Post on 17-Jan-2016
Q4 2010 TELUSinvestor conference call
Robert McFarlaneEVP & Chief Financial Officer
Joe NataleEVP & Chief Commercial Officer
Darren EntwistlePresident & Chief Executive Officer
February 11, 2011
2TELUS forward looking statements
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 targets), qualifications and risk factors referred to in the Management’s discussion and analysis in the 2009 annual report and in the 2010 quarterly 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.
3Agenda
2010 scorecard
Wireless and wireline segment reviews
Consolidated financial review Updates
Regulatory IFRS Pension update
Q4 summary 2011 corporate priorities Question and answers
3
2010 consolidated scorecard 4
Achieved 3 of 4 original consolidated targets
Original targets(GAAP)
Actual results(GAAP)
Result
Revenue(external)
$9.8 to 10.1B $9.779B
EBITDA $3.5 to 3.7B $3.643B
EPS – basic $2.90 to 3.30 $3.23
Capex Approx. $1.7B $1.721B
Q4 2010 wireless financial results 5
Strong revenue and EBITDA growth of over 9% supporting cash flow growth of 17%
($M) Q4-09 Q4-10 change
Revenue (external) 1,225 1,338 9.2%
EBITDA 435 476 9.4%
EBITDA margins1
(total revenue)35.3% 35.3% no change
Capex 192 192 no change
EBITDA less capex 243 284 17%
1 Margins on network revenue in Q4/10 and Q4/09 were 39.7% and 39.4%, respectively.
Subscriber results 6
Stable net additions in very competitive environmentHigh value postpaid represented 92% of net adds
prepaid18%
Wireless subscribers
postpaid82%
Postpaidnet adds
7M total
5.7M
1.3M
Q4-09
109K 109K
Q4-10
Totalnet adds
Q4-09
122K 119K
Q4-10
Smartphone subscriber mix 7
Smartphone base increased 74% y/y to 1.9M
Smartphone subscriber loading hit inflection point Smartphones represented over 2/3 of postpaid
retention units compared to 1/3 a year ago Smartphones represented 46% of postpaid gross
loading compared to 25% a year ago BlackBerries and iPhones continue to dominate
with over 3/4 of smartphone retention loading Smartphones now represent 33% of postpaid base
compared to 20% a year ago
Data revenue growth 8
Data revenue growth accelerated to 36% driven by strong smartphone adoption
Q4-09
$239M
Q4-10
$326M
$203M
Q4-08BlackBerry Torch
Marketing and retention 9
Record gross adds offset by slightly higher churn COA/COR expense increase reflects record loading
Q4-09 Q4-10 change
Gross adds (000s) 431 475 10%
Churn 1.60% 1.72% 0.12 pts
COA per gross add $380 $388 2.1%
COA expense $163M $184M 13%
Retention expense $133M $170M 28%
Blended ARPU analysis 10
ARPU up 1.9% y/y as strong data ARPU growth more than offset voice ARPU decline
Data
Q4-10
$58.48Voice
$57.38
Q4-09
% of ARPU
12.60
44.78 42.47
16.01
Q4-10Q4-09
22%
78% 73%
27%
Q4 2010 wireline financial results 11
EBITDA growth and margin expansion due to lower restructuring costs
($M) Q4-09 Q4-10 Change
Revenue (external) 1,218 1,213 (0.4)%
EBITDA 354 371 4.8%
EBITDA margins(total revenue)
28.2% 29.6% 1.4 pts
Capex 322 372 16%
EBITDA less capex 32 (1) n.m.
TELUS TV subscribers 12
Record quarterly net adds of 48K up 45% y/y, while total TV subscribers up 85%
Q4-09
33K
48K
Q4-10
TELUS TV net additions*
TELUS TV subscribers*
* Includes both TELUS IP TV and TELUS Satellite TV subscribers
Q4-10Q4-09
170K
314K
TELUS line losses 13
Residential line losses improved 18% y/y while business line losses reflect increased competition and IP upgrades
Q4-10 Q4-10
-45K-37K
-8K-18K
Q4-09Q4-09
BusinessResidential
Improved wireline operating stats 14
TV & HSIA loading more than offset total NAL losses for second consecutive quarter
Q4-10
-53K
Q4-09
* Historic NALs restated for prior periods starting in 2007 as a result of a periodic subscriber measurement review and correction.
