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Q2 2008 TELUS Investor conference call August 8, 2008 TELUS forward looking statements

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slide1

Q2 2008 TELUS

Investor conference call

August 8, 2008

telus forward looking statements
TELUS forward looking statements

This session and answers to questions contain forward-looking statements that require assumptions about expected future events and financial and operating results that are subject to inherent risks and uncertainties. There is significant risk that assumptions, predictions and other 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, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed. 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 guidance.

Factors that could cause actual results to differ materially include, but are not limited to: competition (including more active price competition and the likelihood of new wireless competitors beginning to offer services in 2009 following the AWS spectrum auction); economic growth and fluctuations (including pension performance, funding and expenses); capital expenditure levels (increased in 2008 by purchases of wireless spectrum in the AWS auction); financing and debt requirements (including share repurchases and debt financings); tax matters (including acceleration or deferral of required payments of significant amounts of cash taxes); human resource developments; business integrations and internal reorganizations (including post-acquisition integration of Emergis); technology (including reliance on systems and information technology, evolving wireline broadband and wireless next generation technology options and the possible need for prospective wireless sharing arrangements to achieve cost efficienciesand reduce deployment risks); regulatory approvals and developments (including interpretation and application of tower sharing and roaming rules, the design and impact of future spectrum auctions, the new media proceeding and possible changes to foreign ownership restrictions); process risks (including conversion of legacy systems and billing system integrations); health, safety and environmental developments; litigation and legal matters; business continuity events (including manmade and natural threats); any prospective acquisitions or divestitures; and other risk factors discussed herein and listed from time to time in TELUS’ reports and public disclosure documents including its annual report, annual information form, and other filings with securities commissions in Canada (on www.sedar.com) and filings in the United States including Form 40-F (on EDGAR at www.sec.gov).

For further information, see Section 10: Risks and risk management in TELUS’ annual 2007 Management discussion and analysis, as well as updates reported in section 10 of TELUS’ 2008 quarterly Management’s discussion and analysis.

slide3

Q2 2008 TELUS

Investor conference call

Darren Entwistle

President & Chief Executive Officer

satisfactory progress and accomplishments
Satisfactory progress and accomplishments
  • 176,000 wireless net additions for Q2
  • 7% decrease in total cost of acquisition
  • Year-over-year improvement in churn to 1.43%
  • Solid wireline revenues growth, driven by data
  • Resilient long distance revenue and small improvement in access line losses
  • 70% increase in high-speed Internet net additions
  • Successful conversion of 1 million B.C. customers to integrated IT system

4

challenges
Challenges
  • Decrease in wireless ARPU
    • Competitive voice pricing more than offsetting strong data growth
  • Not yet gaining full traction in continuing efficiency initiatives

5

looking ahead
Looking ahead

Focusing on corporate priorities

  • Focus on data and wireless
  • Build scale in chosen vertical markets
  • Extract productivity gains from efficiency initiatives
    • To meet endemic challenges of wireline industry and J curve economics of new business

Evaluating future technology

  • Successful track record of executing technology evolutions
  • Complex deliberations are ongoing

Advancing our national growth strategy

6

slide7

Q2 2008 TELUS

Investor conference call

Robert McFarlane

EVP & Chief Financial Officer

wireless q2 highlights
Wireless Q2 highlights
  • Strong wireless results – record Q2 additions with low COA
  • Postpaid value oriented brand launch going well
  • Encouraged by recent trend in churn
  • Strong growth in data as smartphone adoption accelerates
  • Orderly iDEN to PCS migration for non-PTT users continues

Revised guidance reflects positive trends in data and loading

8

wireless segment q2 2008 financial results
Wireless segment – Q2 2008 financial results

1 EBITDA (as adjusted) excludes net-cash settlement feature expense (recovery) of $1M and $1.8M, respectively, in the second quarter of 2008 and 2007.

