Q3 2012 Presentation

Report
Q3 2012 TELUS investor conference call
November 9, 2012
Robert McFarlane
EVP & Chief Financial Officer
Joe Natale
EVP & Chief Commercial Officer
Darren Entwistle
President & Chief Executive Officer
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 forwardlooking. 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 2012 annual guidance), qualifications and
risk factors (including the potential for a future non-voting to common share
exchange proposal on a one-for-one basis, the ability over time to sustain dividend
growth of circa 10% per annum with semi-annual dividend increases to 2013, and
CEO three year goals for EPS and free cash flow growth excluding spectrum costs
to 2013) referred to in the Management’s discussion and analysis in the 2011
annual report, and in the 2012 first, second and third 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.
2
Agenda
 Wireless and wireline segment review
 Consolidated financial review
 Updates
 Dividend increase
 2012 guidance
 Share exchange proposal
 Operational highlights
 Questions and Answers
3
CEO introduction
 Reporting strong third quarter 2012 results
 Increasing dividend, consistent with semi-annual growth model
 Thanking shareholders for decisive support of share exchange proposal
 Celebrating Bob McFarlane’s outstanding career at TELUS
 Welcoming new CFO, John Gossling, to TELUS leadership team
4
Q3 2012 wireless financial results
($M)
Q3-11
Q3-12
Revenue (external)
1,397
1,501 
7.4%
570
640 
12%
40.5%
42.4% 
1.9 pts
Capex
157
175 
11%
EBITDA less capex
413
465 
13%
EBITDA
EBITDA margin1
(total revenue)
1
change
Margins on network revenue in Q3-12 and Q3-11 were 46.6% and 44.2%, respectively.
Strong double digit EBITDA growth leading to cash flow growth of 13%
5
Wireless subscriber results
Total
net adds
Postpaid
net adds
Wireless
subscribers
133K
114K 111K
1.1M
prepaid
15%
116K
7.6M
total
Q3-11 Q3-12
Q3-11 Q3-12
6.4M
postpaid
85%
Healthy net additions reflecting continued postpaid growth
Smartphones now 63% of postpaid base, up from 48% a year ago
6
Blended ARPU analysis
Data
Voice
% of ARPU
$60.52
$61.42
20.90
24.51
35%
40%
39.62
36.91
65%
60%
Q3-11
Q3-12
Q3-11
Q3-12
ARPU up 1.5% led by data ARPU growth of 17%
Voice ARPU decline stable at (6.8)%
7
Wireless data revenue
$546M
$444M
$291M
Q3-10
Q3-11
Q3-12
Q3 data revenue growth of 23% year-over-year
Data now 40% of wireless network revenue
8
Marketing and retention
Q3-11
Q3-12
472
434

(8.1)%
1.67%
1.44%

(0.23) pts
$397
$402

1.3%
COA expense
$187M
$175M

(6.4)%
Retention expense
$155M
$152M

(2.2)%
Lifetime revenue
$3,624
$4,265

18%
Gross adds (000s)
Blended churn
COA per gross add
change
Lower churn rate combined with continued ARPU
growth leading to 18% increase industry-leading lifetime revenue
9
Q3 2012 wireline financial results
($M)
Q3-11
Q3-12
Revenue (external)
1,225
1,273

3.9%
398
378

(5.0)%
31.4%
28.7%

(2.7) pts
313
296

(5.4)%
85
82

(3.5)%
EBITDA
EBITDA margins
(total revenue)
Capex
EBITDA less capex
change
Wireline revenue reflects data growth exceeding voice declines
EBITDA and margin down due to decline in high margin legacy services
10
TELUS TV customer growth
TELUS TV
net additions*
TELUS TV
subscribers*
637K
453K
50K
42K
Q3-11
Q3-12
Q3-11
Q3-12
Good TV net adds of 42K
Total TV subscribers up 41% year-over-year
*
Includes both IP TV and TELUS Satellite TV subscribers
11
TELUS high-speed Internet customer growth
High-speed
net additions
26K
1.2M
Q3-12
Q3-11
22K
Q3-11
High-speed
subscribers
1.3M
Q3-12
Excellent high-speed Internet net adds up 18%
Subscriber base up 85,000 year-over-year to surpass 1.3 million
12
TELUS network access line losses
Residential
Business
Q3-11 Q3-12
Q3-11 Q3-12
-13K
-30K
-9K
-30K
Residential NAL losses flat year-over-year and lowest since Q1/06
Business lines improved y/y but continue to be impacted by competition
13
Q3 2012 consolidated financial results
($M, except EPS)
Q3-11
Q3-12
change
Revenue (external)
2,622
2,774

