Presentation Transcript

1. Q3 2012 TELUS investor conference call November 9, 2012 Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer Darren Entwistle President & Chief Executive Officer
2. 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 2012 annual guidance), qualifications and risk factors (including the potential for a future non-voting to common share exchange proposal on a one-for-one basis, the ability over time to sustain dividend growth of circa 10% per annum with semi-annual dividend increases to 2013, and CEO three year goals for EPS and free cash flow growth excluding spectrum costs to 2013) referred to in the Management’s discussion and analysis in the 2011 annual report, and in the 2012 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.
3. Agenda Wireless and wireline segment review Consolidated financial review Updates Dividend increase 2012 guidance Share exchange proposal Operational highlights Questions and Answers
4. CEO introduction Reporting strong third quarter 2012 results Increasing dividend, consistent with semi-annual growth model Thanking shareholders for decisive support of share exchange proposal Celebrating Bob McFarlane’s outstanding career at TELUS Welcoming new CFO, John Gossling, to TELUS leadership team
5. Q3 2012 wireless financial results      1 Margins on network revenue in Q3-12 and Q3-11 were 46.6% and 44.2%, respectively. Strong double digit EBITDA growth leading to cash flow growth of 13%
6. Wireless subscriber results Total net adds Postpaid net adds Wireless subscribers 1.1M prepaid 133K 15% 116K 114K 111K 7.6M total 85% 6.4M postpaid Q3-11 Q3-12 Q3-11 Q3-12 Healthy net additions reflecting continued postpaid growth Smartphones now 63% of postpaid base, up from 48% a year ago
7. Blended ARPU analysis Data % of ARPU Voice $61.42 $60.52 40% 35% 20.90 24.51 65% 60% 39.62 36.91 Q3-11 Q3-11 Q3-12 Q3-12 ARPU up 1.5% led by data ARPU growth of 17% Voice ARPU decline stable at (6.8)%
8. Wireless data revenue $546M $444M $291M Q3-11 Q3-10 Q3-12 Q3 data revenue growth of 23% year-over-year Data now 40% of wireless network revenue
9. Marketing and retention       Lower churn rate combined with continued ARPU growth leading to 18% increase industry-leading lifetime revenue
10. Q3 2012 wireline financial results      Wireline revenue reflects data growth exceeding voice declines EBITDA and margin down due to decline in high margin legacy services
11. TELUS TV customer growth TELUS TV net additions* TELUS TV subscribers* 637K 453K 50K 42K Q3-11 Q3-12 Q3-11 Q3-12 Good TV net adds of 42K Total TV subscribers up 41% year-over-year * Includes both IP TV and TELUS Satellite TV subscribers
12. TELUS high-speed Internet customer growth High-speed net additions High-speed subscribers 1.3M 26K 1.2M 22K Q3-11 Q3-12 Q3-12 Q3-11 Excellent high-speed Internet net adds up 18% Subscriber base up 85,000 year-over-year to surpass 1.3 million
13. TELUS network access line losses Residential Business Q3-11 Q3-12 Q3-11 Q3-12 -9K -13K -30K -30K Residential NAL losses flat year-over-year and lowest since Q1/06 Business lines improved y/y but continue to be impacted by competition
14. Q3 2012 consolidated financial results       Consolidated revenue, EBITDA and EPS growth driven by wireless Strong double digit free cash flow growth of 23%
15. EPS continuity analysis $0.01 ($0.04) $0.13 ($0.02) $1.08 $0.01 ($0.01) $1.07 $1.00 Q3-11 reported Q3-12 adjusted Q3-12 reported Higher Normalized EBITDA1 Lower Financing Costs Higher Dep & Amort Incr in Tax Exp. Higher Pension 2012 Tax Adj. Adjusted EPS growth of 7% from $1.00 to $1.07 when excluding tax adjustments 15 1Normalized EBITDA excludes higher pension costs.
16. TELUS raises quarterly dividend to 64 cents January 2, 2013 dividend of 64 cents declared Up 3 cents from October dividend Up 6 cents or 10.3% from year ago $2.56 annualized 64 61 61 58 58 55 55 52.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 Fourth of six semi-annual dividend increases targeted Consistent with TELUS’ dividend growth model to 2013 * 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. 16
17. 2012 consolidated guidance* Last updated August 3 with revenue, EBITDA, and capex raised as compared to initial targets announced in December 2011 2012 guidance reaffirmed due to strong financial and operational performance year-to-date * See forward looking statement caution and assumptions in Section 9 of Q3-12 MD&A.
18. TELUS share exchange proposal – key dates Court approval needed for share exchange proposal to proceed
19. October 17 shareholders meeting 81.1% of total shares voted were in favour of TELUS’ share exchange proposal 62.9% of 128.8 million common shares voted were in favour 99.5% of 127.7 million non-voting shares voted were in favour Excluding Mason’s most recently reported (Aug 31) voting block 84.4% of common shares voted were in favour 93.0% of total shares voted were in favour of the exchange None of Mason’s four resolutions voted on only by Common shareholders passed TELUS shareholders decisively approve one-for-one share exchange proposal
20. Q3 2012 highlights Continued strong wireless results including double digit EBITDA growth Focus on Customer First drives lowest third quarter wireless churn rate in five years Pleased with wireline subscriber results and data growth, but ongoing focus on efficiency required Double digit free cash flow growth Quarterly dividend increased to 64 cents, up 10.3% year-over-year Continued positive outlook for achieving previously raised guidance
21. Strong smartphone adoption, ARPU growth continues Wireless Data ARPU Postpaid subscribers (millions) Smartphone % of postpaid $24.51 6.4 6.0 $20.90 5.6 63% $14.53 48% 28% Q3-10 Q3-11 Q3-12 Q3-10 Q3-11 Q3-12 Q3 smartphone base up 43% to 4.0 million y/y Data ARPU growth driven by smartphones & 23% increase in data revenue
22. Low and improving churn Lifetime Revenue Per Subscriber Wireless Churn1 23pts 18% 1.44% 1 Normalized wireless churn for Q3-11 was 1.58% excluding loss of Government of Canada Contract Industry leading churn continues to improve Low churn generates industry leading lifetime revenue per subscriber
23. Future friendly home – continued strength in Optik High-speed Internet TELUS TV Residential NALs 72K 68K 22K 53K 26K 15K 50K 38K 50K 42K 38K -30K -39K -30K -30K Q3-10 Q3-11 Q3-12 TV and High-Speed Internet loadingexceeding residential NAL losses for ninth consecutive quarter
24. Optik TV innovations continues Launched Optik Smart Remote App Change channels with tap on an iPhone or iPad Channel surf or browse interactive guide without interrupting what you are watching Added 10 new HD channels Optik offers >550 channels, including 135 in HD Further introduction of innovative new services supports premium, differentiated customer experience and steady momentum
25. Appendix – free cash flow 2011 Q3 2012 Q3 C$ millions EBITDA 968 1,018 Capex (470) (471) Net Employee Defined Benefit Plans Expense (Recovery) (8) (4) Employer Contributions to Employee Defined Benefit Plans (13) (14) Interest expense paid, net (62) (56) Income taxes paid, net (43) (58) Share-based compensation 8 13 Restructuring payments (net of expense) (35) (2) Free Cash Flow 426 345 Dividends (178) (198) (3) (7) Cash payments for acquisitions and related investments 56 57 Working Capital and Other Funds Available for debt redemption 221 277 (186) (304) Net Issuance (Repayment) of debt 35 (27) Increase in cash
26. 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
27. IAS 19 Q3 and year-to-date impacts (2012 & 2011)