TELUS(TU) - 2024 Q3 - Quarterly Report

Financial Statements Condensed Interim Consolidated Statements of Income and Other Comprehensive Income TELUS reported a significant increase in Q3 2024 Net Income to $257 million and a rise to $618 million for the nine-month period, with diluted EPS more than doubling Q3 2024 vs Q3 2023 Performance (Three Months Ended Sep 30) | Metric | 2024 (in millions CAD) | 2023 (in millions CAD) | Change | | :--- | :--- | :--- | :--- | | Operating Revenues and Other Income | 5,099 | 5,008 | +1.8% | | Operating Income | 788 | 517 | +52.4% | | Net Income | 257 | 137 | +87.6% | | Diluted EPS | $0.19 | $0.09 | +111.1% | Nine Months 2024 vs 2023 Performance (Nine Months Ended Sep 30) | Metric | 2024 (in millions CAD) | 2023 (in millions CAD) | Change | | :--- | :--- | :--- | :--- | | Operating Revenues and Other Income | 15,005 | 14,918 | +0.6% | | Operating Income | 2,045 | 1,698 | +20.4% | | Net Income | 618 | 557 | +10.9% | | Diluted EPS | $0.43 | $0.38 | +13.2% | - The increase in operating income was primarily due to a significant reduction in employee benefits expense, which decreased from $1,633 million in Q3 2023 to $1,475 million in Q3 2024[3] Condensed Interim Consolidated Statements of Financial Position Total assets increased to $57.0 billion as of September 30, 2024, while total liabilities grew to $40.1 billion, leading to a slight decrease in owners' equity Financial Position Summary (as of Sep 30, 2024 vs Dec 31, 2023) | Account | Sep 30, 2024 (in millions CAD) | Dec 31, 2023 (in millions CAD) | | :--- | :--- | :--- | | Total Assets | 56,986 | 56,136 | | Total Current Assets | 6,124 | 6,313 | | Property, Plant and Equipment, net | 17,210 | 17,248 | | Intangible Assets, net | 20,526 | 19,721 | | Goodwill, net | 10,323 | 10,058 | | Total Liabilities | 40,059 | 38,834 | | Total Current Liabilities | 8,891 | 9,478 | | Long-term Debt | 25,387 | 23,355 | | Total Owners' Equity | 16,927 | 17,302 | Condensed Interim Consolidated Statements of Changes in Owners' Equity Total owners' equity decreased to $16.9 billion for the nine months ended September 30, 2024, primarily due to dividends outweighing net income and reinvestments Changes in Owners' Equity (Nine Months Ended Sep 30, 2024) | Item | Amount (in millions CAD) | | :--- | :--- | | Balance as at Jan 1, 2024 | 17,302 | | Net Income | 618 | | Other Comprehensive Income | 104 | | Dividends | (1,709) | | Dividends Reinvested & Optional Cash Payments | 508 | | Other Changes | 4 | | Balance as at Sep 30, 2024 | 16,927 | Condensed Interim Consolidated Statements of Cash Flows Operating cash flow increased to $3.8 billion, while investing cash outflow decreased to $3.0 billion, and financing activities shifted to a $791 million outflow Cash Flow Summary (Nine Months Ended Sep 30) | Activity | 2024 (in millions CAD) | 2023 (in millions CAD) | | :--- | :--- | :--- | | Cash provided by operating activities | 3,770 | 3,185 | | Cash used by investing activities | (3,029) | (4,032) | | Cash provided (used) by financing activities | (791) | 1,077 | | Increase (decrease) in cash | (50) | 230 | - Key investing activities included $2.2 billion in capital asset payments and $620 million for spectrum licenses. Financing activities were marked by $5.1 billion in new long-term debt issuance, offset by $5.5 billion in redemptions and repayments, and $1.2 billion in dividend payments[9] Notes to Condensed Interim Consolidated Financial Statements General Application This section outlines fundamental accounting principles, recent policy developments, capital structure management, and financial instrument risk analysis 1. Condensed interim consolidated financial statements The financial statements are prepared under IFRS-IASB and IAS 34, authorized on November 8, 2024, and should be read with 2023 annual statements - The condensed interim consolidated financial statements follow the same accounting policies as the 2023 annual financial statements and are presented in Canadian dollars[16] 2. Accounting policy developments The company is assessing new accounting standards like IFRS 18 and has applied temporary relief for deferred taxes related to OECD's Pillar Two tax rules - The company is assessing the impact of IFRS 18, effective Jan 1, 2027, which will change the presentation of operating profit and management-defined performance measures, but is not expected to materially affect overall financial disclosure[20][21][23] - The company has adopted temporary relief from deferred income tax accounting for the OECD's Pillar Two model rules, which mandate a minimum 15% income tax rate in every jurisdiction[20] 3. Capital structure financial policies TELUS manages its capital structure using Net Debt to EBITDA and dividend payout ratios, with current metrics outside long-term objectives due to investments Key Financial Ratios | Ratio | Objective | As of Sep 30, 2024 | As of Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Net debt to EBITDA | 2.20 – 2.70 | 3.83 | 3.82 | | Dividend payout ratio | 60% – 75% | 77% | 88% | - The Net Debt to EBITDA ratio remains outside the long-term objective range, which the company has permitted for long-term investment opportunities like spectrum auctions, with a goal to return to circa 2.70 times in the medium term[28][33] - Free cash flow for the twelve months ended September 30, 2024, was $2,025 million, an increase from $1,492 million in the prior year period[34] 4. Financial instruments This note details the company's management of credit, liquidity, and market risks through diverse customer bases, credit facilities, and derivative instruments - Credit risk is managed through a diverse customer base and credit evaluation programs. The allowance for doubtful accounts was $127 million as of September 30, 2024, up from $117 million at year-end 2023[38][39][41] - Liquidity