5.8%
EBITDA
968
1,018

5.2%
EPS (basic)
1.00
1.08

8.0%
Capex
470
471

0.2%
EBITDA less capex
498
547

9.8%
Free cash flow
345
426

23%
Consolidated revenue, EBITDA and EPS growth driven by wireless
Strong double digit free cash flow growth of 23%
14
EPS continuity analysis
$0.13
$0.01
($0.04)
($0.02)
($0.01)
$1.07
$0.01
$1.08
$1.00
Q3-11
reported
Higher
Normalized
EBITDA1
Lower
Financing
Costs
Higher
Dep &
Amort
Incr in
Tax Exp.
Higher
Pension
Q3-12
adjusted
2012
Tax Adj.
Q3-12
reported
Adjusted EPS growth of 7% from $1.00 to $1.07
when excluding tax adjustments
1
Normalized EBITDA excludes higher pension costs.
15
TELUS raises quarterly dividend to 64 cents
 January 2, 2013 dividend of
64 cents declared
 Up 3 cents from October
dividend
 Up 6 cents or 10.3%
from year ago
 $2.56 annualized
52.5 55 55
58
58 61
61
64
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2011
2012
Fourth of six semi-annual dividend increases targeted
Consistent with TELUS’ dividend growth model to 2013
* See forward looking statement caution. Dividend decisions will continue to be subject to the Board’s assessment and
16
determination of the Company’s financial situation and outlook on a quarterly basis.
2012 consolidated guidance*
2012 guidance
Revenue (external)
$10.75 to 11.05B
EBITDA
$3.9 to 4.05B
EPS (basic)
$3.75 to 4.15
Capex
Approx $1.95B
 Last updated August 3 with revenue, EBITDA, and capex raised
as compared to initial targets announced in December 2011
2012 guidance reaffirmed due to strong
financial and operational performance year-to-date
* See forward looking statement caution and assumptions in Section 9 of Q3-12 MD&A.
17
TELUS share exchange proposal – key dates
 Oct. 12, 2012
BC Court of Appeal allows Mason meeting requisition and four
resolutions to proceed.
 Oct. 15
Supreme Court of B.C. (Court) rejects Mason’s attempt to set aside
TELUS’ interim order and confirmed validity of the order it granted
TELUS in August.
 Oct. 15
Court orders joint meeting to consider TELUS’ proposal and Mason
Capital’s resolutions.
 Oct. 17
At meeting TELUS shareholders voted strongly in favour of share
exchange proposal. None of Mason’s resolutions passed.
 Oct. 23
Court granted TELUS’ adjournment application for Mason’s appeals
and TELUS’ final order application be heard beginning Nov. 7
 Nov. 7
Court hearing begins on Mason appeals and TELUS’ final order
application for the share exchange plan of arrangement
Court approval needed for
share exchange proposal to proceed
18
October 17 shareholders meeting
 81.1% of total shares voted were in favour of TELUS’ share
exchange proposal
 62.9% of 128.8 million common shares voted were in favour
 99.5% of 127.7 million non-voting shares voted were in favour
 Excluding Mason’s most recently reported (Aug 31) voting block
 84.4% of common shares voted were in favour
 93.0% of total shares voted were in favour of the exchange
 None of Mason’s four resolutions voted on only by Common
shareholders passed
TELUS shareholders decisively approve
one-for-one share exchange proposal
19
Q3 2012 highlights
 Continued strong wireless results including double digit EBITDA
growth
 Focus on Customer First drives lowest third quarter wireless churn
rate in five years
 Pleased with wireline subscriber results and data growth, but
ongoing focus on efficiency required
 Double digit free cash flow growth
 Quarterly dividend increased to 64 cents, up 10.3% year-over-year
Continued positive outlook for
achieving previously raised guidance
20
