the first quarter reflect strong execution by the TELUS team and ongoing benefits from our operational efficiency initiatives. Against the backdrop of a highly competitive marketplace, we continue to deliver on our balanced capital allocation strategy that not only supports our long-term growth objectives, but also allows us to consistently return capital to shareholders."

Net income and basic earnings per share (EPS) were affected by higher restructuring and other costs; an increase in depreciation and amortization expense reflecting, in part, TELUS' higher asset base from ongoing investments in its fibre optic and 4G LTE networks; and higher financing costs. Adjusted net income, excluding the effects of restructuring and other costs, decreased 3.0 per cent to $414 million, while adjusted EPS of $0.70 was unchanged from the prior year. On a reported basis, net income decreased 9.1 per cent to $378 million, while basic earnings per share (EPS) decreased 6.8 per cent to $0.64.

CONSOLIDATED FINANCIAL HIGHLIGHTS

C$ and in millions, except per share amounts            Three months ended  Per cent
                                                        March 31
(unaudited)                                             2016      2015      change
Operating revenues                                      3,108     3,028     2.6
Operating expenses before depreciation and amortization 1,968     1,893     4.0
EBITDA(1)                                               1,140     1,135     0.4
EBITDA excluding restructuring and other costs(1)(2)    1,188     1,152     3.1
Net income                                              378       415       (9.1     )
Adjusted net income(3)                                  414       427       (3.0     )
Basic earnings per share (EPS)                          0.64      0.68      (6.8     )
Adjusted basic EPS(3)                                   0.70      0.70      -
Capital expenditures                                    618       635       (2.7     )
Free cash flow(4)                                       108       271       (60.1    )
Total subscriber connections(5)                         12.443    12.260    1.5

(1) EBITDA does not have any standardized meaning prescribed by IFRS-IASB. TELUS issues guidance on and reports EBITDA because it is a key measure
		 used to evaluate performance at a consolidated and segmented level. For further definition and explanation, see Section 11.1 in the accompanying
		 2016 first quarter Management's discussion and analysis.
(2) For the first quarter of 2016 and 2015, restructuring and other costs were $48 million and $17 million, respectively.
(3) Adjusted net income and Adjusted basic EPS do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news
		 release as excluding (after income taxes), restructuring and other costs. For further analysis of Adjusted basic EPS see Section 1.3 in the accompanying
		 2016 first quarter Management's discussion and analysis.
(4) Free cash flow does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation, see Section 11.1 in the accompanying
		 2016 first quarter Management's discussion and analysis.
(5) The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers
		 (Optik TV™ and TELUS Satellite TV® subscribers) measured at the end of the respective periods based on information in billing and other systems.
		 Our January 1, 2015 opening reported subscriber balance has been retrospectively adjusted to exclude 1,613,000 business NALs due to its diminishing
		 relevance as a key performance indicator. Subsequent to a review of our subscriber base, TELUS' Q1 2016 beginning of period postpaid wireless subscriber
		 base was reduced by 45,000 and its Q1 2016 beginning of period high-speed Internet subscriber base was increased by 21,000.

In wireless, data revenue was driven by subscriber growth, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and increased data usage, partially offset by the effects of an economic slowdown, particularly in Alberta. Wireline data revenue growth was generated by growth in TELUS International's business process outsourcing services, an increase in Internet and enhanced data service revenue from continued high-speed Internet subscriber growth and higher revenue per customer, continued TELUS TV subscriber growth and higher TELUS Health revenues.

In the first quarter of 2016, TELUS attracted 31,000 net wireless postpaid, high-speed Internet and TV customers. This included 12,000 high-speed Internet subscribers, 11,000 TELUS TV customers and 8,000 wireless postpaid customers. These gains were partially offset by the ongoing loss of traditional telephone network access lines and a decline in wireless prepaid customers. TELUS' total wireless subscriber base is up 1.2 per cent from a year ago to 8.4 million, high-speed Internet connections have increased 6.7 per cent to 1.6 million, and TELUS TV subscribers are higher by 8.4 per cent to just over 1 million.

In the quarter, TELUS continued to deliver leading wireless customer churn on a national basis with a monthly postpaid churn rate of 0.97 per cent. This is the tenth quarter in the past 11 that TELUS' postpaid churn rate was below 1 per cent, despite increasing competitive pressures due to the simultaneous expiration of two-year and three-year contracts commencing in June 2015. Blended churn of 1.26 per cent in the first quarter of 2016 is TELUS' lowest first quarter churn rate since becoming a national carrier 16 years ago. This further exemplifies the success of TELUS' differentiated customers first culture and its ongoing focus on delivering outstanding customer service, coupled with attractive new products and services.

Free cash flow of $108 million in the first quarter was lower by $163 million from a year ago, primarily due to higher income tax payments, mainly reflecting a higher final income tax payment for the 2015 income tax year, an increase in interest paid, and higher restructuring disbursements partially offset by lower share-based compensation payments.

In the first quarter of 2016, TELUS returned $313 million to shareholders including $263 million in dividends paid and $50 million in share purchases under its 2016 normal course issuer bid (NCIB) program. Through the end of April, TELUS has returned $574 million to shareholders, including $524 million in dividends paid and the purchase of 1.3 million shares for $50 million.

