Presentation Transcript

1. 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
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 targets), qualifications and risk factors (including the potential for a future share consolidation proposaland 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.
3. 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
4. Q2 2012 wireless financial results      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 expansion Capex higher for LTE network investments
5. Wireless subscriber results Total net adds Postpaid net adds Wireless subscribers 1.1M prepaid 112K 94K 15% 92K 86K 7.4M total 85% 6.3M postpaid Q2-11 Q2-12 Q2-11 Q2-12 Postpaid net adds growth of 22% year-over-year Smartphones now 59% of postpaid base, up from 42% a year ago
6. Marketing and retention       1Q2-12 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
7. Blended ARPU analysis Data % of ARPU Voice $60.29 $58.88 23.32 39% 33% 19.25 39.63 67% 61% 36.97 Q2-11 Q2-11 Q2-12 Q2-12 ARPU increase of 2.4% led by data ARPU growth of 21% Voice ARPU decline moderated to -6.7%
8. Wireless data revenue $512M $402M $270M Q2-11 Q2-10 Q2-12 Q2 data revenue growth of 27% year-over-year Data now represents 39% of network revenue
9. Q2 2012 wireline financial results      1Q2-12 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.  Wireline revenue growth reflects good TV and HSIA subscriber results EBITDA and margin down due to declines in high margin legacy services
10. TELUS TV customer growth TELUS TV net additions* TELUS TV subscribers* 595K 403K 46K 43K Q2-11 Q2-12 Q2-11 Q2-12 Momentum continues with TV net adds of 43K Total TV subscribers up 48% year-over-year * Includes both IP TV and TELUS Satellite TV subscribers
11. TELUS high-speed Internet customer growth High-speed net additions High-speed subscribers 1.28M 20K 1.2M 13K Q2-11 Q2-12 Q2-12 Q2-11 High-speed Internet net adds increased 54% Total subscriber base up 81,000 or 6.8% year-over-year
12. TELUS network access line losses Residential Business 7K Q2-11 Q2-12 Q2-12 Q2-11 -14K -31K -36K Residential and Business lines impacted by renewed price-based competition
13. Q2 2012 consolidated financial results       1Q2-12 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.  Consolidated revenue and EBITDA growth driven by wireless Strong free cash flow remains stable
14. EPS continuity analysis $0.02 ($0.03) $0.10 ($0.02) $0.02 ($0.03) ($0.01) $1.02 $1.01 $0.99 ($0.03) $0.96 Q2-11 reported Q2-11 Adj. Q2-12 Adj. Q2-12 reported 2011 Tax Adj. Higher Normalized EBITDA1 Lower Financing Costs Higher Dep &Amort Incr in Tax Exp. Higher Pension TELUS Garden 2012 Tax Adj. Adjusted EPS growth of 6.3% from $0.96 to $1.02 when excluding tax adjustments and TELUS Garden impacts 1Normalized EBITDA excludes net $0.01 positive impact of TELUS Garden and Pension costs.
15. 2012 segmented guidance       Wireless EBITDA range up $100 million Wireline revenue range up $50 million, EBITDA top end down $50 million
16. 2012 consolidated guidance        Updated guidance reflects our latest and generally favourable outlook for balance of year
17. 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
18. 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
19. 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
20. Strong smartphone adoption, ARPU growth continues Wireless Data ARPU Postpaid subscribers (millions) Smartphone % of postpaid $23.32 6.3 5.9 $19.25 5.5 59% $13.80 42% 25% Q2-10 Q2-11 Q2-12 Q2-10 Q2-11 Q2-12 Q2 smartphone base up 54% to 3.7 million y/y Data ARPU growth driven by 27% increase in data revenue
21. Low and improving churn 1.39% Low wireless churn rate best since Q1-07 Supports industry leading lifetime revenue per subscriber
22. Future friendly home – continued strength in Optik High-speed Internet TELUS TV Residential NALs 63K 59K 20K 13K 32K 50K 46K 43K 3K 29K 38K -36K -31K -51K -43K Q2-10 Q2-11 Q2-12 TV and High-Speed Internet loadingexceeding residential NAL losses for eighth consecutive quarter
23. Continued Optik TV innovations Re-architected theme pack offering Enhanced Video on Demand storefront Launched Multi-View Allows viewing of up to 4 channels at once Introduced The Weather Network App Expanding line-up of innovative new services supports premium, differentiated customer experience and ongoing momentum
24. Appendix – free cash flow 2011 Q2 2012 Q2 C$ millions Adjusted EBITDA1 950 990 Capex (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 9 Restructuring payments (net of expense) 4 (13) Free Cash Flow 284 286 2 Common and Non-voting shares issued - Dividends (170) (189) (51) - Acquisitions - (5) TELUS Garden real estate project (31) (241) Working Capital and Other Funds Available for debt redemption (174) 59 172 (55) Net Issuance (Repayment) of debt Increase in cash (2) 4 1Q2-12 adjusted EBITDA excludes a $9 million pre-tax gain on land contributed to the TELUS Garden residential real estate project, and equity losses of $1 million for the residential real estate partnership. 
25. Appendix – definitions EBITDA: Earnings before interest, taxes, depreciation and amortization Capital intensity: capital expenditures divided by total revenue Cash flow: EBITDA less capex Free cash flow:EBITDA, adding Restructuring costs, net employee defined benefit plans expense, cash interest received and excess of share-based compensation expense over share-based compensation payments, subtracting the non-cash gain on Transactel, cash interest paid, cash taxes, capital expenditures, restructuring payments and employer contributions to employee defined benefit plans. Cost of retention (COR): total costs to retain existing subscribers, often presented as a percentage of network revenue
26. Appendix – 2012E free cash flow 2011 2012E ($M) EBITDA1 $3,900 to 4,050 $3,761 ~(1,950) (1,847) Capex ~(350) Net cash interest (377) (150) to (200) (150) Net cash tax payment2 ~(45) (60) Other3 1,380 to 1,530 1,327 Free Cash Flow (before dividends and spectrum) Cash pension contribution (including DB pension recovery)4 (330) ~(180) Free Cash Flow (before dividends and spectrum) 997 1,200 to 1,350 1 2011 EBITDA excludes $17M Transactel gain 2 Midpoint used to calculate 2012E FCF range 3Includes 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 27