Q2 2006 TELUS investor conference call August 4, 2006.
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Transcript of Q2 2006 TELUS investor conference call August 4, 2006.
Q2 2006 TELUS investor conference call
August 4, 2006
Forward looking statements
2
This presentation and answers to questions today contain forward-looking statements that require assumptions about expected future events including competition, financing, financial and operating results, and guidance that are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate so do not place undue reliance on them.
There are many factors that could cause actual results to differ materially. For a full listing and description of the potential risk factors and assumptions, please refer to the TELUS 2005 annual report, updates in the 2006 quarterly reports and other filings with securities commissions in Canada and the United States.
Q2 2006 TELUS investor conference call
Darren Entwistle • member of the TELUS team
August 4, 2006
Improving Canadian wireless industry* Q2 economics
Wireless industry remains vibrant and investing in growth
4
Wireless industry revenue up 17%, subscribers up 11%
ARPU up 5% and churn down to 1.6%
Lifetime revenue up 8%
Average COA trend reverses down from Q1
EBITDA up 22%, margins @ 43.5%, cash flow up 24%
* TELUS, BCE and Rogers
Push to implement the Telecom Policy Report
5
Supporting TPR panel and Industry Canada’s thought leadership
2005 VoIP decision referred by Cabinet back to CRTC
Local forbearance decision – appealed
Mobile TV broadcasting not regulated
Third local price cap proceeding underway for 2007
Other CRTC developments
Opportunity for positive regulatory and policy change
Total subscriber connections
Connections increasing with strong wireless and Internet growth
6
Wireless
High-speed Internet
Dial-up Internet
Res NALs
Bus NALs
(millions)
Q2-06
10.4
Q2-05
9.99.4
Q2-04
2006 – second quarter review
Q2 review - consolidated
7
2006 consolidated guidance updates
Revenue up $25M to $8.625 to $8.725B
EPS range increased 50 cents to range of $2.90 to $3.10
Capital expenditures up 3% to approx. $1.6B
Q2 review - wireline
8
Moderate NAL decline and strong high speed Internet growth
Competition affecting LD revenue and non-ILEC
TELUS resilient relative to North American industry
Operating themes
Stabilize traditional services
Continue Future Friendly Home applications
Continue productivity and efficiency programs
Q2 review – wireline efficiency
Efficiency programs to continue with fourth phase
9
Efficiency programs ongoing since 2001
Facilitated by new collective agreement
Three broad categories
Outsourcing
Consolidations
Process improvements
$30M restructuring charges in Q2 / $81M last 3 quarters
Q2 review - wireless
High speed EVDO deployment catalyst for further data growth
10
Strong revenue growth of 18%
ARPU up for 14th consecutive quarter (yr over yr) due to data
EBITDA up 20% and margin up to 46.4%
EVDO network rolled out to 19 communities across Canada
Amp’d Mobile – CanadaPowered by TELUS
Exclusive arrangement and investment
12
Amp’d Mobile responsible for marketing, freshest and exclusive entertainment content, and optimized handsets
TELUS responsible for managing sales and distribution, billing, client care, network options and pricing
Targeting 18 to 35 age demographic and lifestyle
Exclusive licensing and service agreement – not a traditional MVNO
Amp’d Mobile is a premium brand with high ARPUs focused on mobile media not traditional voice and postpaid focus
TELUS Ventures investing US $7.5M in Amp’d Mobile, Inc.