risk is managed by maintaining a $2.75 billion syndicated credit facility, a commercial paper program, and in-effect shelf prospectuses in Canada and the U.S[49][50] Market Risk Sensitivity (Nine Months Ended Sep 30, 2024) | Reasonably Possible Change | Impact on Net Income (in millions CAD) | Impact on OCI (in millions CAD) | | :--- | :--- | :--- | | 10% C$ appreciation vs US$ | (7) | 97 | | 25 basis point increase in Canadian interest rate | (4) | 77 | Consolidated Results of Operations Focused This section details operational results, including segment performance, revenue, key expenses, income taxes, per-share amounts, dividends, and share-based compensation 5. Segment information The company operates two segments, TELUS technology solutions and TELUS digital experience, with detailed external revenues and Adjusted EBITDA reported for each - The TELUS technology solutions segment includes mobile, data, healthcare, and agriculture technology services[82] - The TELUS digital experience segment, comprised of TELUS International, provides digital customer experience and transformation solutions[83] Segment Performance (Nine Months Ended Sep 30, 2024 vs 2023) | Segment | External Revenue 2024 (CAD millions) | External Revenue 2023 (CAD millions) | Adjusted EBITDA 2024 (CAD millions) | Adjusted EBITDA 2023 (CAD millions) | | :--- | :--- | :--- | :--- | :--- | | TELUS technology solutions | 12,897 | 12,733 | 5,013 | 4,777 | | TELUS digital experience | 2,108 | 2,185 | 516 | 525 | 14. Share-based compensation Share-based compensation expense increased to $148 million, utilizing restricted share units and share options with various vesting conditions Share-Based Compensation Expense (Nine Months Ended Sep 30) | Item | 2024 (in millions CAD) | 2023 (in millions CAD) | | :--- | :--- | :--- | | Restricted share units | 123 | 105 | | Employee share purchase plan | 25 | 33 | | Share option awards | 0 | 1 | | Total | 148 | 139 | - As of September 30, 2024, there were over 12 million non-vested TELUS Corporation RSUs and over 20.8 million non-vested TELUS International RSUs outstanding[115][120][121] 16. Restructuring and other costs Restructuring and other costs decreased to $425 million, driven by efficiency initiatives including personnel and real estate rationalization Restructuring and Other Costs (Nine Months Ended Sep 30) | Expense Category | 2024 (in millions CAD) | 2023 (in millions CAD) | | :--- | :--- | :--- | | Goods and services purchased | 166 | 139 | | Employee benefits expense | 259 | 438 | | Total | 425 | 577 | - Restructuring activities in 2024 included ongoing efficiency initiatives involving personnel costs and real estate rationalization to enhance long-term operating productivity and competitiveness[142] Consolidated Financial Position Focused This section details balance sheet components, including assets, liabilities, equity, and contingent liabilities, with analyses of property, intangibles, debt, and provisions 18. Intangible assets and goodwill Net intangible assets and goodwill totaled $30.8 billion, driven by increased spectrum licenses and recent business acquisitions adding $203 million to goodwill - The company was the successful bidder for 1,430 spectrum licenses in the 3800 MHz band auction for a total price of $620 million, paid in 2024[153] - A goodwill impairment test was conducted for the TELUS digital experience cash-generating unit, with the recoverable amount exceeding its carrying amount by approximately $800 million (16%)[149] - During the nine-month period, the company acquired several complementary businesses for a total of $310 million, resulting in $203 million of goodwill[155][156] 26. Long-term debt Total long-term debt reached $28.0 billion, primarily comprising senior notes, commercial paper, and a credit facility, supported by a $2.75 billion revolving credit facility Long-Term Debt Composition (as of Sep 30, 2024) | Category | Amount (in millions CAD) | | :--- | :--- | | TELUS Corporation senior notes | 21,783 | | TELUS Corporation commercial paper | 1,063 | | TELUS International (Cda) Inc. credit facility | 1,654 | | Lease liabilities | 2,703 | | Other | 797 | | Total Long-term debt | 28,000 | - The company has an unsecured commercial paper program of up to $2.0 billion, backstopped by its $2.75 billion revolving credit facility. As of September 30, 2024, $1.1 billion was outstanding[208] - The company must maintain financial covenants, including a leverage ratio not exceeding 4.25:1.00 and an operating cash flow to interest expense ratio not less than 2.00:1.00[211] 29. Contingent liabilities The company faces pending claims and lawsuits, including class actions, but management believes any material financial impact is unlikely, except for enumerated cases - Certified class actions against the company include a system access fee class action from 2004 and a per-minute billing class action from 2008[240][241] - The company has settled class actions in British Columbia and Alberta related to call set-up time charges, subject to court approval[243] - Management believes it has good defenses to these matters but acknowledges that a reliable estimate of exposure cannot be made due to various uncertainties[246] Other This section covers related party transactions, including key management compensation, and provides supplementary cash flow details 30. Related party transactions Total compensation for key management personnel was $58 million, encompassing various benefits, with the company also engaging in transactions with pension plans and joint ventures Key Management Compensation (Nine Months Ended Sep 30) | Compensation Type | 2024 (in millions CAD) | 2023 (in millions CAD) | | :--- | :--- | :--- | | Short-term benefits | 13 | 16 | | Post-employment benefits | 8 | 9 | | Share-based compensation | 37 | 35 | | Total | 58 | 60 |