Q2 2012 TELUS investor conference call August 3, 2012 Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer Darren Entwistle President & Chief Executive Officer
Feb 25, 2016
Q2 2012 TELUS investor conference callAugust 3, 2012
Robert McFarlaneEVP & Chief Financial Officer
Joe NataleEVP & Chief Commercial Officer
Darren EntwistlePresident & Chief Executive Officer
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 targets), qualifications and risk factors (including the potential for a future share consolidation proposal and restrictions on non-Canadian ownership of TELUS Common shares, 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 and second 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
2012 guidance
TELUS foreign ownership position
CRTC arbitration decision on TV service negotiations
Operational highlights
Questions and Answers
Q2 2012 wireless financial results
($M) Q2-11 Q2-12 change
Revenue (external) 1,333 1,428 7.1%
EBITDA1 565 636 13%
EBITDA margins2
(total revenue) 42.1% 44.2% 2.1 pts
Capex 107 194 81%
EBITDA less capex 458 442 (3.5)%
1 EBITDA before restructuring costs in Q2-12 and Q2-11 were $640 and $566 million, respectively.2 Margins on network revenue in Q2-12 and Q2-11 were 47.9% and 45.7%, respectively.
Strong double digit EBITDA growth and margin expansionCapex higher for LTE network investments
4
Wireless subscriber results
Wireless subscribers
Postpaidnet adds
7.4M total
1.1Mprepaid
Q2-11
92K112K
Q2-12
Totalnet adds
Q2-11
94K86K
Q2-12
Postpaid net adds growth of 22% year-over-yearSmartphones now 59% of postpaid base, up from 42% a year ago
85%
15%
6.3Mpostpaid
5
Marketing and retention
Q2-11 Q2-12 change
Gross adds (000s) 447 394 (12)%
Blended churn1 1.67% 1.39% (0.28) pts
COA per gross add $370 $404 9.2%
COA expense $165M $159M (3.6)%
Retention expense $149M $143M (4.0)%
Lifetime revenue $3,526 $4,337 23%
1 Q2-12 and Q2-11 blended churn of 1.37% and 1.51% when normalized for loss of Government of Canada contract.
Lowest churn rate in over 5 years combined with ARPU growth leads to 23% increase in lifetime revenue
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Blended ARPU analysis
Data
Q2-12
$60.29 Voice$58.88
Q2-11
% of ARPU
Q2-12Q2-11
61%
39%23.32
39.63 36.97
ARPU increase of 2.4% led by data ARPU growth of 21%Voice ARPU decline moderated to -6.7%
19.25
67%
33%
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Wireless data revenue
Q2-11
$402M
Q2-12
$512M
$270M
Q2-10
Q2 data revenue growth of 27% year-over-yearData now represents 39% of network revenue
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Q2 2012 wireline financial results
($M) Q2-11 Q2-12 change
Revenue (external) 1,221 1,237 1.3%
EBITDA1 385 362 (6.0)%
EBITDA margins(total revenue) 30.5% 28.3% (2.3) pts
Capex 349 354 1.4%
EBITDA less capex 36 8 (78)%
Wireline revenue growth reflects good TV and HSIA subscriber resultsEBITDA and margin down due to declines in high margin legacy services
1 Q2-12 adjusted EBITDA excludes a $9 million pre-tax gain on land contributed to the TELUS Garden residential real estate project, and equity losses of $1 million for the residential real estate partnership .