Dividend Declaration - increased to 46 cents per quarter

The TELUS Board of Directors has declared a quarterly dividend of 46 cents ($0.46) Canadian per share on the issued and outstanding Common Shares of the Company payable on July 4, 2016 to holders of record at the close of business on June 10, 2016.

This second quarter dividend represents a four cent increase from the $0.42 quarterly dividend paid on July 2, 2015 and is the eleventh dividend increase since TELUS announced its original multi-year dividend growth program in May 2011. Over this period, TELUS' dividend is higher by 75 per cent.

TELUS announces intention to extend multi-year dividend growth and share purchase programs

TELUS announced its intention to target ongoing semi-annual dividend increases, with the annual increase in the range of seven to 10 per cent from 2017 through to the end of 2019. This announcement further extends TELUS' multi-year dividend growth program originally announced in May 2011 and initially extended in May 2013 and provides investors with ongoing clarity with respect to TELUS' dividend growth model.

Notwithstanding this target, dividend decisions will continue to be subject to our Board's assessment and the determination of our financial situation and outlook on a quarterly basis. Our long-term dividend payout ratio guideline is 65 to 75 per cent of prospective net earnings. There can be no assurance that we will maintain a dividend growth program through 2019.

TELUS also announced its intention to renew its normal course issuer bid (NCIB) program in each year of the next three years in order to permit purchases for up to $250 million in each such calendar year. This announcement extends TELUS' share purchase program originally announced in May 2013. There can be no assurance that TELUS will complete its 2016 NCIB or that it will renew and complete its NCIB program in each of the next three years as these decisions depend on the assessment and determination of TELUS' Board of Directors from time to time on the basis of TELUS' financial position and outlook.

TELUS to expand wireless customer base in Manitoba

TELUS has reached an agreement in principle with Bell Canada Enterprises (BCE) that will see approximately one-third of Manitoba Telecom Services (MTS) postpaid wireless customers become TELUS customers once the purchase of MTS by BCE concludes. As part of the agreement, Bell will also assign one-third of MTS' dealer locations in Manitoba to TELUS. Thanks to the skill and passion of our team members, TELUS has earned one of the world's best levels of customer loyalty. TELUS intends to bring the same outstanding customer service it offers across Canada to the benefit of clients in Manitoba. The agreement is subject to approval from the Competition Bureau and other conditions.

TELUS announces Baring Private Equity Asia to acquire 35 per cent stake in TELUS International; agreement with Baring Private Equity Asia values TELUS International at $1.2 billion

TELUS has entered into an agreement with Baring Private Equity Asia, an Asian-based investment firm which advises funds that manage over $13 billion (U.S.$10 billion) in assets, for it to acquire a 35 per cent non-controlling interest in TELUS International (TI), a global provider of customer service, IT and business process outsourcing services. The agreement values TI at $1.2 billion. Through this collaboration, TI is well positioned to leverage Baring Private Equity Asia's deep Asian markets presence and worldwide experience, and tap into its global network in order to further expand TI's operations. In addition, this transaction will allow TELUS to direct substantial capital to investments throughout Canada, including the expansion of its fibre-optic network to more communities, its advanced wireless network and the support of healthcare. TELUS will retain majority ownership and control of TI and does not expect significant changes in the support it provides to TI, including services such as facilities, network, IT, branding and media support. In connection with the transaction, TELUS has also arranged an incremental $425 million in bank financing, which is secured by assets of TI and its subsidiaries, expires in 2021 and is non-recourse to TELUS Corporation. Through this transaction and the incremental debt within TI, TELUS will receive proceeds of approximately $600 million. The agreement is subject to customary closing conditions.

This news release contains statements about financial and operating performance of TELUS (the Company) and future events, including with respect to future dividend increases and normal course issuer bids through 2019, the 2016 annual targets and guidance, the proposed purchase of MTS by BCE and the transfer of a certain portion of MTS' postpaid wireless subscribers and retail locations to TELUS (the "Transaction") and the agreement between TELUS International and Baring Private Equity Asia (the "TI-Baring Transaction") that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There can be no assurance that the conditions to closing of the MTS-BCE transaction will be satisfied, including, without limitation, the relevant regulatory approvals or that the conditions to closing of the Transaction will be satisfied or that the associated benefits for TELUS shareholders and customers of the Transaction will be realized or that the Transaction will occur on the terms contemplated in this news release. Furthermore, there can be no assurance that the conditions to closing of the TI-Baring Transaction will be satisfied, that the associated benefits of the transaction for TELUS shareholders and customers will be realized or that growth plans for TELUS International will be realized. There is significant risk that the forward-looking statements will not prove to be accurate. The forward-looking statements contained in this news release describe our expectations at the date of this news release and, accordingly, are subject to change after such date. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for the 2016 annual targets and guidance, semi-annual dividend increases through 2019 and our ability to sustain and complete our multi-year share purchase program through 2019), qualifications and risk factors referred to in the accompanying first quarter Management's discussion and analysis and in the 2015 annual report, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.

