november 6, 2009
DESCRIPTION
Q3 2009 TELUS investor conference call. Robert McFarlane EVP & Chief Financial Officer Darren Entwistle President & CEO Joe Natale EVP & President, Consumer Solutions. November 6, 2009. TELUS forward looking statements. - PowerPoint PPT PresentationTRANSCRIPT
November 6, 2009
Q3 2009 TELUSinvestor conference callRobert McFarlaneEVP & Chief Financial Officer
Darren EntwistlePresident & CEO
Joe NataleEVP & President, Consumer Solutions
Today's session and our answers to questions contain statements about expected future events and financial and operating results of TELUS that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions 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 results 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 2009 guidance and a preliminary assessment of expected 2010 capital expenditure levels), qualifications and risk factors (including those associated with the deployment and operation of the new national high-speed packet access network and associated introduction of new products, services and systems) referred to in the Management’s discussion and analysis in the 2008 annual report, and in the 2009 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.
TELUS forward looking statements
Wireless and wireline segment review Consolidated financial review Updates
OEP 2009 guidance
Corporate developments Questions and Answers
3
Agenda
($M) Q3-08 Q3-09 Change
Revenue (external) 1,202 1,206 0.3%
Operational expenses 682 693 1.6%
Restructuring costs 1 3 n.m.
EBITDA 526 517 (1.7)%
Capex (excl. spectrum) 133 193 45%
Data revenue & subscriber growth offset by voice ARPU erosionCapex reflects investments in HSPA network build
4
Wireless segment – Q3 2009 financial results
Prepaid 19%
Wireless subscribers
Postpaid 81%
Totalnet additions
6.4 million total
5.2M
1.2M
Postpaid additions stable at 131K and represented 105% of mix
Q3-081
149K
5
Wireless subscriber results
Q3-09
125K
1 Includes the impact from analogue network turndown of 27.6K subscribers.
Data
Q3-09
$59.45Voice
$64.14
Q3-08
6
Q3-09Q3-08
% of ARPU
Wireless ARPU
10.19
ARPU consistent with YTD trend down 7% due to voiceerosion partially offset by good data growth
20%16%
53.9547.40
12.05
84% 80%
Blended wireless ARPU trend
ARPU has been stable to slightly increasing YTD since significant drop in Q4-08
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09
$61.88 $62.73 $64.14 $62.16 $58.39 $58.61 $59.45
7
27% annualized data growth driven by continued smartphone adoption and to be enhanced by iPhone launch
8
Q3-08
$181M
Wireless data revenue
Q3-09
$229M
$116M
Q3-07BlackBerryTour
Q3-08 Q3-09 Change
Gross adds (000s) 447 420 (6)%
Churn1 1.68% 1.55% (13) bps
COA per gross add ($) 358 320 (11)%
COA expense ($M) 160 135 (16)%
Retention expense ($M) 99 117 18%
COA decrease due to lower marketing expenses and commissions Investments in retention focused on smartphones
9
Wireless marketing and retention
Note: Measurement of costs of acquisition and retention refined in 2009. Prior year comparisons restated.
1 Q3-08 includes impact from analogue network turndown of 27.6K subscribers, otherwise churn was 1.52%.
($M) Q3-08 Q3-09 Change
Revenue (external) 1,248 1,205 (3.4)%
Operational expenses1 823 804 (2.3)%
Restructuring costs 9 29 n.m.
EBITDA 449 406 (9.6)%
Capital expenditures 340 365 7.4%
10
EBITDA impacted by restructuring and pension costsContinued higher capex to support broadband expansion
Wireline segment – Q3 2009 financial results
1 Excluding defined benefit pension expenses from both periods, operating expenses down 5.4%
($M) Q3-08 Q3-09 Change
EBITDA 449 406 (9.6)%Defined Benefit pension expense/(recovery) (23) 4
Restructuring costs 9 29
EBITDA normalized 435 439 0.9%
11
Wireline segment – EBITDA normalized
Underlying EBITDA up 1% when excludingDB pension expense and restructuring costs
1.2 million total
Internet subscribers
Dial-up8%
High-speed Internet net additions
Q3-08 Q3-09
1.1M
96K
13K 9K
12
High-speed92%
HSIA net adds improved sequentially but lower YoY
Internet subscribers
TELUS TV net additions1
Q3-08 Q3-09
12K
22K
13
Strong subscriber growth with net adds up 83%Total subscriber base up 117%
TELUS TV subscribers
Q3-08 Q3-09
63K
137K
TELUS TV subscribers1
1 Includes both TELUS IP TV and TELUS Satellite TV subscribers
14
4th consecutive quarter of YoY improved residential line loss Stabilizing due to effective winbacks and bundling efforts
Stabilized residential NAL losses
Q3-08 Q3-09
-53K
-41K-41K-41K
Q2-09Q1-09Q4-08
-42K
Q2-08
-48K
Q1-08
-51K
($M excluding EPS) Q3-08 Q3-09 Change
Revenue 2,450 2,411 (1.6)%
Operating expenses 1,465 1,456 (0.6)%
Restructuring costs 10 32 n.m.
