4Q12 and 2013 Targets Presentation

Report
Q4 2012 and 2013 targets
TELUS investor conference call
February 15, 2013
Darren Entwistle
President & Chief Executive Officer
Joe Natale
EVP & Chief Commercial Officer
John Gossling
EVP & Chief Financial Officer
TELUS Forward Looking Statement
Today's presentation and answers to questions contain statements about 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 2013 annual targets, semi-annual dividend increases to 2013 and CEO threeyear goals to 2013 for EPS and free cash flow growth to 2013 excluding spectrum costs),
qualifications and risk factors referred to in the fourth quarter Management review of operations
and Management’s discussion and analysis in the other 2012 quarterly reports and 2011
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). In addition, there can be no assurance that the Company will initiate a normal course
issuer bid. 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.
See Key Assumptions and Forward Looking Statements in TELUS’ fourth quarter 2012 and
2013 Targets news release dated February 15, 2013.
2
Agenda
 CEO Introduction and 2013 corporate priorities
 Q4 operational highlights
 Q4 financial results
 2013 targets and key assumptions
 Questions and Answers
3
CEO Introduction
 Successfully completed share exchange – thank you!
 Reporting strong Q4 and 2012 results
 Building on momentum – 2013 targets
 Updating investors on dividend growth model and share
repurchase intentions at May annual meeting
4
TELUS 2013 corporate priorities
1. Delivering on TELUS’ Future Friendly brand promise by putting
Customers First
2. Further strengthening our operational efficiency and effectiveness,
thereby fuelling our capacity to invest for future growth
3. Continuing to foster our culture for sustained competitive advantage
4. Increasing our competitive advantage through technology leadership
across cohesive broadband networks, Internet Data Centres, information
technology and client applications
5. Driving TELUS’ leadership position in its chosen business and public
sector markets through an intense focus on high-quality execution and
economics
6. Elevating TELUS’ leadership position in healthcare information by
leveraging technology to deliver better health outcomes for Canadians
5
History of operational efficiency
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Total
Restructuring
Costs ($M)
570
28
53
54
68
20
59
190
74
35
48
1,199
Cumulative
one-time
restructuring
costs
Cumulative ongoing
annual EBITDA
savings
$1.6B
$1.2B
2002-2012
2002-2012
EBITDA savings used to offset dilution of strategic initiatives
6
Ongoing earnings enhancement program
 Improvements in annual EBITDA of $250 million by 2015
 Targeting wireline and wireless EBITDA improvement
 Program reflected in 2013 consolidated and segmented targets
 Increasing restructuring costs for 2013 to $75M ($48M in 2012)
 Targeting 2013 wireline EBITDA growth of 0-6% vs (5.5)% in 2012
(pre IAS 19)
Efficiency continues to fuel our
growth and financial performance
7