44K
-55K
66KTELUS TV
Total NAL losses*
High-speed Internet
33K48K
Q4 2010 consolidated financial results 15
Strong consolidated results inline with recent guidance
($M excl. EPS) Q4-09 Q4-10 change
Revenue (external) 2,443 2,551 4.4%
EBITDA 789 847 7.4%
EPS (basic) 0.49 0.70 43%
Capex 514 564 9.7%
EBITDA less capex 275 283 2.9%
EPS continuity ($) 16
Double digit EPS growth of 43%
0.49
0.26Excl.
Tax Adj.
Q4-09 reported
Normalized EBITDA2
Restr.costs
Normalized Financing
costs1
Pension & other
1 Q4 2010 Normalized Financing costs excludes early debt redemption penalty in Q4 2009.
2 Normalized EBITDA excludes restructuring and pension costs.
Q4-10 reported
0.70
0.22
Lower tax rates
0.67Excl.
Tax Adj.
0.03
Tax adjustment
2009 debt
redemption
0.100.01
0.06- 0.01
EPS normalization 17
Normalized EPS up 40% to $0.67 per share
Q4-09 Q4-10 Change
EPS - basic $0.49 $0.70 43%
Early debt redemption +0.22
Income-tax related adjs (0.23) (0.03)
EPS normalized $0.48 $0.67 40%
TELUS’ efficiency savings ($M) 18
Efficiency initiatives have enabled significant productivity benefits
150
267
401
2008 2009 2010
*See forward looking statement caution
114
Restrcosts
$59 $190 $74
In-year savings
Cumulative efficiency savings
134
117
TELUS update on Cdn GAAP to IFRS transition 19
Quantified impacts on key financial statement line items and other measures in Q4-10 review of operations including
Pro forma 2010 net income and EPS per IFRS 1% higher by $14M or $0.04
Statement of Financial Position includes recognition of cumulative unamortized gains and losses for employee defined benefit plans and asset impairment reversal
Net impact of $220 million or 3% reduction in Owners’ Equity, as of January 1, 2010
A full description and illustration of expected effects of transition to IFRS will be updated in TELUS’ annual 2010 MD&A
TELUS conversion to IFRS effective January 1, 2011
Defined Benefit pension assumptions update 20
Discount rate and long-term rate of return expectation lowered slightly from preliminary guidance given in December 2010
2010(GAAP)
2011E*(IFRS)
Discount rate 5.85% 5.25%
Long-term expected return 7.25% 7.0%
Pension Expense / (Recovery) $28M $(34)
Pension Funding $137M $298M
*See forward looking statement caution
Pension funding includes $200M voluntary contribution made in January 2011
TELUS commends CRTC’s Videotron / TVA & Shaw / Canwest decisions
Decisions support pre-existing principle of programming content being made available non-exclusively on reasonable commercial terms
BCE/CTV hearing held early February and decision expected in March 2011
Public policy hearing on effects of consolidation and vertical integration is scheduled for June 2011
TELUS believes CRTC needs to implement measures to effectively address and deter any anti-competitive behaviour from content ownership
Industry vertical integration update
CRTC reinforces principle that conferring undue preferences by carriers who own content not permitted
21
Jan 25 - Following series of decisions from May 2010, CRTC determined incumbents could assess usage caps on wholesale Internet providers and apply overage charges at a 15% discount to their own retail UBB rates starting March 1
Customers of wholesale ISPs would have been subject to additional charges for going over bandwidth caps
Industry Minister instructed CRTC to consider a review
CRTC has suspended implementation of decisions pending the outcome of its Feb 8 decision to review billing practices
No short-term implications for TELUS
TELUS has not billed usage overage for Internet service
Usage-based billing
CRTC wholesale UBB decision to be reviewed
22
In March 2010, government announced its intention to open Canada’s doors further to foreign investment in telecom
June 2010 consultation launched asking for comments on three options for relaxing rules on foreign ownership
TELUS advocated a fourth option: liberalization for all telcos and cablecos but retain restrictions for pure broadcasting activities
The Federal Court recently overturned the Cabinet’s December 2009 Order on Globalive ownership structure
Decision could be appealed by Globalive and/or Government
Issue could be cured by new corporate governance structure
Not an issue of whether Globalive will remain in operation
The Minister of Industry expects to issue final report on Digital Economy Strategy in spring of 2011
We expect government to use this opportunity to provide direction on foreign ownership
Foreign ownership update 23