First Quarter 2016 Operating Highlights

TELUS wireless

Wireless network revenues increased by $38 million or 2.5 per cent to $1.6 billion in the first quarter of 2016, when compared to the same period a year ago. This growth was driven by an 8.3 per cent increase in data revenue due to subscriber growth, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and higher data usage, partially offset by the effects of the economic slowdown, particularly in Alberta, and ongoing decline in voice revenue from increased adoption of unlimited nationwide voice plans.

Blended ARPU increased by 1.2 per cent to $63.08, TELUS' twenty-second consecutive quarter of year-over-year growth.

Monthly postpaid subscriber churn of 0.97 per cent increased 6 basis points year-over-year. The increase reflects increased competitive intensity resulting from two-year and three-year customer contracts expiring simultaneously starting in June 2015, as well as the effects of the economic slowdown, particularly in Alberta. Blended monthly churn improved two basis points to 1.26 per cent reflecting an increasing proportion of postpaid subscribers in the subscriber base and TELUS' continued focus on customers first initiatives and retention programs.

Postpaid net additions of 8,000 were lower year over year by 29,000 due to lower gross additions resulting primarily from the economic slowdown, particularly in Alberta, moderating growth in postpaid market penetration, higher competitive intensity, the effect of higher handset and rate plan prices on customer demand and higher churn. Total wireless net losses were 25,000 compared to net additions of 8,000 a year ago reflecting lower postpaid net additions and higher prepaid losses of 33,000

Wireless EBITDA excluding restructuring and other costs increased by $15 million or 2.0 per cent over last year to $765 million as network revenue growth and operational efficiency initiatives were partially offset by higher retention costs and increased external labour and distribution channel expenses. Retention costs as a percentage of network revenue were 13.5 per cent, reflecting a $26 million increase over the same period a year ago, as higher subsidy costs reflecting the continued customer preference for more expensive smartphone devices were partly offset by lower retention volumes.

Wireless EBITDA excluding restructuring and other costs less capital expenditures increased year over year by $83 million to $585 million due to higher EBITDA and lower capital expenditures.

TELUS wireline

External wireline revenues increased by $50 million or 3.7 per cent to $1.4 billion in the first quarter of 2016, when compared with the same period a year ago. This growth was generated primarily by higher data service and equipment revenue.

Data service and equipment revenues increased by $90 million or 10 per cent, due to growth in business process outsourcing services, higher Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, higher TELUS TV revenues from continued subscriber growth, and increased TELUS Health revenues.

High-speed Internet net additions of 12,000 were down 11,000 from the same quarter a year ago, reflecting increased competitive intensity leading to a higher customer churn rate and lower gross loading in the quarter, and the impact of the economic slowdown on the business market, partly offset by the ongoing expansion of TELUS' high-speed broadband footprint in urban and rural communities, including fibre to the premises, and the pull-through effect of bundling with Optik TV.

Total TV net additions of 11,000 were lower by 10,000 over the same quarter a year ago, reflecting a higher customer churn rate, lower gross loading and a decline in satellite subscribers as the effects of slower subscriber growth for paid TV services and increased competitive intensity, including OTT services, were partly offset by ongoing expansion of TELUS' addressable high-speed broadband footprint and increasing broadband speeds.

Residential network access lines (NALs) declined by 26,000 in the quarter compared to a loss of 20,000 in the same quarter a year ago. Residential NAL losses continue to reflect the ongoing trend of wireless and Internet substitution, partly offset by the success of TELUS' bundling strategy.

Wireline EBITDA excluding restructuring and other costs of $423 million increased by $21 million or 5.1 per cent year-over-year. The improvement reflects growth in operating revenues, improving margins in data services, including Internet, business process outsourcing services, TELUS TV, and TELUS Health, as well as ongoing operating efficiency initiatives.

Wireline EBITDA excluding restructuring and other costs less capital expenditures decreased by $30 million to $(15) million as higher EBITDA excluding restructuring and other costs was more than offset by higher capital expenditures that support TELUS' long-term growth. Capital expenditures increased over the same period last year due to continued strategic investments in broadband network infrastructure, including connecting more homes and businesses directly to TELUS' fibre optic network and investments in system and network resiliency and reliability.

Corporate Highlights TELUS makes significant contributions and investments in the communities where team members live, work and serve and to the Canadian economy on behalf of customers, shareholders and team members by:

Paying, collecting and remitting a total of $689 million in taxes during the first quarter of 2016 to federal, provincial and municipal governments in Canada consisting of corporate income taxes, sales taxes, property taxes, employer portion of payroll taxes and various regulatory fees. Since 2000, the Company has remitted more than $19 billion in these taxes.

Disbursing spectrum renewal fees of $53 million to Innovation, Science and Economic Development Canada (formerly Industry Canada) during the first quarter of 2016. Since 2002, TELUS' total tax and spectrum remittances to federal, provincial and municipal governments in Canada have totaled over $23 billion.

Investing $618 million in capital expenditures primarily in communities across Canada in the first quarter of 2016 and more than $29 billion since 2000.

Spending $1.8 billion in total operating expenses in the first quarter of 2016, including goods and service purchased of $1.2 billion. Since 2000, TELUS has spent $93 billion and $61 billion respectively in these areas.

Generating a total team member payroll of $706 million in the first quarter of 2016, including payroll taxes of $58 million. Since 2000, total team member payroll totals $37 billion.