Healthy postpaid net additions
Total subscriber base
(000s)
Postpaid net adds (000s)
415
109
148
425
414
7,670
7,340
6,971
4.5%
123
Q4-10 Q4-11 Q4-12
2010 2011 2012
2010
2011
2012
Driving 4.5% increase in total subscriber base in 2012
8
Strong smartphone adoption and ARPU growth
5.7
6.1
6.5
$58.48
16.01
$59.08 $60.95
21.65
25.29
37.43
35.66
Q4-11
Q4-12
66%
53%
42.47
33%
Q4-10
Q4-11
Q4-12
Q4-10
Postpaid subscribers (millions)
Voice ARPU
Smartphone % of postpaid
Data ARPU
Smartphone base up 34% y/y to 4.3 million
supporting strong ARPU growth of 3.2% in Q4 2012
9
Industry leading churn
Blended
1.72%
Postpaid
1.67%
1.51%
Q4-10 Q4-11 Q4-12
1.33%
1.23%
1.12%
Q4-10 Q4-11 Q4-12
Best 4th quarter churn rates in 6 years
10
Industry leading lifetime revenue per susbcriber1
$4,036
$3,400
Q4-10
14%
$3,538
Q4-11 Q4-12
Industry leading ARPU and churn
generating leading lifetime revenue per subscriber
1
Lifetime revenue derived by dividing ARPU by blended churn rate
11
Strong TV and Internet subscriber growth continues
TELUS TV (000s)
678
High-speed Internet (000s)
33%
1,167
1,242
1,326
6.8%
509
314
2010
2011
2012
2010
2011
2012
TELUS focused on balancing
subscriber growth with profitability
12
Q4 2012 wireless financial results
($M)
Q4-12
% change
Revenue (external)
1,533
7.7%
569
14%
41.3%
2.1 pts
Capex
191
14%
EBITDA less capex
378
14%
EBITDA1
EBITDA margin
(network revenue)
TELUS continues to deliver very strong wireless results
1
For definition, see Section 7.1 in the 2012 fourth quarter Management’s review of operations
13
Wireless data revenue ($M)
570
466
326
Q4-10
Q4-11
Q4-12
Robust Q4 data revenue growth of 22% year-over-year
2012 data now 41% of wireless network revenue up 7 points
14
Q4 2012 wireline financial results
($M)
Q4-12
% change
Revenue (external)
1,318
4.1%
378
1.1%
27.8%
(0.8) pts
330
(4.1)%
48
60%
EBITDA
EBITDA margins
(total revenue)
Capex
EBITDA less capex
EBITDA growth reflects strong revenue growth and
improved Optik TV and high-speed Internet margins
15
Wireline data revenue ($M)
770
680
591
Q4-10
Q4-11
Q4-12
Strong Q4 data revenue growth of 13% year-over-year
2012 data now 57% of external revenue up 5 points
16
Q4 2012 consolidated financial results
($M, except EPS)
Q4-12
% change
Revenue (external)
2,851
6.0%
EBITDA
947
8.4%
EPS (basic)
0.89
17%
Capex
521
1.8%
EBITDA less capex
426
18%
Free cash flow1
263
29%
Consolidated results driven by both wireless and wireline
Strong free cash flow growth of 29%
1
For definition, see Section 7.2 in the 2012 fourth quarter Management’s review of operations
17
EPS continuity analysis
0.18
0.01
0.76
Q4-11
reported1
0.89
(0.04)
Higher
Normalized
EBITDA2
Depreciation &
Amortization
Higher
Pension,
Restructure
& Other
Q4-12
reported1
EPS up 17% driven by strong EBITDA growth
1 EPS
2
for both Q4/11 and Q4/12 included favourable income tax-related adjustments of three cents per share.
Normalized EBITDA excludes pension and restructuring costs.
18
2012 guidance scorecard – for discussion
($M, except EPS)
2012
actuals
Met original
targets
Consolidated external revenue
10,921