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TELUS TV customer growth
Q2-11
46K 43K
Q2-12
TELUS TV net additions*
TELUS TV subscribers*
* Includes both IP TV and TELUS Satellite TV subscribers
Q2-12Q2-11
403K
595K
Momentum continues with TV net adds of 43K Total TV subscribers up 48% year-over-year
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Q2-11
1.2M
TELUS high-speed Internet customer growth
Q2-11
13K
Q2-12
20K
High-speed Internet net adds increased 54% Total subscriber base up 81,000 or 6.8% year-over-year
High-speed subscribers
Q2-12
1.28M
High-speed net additions
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TELUS network access line losses
Q2-12 Q2-12
-31K-36K
7K
-14KQ2-11
Q2-11
BusinessResidential
Residential and Business lines impactedby renewed price-based competition
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Q2 2012 consolidated financial results
($M, except EPS) Q2-11 Q2-12 change
Revenue (external) 2,554 2,665 4.3%
EBITDA1 950 998 5.1%
EPS (basic) 0.99 1.01 2.0%
Capex 456 548 20%
EBITDA less capex 494 450 (8.9)%
Free cash flow 286 284 (0.7)%
Consolidated revenue and EBITDA growth driven by wireless Strong free cash flow remains stable
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1 Q2-12 adjusted EBITDA excludes a $9 million pre-tax gain on land contributed to the TELUS Garden residential real estate project, and equity losses of $1 million for the residential real estate partnership .
EPS continuity analysis
$0.99 ($0.03)
$0.02 ($0.02)($0.03)
($0.01) $1.02 $0.02
$0.96
$0.10 ($0.03)
2011 Tax Adj.
Higher Normalized
EBITDA1
HigherPension
LowerFinancing
Costs
HigherDep
& Amort
Incr in Tax Exp.
2012 Tax Adj.
TELUSGarden
$1.01
Q2-12 reported
Q2-11 reported
Adjusted EPS growth of 6.3% from $0.96 to $1.02 when excluding tax adjustments and TELUS Garden impacts
Q2-11 Adj.
Q2-12 Adj.
141 Normalized EBITDA excludes net $0.01 positive impact of TELUS Garden and Pension costs.
2012 segmented guidance
Wireless EBITDA range up $100 millionWireline revenue range up $50 million, EBITDA top end down $50 million
Wireless 2012 guidance y/y change
Revenue (external) $5.75 to 5.9BNo change 5 to 8%
EBITDA $2.4 to 2.5B 10 to 14%
Wireline 2012 guidance y/y change
Revenue (external) $5.0 to 5.15B 1 to 4%
EBITDA $1.5 to 1.55B (6) to (3)%
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2012 consolidated guidance
Updated guidance reflects our latest and generally favourable outlook for balance of year
2012 guidance y/y change
Revenue (external) $10.75 to 11.05B 3 to 6%
EBITDA $3.9 to 4.05B 3 to 7%
EPS (basic) $3.75 to 4.15No change 0 to 10%
Capex Approx $1.95B Approx 6%
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TELUS files foreign ownership position with CRTC
In July, TELUS responded to CRTC about misleading allegations by Globalive concerning TELUS’ foreign ownership levels
As of June 29, 32.59% of TELUS’ voting shares held by non-Canadians, below federal limit of 33.3%
Mason Capital has made foreign ownership allegations very similar to Globalive's in an attempt to frustrate TELUS’ plans to consolidate its dual-class share structure on 1-for-1 basis
Globalive and Mason both used reports from Broadridge not intended for determination of foreign ownership levels
TELUS’ long-established systems to monitor and control foreign ownership of its voting shares have kept TELUS compliant with Canada’s foreign ownership restrictions for communication companies
TELUS continues to be fully compliant with Canada’s foreign ownership restrictions
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CRTC arbitration decision - TELUS vs Bell Media
CRTC released decision on final offer arbitration between TELUS and Bell Media on renewal agreement for distribution of Bell Media specialty TV services
Pleased CRTC selected TELUS’ final offer in arbitration, which means consumers continue to enjoy choice provided by TELUS’ theme
pack model TELUS not required to move TSN to basic Essentials package
Bell was seeking a “minimum penetration level” for TSN, which significantly exceeded actual consumer take-up of the service in Optik TV’s sports pack
Impact of new agreement consistent with previous expense accruals
CRTC decision is a win for TELUS and consumers and reinforces the Commission’s vertical integration framework