Strong smartphone adoption, ARPU growth continues
Postpaid subscribers (millions)
Wireless Data ARPU
Smartphone % of postpaid
5.6
6.0
$24.51
6.4
63%
$20.90
$14.53
48%
28%
Q3-10 Q3-11 Q3-12
Q3-10 Q3-11 Q3-12
Q3 smartphone base up 43% to 4.0 million y/y
Data ARPU growth driven by smartphones & 23% increase in data revenue
21
Low and improving churn
Wireless Churn1
1.67%
Lifetime Revenue
Per Subscriber
$4,265
23pts
Q3-11
1 Normalized
1.44%
$3,624
Q3-12
Q3-11
18%
Q3-12
wireless churn for Q3-11 was 1.58% excluding loss of Government of Canada Contract
Industry leading churn continues to improve
Low churn generates industry leading lifetime revenue per subscriber
22
Future friendly home – continued strength in Optik
High-speed Internet
TELUS TV
Residential NALs
53K
72K
22K
15K
68K
26K
50K
38K
38K
50K
42K
-39K
-30K
-30K
Q3-10
Q3-11
Q3-12
TV and High-Speed Internet loading exceeding
residential NAL losses for ninth consecutive quarter
23
Optik TV innovations continues
 Launched Optik Smart Remote App
 Change channels with tap on an iPhone or iPad
 Channel surf or browse interactive guide without interrupting what you
are watching
 Added 10 new HD channels
 Optik offers >550 channels, including 135 in HD
Further introduction of innovative new services supports premium,
differentiated customer experience and steady momentum
24
Appendix – free cash flow
2011
Q3
2012
Q3
968
1,018
(470)
(471)
(8)
(4)
Employer Contributions to Employee Defined Benefit Plans
(13)
(14)
Interest expense paid, net
(62)
(56)
Income taxes paid, net
(43)
(58)
8
13
(35)
345
(2)
426
(178)
(3)
(198)
(7)
57
56
221
277
(186)
(304)
35
(27)
C$ millions
EBITDA
Capex
Net Employee Defined Benefit Plans Expense (Recovery)
Share-based compensation
Restructuring payments (net of expense)
Free Cash Flow
Dividends
Cash payments for acquisitions and related investments
Working Capital and Other
Funds Available for debt redemption
Net Issuance (Repayment) of debt
Increase in cash
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
IAS 19
Q3 and year-to-date impacts (2012 & 2011)
3-month periods ended September 30 (millions except per share amounts)
2012
As currently
reported
Amended
IAS 19 effects
2011
Pro forma
As currently
reported
Amended
IAS 19 effects
Pro forma
OPERATING EXPENSES
Employee benefits expense
$
FINANCING COSTS
$
INCOME TAXES
$
534
$
28
$
86
10
120
(10)
NET INCOME
562
$
$
96
$
$
110
$
476
$
28
$
92
1
$
93
107
(7)
$
100
$
(338)
(28)
504
(22)
OTHER COMPREHENSIVE INCOME
Item never subsequently reclassified to income
Defined benefit plans re-measurements
$
94
COMPREHENSIVE INCOME
28
$
—
$
122
$
(360)
22
$
—
NET INCOME PER COMMON SHARE AND NON-VOTING SHARE
Basic
$
1.08
$
(0.09)
$
0.99
$
1.00
$
(0.06)
$
0.94
Diluted
$
1.07
$
(0.09)
$
0.98
$
1.00
$
(0.07)
$
0.93
9-month periods ended September 30 (millions except per share amounts)
2012
As currently
reported
OPERATING EXPENSES
Employee benefits expense
FINANCING COSTS
INCOME TAXES
NET INCOME
OTHER COMPREHENSIVE INCOME
Item never subsequently reclassified to income
Defined benefit plans re-measurements
COMPREHENSIVE INCOME
NET INCOME PER COMMON SHARE AND NON-VOTING SHARE
Basic
Diluted
$ 1,555
$
246
$
365
$
$
$
Amended
IAS 19 effects
$
82
3.16
3.14
84
32
(30)
(86)
2011
Pro forma
As currently
reported
$ 1,639
$
278
$
335
$ 1,393
$
290
$
307
$
86
—
$
$
$
$
(0.27)
(0.27)
$
$
168
2.89
2.87
$
$
Amended
IAS 19 effects
$
(443)
3.00
2.98
85
4
(22)
(67)
Pro forma
$ 1,478
$
294
$
285
67
—
$
(376)
$
$
$
(0.20)
(0.20)
$
$
2.80
2.78

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