Transcript TELUS financial results

Q4 2009 TELUS
investor conference call
Darren Entwistle
President & CEO
Robert McFarlane
EVP & Chief Financial Officer
February 12, 2010
TELUS forward looking statements
Today's presentation and 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 2010
targets), 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 quarterly 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.
Agenda
 Wireless and wireline segment review
 Consolidated financial review
 Updates
 New TELUS TV developments
 Broadband build update
 Defined benefit pension assumptions update
 2009 summary
 Questions and answers
 Appendix
3
Wireless segment – Q4 2009 financial results
($M)
Q4-08
Q4-09
Change
1,188
1,225

3.1%
697
794

14%
6
3

n.m.
EBITDA
492
435

(12)%
Capex
236
192

(19)%
Revenue (external)
Operational expenses
Restructuring costs
As expected EBITDA impacted by higher
retention costs to support smartphone adoption
4
Wireless subscriber results
Total
net additions
Postpaid
Wireless subscribers1
1.2M
Prepaid
19%
148K
122K
81%
119K
Q4-08
109K
Q4-09
5.3M
6.5 million total
1 Opening balances for postpaid and total wireless subscribers for Q4-09 were reduced by 11K to reflect prior period reporting adjustments.
High quality postpaid net adds reflected 89%
of subscriber mix compared to 80% a year ago
5
Smartphone mix
 Smartphone subscribers represent 20% of postpaid
base compared to 13% a year ago
 Post HSPA network & device launch on November 5:
 More than 40% of gross postpaid loading came from
smartphones
 More than 100% increase in retention subscriber
upgrades to smartphones
Smartphone subscriber base increased 61%
and expected to be a positive factor for future ARPU
6
Wireless ARPU
Data
$62.16
11.17
50.99
Q4-08
Voice
$57.38
12.60
% of ARPU
18%
22%
82%
78%
44.78
Q4-09
Q4-08
Q4-09
ARPU lower due to continued voice
erosion partially offset by data growth
7
Wireless data revenue
$243M
$203M
$131M
BlackBerry
Bold
Q4-07
Q4-08
Q4-09
Data growth of 20% driven by continued smartphone
adoption and to be enhanced with HSPA smartphones
8
Wireless marketing and retention
Q4-08
Gross adds (000s)
Q4-09
Change
441
431

(2.3)%
1.62%
1.60%

(0.02) pts
COA per gross add ($)
372
380

2.2%
COA expense ($M)
164
163

(0.6)%
Retention expense ($M)
105
133

27%
Churn
Note: Measurement of costs of acquisition and retention refined in 2009. Prior year comparisons restated.
Increased investments in retention
focused on continued smartphone adoption
9
Wireline segment – Q4 2009 financial results
Q4-08 Q4-09
Revenue (external)
Operational expenses1
Restructuring costs
Change

($M)
(3.8)%
824
826 
0.2%
32
74 
n.m.
1,266
1,218
EBITDA
445
354

(20)%
Capital expenditures
395
322

(18)%
1 Excluding
defined benefit pension expenses from both periods, operating expenses down 3.2%
EBITDA impacted by higher restructuring and pension costs
10
Wireline segment – EBITDA normalized
Defined Benefit pension
expense/(recovery)
Restructuring costs
EBITDA normalized
445
354
(23)
6
32
74
454
434
Change
(20)%