Continued strong growth with EBITDA

reflecting record loading

9

wireless subscriber results
Wireless subscriber results

net additions

wireless subscribers

prepaid

1.1M

176K

Prepaid

20%

postpaid

128K

90%

Postpaid

80%

77%

4.7M

Q2-08

Q2-07

5.8 million total

Excellent net adds with high proportion postpaid

10

wireless arpu
Wireless ARPU

Data

$63.65

$62.73

Voice

6.58

9.17

57.07

53.56

Q2-07

Q2-08

Wireless data revenue of $159M, up 54%

with data representing 15% of ARPU

11

wireless marketing
Wireless marketing

Excellent marketing efficiency driven in part by value brand launch

12

most smartphones on canada s largest high speed network
Most smartphones on Canada’s largest high-speed network

TELUS a leader in consumer smartphone adoption

13

2008 guidance wireless segment revised
2008 guidance* - wireless segment revised

*See forward looking statement caution

Wireless revenue narrowed to high end of range with

expenses reflecting strong subscriber and data growth

14

wireline q2 highlights
Wireline Q2 highlights
  • Solid revenue growth driven by data growth including acquisitions
  • Encouraging high-speed Internet net adds
  • Continued moderate NAL losses
  • Conversion of residential customers in B.C. to new integrated wireline billing and client care system
  • Expenses impacted by large enterprise implementations in Central Canada and strong Internet and TV loading

15

wireline segment revenue profile
Wireline segment - revenue profile

Reported revenue growth led by strong data growth

and inclusion of Emergis results in 2008

16

long distance and data revenue normalized
Long distance and data revenue normalized
  • Reported long distance revenue increased 4.2%
    • Down 3.5%, excluding one time impact of AB billing conversion in Q2 2007
  • Reported data revenue increased 20%
    • Increased approx. 7% when normalized for acquisitions

17

wireline segment q2 2008 financial results
Wireline segment – Q2 2008 financial results

1 EBITDA (as adjusted) excludes net-cash settlement feature expenses (recovery) of $(1.3)M and nil, respectively, in the second quarter of 2008 and 2007.

EBITDA impacted by COA associated with

broadband services, and large complex deals

18

emergis integration update
Emergis integration update
  • Post-merger integration going well
  • Focusing on cross selling opportunities
    • Updated three-year plan for healthcare and financial services
    • Business units aligned including:
      • Finance
      • Human Resources
      • Marketing
      • IT/IS

TELUS recognized leader in health care vertical in Canada

19

internet subscribers
Internet subscribers

Internet subscribers

High-speed Internet net additions

142K

Dial-up

12%

24K

14K

High-speed

88%

1.1M

Q2-07

Q2-08

1.2 million total

Regaining momentum in BC and AB

20

moderate network access line losses vs peers
Moderate Network Access Line losses vs. peers

1

Other

-3.1%

-3.4%

-3.9%

-4.8%

-6.7%

Q2 2007

Q2 2008

-7.8%

-8.1%

-8.5%

1 Includes a weighted average of Bell, MTS and Bell Aliant. MTS percentage based on analyst estimate

TELUS compares favourably to North American peers

21

billing and client care system update
Billing and client care system update
  • TELUS continues to migrate residential subscribers in B.C. to new converged wireline billing and client care system
    • Converted more than 1 million B.C. residential customers
    • First time ever B.C. and AB systems converged
  • Initial indications that mid-July BC cutover went well with no order entry difficulties or extra costs
  • Expected benefits include:
    • Streamlined and standardized processes
    • Elimination of multiple legacy systems over time

Positive early experience with implementation in B.C.

22

2008 guidance wireline segment revised
2008 guidance* - wireline segment revised

*See forward looking statement caution

Wireline revenue and EBITDA tightened to high end of range

23

telus total customer connections
TELUS total customer connections

11.4

10.9

10.4

(millions)

Res NALs

Bus NALs

Dial-up Internet

High-speed Internet

Wireless

Q2-06

Q2-07

Q2-08

Wireless and Internet represent 62% of total connections

24

consolidated q2 2008 financial results
Consolidated – Q2 2008 financial results

1 EBITDA (as adjusted) excludes net-cash settlement feature expenses (recovery) of $(0.3)M and $1.8M, respectively, in Q2-08 and Q2-07.