Wireless revenue
5,845

Wireline revenue
5,076

3,972

Wireless EBITDA
2,467

Wireline EBITDA
1,505

EPS
4.05

Capital expenditures
1,981

Consolidated EBITDA
Met or exceeded seven of eight
targets set in December 2011
19
2013 targets
and assumptions
See forward-looking statement in
TELUS fourth quarter 2012 and
2013 targets news release
Application of accounting standard
IAS 19 Employee Benefits
($M, except EPS)
2012
Reported
Effect of applying
IAS 19, Employee
Benefits
2012
Adjusted
Wireline EBITDA
1,505
(104)
1,401
Wireless EBITDA
2,467
(9)
2,458
Earnings per share1
4.05
(0.36)
3.69
Dividend payout ratio
64%
7 pts
71%
1,331
No impact
1,331
Free cash flow
Accounting change has no impact to free cash flow
1 EPS
impact inclusive of an additional $42 million in financing costs or $(0.10) per share
21
Dividend payout ratio guideline revised
Dividends paid
to shareholders ($M)
 Dividend payout ratio guideline
raised 10 pts to a range of 65 to
75% of sustainable net earnings
on a prospective basis
794
715
584
601
642
2008
2009
2010
 Change reflects application of
amended accounting standard
IAS 19 Employee Benefits
2011
2012
TELUS committed to returning cash to shareholders
through sustainable dividend growth model
22
2013 segmented targets1 (after IAS 192)
Wireless ($B)
Revenue (external)
EBITDA
2013 targets
Targeted change
$6.2 to 6.3
6 to 8%
$2.575 to 2.675
5 to 9%
$5.2 to 5.3
2 to 4%
$1.375 to 1.475
(2) to 5%
Wireline ($B)
Revenue (external)
EBITDA
 Wireline EBITDA growth of flat to 6% prior to applying new IAS-19
Targets build on strong results achieved in 2012
1 See
2
forward looking statement caution and assumptions in Section 1.5 of Q4-12 management review of operations
2013 targets and growth rates are presented including application of the amended accounting standard IAS 19 Employee
Benefits (2011).
23
2013 consolidated targets1 (after IAS 192)
$B, except EPS
2013 targets
Targeted change
Revenue (external)
$11.4 to 11.6
4 to 6%
EBITDA
$3.95 to 4.15
2 to 8%
EPS
$3.80 to 4.20
3 to 14%
Capital expenditures
Approx $1.95
Targets demonstrate benefits of ongoing network and service-related
investments, combined with customer-focused operational execution
1 See
2
forward looking statement caution and assumptions in Section 1.5 of Q4-12 management review of operations
2013 targets and growth rates are presented including application of the amended accounting standard IAS 19 Employee
Benefits (2011).
24
Other notable 2013 assumptions1
 Pension accounting discount rate of 3.9%
 Defined benefit pension expense of approx $160 million (approx
$110M in operating expenses and $50 million in financing costs)
 Defined benefit pension plan cash funding of $195 million
 Restructuring costs of approx $75 million
 Cash taxes in the range of $390 to $440 million
 Statutory income tax rate of 25 to 26%
 Net cash financing costs of approximately $350 million
Key assumptions and sensitivities listed in section 1.5
in Q4 Management’s review of operations
1
See forward looking statement caution and assumptions in Section 1.5 of Q4-12 management review of operations
25
2013 targets summary
 Consolidated revenue and EBITDA growth driven by both
wireless and wireline
 EPS growth driven by higher EBITDA
 Capex similar to previous year
 Strong free cash flow supports dividend growth model
Targets build on strong results achieved in wireless and wireline,
and benefits of ongoing major strategic network investments
26
investor relations
1-800-667-4871
telus.com/investors
[email protected]
Appendix – 2013 free cash flow calculation ($M)
2013
EBITDA
Capex
Simple Cash flow
Net cash tax payment1
Net cash interest payment
Free Cash Flow (before dividends, spectrum
and pension contributions)
Cash pension contribution (net of pension
expense in EBITDA)2
Free Cash Flow (before dividends and spectrum)
$3,950 to 4,150
~(1,950)
2,000 to 2,200
(390) to (440)
~(350)
1,235 to 1,435
~(85)
1,150 to 1,350
1 Midpoint
2 Cash
used to calculate FCF range
pension contribution of $195 million less $110 million pension expense in EBITDA
28
Appendix – Q4 2012 free cash flow comparison
2011
Q4
2012
Q4
874
947
(512)
(1)
(521)
(8)
(3)
(35)
(28)
(109)
(108)
9
(13)
(20)
(20)
6
204
5
9
263
(179)
(31)
(199)
(5)
Working Capital and Other
21
(65)
Funds Available for debt redemption
20
(5)
Net Issuance (Repayment) of debt
(30)
75
Increase in cash
(10)
70
C$ millions
EBITDA
Capex
Deduct Transactel gain
Net Employee Defined Benefit Plans Expense (Recovery)
Employer Contributions to Employee Defined Benefit Plans
Interest expense paid, net
Income taxes refunded (paid), net
Share-based compensation
Restructuring costs net of cash payments
Free Cash Flow
Common and non-voting shares issued
Dividends
Cash payments for acquisitions and related investments
1

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