EBITDA
Q4-08 Q4-09

($M)
(4.4)%
Significant restructuring investment impacted Q4
profitability but expected to lower 2010 cost structure
11
Internet subscribers
High-speed Internet
net additions
Internet subscribers
87K
19K
11K
Q4-08
Q4-09
1.1M
High-speed
93%
1.2 million total
HSIA net adds lower YoY
12
TELUS TV subscribers
TELUS TV
net additions1
TELUS TV
subscribers1
170K
33K
78K
15K
Q4-08
1
Q4-09
Q4-08
Q4-09
Includes both TELUS IP TV and TELUS Satellite TV subscribers
TTV continues to show strong results with net adds up 120%
and total subscriber base up 118%
13
Stabilized residential NAL losses
TELUS TV & high-speed Internet
Residential NAL’s
44K
34K
34K
31K
20K
Q4-08
Q1-09
Q2-09
Q3-09
Q4-09
-42K
-41K
-41K
-41K
-41K
In Q4/09 TELUS TV and Internet loading
exceeded residential NAL losses
14
15
Building the future of TELUS TV
 Microsoft Mediaroom launched Feb. 2 across various B.C. and
Alberta communities
 PVR Anywhere – record and watch on any connected TV
 Multiple TV’s in a home with multiple HD streams
 Superior picture quality
 Enhanced channel guide with picture in picture display
 Instantaneous channel changing
 Faster Internet speeds
Introducing innovative new features
that differentiates against cable-TV
15
16
Broadband build update
 Expanded FTTN coverage to > 75% of households in top 48
communities in Western Canada at YE 2009
 Greater Vancouver coverage increased to >70% in Q4
 Expect coverage of up to 90% of households in top 48
communities in Western Canada by YE 2010
 Cost effective upgrade to VDSL2 technology underway
 Provides data download speeds of up to 30 Mbps
 Enables expanded IPTV coverage and features
 Continuing FTTH to new developments and FTTB to MDU’s
Continued ramp-up in broadband coverage
16
Consolidated – Q4 2009 financial results
($M excluding EPS)
Q4-08
Q4-09
Change
Revenue
2,454
2,443

(0.4)%
Operating expenses
1,479
1,577

6.6%
38
77

n.m.
EBITDA
937
789

(16)%
EPS
0.90
0.49

(46)%
Capital Expenditures
631
514

(19)%
Restructuring costs
Consolidated results in-line with most recent guidance
17
Consolidated – EBITDA normalized
Q4-09
937
789
(25)
5
Restructuring costs
38
77
EBITDA (normalized)
950
871
DB pension expense/(recovery)
Change
(16)%

EBITDA
Q4-08

($M)
(8.3)%
Normalized EBITDA impacted by lower legacy
voice revenues and increased wireless retention costs
18
Investing in operational efficiency
Total restructuring costs ($M)
190
75
59
20
2007
2008
2009
2010E*
Increased restructuring costs reflect an accelerated
emphasis on operational efficiency initiatives
* See forward looking statement caution
19
Breakdown of full time equivalent employees
Change
27,900
25,750
(2,150)
7,950
8,700

750
850

850

TELUS International
YE 2009

Total (domestic)1
YE 2008
(550)
Black’s Photography
Total
1 Total
35,850
35,300
(domestic) excludes 850 FTE’s from the Black’s Photography acquisition.
Improving overall efficiency and cost competitiveness
20
Quarterly domestic FTE reductions
2,150
700
500
Q1-09
Approx.
1,000
550
400
Q2-09
Q3-09
Q4-09
2009
2010E*
2,150 domestic FTE reduction in 2009
Targeting approx. 1,000 reduction in 2010
* See forward looking statement caution
21
Wireline segment – annual operating expenses
($M)
2008
2009
Change
Salaries, benefits* & employeerelated expenses
1,944
1,792