EBITDA 975 923 (5.3)%
EPS 0.89 0.88 (1.1)%
Capital Expenditures1 473 558 18%
Consolidated results impacted by economic softness and increased restructuring and pension costs
15
Consolidated – Q3 2009 financial results
1 Q3-08 capital expenditures exclude $882 million payment for AWS spectrum licenses otherwise capital expenditures down 59%.
($M) Q3-08 Q3-09 Change
EBITDA 975 923 (5.3)%
DB pension expense/(recovery) (25) 4
Restructuring costs 10 32
EBITDA (normalized) 960 959
16
Consolidated – EBITDA normalized
Normalized EBITDA flat when excludingDB pension expenses and restructuring
Q3-09
Investing in operational efficiency
Emphasis on operational efficiency initiatives driving increased restructuring costs
17
Q2-08 Q3-08 Q4-08 Q1-09
4 10
3828
Total restructuring costs ($M)
2008A 2009E*
approx. $160
59
Q2-09
53$113
* See forward looking statement caution
32
Expected
Actual
Exceeding YE target of >1500* reduction in domestic FTEs
YE 2008 Q3 2009 Change
Total (domestic)1 27,900 26,300 (1,600)
TELUS International 7,950 7,800 (150)
Black’s Photography 700 700
Total 35,850 34,800 (1,050)
Analysis of full time equivalent employees
* See forward looking statement caution 18
TELUS International reduction not necessarily indicative of full year trend
1 Total (domestic) excludes 700 FTEs from the Black’s Photography acquisition.
Dep’n and Amort
Q3-08 Reported
Lower shares o/s & lower
tax rates
Restr. costs
Pensioncosts
EPS up 7% excluding restructuring & pension costs and four cents of positive tax-related adjustments
Q3-09 Reported
19
$0.89
($0.05)
Other
$0.02 $0.88
$0.84Excl. Tax Adj.
$0.02 $0.02
EPS continuity
($M, excluding EPS) 2009 revised guidance*
Revenue $9,600 to $9,700
EBITDA1 $3,475 to $3,575
EPS (reported) $3.10 to $3.30
Capex approx. $2,100
* See forward looking statement caution 20
Consolidated guidance update
1 Underlying EBITDA growth would be (2)% to flat adjusted for restructuring of $59M and approx. $160M in 2008 and 2009E respectively, and a $118M increase in 2009 defined benefit pension expense
Revised guidance reflects revisions to both wireless and wireline segments
Preliminary 2010E capex outlook ($B)
2006 – 2008average1
2009E*
$1.75
~$2.1
2010E*
Expecting 2010E capex to be as low as $1.7 billion returning to 2006 - 2008 average historical levels
* See forward looking statement caution 21
1 2008 excludes payment for wireless spectrum.
