Q4 2012 and 2013 targets TELUS investor conference call February 15, 2013 Darren Entwistle President...
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Transcript of Q4 2012 and 2013 targets TELUS investor conference call February 15, 2013 Darren Entwistle President...
Q4 2012 and 2013 targetsTELUS investor conference call February 15, 2013
Darren EntwistlePresident & Chief Executive OfficerJoe NataleEVP & Chief Commercial OfficerJohn GosslingEVP & 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 three-year 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.
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3
Agenda
CEO Introduction and 2013 corporate priorities
Q4 operational highlights
Q4 financial results
2013 targets and key assumptions
Questions and Answers
4
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
TELUS 2013 corporate priorities
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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
History of operational efficiency
2002-2012
$1.6B
$1.2B
Cumulative one-time
restructuring costs
2002-2012
Cumulative ongoing annual EBITDA
savingsYear
RestructuringCosts ($M)
2002 5702003 282004 532005 542006 682007 202008 592009 1902010 742011 352012 48Total 1,199
EBITDA savings used to offset dilution of strategic initiatives
6
Ongoing earnings enhancement program
7
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
Healthy postpaid net additions
Postpaid net adds (000s)
Q4-11
148 123
Q4-12
8
2011 2012
425 414
20122011
Total subscriber base (000s)
Driving 4.5% increase in total subscriber base in 2012
4.5%7,6707,340
415
2010Q4-10
109
6,971
2010
Q4-10 Q4-11 Q4-12
5.7 6.16.5
Postpaid subscribers (millions)
Smartphone % of postpaid
$59.08 $60.95
Q4-10 Q4-11 Q4-12
$58.48
33%
53%66%
42.47
16.01
37.43
21.65
35.66
25.29
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Smartphone base up 34% y/y to 4.3 million supporting strong ARPU growth of 3.2% in Q4 2012
Strong smartphone adoption and ARPU growth
Voice ARPU
Data ARPU
Industry leading churn
1.67%
Q4-11
Best 4th quarter churn rates in 6 years
10
1.51%
Q4-12
Blended Postpaid
1.23%
Q4-11
1.12%
Q4-12Q4-10Q4-10
1.72%
1.33%
Industry leading lifetime revenue per susbcriber1
14%
Q4-11 Q4-12
$4,036
$3,538
Industry leading ARPU and churn generating leading lifetime revenue per subscriber
111 Lifetime revenue derived by dividing ARPU by blended churn rate
Q4-10
$3,400
Strong TV and Internet subscriber growth continues
2012 20122011 2011
TELUS focused on balancing subscriber growth with profitability
678
509
33%
TELUS TV (000s) High-speed Internet (000s)
1,3261,242
6.8%
12
2010
314
2010
1,167
Q4 2012 wireless financial results
($M) Q4-12 % change
Revenue (external) 1,533 7.7%
EBITDA1 569 14%
EBITDA margin(network revenue)
41.3% 2.1 pts
Capex 191 14%
EBITDA less capex 378 14%
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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
Wireless data revenue ($M)
Q4-11
466
Q4-12
570
326
Q4-10
14
Robust Q4 data revenue growth of 22% year-over-year2012 data now 41% of wireless network revenue up 7 points
Q4 2012 wireline financial results
($M) Q4-12 % change
Revenue (external) 1,318 4.1%
EBITDA 378 1.1%
EBITDA margins(total revenue)
27.8% (0.8) pts
Capex 330 (4.1)%
EBITDA less capex 48 60%
15
EBITDA growth reflects strong revenue growth and improved Optik TV and high-speed Internet margins
Wireline data revenue ($M)
Q4-11
680
Q4-12
770
591
Q4-10
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Strong Q4 data revenue growth of 13% year-over-year2012 data now 57% of external revenue up 5 points
Q4 2012 consolidated financial results
($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%
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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
EPS continuity analysis
Higher Normalized
EBITDA2
HigherPension,
Restructure & Other
Depreciation & Amortization
Q4-12 reported1
Q4-11 reported1
1 EPS for both Q4/11 and Q4/12 included favourable income tax-related adjustments of three cents per share. 2 Normalized EBITDA excludes pension and restructuring costs. 18
0.76
0.18
(0.04)
0.89
EPS up 17% driven by strong EBITDA growth
0.01
2012 guidance scorecard – for discussion
19
Met or exceeded seven of eight targets set in December 2011
($M, except EPS)2012 actuals
Met originaltargets