Paying $263 million in dividends in the first quarter of 2016 to individual shareholders, mutual fund owners, pensioners and institutional investors, and purchasing 1.3 million shares for $50 million on behalf of shareholders under TELUS' multi-year share purchase program.

Returning $13 billion to shareholders through TELUS' dividend and share purchase programs from 2004 to the end of April 2016, including $7.9 billion in dividends and $5.1 billion in share buybacks, representing nearly $22 per share.

About TELUS

TELUS (T) TU, -0.61% is Canada's fastest-growing national telecommunications company, with $12.6 billion of annual revenue and 12.4 million subscriber connections, including 8.4 million wireless subscribers, 1.4 million residential network access lines, 1.6 million high-speed Internet subscribers and 1.0 million TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video, and is Canada's largest healthcare IT provider.

In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed $440 million to charitable and not-for-profit organizations and volunteered more than 6.8 million hours of service to local communities since 2000. Created in 2005 by President and CEO Darren Entwistle, TELUS' 11 Canadian community boards and 4 International boards have led the Company's support of grassroots charities and have contributed more than $54 million in support of over 4,900 local charitable projects, enriching the lives of more than 2 million children and youth, annually. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition.

For more information about TELUS, please visit telus.com.

Access to Quarterly results information

Interested 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, and our full 2015 annual report at telus.com/investors.

TELUS' first quarter 2016 conference call is scheduled for May 5, 2016 at 3:00pm ET (12:00pm 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. A telephone playback will be available on May 5 until June 15, 2016 at 1-855-201-2300. Please use reference number 1196520# and access code 77377#. 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.

TELUS CORPORATION

Management's discussion and analysis

2016 Q1

Caution regarding forward-looking statements

This document 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 statements relating to annual targets, outlook, updates, our multi-year dividend growth program, our multi-year share purchase program, and trends. 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, predict, could, expect, intend, may, plan, seek, should, strive and will. By their nature, forward-looking statements do not refer to historical facts, are subject to inherent risks and require us to make assumptions. There is significant risk that forward-looking statements will not prove to be accurate. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements. An update to our assumptions for 2016 is presented in Section 9 Update to assumptions in this Management's discussion and analysis (MD&A).

Factors that could cause actual performance to differ materially from the forward-looking statements made herein and in other TELUS filings include, but are not limited to, the following:

Competition including: continued intense rivalry across all services among wireless and wireline telecommunications companies, cable-TV providers, other communications companies and over-the-top (OTT) services, which, among other things, places pressures on average revenue per subscriber unit per month (ARPU) and churn for all services; mergers and acquisitions of industry competitors, including the integration of cable-TV and wireless companies; the potential entry of new competitors; competition from global players for international roaming services; our ability to continue to retain customers through an enhanced customer service experience; pressures on wireless ARPU and churn from market conditions and government actions, customer usage patterns, flat-rate pricing trends for voice and data, inclusive long distance plans for voice, moderating growth in postpaid market penetration and increasing availability of Wi-Fi networks for data; pressures on high-speed Internet and TV ARPU and churn resulting from market conditions, government actions and customer usage patterns; residential network access line (NAL) losses; subscriber additions and retention volumes, and associated costs for wireless, TV and high-speed Internet services; competition for wireless spectrum; and our ability to obtain and offer content on a timely basis across multiple devices on wireless and TV platforms at a reasonable cost.

Technological substitution including: reduced utilization and increased commoditization of traditional wireline voice local and long distance services from impacts of OTT applications and wireless substitution, and overall slower subscriber growth in the wireline segment; the increasing number of households that have only wireless and/or Internet-based telephone services; continuation of wireless voice ARPU declines as a result of, among other factors, substitution to messaging and OTT applications; substitution to increasingly available Wi-Fi services from wireless services; and OTT Internet protocol (IP) services that may displace TV and entertainment services, and impact revenue.

Technology including: subscriber demand for data that challenges wireless networks and spectrum capacity levels; our reliance on legacy systems and information technology; technology options, evolution paths and roll-out plans for wireline and wireless networks (including broadband initiatives, such as fibre-to-the-premises (FTTP) and wireless small-cell deployment); our reliance on wireless network access agreements; choice of suppliers and those suppliers' ability to maintain and service their product lines; supplier concentration and market power for network equipment, TELUS TV® and wireless handsets; the performance of long-term evolution (LTE) wireless technology; our expected long-term need to acquire additional spectrum capacity through future spectrum auctions and from third parties to address increasing demand for data; deployment and operation of new wireless networks and success of new products, new services and supporting systems, including the Internet of Things (IoT) services for Internet-connected devices; deployment and operation of new wireline broadband networks at a reasonable cost and availability, and success of new products and services to be rolled out on such networks; availability of resources and ability to build out adequate broadband capacity; network reliability and change management; timing of decommissioning of certain legacy wireline networks, systems and services to reduce operating costs; timing of decommissioning of CDMA and iDEN wireless networks to redeploy spectrum and reduce operating costs, and the associated subscriber migration costs and customer retention risks; and success of upgrades and evolution of TELUS TV technology, which depend on third-party suppliers.