Balancing interests of equity and debt holders Dividend maintained and moving to 3% discount on dividend reinvestment and
treasury share issuance CRTC’s Globalive foreign ownership and control decision
CRTC had no choice but to uphold federal law and clearly outlined the nature of Globalive’s considerable non-compliance
Globalive can restructure its affairs to remedy their situation Political interference is not appropriate to remedy situation, but in any event, any
possible Cabinet review should be a public process TELUS never against foreign ownership, just that rules should apply uniformly to
all communications companies in Canada Situation highlights need to pre-qualify bidders in future auctions as TELUS has
consistently advocated
22
Other developments
Darren EntwistlePresident & CEO
Joe NataleEVP & President, Consumer Solutions
Black’s Photography
24
In September, acquired 113 retail stores across Canada Most in premium mall locations 72% based in Ontario
Launched camera phone sales November 5
Addition of Black’s stores strengthensTELUS’ wireless distribution
TELUS to benefit from future global ecosystem, economies of scale and enhanced roaming revenues
25
TELUS launches Canada’s largest 3G+ network
HSPA network launched November 5 Provides service to more than 30 million CanadiansEnabling wireless applications with fast download speeds International roaming to more than 200 countriesClear strategic and competitive advantages
26
TELUS vs Rogers - HSPA east coverage
* Based on Rogers’ Sept. 14, 2009 public announcement of HSPA+ coverage within the cities indicated (using associated census metropolitan areas). ** Based on coverage maps made publicly available by Rogers on Oct. 23, 2009. Coverage areas are approximate as of October 2009. Actual coverage and network service can vary and are subject to change.
27
TELUS vs Rogers - HSPA west coverage
* Based on Rogers’ Sept. 14, 2009 public announcement of HSPA+ coverage within the cities indicated (using associated census metropolitan areas). ** Based on coverage maps made publicly available by Rogers on Oct. 23, 2009. Coverage areas are approximate as of October 2009. Actual coverage and network service can vary and are subject to change
TELUS launches iPhone 3GS
28
Running on Canada’s largest 3G+ network
TELUS launches BlackBerry Bold 9700
Running on Canada’s largest 3G+ network
29
Full QWERTY keyboardEasy HTML browsing with
trackpad navigation 3.2 megapixel camera
TELUS’ a leader in smartphones
HTC Hero
NokiaE71
Running on Canada’s largest 3G+ network
LG NewChocolate
30
Sierra 306 Internet Key
New Clear Choice™ suite of wireless consumer rate plansNew Clear and Simple™ business rate plansBased on feedback from CanadiansConsistent with TELUS’ future friendly brand promiseFewer and simpler rate plansNo SAF or carrier 911 feesGeneral rate plan increase of $5 with basic voicemail 3Expect loading, churn and cost efficiency benefits
31
TELUS’ simple and clear wireless pricing
Simplified rate plan structure supports focus on AMPU
Results and guidance impacted by recession, competitive intensity and introduction of new devices
Continued execution on operating cost efficiencyStrategic investments in broadband coming to fruition
Early launch of HSPA network and device offerings Acceleration of TELUS TV service
Leading change in wireless market for benefit of Canadians
32
Summary
Strategic project execution is significantly improvingTELUS’ operational and competitive position
Questions?
investor relations 1-800-667-4871telus.com [email protected]
2009Q3
2008Q3C$ millions
Appendix – free cash flow
EBITDA 975 923
Capex (473) (558)Net Employee Defined Benefit Plans Expense (Recovery) (25) 3Employer Contributions to Employee Defined Benefit Plans (27) (31)
Interest expense paid (includes income tax interest income) (43) (19)
Cash Income Taxes and Other (2) (48)
Non-cash portion of share-based compensation 12 5Restructuring payments (net of expense) (9) 3Donations and securitization fees included in other expense (5) (4)
Free Cash Flow (before share-based compensation payment) (479) 274Share Based Compensation Paid (3) (8)
Free Cash Flow (per current public guidance methodology) (482) 266Purchase of shares for cancellation (NCIB) (75) -
Dividends (Q2-08 dividend remitted June 30, 2008) - (149)
Acquisitions (includes proceeds from sale of property and other assets for Q3’08) 5 (26)
Working Capital and Other 9 (13)
Funds Available for debt redemption (543) 78A/R Securitization 100 -
Net Issuance (Repayment) of debt 433 (70)
Increase (Decrease) in cash (10) 834
Spectrum (882) -
~(415)
2009E
Net Cash Interest
$3,475 to 3,575EBITDA (after restructuring)
($M)
20Other
Free Cash Flow
1 see Free Cash flow definition on Appendix slide
~(2,100)Capex
$710 to 810
Appendix – 2009E Free cash flow
Net cash tax payment ~(270)
Cash pension contribution (in excess of expense) ~(175)
Free Cash Flow1 (pre-dividend payments) $535 to 635
Appendix - 2009E Free cash flow*
35* See forward looking statement caution
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, 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
TELUS definitions for non-GAAP measures
Appendix – definitions