Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer
description
Transcript of Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer
Robert McFarlaneEVP & Chief Financial Officer
Joe NataleEVP & Chief Commercial Officer
Darren EntwistlePresident & Chief Executive Officer
August 5, 2011
Q2 2011 TELUSinvestor conference call
2
TELUS Forward Looking Statement
Today's presentation and answers to questions contain statements about expected future events and financial and operating performance of TELUS 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 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 performance and events to differ materially from that expressed in the forward-looking statements. Accordingly our comments are subject to the disclaimer and qualified by the assumptions (including assumptions for 2011 annual guidance), qualifications and risk factors (including the ability to sustain dividend growth model of circa 10% per annum with semi-annual dividend increases to 2013) referred to in the Management’s discussion and analysis in the 2010 annual report, and in the 2011 first and second quarter reports. 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.
3
Agenda
Wireless and wireline segment review Consolidated financial review Updates
Guidance Financing Regulatory Operations
Questions and Answers
Q2 2011 wireless financial results
4
Strong revenue and EBITDA growth driving cash flow growth of 9%
($M) Q2-10 Q2-11 change
Revenue (external) 1,216 1,333 9.6%
EBITDA 520 565 8.7%
EBITDA margins1
(total revenue) 42.4% 42.1% (0.3) pts
Capex 99 107 8.1%
EBITDA less capex 421 458 8.8%
1 Margins on network revenue in Q2/11 and Q2/10 were 45.7% and 45.8%, respectively
Wireless subscriber results
5
Healthy postpaid net additions despite loss of 32K Federal Government subscribers
prepaid18%
Wireless subscribers
postpaid82%
Postpaidnet adds
7.1M total
5.9M
1.2M
Q2-10
109K92K
Q2-11
Totalnet adds
Q2-10
124K
94K
Q2-11
Wireless data revenue
6
Data revenue growth of 49% Six consecutive quarters of accelerating y/y data growth
Q2-10
$270M
Q2-11
$402M
$212M
Q2-09
Marketing and retention
7
Churn of 1.51% excluding loss of federal contract.Investments in COA/COR expense reflects record Q2 smartphone loading and competitive market dynamics
Q2-10 Q2-11 change
Gross adds (000s) 413 447 8.2%
Churn 1.45% 1.67% 0.22 pts
COA per gross add $342 $370 8.2%
COA expense $142M $165M 16%
Retention expense $114M $149M 31%
Blended ARPU analysis
8
ARPU up 2.5% driven by strong data ARPU growth of 39%partially offset by 9% voice decline
Data
Q2-11
$58.88Voice
$57.47
Q2-10
% of ARPU
Q2-11Q2-10
24%
76% 67%
33%13.80 19.25
43.67 39.63
2011 wireless annual guidance* update
9
Consolidated 2011 revised guidance y/y growth
Revenue(external)
$5.4 to 5.5B(up $200 to $150 million) 8 to 10%
EBITDA $2.15 to 2.25B(unchanged) 6 to 11%
* See forward looking statement caution
Strong start to 2011 leads to increased wireless revenue guidance
Q2 2011 wireline financial results
10
Results reflect strong subscriber growth and investments in Optik services and continued erosion of high margin legacy services
($M) Q2-10 Q2-11 change
Revenue (external) 1,184 1,221 3.1%
EBITDA 405 385 (4.9)%
EBITDA margins(total revenue) 33.1% 30.5% (2.6) pts
Capex 298 349 17%
EBITDA less capex 107 36 (66)%
TELUS TV subscribers
11
Strong momentum continues with TV net adds up 59% y/yand total subscribers up 77% surpassing 400K milestone
Q2-10
29K
46K
Q2-11
TELUS TV net additions*
TELUS TV subscribers*
* Includes both IP TV and TELUS Satellite TV subscribers
Q2-11Q2-10
228K
403K
TELUS high-speed Internet net additions
12
Strong growth in HSIA net adds reflects success of enhanced Optik services and bundling since launch in June 2010
Q1-10
3K 3K
Q2-10
15K
Q3-10 Q4-10 Q1-11
18K16K
13K
Q2-11
TELUS network access lines
13
Residential line losses improved 39% y/y – best result in 5 yearsBusiness line increase reflects gain in wholesale customers
Q2-11
Q2-11
-51K
-31K
-12K
7KQ2-10Q2-10
BusinessResidential
2011 wireline annual guidance* update
14
Consolidated 2011 revised guidance y/y growth
Revenue(external)
$4.825 to 4.925B(up $100 to $50 million) 1 to 3%
EBITDA $1.525 to 1.625B(unchanged) (6)% to flat
* See forward looking statement caution
Wireline revenue increase reflectssubscriber growth in Optik services
Q2 2011 consolidated financial results
15
Strong revenue growth driven by wireless and wireline dataFree cash flow up 20%
($M, except EPS) Q2-10 Q2-11 change
Revenue (external) 2,400 2,554 6.4%
EBITDA 925 950 2.7%
EPS (basic) 0.94 0.99 5.3%
Capex 397 456 15%
EBITDA less capex 528 494 (6.4)%
Free cash flow 239 286 20%
EPS continuity analysis ($)
16
EPS growth driven by lower financing costs and EBITDA growth
0.94
HigherNormalized
EBITDA1
LowerPension & Restr.
costs
LowerFinancing
costs
1 Normalized EBITDA excludes pension and restructuring costs
Q2-11 reported
0.99
Lower Tax rates & Other
0.96Excl.