Economic growth and fluctuations including: the state of the economy in Canada, which may be influenced by economic developments outside of Canada; future interest rates; inflation; unemployment levels; effects of low oil prices; effects of low business spend (reducing investments and cost structure); pension investment returns, funding and discount rates; and Canadian: U.S. dollar exchange rates.

Capital expenditure levels and potential outlays for spectrum licences in spectrum auctions or from third parties, due to: our ongoing deployment of wireless LTE and future technologies; utilizing newly acquired spectrum; our wireline broadband initiatives, including connecting more homes and businesses directly to fibre; investments in network resiliency and reliability; subscriber demand for data; evolving systems and business processes; implementing efficiency initiatives; supporting large complex deals; and future wireless spectrum auctions held by Innovation, Science and Economic Development Canada. Our capital expenditure levels could be impacted by the achievement of our targeted operational and financial results.

Regulatory decisions and developments including: potential of government intervention to further increase wireless competition; the Canadian Radio-television and Telecommunications Commission (CRTC) wireless wholesale services review, in which it was determined that the CRTC will regulate wholesale GSM-based domestic roaming rates and the setting of such rates; future spectrum auctions (including limitations on established wireless providers, spectrum set-aside that favours certain carriers and other advantages provided to new and foreign participants, and the amount and cost of spectrum acquired); restrictions on the purchase, sale and transfer of spectrum licences; the undetermined long-term impact of the CRTC's wireline wholesale services review, which concluded that wholesale competitors shall receive regulated access to FTTP facilities owned by incumbent Internet service providers; increased subsidy requirements for telecommunications facilities in Yukon, Nunavut and the Northwest Territories, and possible changes to the scope and nature of basic service obligations, including possible regulation on the quality, availability and affordability of residential Internet service; the CRTC's new code of conduct for TV services; vertical integration by competitors moving into broadcast content ownership, and timely and effective enforcement of related regulatory safeguards; ongoing monitoring and compliance with restrictions on non-Canadian ownership of TELUS Common Shares; modification, interpretation and application of tower sharing and roaming rules; and the non-harmonization of provincial consumer protection legislation, particularly in light of the CRTC's mandatory national Wireless Code (the Code) in effect since December 2, 2013, and pressures on retention costs and other operational challenges resulting from the retroactive application of the Code, which led to two-year and three-year customer contracts ending coterminously starting in June 2015.

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. Initiatives include: our earnings enhancement program to drive improvements in earnings before interest, income taxes, depreciation and amortization (EBITDA), including the reduction of approximately 1,500 full-time equivalent (FTE) positions announced in November 2015; business integrations; business process outsourcing; offshoring and reorganizations, including any FTE employee reduction programs; procurement initiatives; and real estate rationalization. Additional cost reduction initiatives may be needed if we do not achieve our targeted operational and financial results.

Financing and debt requirements including our ability to carry out financing activities and our ability to maintain investment grade credit ratings in the range of BBB+ or the equivalent.

Ability to sustain our dividend growth program per annum through 2019 and our ability to sustain and complete our multi-year share purchase program through 2019. These programs may be affected by factors such as regulatory decisions and developments, our earnings and free cash flow, our levels of capital expenditures and spectrum licence purchases, and the competitive environment and economic performance in Canada. Quarterly dividend decisions are subject to assessment and determination by our Board of Directors (Board), based on the Company's financial position and outlook. The share purchase program may be affected by a change in our intention to purchase shares, and the assessment and determination of our Board from time to time. Consequently, there can be no assurance that these programs will be maintained through 2019.

Process risks including: our reliance on legacy systems and ability to implement and support new products and services and business operations; our ability to implement effective change management for system replacements and upgrades, process redesigns and business integrations; implementation of complex large enterprise deals that may be adversely impacted by available resources, system limitations and degree of co-operation from other service providers; our ability to successfully manage operations in foreign jurisdictions; information security and privacy breaches, including data loss or theft of data; intentional threats to our infrastructure and business operations; and real estate joint venture re-development risks.

Litigation and legal matters including: our ability to defend successfully against investigations, regulatory proceedings, claims and lawsuits, including intellectual property infringement claims and class actions pending against us, as well as possible proceedings, intellectual property infringement claims and class actions based on consumer claims, data, privacy or security breaches and secondary market liability; and the complexity of legal compliance in domestic and foreign jurisdictions.

Human resource matters including: recruitment, retention and appropriate training in a highly competitive industry; the future outcome of collective bargaining for an agreement with the Telecommunications Workers Union (TWU), United Steel Workers Local Union 1944, which expired at the end of 2015; and the level of employee engagement.

Tax matters including: complex tax laws that may be subject to interpretation by the tax authorities that may differ from our interpretations; changes in tax laws, including tax rates; elimination of income tax deferrals through the use of different tax year-ends for operating partnerships and corporate partners; and international tax complexity and compliance.

Business continuity events including: our ability to maintain customer service and operate our networks in the event of human error or human-caused threats, such as electronic attacks and equipment failures that could cause various degrees of network outages; supply chain disruptions; natural disaster threats; epidemics; pandemics; and the completeness and effectiveness of business continuity and disaster recovery plans and responses.

Partnerships, acquisitions or divestitures including: our ability to successfully integrate acquisitions, complete divestitures or establish partnerships in a timely manner, and realize expected strategic benefits.

