Robert McFarlane EVP & Chief Financial Officer May 18, 2011 2011 RBC Fixed Income conference.
Q4 2006 TELUS investor conference call Robert McFarlane • EVP & Chief Financial Officer
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Transcript of Q4 2006 TELUS investor conference call Robert McFarlane • EVP & Chief Financial Officer
Q4 2006 TELUS investor conference call
Robert McFarlane • EVP & Chief Financial Officer
February 16, 2006
26%
106M144MCapital expenditures
33% 432M326MEBITDA1
16%$1.02B$877MRevenue
ChangeQ4-06Q4-05
Wireless segment – financial results
2006 – fourth quarter wireless review
Record fourth quarter EBITDA
1 Q4-06 includes $3M in restructuring & workforce reduction costs
2
Total wireless subscribers
Postpaid 81%
Prepaid 19%
Net additions
Total subscribers up 12% and strong postpaid mix
3
5.1 million total
4.1M
977K
Wireless subscriber results
Q4-05 Q4-06
130K143K
235K
182K
61%71%
92K
52K
Wireless ARPU growth
ARPU growth driven by 94% increase in data
4
Data ARPU
Q4-05 Q4-06
$62.54$64.50
$3.17$6.16
59.37 58.34
9 bps1.33%1.42%Blended churn
3.1%$64.50$62.54ARPU
ChangeQ4-06Q4-05
TELUS subscriber economics improving & remain best in class
Profitable growth strategy
5
$4850$4404Lifetime revenue
3.0%$436$449
COA
9.0%10.2%COA/lifetime revenue 120 bps
10%
2006 wireless results compared to original targets
approx. $450MCapex
EBITDA
Revenue
$1.75B
$3.86B
Met or exceeded three of four targets
6
2006 actual results
2006 originaltargets1
Wireless net adds > 550K
1 Provided on December 16, 2005
$1.7 to $1.75B
$3.775 to $3.825B
535K
$427M
met or exceeded
21%74M61MOther
8.8%435M400MData
6.7%198M212MVoice – Long Distance
1.7%$528M$537MVoice – Local
ChangeQ4-06Q4-05
External Revenue $1.21B $1.23B 2.0%
Wireline revenue profile
7
Solid data growth offsets erosion in local and LD
2006 – fourth quarter wireline review
1.1 million total
Total Internet subscribers
High-speed83%
Dial-up17%
High-speed Internet subscriber growth
27K
44K
High-speed Internet net additions
8
Q4-05 Q4-06
917K
194K
Continued strong net addition growth
34%309M230MCapital expenditures
9.2%447M409MEBITDA1
2.0%$1.23B$1.21BRevenue
ChangeQ4-06Q4-05
Wireline segment – financial results
9
1 Includes $36M and $5M in wireline restructuring costs in Q4-05 and Q4-06 respectively;
Q4-05 EBITDA includes $50M net expense impact of labour disruption.
34%309M230MCapital expenditures
Labour disruption impact
9.2%$447MEBITDA (reported)
% ChangeQ4-06Q4-05
Wireline EBITDA normalization
10
-
5M36M
$409M
Restructuring costs
50M
Adjusted EBITDA down 4.3%
EBITDA (adjusted for cost of sales related to FFH) 4.3%
EBITDA (subtotal)1 $494M $452M
Non-ILEC revenue and EBITDA
11
Central Canada Non-ILEC profitability continues to improve
Q4-05 Q4-06
165 172
Q4-05 Q4-06
7.111
EBITDARevenue($M)
12
Network access line results
Increased residential losses due to increased competition, partially offset by business line growth
% of network access lines lost, YoY
Q4-05
-2.4%
Q1-06
-2.7%
Q2-06
-2.6%
Q3-06
-2.8%
Q4-06
-3.0%
TELUS total subscriber connections
Connections increasing with strong wireless and Internet growth
13
Wireless
High-speed Internet
Dial-up Internet
Res NALs
Bus NALs
(millions)10.710.2
9.7
Q4-06Q4-05Q4-04
2006 wireline results compared to original targets
$25 to $40M
Capex
EBITDA
Revenue
$1.84B
$4.82B
Met original EBITDA and non-ILEC targets with significant outperformance in high speed Internet additions
14
2006 actual results
2006 originaltargets1
High-speed net adds
$1.05 to $1.1B
1 Provided on December 16, 2005
$1.8 to $1.85B
$4.825 to $4.875B
154K
$1.19B
met or exceeded
Non-ILEC Revenue $657M $650 to $700M
Non-ILEC EBITDA $32M
> 100K
20%$878M$734MEBITDA1
8.0%$2.25B$2.09BRevenue
ChangeQ4-06Q4-05
TELUS Consolidated
2006 – fourth quarter consolidated review
Strong growth in revenue driven by data and wireless
15
218% $0.70$0.22EPS
1 Q4-05 EBITDA includes $52M net expenses, excluding any revenue or indirect impacts, from labourdisruption
11% $415M$374MCapex
Labour disruption impact
20%$878MEBITDA (reported)
% ChangeQ4-06Q4-05
Consolidated EBITDA normalization
16
-
8M36M
$734M
Restructuring costs
52M
Adjusted for acquisition costs, EBITDA up 6.1%
EBITDA (adjusted for (wireless/FFH) cost of sales) 6.1%
EBITDA (subtotal) 822M 886M
Labour disruption impact
218%$0.70EPS (reported)
% ChangeQ4-06Q4-05
EPS (Adjusted)1 $0.39 $0.64 64%
EPS normalization
17
-
(0.06)
1 Adjusted further for restructuring costs, EPS would have been $0.46 and $0.66 for Q4-05 and Q4-06, respectively, up 43%
0.01
$0.22
Tax related adjustments
0.10
Adjusted EPS up 64%
-0.06Early bond redemption