Peter AddertonFounder & Chief Executive Officer
14
Amp’d Investors
15
Amp’d Is Mobile Media
16
Q2 2006 TELUS investor conference call
Darren Entwistle • member of the TELUS team
17
Q2 2006 TELUS investor conference call
Robert McFarlane • EVP & Chief Financial Officer
August 4, 2006
17%$293M$252MCash flow (EBITDA less capex)
28%$147M$115MCapital expenditures
20%$ 441M$367MEBITDA1
18%$945M$802MRevenue
ChangeQ2-06Q2-05
Wireless segment – financial results
2006 – second quarter review
Excellent revenue, EBITDA and cash flow growth
1 Includes $1M in restructuring & workforce reduction costs in Q2-06
19
Total wireless subscribers
Postpaid 81%
Prepaid 19%
Wireless subscriber results
Net additions
Total subscribers up 14% with strong postpaid mix
20
Q2-05 Q2-06
131K 124K
4.7 million
3.8M
897K
103K104K
83%79%
Wireless data ARPU growth
ARPU growth led by 94% increase in wireless data
21
Q2-05 Q2-06
$61
$63Data ARPU
$2.30$4.45
Industry ARPU comparison
$61
$51 $50
$63
$56
$51
TELUS Rogers Wireless BCE Wireless
review of operations – wireless
Increased usage and data driving positive industry trend
22
Q2-05
Q2-06
7 bps1.30%1.37%Blended churn
3.8%$63.18$60.84ARPU
ChangeQ2-06Q2-05
Review of operations - wireless
TELUS subscriber economics best in class
Profitable growth strategy
23
9.5%$4860$4440 Lifetime revenue
15%$394$342 COA
8.1%7.7%COA/lifetime revenue 40 bps
$419 $397$394COA per gross add
1.60% 1.82%11.30%Blended churn
BCE RogersTELUS
$3188 $3074$4860Avg. lifetime revenue per sub
13.1% 12.9%8.1%COA / lifetime revenue
Q2-06
$51 $55.951$63.18ARPU
Wireless industry economics comparison
TELUS subscriber economics compare favourably
24
1Calculated using prepaid and postpaid metrics due to non-disclosure by Rogers
2006 wireless guidance update1
approx. 450MCapex
EBITDA
Revenue
$1.7 to $1.75B
$3.775 to $3.825B
Guidance changes reflect good YTD momentum
25
Previous 2006 guidance 2
Updated 2006 guidance
Wireless net adds > 550K
1 See forward looking statement caution
no change
no change
$3.8 to $3.875B
560 to 590K
2 Originally set December 17, 2005
29%$145M$205MCash flow (EBITDA less capex)
6.0%$311M$294MCapital expenditures
8.5%$456M$499MEBITDA1
2.2%$1.19B$1.22BRevenue
ChangeQ2-06Q2-05
Wireline segment – financial results
2006 – second quarter review
26
Results reflect challenging wireline environment and increased restructuring charges
1 Includes $7M and $30M in wireline restructuring costs in Q2-05 and Q2-06 respectively
3.9%$486M$506MEBITDA (excl. restructuring)
12%$58M$65MOther
6.1%$403M$380MData
10%$206M$229MVoice – Long Distance
3.6%$523M$543MVoice – Local
ChangeQ2-06Q2-05
External Revenue $1.22B $1.19B 2.2%
Wireline revenue profile
27
Solid data growth offset by increased erosion in local and LD
1.05 million
Total Internet subscribers
High-speed79%
Dial up21%
High-speed Internet subscriber growth
17K
29K
High-speed Internet net additions
28
Q2-05 Q2-06
831K
217K
Net additions up a strong 71% to 29K
29
Network access line results
NAL results improved as business gains offset increased residential erosion to competitors
% of network access lines lost, YoY
Q2-05
-1.8%
Q3-05
-2.2%
Q4-05
-2.4%
Q1-06
-2.7%
Q2-06
-2.6%
2006 wireline guidance update1
$1.05 to $1.1BCapex
EBITDA
Revenue
$1.8 to $1.85B
$4.825 to $4.875B
Guidance revisions reflect minor adjustments to wireline outlook
30
Previous 2006 guidance 2
Updated 2006 guidance
High speed net adds > 125K
approx. $1.15B
no change
$4.825 to $4.850B
no change
Non-ILEC Revenue $650 to $700M $650 to $675M