Health, safety and environmental developments and other risk factors discussed herein and listed from time to time in our reports and public disclosure documents, including our annual report, annual information form, and other filings with securities commissions or similar regulatory authorities in Canada (on SEDAR at sedar.com) and in our filings with the Securities and Exchange Commission (SEC) in the United States, including Form 40-F (on EDGAR at sec.gov). Section 10: Risks and risk management in our 2015 annual MD&A and this MD&A are incorporated by reference in this cautionary statement.

Management's discussion and analysis

May 5, 2016

Contents

Section                             Description
1. Introduction                     1.1 Preparation of the MD&A
                                    1.2 The environment in which we operate
                                    1.3 Consolidated highlights
2. Core business and strategy
3. Corporate priorities for 2016
4. Capabilities                     4.1 Principal markets addressed and competition
                                    4.2 Operational resources
                                    4.3 Liquidity and capital resources
                                    4.4 Changes in internal control over financial reporting
5. Discussion of operations         5.1 General
                                    5.2 Summary of consolidated quarterly results and trends
                                    5.3 Consolidated operations
                                    5.4 Wireless segment
                                    5.5 Wireline segment
6. Changes in financial position
7. Liquidity and capital resources  7.1 Overview
                                    7.2 Cash provided by operating activities
                                    7.3 Cash used by investing activities
                                    7.4 Cash provided by financing activities
                                    7.5 Liquidity and capital resource measures
                                    7.6 Credit facilities
                                    7.7 Sale of trade receivables
                                    7.8 Credit ratings
                                    7.9 Financial instruments, commitments and contingent liabilities
                                    7.10 Outstanding share information
                                    7.11 Transactions between related parties
8. Accounting matters               8.1 Critical accounting estimates
                                    8.2 Accounting policy developments
9. Update to assumptions
10. Risks and risk management       10.1 Regulatory matters
11. Definitions and reconciliations 11.1 Non-GAAP and other financial measures
                                    11.2 Operating indicators

1. Introduction

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of this Management's discussion and analysis (MD&A).

1.1 Preparation of the MD&A

The following sections are a discussion of the consolidated financial position and financial performance of TELUS for the three-month period ended March 31, 2016, and should be read together with TELUS' March 31, 2016, condensed interim consolidated financial statements (subsequently referred to as the interim consolidated financial statements). The generally accepted accounting principles (GAAP) we use are the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our interim consolidated financial statements comply with IFRS-IASB and Canadian GAAP and have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Our use of the term IFRS in this MD&A is a reference to these standards. In our discussion, we also use certain non-GAAP financial measures, such as earnings before interest, income taxes, depreciation and amortization (EBITDA), to evaluate our performance, monitor compliance with debt covenants and manage our capital structure. These measures are defined, qualified and reconciled with their nearest GAAP measures in Section 11.1. All amounts are in Canadian dollars, unless otherwise specified.

Our disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management on a timely basis, so that appropriate decisions can be made regarding public disclosure. This MD&A and the interim consolidated financial statements were reviewed by TELUS' Audit Committee and authorized by the Board of Directors for issuance on May 5, 2016.

1.2 The environment in which we operate

Economic growth

We currently estimate that economic growth in Canada will be approximately 1.4% in 2016 and approximately 2.0% in 2017, based on a composite of estimates from Canadian banks and other sources. For our incumbent local exchange carrier (ILEC) provinces in Western Canada, we estimate that economic growth in British Columbia will be approximately 2.5% in both 2016 and 2017, and that economic growth (contraction) in Alberta will be in the range of (1.0) to (1.5)% in 2016 and approximately 1.6% in 2017, in part due to low oil prices. The Bank of Canada's April 2016 Monetary Policy Report estimated economic growth for Canada at 1.7% in 2016 and 2.3% in 2017. In respect of the national unemployment rate, Statistics Canada's Labour Force Survey reported a rate of 7.1% for March 2016 (7.1% reported for December 2015 and 6.8% reported for March 2015).

Regulatory developments

There were a number of regulatory developments in the first quarter of 2016. See Section 10.1 Regulatory matters.

1.3 Consolidated highlights

Investment in TELUS International (Cda.) Inc. (TI)

Subsequent to March 31, 2016, we reached an agreement with Baring Private Equity Asia, an Asian-based investment firm which advises funds that manage over $13 billion (U.S.$10 billion) in assets, for it to acquire a 35% non-controlling interest in TI, a global provider of customer service, IT and business process outsourcing services. The agreement values TI at $1.2 billion. Through this collaboration, TI is well positioned to leverage Baring Private Equity Asia's deep Asian markets presence and worldwide experience, and tap into its global network in order to further expand TI's operations. In addition, this transaction will allow us to direct substantial capital to investments throughout Canada, including the expansion of our fibre-optic network to more communities, our advanced wireless network and the support of healthcare. We will retain majority ownership and control of TI and we do not expect significant changes in the support we provide to TI, including services such as facilities, network, IT, branding and media support. In connection with the transaction, we have also arranged an incremental $425 million in bank financing, which is secured by assets of TI and its subsidiaries, expires in 2021 and is non-recourse to TELUS Corporation. Through this transaction and the incremental debt within TI, we expect to monetize approximately $600 million to TELUS. The agreement is subject to customary closing conditions.

