q4 2006 telus investor conference call february 16, 2007
Post on 26-Dec-2015
216 Views
Preview:
TRANSCRIPT
Q4 2006 TELUS investor conference call
February 16, 2007
TELUS forward looking statements
This session and answers to questions contain forward-looking statements that require assumptions about expected future events including 2007 targets, competition, financing, financial and operating results, and regulation that are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward looking statements will not prove to be accurate so do not place undue reliance on them.
Factors that could cause actual results to differ materially include but are not limited to: competition; capital expenditure levels (including possible spectrum purchases); financing and debt requirements (including share repurchases, debt redemptions and refinancing plans); tax matters (including deferral of payment of significant cash taxes); regulatory developments (including local forbearance, local price cap regulation and wireless number portability); process risks (including conversion of legacy systems and billing system integrations); and other risk factors discussed herein and listed from time to time in TELUS’ reports.
There are many factors that could cause actual results to differ materially. For a full listing and description of the potential risk factors and assumptions, please refer to the TELUS 2005 annual report and updates in the 2006 quarterly reports (see Section 10 Risks and Risk Management in Management’s discussion and analysis), 2007 targets news release issued on Dec. 14, 2006 and other filings with securities commissions in Canada (sedar.com) and the United States (sec.gov).
All dollars referenced are in C$ unless otherwise specified.
Q4 2006 TELUS investor conference call
Darren Entwistle • member of the TELUS team
February 16, 2007
2006 annual highlights
Uses of cash flow
Regulatory developments
Q4 2006 review
4
Agenda
2006 highlights - annual
5
Consolidated
Strong revenue growth of 7% led by wireless and data
EBITDA up 9% to $3.6 billion
Net income up $422 million to $1.1 billion
Free cash flow up 9% to $1.6 billion
Achieved 4 of 5 original consolidated targets
87% in last 7 years
Continued on strategy performance
EBITDA
Revenue
20052004Growth in
EPS
2003
Source: Bloomberg and TD Securities, for major global incumbent telecoms
6
Leading global telecom performance
#1
#1top 25%
top 25%
- top 25%
top 25%
top 25%
top 25%
2006
top 25%
top 25%
top 25%
TELUS performing well relative to global telecom peers
2006 highlights - annual
7
Wireline
Strong data revenue growth of 7% (9% in Q4)
154,000 net adds in high-speed Internet
Best performance in 4 years
High-speed Internet sub base up 20%
Total NALs down 3%
Residential down 5% and business up 0.6%
Revenue and EBITDA down < 1%
Comparative resiliency in wireline
2006 highlights - annual
8
Wireless
Strong revenue growth of 17%
Wireless sub base up 12% and ARPU up 3%
Data revenue up 114% to $280 million
Record lifetime revenue $4,850 EBITDA up 21%
Cash flow up $285 million to $1.3 billion
High cash flow yield 34%
Continued leading performance
9
2006 wireless cash flow yield1 comparison (%)
TELUS*
1 EBITDA less capital expenditures divided by revenue
Source: Merrill Lynch, UBS. TELUS actual results. Other wireless carriers estimated.