Tax Adj.
0.05
HigherDep & Amort
-0.07
0.03 0.03
- 0.02
Q2-10 reported
0.03
Higher O/S
shares
0.91Excl.
Tax Adj.
Positive income tax-related adjustments
TELUS successfully refinances U.S. dollar notes
17
Well staggered debt maturity profile out 9 yearswith lower financing costs in future
In May successfully issued $600M senior unsecured notes3.65% 5-year notes, maturing May 2016
Proceeds used, in combination with commercial paper, to redeem maturing 8% U.S. dollar notes and associated cross currency interest rates swaps (effective cost 8.5%)
Final of three tranches undertaken since December 2009
2011 consolidated annual guidance* update
18
Consolidated 2011 revised guidance y/y growth
Revenue(external)
$10.225 to 10.425B(up $300 to $200 million) 4 to 6%
EBITDA $3.675 to 3.875B(unchanged) 1 to 6%
EPS – basic $3.50 to 3.90(unchanged) 7 to 19%
Capex Approx. $1.8B(up $100 million) 5%
* See forward looking statement caution
Increasing 2011 revenue and capex guidance
Industry vertical integration update
19
CRTC has issued temporary policy decision prohibitingwithholding of signals that are subject of negotiations
In June TELUS presented its views on Vertical Integration to CRTC Hearing proceeded as TELUS expected Independent distributors, including TELUS, presented at request of CRTC,
a Code of Conduct, which includes: 1. A prohibition on exclusive distribution of TV content on any platform 2. Access to content on commercially reasonable terms3. Where a dispute arises, complainant must be “held harmless” pending
resolution4. Restrictions on sharing confidential info between broadcasting and
carrier side of Vertically Integrated company TELUS expects CRTC decision this Fall
Q2 2011 summary
20
TELUS successfully advancing its 2011 priorities
Strong consolidated revenue growth driven by both wireless and wireline
Good wireless and Optik subscriber results with improved residential NAL losses
Free cash flow growth of 20%
Dividend declared of $0.55 up 10% consistent with dividend growth model
Increased 2011 revenue and capex guidance
Strong smartphone adoption driving ARPU growth
21
Smartphone base increased 80% to 2.5 millionData ARPU increased by 39% year over year
Q2-09 Q2-10 Q2-11
5.1 5.5 5.9
16%25%
42%
Postpaid subscribers (millions)Smartphone % of postpaid
$11.56$13.80
$19.25
Q2-09 Q2-10 Q2-11
Wireless Data ARPU
Future Friendly Home - continued Optik momentum
22
TELUS TVResidential NALs
High-speed Internet
TV and High-Speed Internet loading more than offsettingresidential NAL losses for fourth consecutive quarter
Q2-10
32K
-51K
Q2-11
59K
-31K
29K
46K20K
-43K
17K
Q2-09
Evolution of Clear and Simple
Transformed contracts via device ownership agreements Simplified and lowered international roaming rates Offer best customer experience for key over-the-top partners Clear and Simple philosophy extends across TELUS
Clear and Simple approach driving customer loyalty and differentiation while enhancing operating efficiency
Appendix – free cash flow
2011Q2
2010Q2
C$ millions
EBITDA 925 950Capex (397) (456)Net Employee Defined Benefit Plans Expense (Recovery) (3) (7)Employer Contributions to Employee Defined Benefit Plans (44) (15)Interest expense paid (187) (145)Cash Income Taxes and Other (58) (50)Share-based compensation 6 5Restructuring payments (net of expense) (3) 4Free Cash Flow 239 286
(152) (170)Dividends
Working Capital and Other (105) (241)
Funds Available for debt redemption 16 (174)Net Issuance (Repayment) of debt (21) 172Decrease in cash (5) (2)
Dividends reinvested (DRIP) 32
Common and Non-voting shares issued 2 2
Acquisitions - (51)
-
Appendix – definitions
EBITDA: Earnings before interest, taxes, depreciation and amortization Capital intensity: capital expenditures divided by total revenue Cash flow: EBITDA less capex Free cash flow: EBITDA, adding Restructuring costs, net employee defined
benefit plans expense, cash interest received and excess of share-based compensation expense over share-based compensation payments, subtracting the non-cash gain on Transactel, cash interest paid, cash taxes, capital expenditures, restructuring payments and employer contributions to employee defined benefit plans.
Cost of retention (COR): total costs to retain existing subscribers, often presented as a percentage of network revenue