Multi-year dividend growth program

On May 5, 2016, we announced our intention to target ongoing semi-annual dividend increases, with the annual increase in the range of 7 to 10% from 2017 through to the end of 2019. This announcement further extends our dividend program originally announced in May 2011 and initially extended in May 2013. Notwithstanding this target, dividend decisions will continue to be subject to our Board's assessment and the determination of our financial situation and outlook on a quarterly basis. Our long-term dividend payout ratio guideline is 65 to 75% of prospective net earnings. There can be no assurance that we will maintain a dividend growth program through 2019. See Section 4.3 Liquidity and capital resources.

Share purchase program

On May 5, 2016, we announced our intention to renew our normal course issuer bid (NCIB) program in each year of the next three years in order to permit purchases for up to $250 million in each such calendar year. This announcement extends our share purchase program originally announced in May 2013. There can be no assurance that we will complete our 2016 NCIB or that we will renew and complete our NCIB program in each of the next three years as these decisions depend on the assessment and determination of our Board from time to time on the basis of the Company's financial position and outlook. See Section 4.3 Liquidity and capital resources.

Consolidated highlights
Three-month periods ended March 31 ($ millions, unless noted otherwise) 2016     2015     Change
Consolidated statements of income
Operating revenues                                                      3,108    3,028    2.6      %
Operating income                                                        640      679      (5.7     )%
Income before income taxes                                              517      562      (8.0     )%
Net income                                                              378      415      (9.1     )%
Earnings per share (EPS) ($)
                                    Basic EPS                           0.64     0.68     (6.8     )%
                                    Adjusted basic EPS1                 0.70     0.70     -        %
                                    Diluted                             0.64     0.68     (6.7     )%
Dividends declared per Common Share ($)                                 0.44     0.40     10.0     %
Basic weighted-average Common Shares outstanding (millions)             593      608      (2.5     )%
Consolidated statements of cash flows
Cash provided by operating activities                                   563      718      (21.6    )%
Cash used by investing activities                                       (660   ) (926   ) (28.7    )%
Capital expenditures (excluding spectrum licences)2                     (618   ) (635   ) (2.7     )%
Cash provided by financing activities                                   352      1,727    (79.6    )%
Other highlights
Subscriber connections3 (thousands)                                     12,443   12,260   1.5      %
EBITDA1                                                                 1,140    1,135    0.4      %
Restructuring and other costs included in EBITDA1                       48       17       182.4    %
EBITDA - excluding restructuring and other costs1                       1,188    1,152    3.1      %
EBITDA - excluding restructuring and other costs margin4 (%)            38.2     38.0     0.2 pts.
Free cash flow1                                                         108      271      (60.1    )%
Net debt to EBITDA - excluding restructuring and other costs1 (times)   2.74     2.30     0.44

Notations used in MD&A: n/m - Not meaningful; pts. - Percentage points.
1.                                  Non-GAAP and other financial measures. See Section 11.1.
2.                                  Capital expenditures (excluding spectrum licences) include assets purchased, but not yet paid for, and consequently differ from cash payments for
		 capital assets, excluding spectrum licences, on the interim consolidated statements of cash flows.
3.                                  The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers (Optik
		 TV™ and TELUS Satellite TV® subscribers), measured at the end of the respective periods based on information in billing and other systems. Our January
		 1, 2015, opening reported subscriber balance has been retrospectively adjusted to exclude 1,613,000 business NALs due to its diminishing relevance
		 as a key performance indicator. In addition, subsequent to a review of our subscriber base, our 2016 opening postpaid wireless subscriber base was
		 reduced by 45,000 and our 2016 opening high-speed Internet subscriber base was increased by 21,000.
4.                                  EBITDA - excluding restructuring and other costs, as a percentage of operating revenues.

Operating highlights

Consolidatedoperating revenues increased year over year by $80 million in the first quarter of 2016, reflecting year-over-year growth in wireless external revenue of $30 million or 1.8% and wireline external revenue of $50 million or 3.7%. Wireless network revenue grew year over year by $38 million or 2.5% from growth in our wireless subscriber base of 1.2% over 12 months and growth in our blended average revenue per subscriber unit per month (ARPU) of $0.74 or 1.2% over the first quarter of 2015. Wireless equipment revenue declined year over year by $8 million or 6.4% from lower gross additions and retention volumes, and lower Black's Photography sales from the closure of stores in August 2015, partly offset by higher-priced smartphones in the sales mix. See Section 5.4 Wireless segment. Wireline data service and equipment revenues grew year over year by $90 million or 10% from: i) growth in business process outsourcing revenues; ii) increased Internet and enhanced data revenues, reflecting growth in our subscriber base of 6.7% over 12 months and higher revenue per subscriber; iii) increased TELUS TV revenues, reflecting growth in our subscriber base of 8.4% over 12 months; and iv) growth in TELUS Health revenues. Other wireline service and equipment revenues increased year over year by $2 million or 3.6% mainly from higher amortization of deferred developer fees. Partly offsetting this growth is the ongoing decline in legacy wireline voice revenue of $34 million or 8.9% from technological substitution and continued competitive pressures, as well as a decline in other operating revenue of $8 million or 53%. See Section 5.5 Wireline segment.