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Q2 2012 highlights
Robust revenue and earnings growth generated by continued excellent wireless revenue and EBITDA results, and wireline data revenue
Focus on Customers First leads to lowest blended wireless churn rate in five years
Continued Optik TV and high-speed Internet subscriber growth offsetting residential line losses
Increased guidance reflects year-to-date results and positive outlook
Pleased with overall strong results in Q2 and first half of 2012
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Strong smartphone adoption, ARPU growth continues
Q2 smartphone base up 54% to 3.7 million y/yData ARPU growth driven by 27% increase in data revenue
Q2-10 Q2-11 Q2-12
5.5 5.9 6.3
25%42%
59%
Postpaid subscribers (millions)Smartphone % of postpaid
$13.80$19.25
$23.32
Q2-10 Q2-11 Q2-12
Wireless Data ARPU
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Low and improving churn
Low wireless churn rate best since Q1-07 Supports industry leading lifetime revenue per subscriber
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2012
Q1 2012
Q2 2012
Wireless Churn Rate Impact of loss of Govt. of Canada contract
1.54%
1.72% 1.70% 1.67% 1.67% 1.67%1.55%1.62%
1.51%1.58% 1.60%
1.52%
1.37%1.39%
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Future friendly home – continued strength in Optik
TV and High-Speed Internet loading exceedingresidential NAL losses for eighth consecutive quarter
TELUS TVResidential NALs
High-speed Internet
Q2-11 Q2-12Q2-10
59K 63K
38K50K32K
-43K-51K -31K -36K
29K46K 43K
3K
13K 20K
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Continued Optik TV innovations
Re-architected theme pack offering Enhanced Video on Demand storefront Launched Multi-View
Allows viewing of up to 4 channels at once
Introduced The Weather Network App
Expanding line-up of innovative new services supports premium, differentiated customer experience and ongoing momentum
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Appendix – free cash flow
2012Q2
2011Q2
C$ millions
Adjusted EBITDA1 950 990Capex (456) (548)Net Employee Defined Benefit Plans Expense (Recovery) (7) (2)Employer Contributions to Employee Defined Benefit Plans (15) (15)Interest expense paid, net (145) (106)Income taxes received (paid), net (50) (31)Share-based compensation 5 9Restructuring payments (net of expense) 4 (13)Free Cash Flow 284
(170) (189)Dividends
Working Capital and Other (241) (31)
Funds Available for debt redemption (174) 59Net Issuance (Repayment) of debt 172 (55)Increase in cash (2) 4
Common and Non-voting shares issued 2
Acquisitions (51) -
286
-
TELUS Garden real estate project - (5)
1 Q2-12 adjusted EBITDA excludes a $9 million pre-tax gain on land contributed to the TELUS Garden residential real estate project, and equity losses of $1 million for the residential real estate partnership .
Appendix – definitions
EBITDA: Earnings before interest, taxes, depreciation and amortization Capital intensity: capital expenditures divided by total revenue Cash flow: EBITDA less capex Free cash flow: EBITDA, adding Restructuring costs, net employee defined
benefit plans expense, cash interest received and excess of share-based compensation expense over share-based compensation payments, subtracting the non-cash gain on Transactel, cash interest paid, cash taxes, capital expenditures, restructuring payments and employer contributions to employee defined benefit plans.
Cost of retention (COR): total costs to retain existing subscribers, often presented as a percentage of network revenue
Net cash interest
EBITDA1
($M)
Other3
Free Cash Flow (before dividends and spectrum)
Capex
Net cash tax payment2
Cash pension contribution (including DB pension recovery)4
Free Cash Flow(before dividends and spectrum)
Appendix – 2012E free cash flow
1 2011 EBITDA excludes $17M Transactel gain2 Midpoint used to calculate 2012E FCF range3 Includes restructuring payments (net of expense), and share based compensation (net of expense)4 2012 and 2011 includes cash pension contributions and pension recovery included in reported in EBITDA
~(350)
2012E
$3,900 to 4,050
~(45)
~(1,950)
1,380 to 1,530
(150) to (200)
~(180)
1,200 to 1,350
27
997
2011
(377)
$3,761
(60)
(1,847)
1,327
(150)
(330)