Consolidated external revenue 10,921
Wireless revenue 5,845
Wireline revenue 5,076
Consolidated EBITDA 3,972
Wireless EBITDA 2,467
Wireline EBITDA 1,505
EPS 4.05
Capital expenditures 1,981
2013 targetsand assumptions
See forward-looking statement in TELUS fourth quarter 2012 and
2013 targets news release
Application of accounting standardIAS 19 Employee Benefits
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Accounting change has no impact to free cash flow
($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%
Free cash flow 1,331 No impact 1,331
1 EPS impact inclusive of an additional $42 million in financing costs or $(0.10) per share
Dividend payout ratio guideline revised
Dividend payout ratio guideline raised 10 pts to a range of 65 to 75% of sustainable net earnings on a prospective basis
Change reflects application of amended accounting standard IAS 19 Employee Benefits
TELUS committed to returning cash to shareholders through sustainable dividend growth model
2008 2009 2012
794
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2010 2011
715642601584
Dividends paidto shareholders ($M)
2013 segmented targets1 (after IAS 192)
Wireless ($B) 2013 targets Targeted change
Revenue (external) $6.2 to 6.3 6 to 8%
EBITDA $2.575 to 2.675 5 to 9%
Wireline ($B)
Revenue (external) $5.2 to 5.3 2 to 4%
EBITDA $1.375 to 1.475 (2) to 5%
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1 See forward looking statement caution and assumptions in Section 1.5 of Q4-12 management review of operations2 2013 targets and growth rates are presented including application of the amended accounting standard IAS 19
Employee Benefits (2011).
Targets build on strong results achieved in 2012
Wireline EBITDA growth of flat to 6% prior to applying new IAS-19
$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
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Targets demonstrate benefits of ongoing network and service-related investments, combined with customer-focused operational execution
2013 consolidated targets1 (after IAS 192)
1 See forward looking statement caution and assumptions in Section 1.5 of Q4-12 management review of operations2 2013 targets and growth rates are presented including application of the amended accounting standard IAS 19
Employee Benefits (2011).
Other notable 2013 assumptions1Other 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 $350 million
Key assumptions and sensitivities listed in section 1.5 in Q4 Management’s review of operations
251 See forward looking statement caution and assumptions in Section 1.5 of Q4-12 management review of operations
Consolidated revenue and EBITDA growth driven by both wireless and wireline
EPS growth driven by higher EBITDA
Capex similar to previous year
Strong free cash flow supports dividend growth model
2013 targets summary 2013 targets summary
Targets build on strong results achieved in wireless and wireline,and benefits of ongoing major strategic network investments
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investor relations1-800-667-4871telus.com/[email protected]
Net cash interest payment
EBITDA
Capex
Net cash tax payment1
Cash pension contribution (net of pension expense in EBITDA)2
Free Cash Flow (before dividends and spectrum)
Appendix – 2013 free cash flow calculation ($M) Appendix – 2013 free cash flow calculation ($M)
1 Midpoint used to calculate FCF range2 Cash pension contribution of $195 million less $110 million pension expense in EBITDA
~(350)
2013
$3,950 to 4,150
~(1,950)
(390) to (440)
~(85)
1,150 to 1,350
Free Cash Flow (before dividends, spectrum and pension contributions)
1,235 to 1,435
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Simple Cash flow 2,000 to 2,200
Appendix – Q4 2012 free cash flow comparison
2012Q4
2011Q4
C$ millions
EBITDA 874 947
Capex (512) (521)
Net Employee Defined Benefit Plans Expense (Recovery) (8) (3)
Employer Contributions to Employee Defined Benefit Plans (35) (28)
Interest expense paid, net (109) (108)
Income taxes refunded (paid), net 9 (13)
Share-based compensation (20) (20)
Restructuring costs net of cash payments 6 9Free Cash Flow 263
(179) (199)Dividends
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
Cash payments for acquisitions and related investments (31)
204
(5)
Deduct Transactel gain (1)
Common and non-voting shares issued 5 1