Q4 2010 summary 24
Strong year-end results set the stage for 2011 earnings and free cash flow growth
Wireless Strong revenue and EBITDA growth driven by 1.9%
increase in ARPU and healthy wireless subscriber growth
Smartphone adoption accelerating data revenue growth to 36%
Wireline EBITDA growth and margin expansion supported by
lower restructuring costs Record TELUS TV subscriber growth led by Optik TV Improved residential NAL losses and HSIA loading
TELUS’ 2011 corporate priorities 25
1. Deliver on our future friendly brand promise to clients
2. Optimize the potential of TELUS’ leading wireless and wireline broadband networks
3. Drive market leadership position in the Small and Medium Business (SMB) and healthcare markets
4. Continue to improve TELUS’ operational efficiency to effectively compete in the market and fund future growth
5. Raise TELUS team engagement to the next level and continue to drive the philosophy of “Our Business, Our Customers, Our Community, Our Team, My Responsibility”
Building value from strategic investments in recent years
Evolution of clear and simple customer approach 26
Simplified rate plans, customer experience enhancements and data reflected in operating results
Launch of Clear Choice wireless plans late 2009
Introduced Data notifications in 2010
Clear and Simple Device Upgrade program in 2010
Unlocking of SIM based postpaid wireless devices in 2011
-7.7%
-4.4%
-1.9%-1.2%
1.9%
Q4-09 Q1-10 Q2-10 Q3-10
Q4-10
Year over year ARPU change
Evolution of wireless network to Dual Cell HSPA 27
Strategic investments in network technology and new devices enhancing customer experience
Launch of HSPA+ network in late 2009
Upgrade to Dual Cell HSPA 4G1 technology in Mar 20112
Manufacturer-rated peak download speeds up to 42 Mbps Launch cities: greater Vancouver area, Edmonton, Calgary, Fort
McMurray, Whistler, Camrose, Winnipeg and Toronto Consistent with TELUS’ evolution towards LTE
1 As defined by International Telecommunications Union (ITU), Dec. 20102 See forward looking statement caution
28Building TELUS TV momentum 28
Investments in broadband have enabled TELUS to offer differentiated and integrated service and applications
Record quarterly TV loading driven by Optik
Optik TV reaccelerating High-Speed subscriber loading
Optik footprint now covers 2.1M households
33 29 2938
48
44
32 32
53
66
Q4-09 Q1-10 Q2-10 Q3-10 Q4-10
High-speed Internet
TV
Appendix – free cash flow
2010Q4
2009Q4
C$ millions
EBITDA 789 847
Capex (514) (564)
Net Employee Defined Benefit Plans Expense 8 10
Employer Contributions to Employee Defined Benefit Plans (45) (30)
Interest expense paid (includes income tax interest income) (296) (141)
Cash Income Taxes and Other 4 28
Non-cash portion of share-based compensation 7 3
Restructuring payments (net of expense) 51 23
Donations and securitization fees included in other expense (7) (12)
Free Cash Flow (before share-based compensation payment) (3) 164
Share Based Compensation Paid (47) (43)
Free Cash Flow (per current public guidance methodology) (50) 121
(151) (160)Dividends
Working Capital and Other 61 16
Funds Available for debt redemption (140) 37
A/R Securitization
Net Issuance (Repayment) of debt 47 (70)
Increase (Decrease) in cash 7 (33)
Issuance of non-voting shares* - 52
* Non-voting share issuance from treasury primarily for shareholders in the DRIP
-
Issuance of common shares - 8
100
Appendix – definitions
TELUS definitions for non-GAAP measures
EBITDA: earnings, after restructuring and workforce reduction costs, 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 and workforce reduction costs, net employee defined benefit plans expense, cash interest received and excess of share compensation expense over share compensation payments, subtracting cash interest paid, cash taxes, capital expenditures, cash restructuring payments, employer contributions to employee defined benefit plans, and cash related to Other expenses such as charitable donations and securitization fees
Cost of retention (COR): total costs to retain existing subscribers, often presented as a percentage of network revenue
2011 annual consolidated targets* 32
2011 targets(IFRS)
y/y growth**
Revenue(external)
$9.925 to 10.225B 1 to 4%
EBITDA $3.675 to 3.875B 1 to 6%
EPS – basic $3.50 to 3.90 7 to 19%
Capex Approx. $1.7B
*See forward looking statement caution** Y/Y growth rates reflect 2011 guidance and 2010 results according to current understanding of IFRS