3432
25
3032
36
28
171919
Cash yield helps drive valuation
population penetration
76%76%56% 56% 56%104%82%102%135% 88%
TELUS track record of wireless subscriber additions
10
924 9851,017 987
1,121
1,279 1,293
474418 418 431
512584 535
2000 2001 2002 2003 2004 2005 2006
Gross additions (000s)
Net additions (000s)
550+
2007E
2006: Record gross additions / net 2nd best in 7 years Net additions > 500K for third consecutive year
Canadian industry subscriber growth
5.1pts4.4ptsPenetration gain
1.8M1.6MNet subscriber adds
20052004
51.8%46.7%Population penetration
Source: Company reports, CWTA
* Does not include wholesale figures
4.1pts
2003
42.3%
4.6pts
1.7M
2006*
56.4%
1.5M
11
Expect growth of 4.5 - 5 points per year for foreseeable future
TELUS share of adds 28% 33% 32% 32%
On strategy use of cash flow
12
Debt repayment
$1.6 billion paid out early in Dec. 2005
Dividend growth model
3 sizeable annual increases – 33%, 38%, 36%
Annualized $500 million in 2007
Ongoing share repurchases
3 successive programs since Dec. 2004
39.4M shares for $1.77 billion
On strategy capital expenditures
Investing for long term growth
Balancing interests of shareholders and debt holders
Wireless capex increase of $125 million to approx. $550 million
Within 11-13% intensity range
Wireline capex unchanged at approx. $1.2 billion
Strong housing formation in West
Broadband network enhancement program
Implementing IT customer system consolidation
Success based capex for contracts such as Govt. of Ontario
Investing capital in 2007 for long-term growth
13
Investing to create future value
Regulatory developments
14
Deregulation by federal government
Local forbearance decision effective April 2007
Based on competitive choice
Directive to CRTC now in force
Rely on market forces to maximum extent
Ensure competitive and technological neutrality
Wireless local number portability effective Spring 2007
Opportunity in business market in Central Canada
Regulation based on competitive realities
Q4 2006 TELUS investor conference call
Robert McFarlane • EVP & Chief Financial Officer
February 16, 2006
26%
106M144MCapital expenditures
33% 432M326MEBITDA1
16%$1.02B$877MRevenue
ChangeQ4-06Q4-05
Wireless segment – financial results
2006 – fourth quarter wireless review
Record fourth quarter EBITDA
1 Q4-06 includes $3M in restructuring & workforce reduction costs
16
Total wireless subscribers
Postpaid 81%
Prepaid 19%
Net additions
Total subscribers up 12% and strong postpaid mix
17
5.1 million total
4.1M
977K
Wireless subscriber results
Q4-05 Q4-06
130K143K
235K
182K
61%71%
92K
52K
Wireless ARPU growth
ARPU growth driven by 94% increase in data
18
Data ARPU
Q4-05 Q4-06
$62.54$64.50
$3.17$6.16
59.37 58.34
9 bps1.33%1.42%Blended churn
3.1%$64.50$62.54ARPU
ChangeQ4-06Q4-05
TELUS subscriber economics improving & remain best in class
Profitable growth strategy
19
$4850$4404Lifetime revenue
3.0%$436$449
COA
9.0%10.2%COA/lifetime revenue 120 bps
10%
2006 wireless results compared to original targets
approx. $450MCapex
EBITDA
Revenue
$1.75B
$3.86B
Met or exceeded three of four targets
20
2006 actual results
2006 originaltargets1
Wireless net adds > 550K
1 Provided on December 16, 2005
$1.7 to $1.75B
$3.775 to $3.825B
535K
$427M
met or exceeded
21%74M61MOther
8.8%435M400MData
6.7%198M212MVoice – Long Distance
1.7%$528M$537MVoice – Local
ChangeQ4-06Q4-05
External Revenue $1.21B $1.23B 2.0%
Wireline revenue profile
21
Solid data growth offsets erosion in local and LD
2006 – fourth quarter wireline review
1.1 million total
Total Internet subscribers
High-speed83%
Dial-up17%
High-speed Internet subscriber growth
27K
44K
High-speed Internet net additions
22
Q4-05 Q4-06
917K
194K
Continued strong net addition growth
34%309M230MCapital expenditures
9.2%447M409MEBITDA1
2.0%$1.23B$1.21BRevenue
ChangeQ4-06Q4-05
Wireline segment – financial results
23
1 Includes $36M and $5M in wireline restructuring costs in Q4-05 and Q4-06 respectively;
Q4-05 EBITDA includes $50M net expense impact of labour disruption.