Non-ILEC EBITDA $25 to $40M $25 to $30M
1 See forward looking statement caution2 Originally set December 17, 2005. High speed net adds guidance increased May 3, 2006
3.7%$897M$865MEBITDA
5.8%$2.14B$2.02BRevenue
ChangeQ2-06Q2-05
TELUS Consolidated
2006 – second quarter review
Strong gains in revenue and EPS
27%$378M$297MEBIT
31
$31M$7MRestructuring costs
6.4%$928M$872MEBITDA (excl. restructuring)
94%$1.03$0.53EPS
Net credit from lower tax rates
94%$1.03EPS reported
% ChangeQ2-06Q2-05
EPS (normalized)1 $0.56 $0.69 23%
EPS normalization
Normalized second quarter EPS increase 23%32
($0.32)
($0.02)
2006 – second quarter review
1 Normalized further for $0.01 and $0.06 in restructuring costs in Q2-05 & Q2-06, EPS would have been $0.57 and $0.75, up 32%
-
$0.03
$0.53
Investment tax credits
-BCTel bonds accrual
-
Tax changes, EBITDA growth, lower financing costs drive EPS 33
2006 – second quarter review
$0.53
Q2-05
$0.32
Tax rate changes
$0.06$0.05
$0.03$0.03
$0.01
$0.02 $1.03
Lower financing charges
BC TelBondsaccrual (2005)
Lower depr’n
Decr. in avgo/st
shares
Higher Other
expense
EBITDA growth
Q2-06
Common 2.9M 5.3M 12.0M 44%
Non-Voting
2.6M 6.6M 12.0M 55%
Total 5.6M 11.9M 24.0M 50%
Total cost $249M $539M
Share buy back program1 update
Share repurchase run rate consistent with full annual program
Repurchased this quarter
Repurchased since inception
Total Authorized
% of authorized repurchased since
inception(Shares)
34
1 NCIB effective December 20, 2005 for 12 months
1.7x 1.5 to 2.0xNet Debt : EBITDA
Q2-06Long-term financial policy
Target1
Net Debt : Total Cap 45 to 50% 45.5%
Met
Financing update
TELUS taking steps to refinance 2007 maturities
35
Moody’s reiterated “Baa2” rating, changed outlook to “positive” $300M debt offering of 5.00% Notes, with 7 year maturity
Proceeds used for early termination of cross-currency swaps
associated with 2007 U.S. dollar Notes Forward starting interest rate swaps arranged in Q1-06, had effect
of fixing lower rates on further $300M of debt to be refinanced
2006 consolidated guidance update1
$1.5 to $1.55BCapex
$1.55 to $1.65BFree cash flow
$2.40 to $2.60EPS (basic)
EBITDA
Revenue
$3.5 to $3.6B
$8.6 to $8.7B
Revenue and EPS guidance increased, FCF unchanged
36
Previous 2006 guidance 2
Updated 2006 guidance
approx. $1.6B
no change
$2.90 to $3.10
no change
$8.625 to $8.725B
1 See forward looking statement caution2 Originally set December 17, 2005
investor relations1-800-667-4871
($91)
-
(272)
$208
20
(275)
(409)$865
Q2-05
($8)
135
(249)
$199
(1)
(271)
(459)$897
Q2-06
Funds avail. for debt redemption
Accounts Receivable Securitization
Purchase of shares for cancellation (NCIB)
Free Cash Flow
Net Cash Tax Recovery
Net Cash Interest
CapexEBITDA
($M)
(1) 19Cash Restructuring Payments (in excess of expense)
7 13Non-Cash Share Based Compensation
(144) (95)Dividends
56 13Share Issuance (non-public)
($106) ($18)Net change in cash(15) (10)Funds applied to redemption of debt
Free cash flow
Appendix
Working capital & other 61 (10)
38
EBITDA: Earnings, after restructuring and workforce reduction costs, before interest, taxes, depreciation and amortization
Capital intensity: capex divided by total revenue
Cash flow: EBITDA less capex
Free Cash Flow: EBITDA, adding Restructuring and workforce reduction costs, cash interest received and excess of share compensation expense over share compensation payments, subtracting cash interest paid, cash taxes, capital expenditures, and cash restructuring payments
Appendix
Definitions
TELUS definitions for non-GAAP measures