Tremendous growth evident in underlying EPS, led by EBITDA18
$0.22
Q4-05
$0.17
2005 lab. dis. costs
$0.10
$0.01
$0.08
$0.07
$0.02$0.03
$0.70
Lower depr’n & amortiz’n
Lowerfinancing
costs
Tax- related
adjustments
Decr. in avgo/s
shares
OtherEBITDA growth
Q4-06
EPS continuity
2006 consolidated results compared to original targets
$2.40 to $2.60
Capex
EBITDA2
Revenue
$3.59B
$8.68B
TELUS achieved 4 out of 5 original targets driven by wireless
19
2006 actual results
2006 originaltargets1
Free cash flow
$1.5 to $1.55B
1 Provided on December 16, 2005
$3.5 to $3.6B
$8.6 to $8.7B
$1.60B
$1.62B
met or exceeded
EPS3 $3.27
$1.55 to $1.65B
2 Original targets included restructuring & workforce reduction costs of approx. $100M, vs. actual
3 2006 EPS includes $0.48 of positive tax-related adjustments 2006 results of $68M
Share repurchase programs
Total cost ($M) $78
Track record of share repurchases leading to 6% reduction in shares outstanding
20
2004
$1,770
1 Twelve month 25.5 million share repurchase program to Dec. 19, 2005
2 Twelve month 24 million share repurchase program to Dec. 19, 2006
Total shares (M) 2.2 39.4
% of total program
2005 2006 Total
$892 $800
20.8 16.4
85%1 73%2 79%
Total end of period shares outstanding (M) 358.5 20.6350.1 337.9
21
1
2
3
4
2003 2004 2005 2006 2007E1,2
0.60
3.30 3.43
Dividends
Share repurchases
$ per share
1 Annualized dividend, plus share repurchases in 2006 as estimate for 2007. Assumes lower average shares outstanding of 330 million to 335 million in 2007.
0.82
Strong record of returning capital
0.801.10
1.50
3.90
2 See forward looking statement caution. Assumes continuation of share repurchase program
0.60
2.33
0.22
2.50
2.40
Cash settled options program update
22
Introducing cash settlement for vested options Mitigates share dilution by avoiding treasury issuanceExpect non-recurring, non-cash pre-tax operating
expense of $150M to $200M in Q1-07 $120M to $150M in wireline, $30M to $50M in wireless
Reported EPS impact of $0.30 to $0.40Cash payments deductible for tax purposes when
options exercised and cash paid outCash tax savings of up to $70M over 3 years
Shareholder friendly initiative
Strong investment performance in 2006 In aggregate, TELUS pension funds are now in going
concern surplus Expect to make $112M in cash contributions in 2007
(DB plans) Major pension assumptions unchanged
Discount rate of 5.0% Long term rate of return of 7.25%
TELUS pension plans fully funded in aggregate
23
Pension update
TELUS has commitments from 18 financial institutions for new $2 billion credit facility
More favourable terms and extends maturity to 2012 Can be utilized to back up CP issuance Replaces $1.6 billion of existing credit facilities
$800 million facility expiring May 2008$800 million facility expiring May 2010
Accounts receivable securitization agreement extended by one year to July 18, 2008
Current plan for $1.5B 2007 note refinancing is through combination of L-T debt issuance and new CP program
TELUS liquidity position remains very strong
24
Financing update
Corporate governance update
25
Stock option issuance practices, backdating Voluntary internal audit of stock option and long term
incentive practices resulted in a “well controlled” rating
Sarbanes-Oxley Have completed all work required for SOX 404 compliance
90 processes and 740 key controls addressed Ready to certify compliance with SOX 404 on internal
control over financial reporting for Dec. 31, 2006 audited financial statements
Leading the way in corporate governance
2007 Consolidated targets summary
approx. $1.75BCapex
Revenue $9.175 to 9.275B
2007 targets reflect healthy performance expected in wireless
26
2007 targets change
8%
6 to 7%
Normalized EBITDA1 $3.725 to 3.825B 4 to 7%
Normalized EPS1,2 $3.25 to 3.45 16 to 24%
1 Excluding $150M to $200M of non-recurring, non-cash expenses associated with cash settlement of options, EPS impact of $0.30 to $0.40
2 Year over year growth rate normalized for $0.48 of positive tax-related adjustments in 2006
investor relations1-800-667-4871
$124
350
$110
47
(306)
(374)
$734
Q4-05
$20
150
$233
5
(218)
(415)
$878
Q4-06
Funds avail. for debt redemption
Accounts Receivable Securitization
Free cash flow
Net Cash Tax Recovery
Net Cash Interest
Capex
EBITDA
($M)
5 (6)Cash Restructuring Payments (in excess of expense)
3 (10)Non-Cash Share Based Compensation
(97) (127)Dividends
19 22Share Issuance (non-public)
($1,313) $14Net change in cash
(1,437) (6)Funds applied to redemption of debt
Free cash flow
Appendix
Working capital & other (30) (58)
28
(229) (200)Purchase of shares for cancellation (NCIB)
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