34%309M230MCapital expenditures
Labour disruption impact
9.2%$447MEBITDA (reported)
% ChangeQ4-06Q4-05
Wireline EBITDA normalization
24
-
5M36M
$409M
Restructuring costs
50M
Adjusted EBITDA down 4.3%
EBITDA (adjusted for cost of sales related to FFH)
4.3%
EBITDA (subtotal)1 $494M $452M
Non-ILEC revenue and EBITDA
25
Central Canada Non-ILEC profitability continues to improve
Q4-05 Q4-06
165 172
Q4-05 Q4-06
7.111
EBITDARevenue($M)
26
Network access line results
Increased residential losses due to increased competition, partially offset by business line growth
% of network access lines lost, YoY
Q4-05
-2.4%
Q1-06
-2.7%
Q2-06
-2.6%
Q3-06
-2.8%
Q4-06
-3.0%
TELUS total subscriber connections
Connections increasing with strong wireless and Internet growth
27
Wireless
High-speed Internet
Dial-up Internet
Res NALs
Bus NALs
(millions)10.710.2
9.7
Q4-06Q4-05Q4-04
2006 wireline results compared to original targets
$25 to $40M
Capex
EBITDA
Revenue
$1.84B
$4.82B
Met original EBITDA and non-ILEC targets with significant outperformance in high speed Internet additions
28
2006 actual results
2006 originaltargets1
High-speed net adds
$1.05 to $1.1B
1 Provided on December 16, 2005
$1.8 to $1.85B
$4.825 to $4.875B
154K
$1.19B
met or exceeded
Non-ILEC Revenue $657M $650 to $700M
Non-ILEC EBITDA $32M
> 100K
20%$878M$734MEBITDA1
8.0%$2.25B$2.09BRevenue
ChangeQ4-06Q4-05
TELUS Consolidated
2006 – fourth quarter consolidated review
Strong growth in revenue driven by data and wireless
29
218% $0.70$0.22EPS
1 Q4-05 EBITDA includes $52M net expenses, excluding any revenue or indirect impacts, from labourdisruption
11% $415M$374MCapex
Labour disruption impact
20%$878MEBITDA (reported)
% ChangeQ4-06Q4-05
Consolidated EBITDA normalization
30
-
8M36M
$734M
Restructuring costs
52M
Adjusted for acquisition costs, EBITDA up 6.1%
EBITDA (adjusted for (wireless/FFH) cost of sales) 6.1%
EBITDA (subtotal) 822M 886M
Labour disruption impact
218%$0.70EPS (reported)
% ChangeQ4-06Q4-05
EPS (Adjusted)1 $0.39 $0.64 64%
EPS normalization
31
-
(0.06)
1 Adjusted further for restructuring costs, EPS would have been $0.46 and $0.66 for Q4-05 and Q4-06, respectively, up 43%
0.01
$0.22
Tax related adjustments
0.10
Adjusted EPS up 64%
-0.06Early bond redemption
Tremendous growth evident in underlying EPS, led by EBITDA32
$0.22
Q4-05
$0.17
2005 lab. dis. costs
$0.10
$0.01
$0.08
$0.07
$0.02$0.03
$0.70
Lower depr’n & amortiz’n
Lowerfinancing
costs
Tax- related
adjustments
Decr. in avgo/s
shares
OtherEBITDA growth
Q4-06
EPS continuity
2006 consolidated results compared to original targets
$2.40 to $2.60
Capex
EBITDA2
Revenue
$3.59B
$8.68B
TELUS achieved 4 out of 5 original targets driven by wireless
33
2006 actual results
2006 originaltargets1
Free cash flow
$1.5 to $1.55B
1 Provided on December 16, 2005
$3.5 to $3.6B
$8.6 to $8.7B
$1.60B
$1.62B
met or exceeded
EPS3 $3.27
$1.55 to $1.65B
2 Original targets included restructuring & workforce reduction costs of approx. $100M, vs. actual
3 2006 EPS includes $0.48 of positive tax-related adjustments 2006 results of $68M
Share repurchase programs
Total cost ($M) $78
Track record of share repurchases leading to 6% reduction in shares outstanding
34
2004
$1,770
1 Twelve month 25.5 million share repurchase program to Dec. 19, 2005
2 Twelve month 24 million share repurchase program to Dec. 19, 2006
Total shares (M) 2.2 39.4
% of total program
2005
2006
Total
$892 $800
20.8 16.4
85%1 73%2 79%
Total end of period shares outstanding (M) 358.5 20.6350.1 337.9
35
1
2
3
4
2003 2004 2005 2006 2007E1,2
0.60
3.30 3.43
Dividends
Share repurchases
$ per share
1 Annualized dividend, plus share repurchases in 2006 as estimate for 2007. Assumes lower average shares outstanding of 330 million to 335 million in 2007.
