Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer
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Transcript of Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer
Robert McFarlaneEVP & Chief Financial Officer
Joe NataleEVP & Chief Commercial Officer
Darren EntwistlePresident & Chief Executive Officer
November 4, 2011
Q3 2011 TELUSinvestor conference call
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TELUS Forward Looking Statement
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 annual guidance), qualifications and risk factors (including the ability to sustain dividend growth model of circa 10% per annum with semi-annual dividend increases to 2013) referred to in the Management’s discussion and analysis in the 2010 annual report, and in the 2011 first, second, and third quarter 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.
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Agenda
Wireless and wireline segment review Consolidated financial review Updates
Dividend Financing Regulatory Operations
Questions and Answers
Q3 2011 wireless financial results
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Strong revenue and EBITDA growthHigher capex reflecting investments in urban LTE networks
($M) Q3-10 Q3-11 change
Revenue (external) 1,282 1,397 9.0%
EBITDA 534 570 6.7%
EBITDA margins1
(total revenue) 41.4% 40.5% (0.9) pts
Capex 113 157 39%
EBITDA less capex 421 413 (1.9)%
1 Margins on network revenue in Q3/11 & Q3/10 were 44.2% and 45.0%, respectively
Wireless subscriber results
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Continued strong postpaid net additions represent >100% of Q3-11 total net adds given decrease in prepaid subscribers
prepaid17%
Wireless subscribers
postpaid83%
Postpaidnet adds
7.2M total
6.0M
1.2M
Q3-10
132K 133K
Q3-11
Totalnet adds
Q3-10
153K
114K
Q3-11
Marketing and retention
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Investments in COA/COR reflect record Q3 smartphone loading associated with industry leading churn
Q3-10 Q3-11 change
Gross adds (000s) 466 472 1.3%
Churn 1.54% 1.67%1 0.13 pts
COA per gross add $339 $397 17%
COA expense $158M $187M 18%
Retention expense $128M $155M 21%
1 Q3/11 churn of 1.58% when normalized for loss of Government of Canada contract
Blended ARPU analysis
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ARPU up 3% - fourth consecutive quarter of growth
Data
Q3-11
$60.52 Voice$58.75
Q3-10
% of ARPU
Q3-11Q3-10
25%
75% 65%
35%14.53 20.90
44.22 39.62
Wireless data revenue
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Impressive data revenue growth of 53% Seven consecutive quarters of accelerating y/y data growth
Q3-10
$291M
Q3-11
$444M
$226M
Q3-09
Q3 2011 wireline financial results
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Results reflect strong subscriber growth, investments in Optik services and continued erosion of high margin legacy services
($M) Q3-10 Q3-11 change
Revenue (external) 1,179 1,225 3.9%
EBITDA 407 398 (2.2)%
EBITDA margins(total revenue) 33.4% 31.4% (2.0) pts
Capex 336 313 (6.8)%
EBITDA less capex 71 85 20%
TELUS TV subscribers
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Strong momentum continues with TV net adds up 32% y/yand total subscribers up 70% to surpass 450K
Q3-10
38K50K
Q3-11
TELUS TV net additions*
TELUS TV subscribers*
* Includes both IP TV and TELUS Satellite TV subscribers
Q3-11Q3-10
266K
453K
TELUS high-speed Internet net additions
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Strong growth in HSIA net adds reflects success of enhanced Optik services and bundling since brand launch in June 2010
Q1-10
3K 3K
Q2-10
15K
Q3-10 Q4-10 Q1-11
18K16K
13K
Q2-11 Q3-11
22K
TELUS network access lines
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Residential line losses improved 23% for best result in 5 ½ yrsreflecting success of bundling Optik services
Q3-11 Q3-11
-39K-30K
-12K -13K
Q3-10Q3-10
BusinessResidential
Q3 2011 consolidated financial results
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($M, except EPS) Q3-10 Q3-11 change
Revenue (external) 2,461 2,622 6.5%
EBITDA 941 968 2.9%
EPS (basic) 0.78 1.00 28%
Capex 449 470 4.7%
EBITDA less capex 492 498 1.2%
Free cash flow 338 345 2.1%
Growth across the board driven by strong subscriber and data growth
EPS continuity analysis ($)
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0.78
HigherNormalized EBITDA2
LowerPension & Restr.
costs
2010 debt
redemption
Q3-11 reported
1.00
Lower Tax
Rates & Other
0.12
HigherDep & Amort
0.06 0.05- 0.02
Q3-10 reported
0.03
Higher O/S
shares
0.75Excl.
Tax Adj.
Positive income tax-related adjustments
Normalized financing1
2010 Deferral
Acc’t Interestrelated exp
0.01 0.01
- 0.01
1 Normalized Financing excludes $0.12 for 2010 debt redemption and $0.03 for 2010 deferral account interest related expense.2 Normalized EBITDA excludes $0.05 combined for restructuring and pension costs.