(7.8)%
Other operating expenses
1,474
1,485

0.7%
3,418
3,277

(4.1)%
(91)
20
51
178
3,378
3,475
Subtotal opex
DB pension expense
Restructuring costs
Total operating expenses
 2.9%
Employee-related expenses down 8%
* Excluding defined benefit pension plans
22
EPS continuity ($)
0.90
Tax Adj.
0.80
Excl. Tax
Adj.
(0.22)
0.49
0.25
Tax Adj.
(0.18)
(0.09)
Q4/08
reported
1
2009 debt
redemption
Normalized
EBITDA1
Restr.
costs
(0.06)
Pension
costs
(0.01)
0.24
Excl. Tax
Adj.
Dep & Amort. Q4/09
and other reported
Normalized EBITDA excludes restructuring and pension costs.
Per guidance, EPS impacted by debt redemption,
restructuring and pension costs
23
TELUS refinancing update
 In December, successfully issued $1B senior unsecured notes
 5.05% 10 year notes, maturing December 2019
 Proceeds used to fund partial redemption of notes due in June
2011
 Redeemed US$577M (Cdn$607M) of 8% US$1.925B notes
 Paid $315M to terminate associated cross-currency interest
rate swaps
 As expected, recorded pre-tax charge of $99M for early partial
redemption and associated swaps
 After-tax impact of $69M or 22 cents per share
Completed successful $1B debt issue in December
24
Defined Benefit pension assumptions update
2009
2010E*
Discount rate
7.25%
5.85%
Long-term expected return
7.25%
No change
Pension expense ($M)
$18
$28
Pension funding ($M)
$179
$143
99% fully funded
* See forward looking statement caution
25
Summary
 Invested strategically in 2009 for enhanced competitiveness and future growth
 Launched 3G+ wireless network
 Expanded wireline broadband reach
 Improved organizational cost efficiency through accelerating OEP
initiatives to address J-curve dilution and recessionary impacts
 Benefits from strategic investments in 2010*
 Leverage 3G+ wireless network to accelerate data and roaming growth
 Leverage enhanced broadband network and Mediaroom for TV growth
 Lower cost structure with estimated EBITDA savings of $135M
 Targeting $400M reduction in capital spending
 Estimating 50%+ growth in free cash flow due to decrease in capex,
despite peak year of cash taxes
Expect significant FCF growth in 2010
* See forward looking statement caution
26
Questions?
investor relations
1-800-667-4871
telus.com
[email protected]
Appendix




Free cash flow – Q4 and 2010E
2010 targets
2010 corporate priorities
Definitions
Appendix – Q4 free cash flow
C$ millions
EBITDA
Capex
Net Employee Defined Benefit Plans Expense (Recovery)
Employer Contributions to Employee Defined Benefit Plans
Interest expense paid (includes income tax interest income)*
Cash Income Taxes and Other
Non-cash portion of share-based compensation
Restructuring payments (net of expense)
Donations and securitization fees included in other expense
Free Cash Flow (before share-based compensation payment)
Share Based Compensation Paid
Free Cash Flow (per current public guidance methodology)
Purchase of shares for cancellation (NCIB)
Dividends
Working Capital and Other
2008
Q4
2009
Q4
937
789
(631)
(514)
(27)
(26)
8
(45)
(296)
(192)
(2)
14
30
(8)
95
(34)
61
(6)
(144)
(7)
(96)
4
7
51
(7)
(3)
(32)
(35)
(151)
46
A/R Securitization
50
(140)
100
Net Issuance (Repayment) of debt
14
47
(32)
7
Funds Available for debt redemption
Increase (Decrease) in cash
* Includes debt redemption charge of $99 million. Excluding the impact FCF would increase 4.9% to
$64 million.
Appendix – 2010E free cash flow
($M)
2010E*
2009
EBITDA
$3,491
$3,500 to 3,700
Capex
(2,103)
~(1,700)
Net Cash Interest
(513)
~(450)
Net cash tax payment
(266)
(385) to (425)
51
~(80)
660
865 to 1,065
(160)
~(115)
Other1:
Free Cash Flow
Cash pension contribution
(in excess of expense)
Free Cash Flow
(incl. cash pension contribution)
500
750 to 950
1 Includes
restructuring expense (net of cash payments), share based compensation (net of cash
payments) and cash payments related to charitable donations and securitization fees
* See forward looking statement caution / Provided December 15, 2009
30
Appendix - 2010 targets*
($B, excl. EPS)
Revenue
EBITDA
EPS1
Capex
2010 targets*
Change
$9.8 to $10.1
2 to 5%
$3.5 to $3.7
0 to 6%
$2.90 to $3.30
3 to 17%
Approx $1.7
(19)%
1 EPS
change excludes 55 cents of positive income-tax related adjustments and 22 cents for a loss on
early partial redemption of long-term debt in 2009.
* See forward looking statement caution / Provided December 15, 2009
31
Appendix - 2010 TELUS corporate priorities
 Capitalize on the full potential of TELUS’ leading wireless and
wireline broadband networks
 Enhance TELUS’ position in the Small and Medium Business
(SMB) market
 Deliver on our future friendly brand promise to clients
 Continue to improve TELUS’ operational efficiency to effectively
compete in the market and fund future growth
 Invigorate TELUS Team engagement and continue to drive the
philosophy of “Our Customers, Our Business, Our Team, My
Responsibility
Opportunity to build value from
strategic investments made in 2009
32
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, 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