Solid revenue and EPS growth with higher operating expenses and depreciation

25

slide26

EPS continuity

$0.83

$0.03

$0.03

$0.02

$0.04

$0.06

$0.76

$ 0.07

$ 0.04

EBITDA1

Lower shares

o/s

Q2-08

reported

Dep’n & Amort

Financing expenses

COA & COR

2007 Amp’d write-down

Q2-07

reported

2007 IT system impact

1 Normalized to exclude billing system, Amp’d Mobile impacts, acquisition and retention, and reassessments.

Lower financing costs & shares o/s offset by higher depreciation and COA / COR

26

share buy backs normal course issuer bid
Share buy backs – Normal Course Issuer Bid

  • Quarterly dividend payment of $144M

Shares outstanding down 3.6% year-over-year

and 11% since NCIB inception

27

2008 guidance consolidated revised
2008 guidance* - consolidated revised

*See forward looking statement caution

Guidance revised to reflect year-to-date performance.

Increasing revenue guidance and narrowing earnings ranges

28

aws spectrum auction completed
AWS spectrum auction completed

Two month AWS auction closed July 21

Total gov’t proceeds of $4.25 billion after 331 rounds

Cost of spectrum nearly 3X initial estimates

282 licenses conditionally assigned to 15 companies

TELUS total bid $880 million

Spectrum cost to be recorded in Q3 2008

Acquired valued national spectrum - avg. 16.2 MHz

Expected to provide capacity for future 4G services

TELUS well positioned for eventual rollout of 4G services

29

financing update
Financing update
  • Increasing commercial paper (CP) program by $400M to $1.2B
  • DBRS confirmed CP rating August 7th
  • 100% back stopped by TELUS’ $2B syndicated bank facility
  • CP represents lowest cost source of funds available for TELUS
  • Expect to be used in large part to fund spectrum acquisition costs

Commercial paper provides TELUS with cash management flexibility and lower cost of funds

30

summary
Summary

Solid consolidated revenue growth

Encouraging wireless trends including loading, churn & data

Acquired valuable spectrum nationally in recent AWS auction

Initial success of migrating B.C. residential subscribers to new integrated billing and client care system

Positive momentum with internet & TV loading; NAL losses moderate & stabilizing

Minor revisions to 2008 guidance to reflect year to date operating results

Cost control is a key focus for remainder of 2008

Increased CP program by 50% to $1.2 billion

Good quarter of operational execution, record loading,

and successful IT system implementation reinforcing guidance

31

slide32

questions?

investor relations 1-800-667-4871

telus.com ir@telus.com

appendix free cash flow
Appendix – Free cash flow

2007

2008

C$ millions

Q2

Q2

EBITDA

884.6

917.6

Capex

(481.8)

(435.6)

Interest expense paid (includes income tax interest income)

(212.9)

(175.1)

Cash income taxes; and other

(2.9)

(5.9)

Add back option & RSU expense less RSU cash paid

(8.9)

10.1

Restructuring payments (net of expense)

(7.3)

(1.5)

Donations and securitization fees included in other expense

(9.1)

(7.3)

302.3

Free Cash Flow

161.7

Issues (redemptions) of common shares, net

0.2

0.1

Purchase of shares for cancellation (NCIB)

(169.5)

(76.7)

Dividends

(125.0)

(289.4)

Acquisitions

-

(1.1)

Working Capital and Other

66.8

73.0

Funds Available for debt redemption

(65.8)

8.2

A/R Securitization

350.0

(350.0)

Net debt issuance / (repayment)

(815.9)

338.4

Increase (Decrease) in cash

(531.7)

(3.4)

appendix definitions
Appendix - definitions
  • 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, cash restructuring payments, 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