0.82
Strong record of returning capital
0.801.10
1.50
3.90
2 See forward looking statement caution. Assumes continuation of share repurchase program
0.60
2.33
0.22
2.50
2.40
Cash settled options program update
36
Introducing cash settlement for vested options Mitigates share dilution by avoiding treasury issuance
Expect non-recurring, non-cash pre-tax operating expense of $150M to $200M in Q1-07 $120M to $150M in wireline, $30M to $50M in
wirelessReported EPS impact of $0.30 to $0.40Cash payments deductible for tax purposes when options exercised and cash paid out
Cash tax savings of up to $70M over 3 years
Shareholder friendly initiative
Strong investment performance in 2006 In aggregate, TELUS pension funds are now in going
concern surplus Expect to make $112M in cash contributions in 2007
(DB plans) Major pension assumptions unchanged
Discount rate of 5.0% Long term rate of return of 7.25%
TELUS pension plans fully funded in aggregate
37
Pension update
TELUS has commitments from 18 financial institutions for new $2 billion credit facility
More favourable terms and extends maturity to 2012 Can be utilized to back up CP issuance Replaces $1.6 billion of existing credit facilities
$800 million facility expiring May 2008$800 million facility expiring May 2010
Accounts receivable securitization agreement extended by one year to July 18, 2008
Current plan for $1.5B 2007 note refinancing is through combination of L-T debt issuance and new CP program
TELUS liquidity position remains very strong
38
Financing update
Corporate governance update
39
Stock option issuance practices, backdating Voluntary internal audit of stock option and long
term incentive practices resulted in a “well controlled” rating
Sarbanes-Oxley Have completed all work required for SOX 404
compliance90 processes and 740 key controls addressed
Ready to certify compliance with SOX 404 on internal control over financial reporting for Dec. 31, 2006 audited financial statements
Leading the way in corporate governance
2007 Consolidated targets summary
approx. $1.75BCapex
Revenue $9.175 to 9.275B
2007 targets reflect healthy performance expected in wireless
40
2007 targets change
8%
6 to 7%
Normalized EBITDA1 $3.725 to 3.825B 4 to 7%
Normalized EPS1,2 $3.25 to 3.45 16 to 24%
1 Excluding $150M to $200M of non-recurring, non-cash expenses associated with cash settlement of options, EPS impact of $0.30 to $0.40
2 Year over year growth rate normalized for $0.48 of positive tax-related adjustments in 2006
investor relations1-800-667-4871
telus.comir@telus.com
$124
350
$110
47
(306)
(374)$734
Q4-05
$20
150
$233
5
(218)
(415)$878
Q4-06
Funds avail. for debt redemption
Accounts Receivable Securitization
Free cash flow
Net Cash Tax Recovery
Net Cash Interest
CapexEBITDA
($M)
5 (6)Cash Restructuring Payments (in excess of expense)
3 (10)Non-Cash Share Based Compensation
(97) (127)Dividends
19 22Share Issuance (non-public)
($1,313) $14Net change in cash(1,437) (6)Funds applied to redemption of debt
Free cash flow
Appendix
Working capital & other (30) (58)
42
(229) (200)Purchase of shares for cancellation (NCIB)
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, and cash restructuring payments
Appendix
Definitions
TELUS definitions for non-GAAP measures
top related