EPS up 28% aided by lower financing costsWhen excluding non-recurring items, EPS higher by 11%
TELUS raises quarterly dividend to 58 cents
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Second of six semi-annual dividend increases targeted - consistent with TELUS’ dividend growth model to 2013
January 3, 2012 dividend of 58 cents declared
Consistent with May announcement
Semi-annual dividend declarations to 2013*
Circa 10% annual increases
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011
Up 3 cents or 5.5% from October dividend
Up 5.5 cents or 10.5% from year ago 47.5
50 5052.5 52.5
55 5558
* See forward looking statement caution. Dividend decisions will continue to be subject to the Board’s assessment and determination of the Company’s financial situation and outlook on a quarterly basis.
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TELUS enters into new long-term bank facility
In November, TELUS successfully completed a new five-year $2 billion bank credit facility
New facility replaced TELUS’ existing $2 billion credit facility expiring May 2012
New facility to be used for general corporate purposes including backstop of TELUS’ ongoing low interest cost commercial paper program
Wide participation in syndicated facility an indication of TELUS’ strong credit ratings and adherence to prudent financial policies
CRTC sets framework to address vertical integration
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CRTC’s new policy protects consumer choice and ensures competition in TV distribution market
In September, CRTC released its policy framework to address concerns regarding vertical Integration in the broadcasting industry
New policy ensures that consumers will have greater access to television content on all platforms, regardless of their service provider
Regulatory framework includes following elements: Prohibition on offering TV programs on an exclusive basis that applies
to all platforms including wireless and Internet Code of conduct for better business practices that sets out what
constitutes commercially unreasonable terms Availability of CRTC dispute resolution when necessary and no head
starts or withholding of signals when disputes arise
Q3 2011 summary
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Strong results across the board bodes well for future
Consolidated revenue growth driven by both wireless and wireline
Strong subscriber growth in wireless and wireline Double digit EPS growth aided by lower financing costs TELUS enters into new five-year $2 billion bank facility Consistent with dividend growth model, January 2012 quarterly
dividend increased to 58 cents – up 10.5% from year ago 2011 guidance reaffirmed
3Q 2011 Smartphone base up 80% to 2.8 million year over yearData ARPU expansion driven by 53% growth in data revenue
Strong smartphone adoption driving ARPU growth
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Q3-09 Q3-10 Q3-11
5.2 5.6 6.0
18%28%
48%
Postpaid subscribers (millions)Smartphone % of postpaid
$12.05$14.53
$20.90
Q3-09 Q3-10 Q3-11
Wireless Data ARPU
Future Friendly Home generating Optik momentum
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TELUS TVResidential NALs
High-speed Internet
TV and High-Speed Internet loading exceedingresidential NAL losses for fifth consecutive quarter
Q3-10 Q3-11Q3-09
53K
-39K
72K
-30K
38K50K31K
-43K-43K -39K -30K
22K38K
50K9K
15K
22K
Continuing to improve operational efficiency
Key initiatives enabling call driver reductionSavings in handset and customer equipment procurement Leveraging web channels and e-billingDriving call centre and field quality improvements
Clear and Simple approach driving customer loyalty and differentiation while enhancing operating efficiency
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Developments in SMB & Enterprise
TELUS Business Freedom Integrated wireless and wireline bundles for SMBs in BC/AB Business Anywhere for businesses in the office and on the go Business Select for businesses working primarily in a single location Positions TELUS well in SMB space and leverages wireless
Government of British Columbia 10-year, $100-million-a-year contract TELUS to continue to provide telecom services To extend advanced wired and wireless communications
infrastructure in urban and rural BC communities
Government of BC contract renewal and expansion strong testimonial to leading capabilities of TELUS’ enterprise solutions
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Appendix – free cash flow
2011Q3
2010Q3
C$ millions
EBITDA 941 968Capex (449) (470)Net Employee Defined Benefit Plans Expense (Recovery) (3) (8)Employer Contributions to Employee Defined Benefit Plans (21) (13)Interest expense paid (108) (62)Cash Income Taxes and Other (30) (43)Share-based compensation 3 8Restructuring payments (net of expense) 5 (35)Free Cash Flow 345
(161) (178)Dividends
Working Capital and Other 113 83
Funds Available for debt redemption 340 221Net Issuance (Repayment) of debt (331) (186)Increase in cash 9 35
Dividends reinvested (DRIP) 45
Common and Non-voting shares issued 5 -
Acquisitions - (29)
-
338
Appendix – definitions
EBITDA: Earnings 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 costs, net employee defined
benefit plans expense, cash interest received and excess of share-based compensation expense over share-based compensation payments, subtracting the non-cash gain on Transactel, cash interest paid, cash taxes, capital expenditures, restructuring payments and employer contributions to employee defined benefit plans.
Cost of retention (COR): total costs to retain existing subscribers, often presented as a percentage of network revenue