At March 31, 2016, our total subscriber connections were 12.4 million, reflecting an increase of 183,000 subscribers during the 12-month period ended March 31, 2016. This reflects 12-month increases in wireless subscribers of 1.2%, TELUS TV subscribers of 8.4% and high-speed Internet subscribers of 6.7%, partly offset by a 6.2% decline in residential network access lines (NALs). Our postpaid wireless subscriber net additions were 8,000 in the first quarter of 2016, a decrease of 29,000 from the first quarter of 2015, reflecting lower gross additions due to the economic slowdown, particularly in Alberta, increased competitive intensity, moderating growth in industry penetration and the effect of higher handset and rate plan prices on customer demand, as well as an increase in our postpaid subscriber churn rate. Our monthly postpaid subscriber churn rate was 0.97% in the first quarter of 2016, as compared to 0.91% in the first quarter of 2015. See Section 5.4 Wireless segment for additional details. Our wireline subscriber net losses were 3,000 in the first quarter of 2016, as compared to net additions of 24,000 in the same period in 2015. Net additions of high-speed Internet subscribers were 12,000 in the first quarter of 2016, a year-over-year decrease of 11,000 driven by increased competitive intensity leading to a higher customer churn rate and lower loading in the quarter, and the impact of the economic slowdown on the business market, partly offset by expansion of our broadband footprint and the pull-through impact from the continued bundling with Optik TV. Net additions of TELUS TV subscribers were 11,000 in the first quarter of 2016, a year-over-year decrease of 10,000 reflecting a higher customer churn rate, lower gross loading and a decline in satellite subscribers as the effects of slower subscriber growth for paid TV services and increased competition, including over-the-top (OTT) services, were partly offset by expansion of our broadband footprint and increasing broadband speeds. Residential NAL losses were 26,000 in the first quarter of 2016, as compared to 20,000 in 2015, reflecting the ongoing trend of substitution to wireless and Internet-based services, as well as increased competition. See Section 5.5 Wireline segment for additional details.

Consolidated EBITDA increased year over year by $5 million in the first quarter of 2016, reflecting growth in wireless network revenues and wireline data revenues; improvements in Internet, business process outsourcing, TV and TELUS Health margins; and executing on our operational efficiency initiatives, all of which were partly offset by higher restructuring and other costs, higher wireless retention costs and continued declines in legacy wireline voice revenues. EBITDA - excluding restructuring and other costs increased year over year by $36 million in the first quarter of 2016. See Section 5.4 Wireless segment and Section 5.5 Wireline segment for additional details.

Operating income decreased year over year by $39 million in the first quarter of 2016, reflecting an increase in EBITDA noted above, which was more than offset by an increase in total depreciation and amortization expenses from a higher asset base and the impact of our continuing program of asset life studies.

Income before income taxes decreased year over year by $45 million in the first quarter of 2016, reflecting lower operating income and an increase in financing costs. The increase in financing costs resulted from higher interest costs from the increase in average long-term debt outstanding and higher foreign exchange losses, partly offset by higher capitalized long-term debt interest costs and a lower weighted average cost of long-term debt.

Income taxes decreased year over year by $8 million or 5.4% in the first quarter of 2016, reflecting lower income before income taxes noted above (see Section 5.3 Consolidated operations).

Net income decreased year over year by $37 million in the first quarter of 2016, reflecting higher depreciation and amortization expenses, and higher financing costs, partly offset by growth in EBITDA and lower income tax expense.

Basic earnings per share (basic EPS) decreased year over year by $0.04 in the first quarter of 2016. The reduction in the number of shares outstanding, as a result of our normal course issuer bid (NCIB) program, net of share option exercises, contributed positively by approximately $0.02 year over year in basic EPS. Excluding the effects of restructuring and other costs, basic EPS was consistent year over year in the first quarter of 2016.

Analysis of basic EPS
Three-month periods ended March 31 ($)                                           2016 2015 Change
Basic EPS                                                                        0.64 0.68 (0.04  )
Add back (deduct):
                    Restructuring and other costs, after income taxes, per share 0.06 0.02 0.04
Adjusted basic EPS                                                               0.70 0.70 -

Dividends declared per Common Share were $0.44 in the first quarter of 2016, reflecting an increase of 10% from the first quarter of 2015, consistent with our multi-year dividend growth program described in Section 4.3. On May 4, 2016, the Board declared a second quarter dividend of $0.46 per share on the issued and outstanding Common Shares, payable on July 4, 2016, to shareholders of record at the close of business on June 10, 2016. The second quarter dividend reflects a cumulative increase of $0.04 per share or 9.5% from the $0.42 per share dividend declared one year earlier.

Liquidity and capital resource highlights

Net debt to EBITDA - excluding restructuring and other costs was 2.74 times at March 31, 2016, up from 2.30 times at March 31, 2015, as the increase in net debt, primarily from the purchase of spectrum licences, was only partly offset by growth in EBITDA - excluding restructuring and other costs (see Section 4.3 Liquidity and capital resources and Section 7.5 Liquidity and capital resource measures).

Cash provided by operating activities decreased year over year by $155 million in the...


More