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2004 – 3rd quarter review

2004 – 3rd quarter review. Robert McFarlane EVP & Chief Financial Officer October 29, 2004. Q3 highlights. TELUS Mobility excellent subscriber growth & retention record margins and significant cash flow growth TELUS Communications good quarter for ILEC performance

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2004 – 3rd quarter review

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  1. 2004 – 3rd quarter review Robert McFarlane EVP & Chief Financial Officer October 29, 2004

  2. Q3 highlights • TELUS Mobility • excellent subscriber growth & retention • record margins and significant cash flow growth • TELUS Communications • good quarter for ILEC performance • strong rebound in profitability for non-ILEC • TELUS Consolidated • excellent revenue, profitability & cash flow growth • EPS $0.44 (normalized $0.48 up 77%)

  3. consolidated results Q3-03 Q3-04 Change Revenue $1.81B $1.95B  7.8% EBITDA1 $752M $818M  8.7% Net Income $114M $157M  37% EPS2 $0.32 $0.44  38% Free Cash Flow3 $440M $503M  14% 1Incl. restructuring & workforce reduction costs of $16.2M & $2.3M for Q3-04 & Q3-03, respectively. 2 Incl. impacts of interest on tax settlements of approx. nil & $0.05 in Q3-04 and Q3-03, respectively. 3 Free Cash Flow defined as: EBITDA (including restructuring & workforce reduction costs) less capex, net cash interest, net cash taxes, net cash restructuring payments, and excess share compensation expense over share compensation payments.

  4. consolidated – EPS continuity growth Q3-03 Q3-04 EPS reported $0.32 $0.44 38% Income tax settlement (0.05) - - Share-based compensation 0.01 Restr. & workforce reduction - 0.03  EPS normalized $0.27 $0.48 77%

  5. Mobility segment ($M) Q3-03 Q3-04 Change External Revenue 620 747  21% EBITDA 246 324  32% Capex 95 103  8.7% Cash Flow1 150 220  46% Mobility segment financial summary 1 EBITDA less capex outstanding results across the board

  6. Mobility segment Wireless net additions Total wireless subscribers 425 to 475K new guidance 431K Q3 Q3 136K 101K Postpaid Prepaid Q2 83% 17% Q2 114K 103K Q1 Q1 67K 76K Q Actual Q Outlook 3.8M 2003 2004 Q3 net adds up 35%, with strong postpaid growth - net additions guidance revised upwards by 50K Wireless subscriber growth

  7. Communications segment revenue growth reverses historical trend EBITDA flat excluding $16M in restructuring costs communications segment financial summary ($M) Q3-03 Q3-04 Change External Revenue 1,186 1,200  1.1% EBITDA (aft. restructuring)1 507 494  2.4% EBITDA (bef. restructuring) 509 511  0.3% Capex 209 216  3.6% Cash Flow2 298 278  6.6% 1 Incl. restructuring & workforce reduction costs of $16.2M & $2.3M for Q3-04 & Q3-03, respectively. 2 EBITDA (aft. Restructuring) less capex.

  8. Communications segment ($M) Q3-03 Q3-04 Change Voice - Local 543 538  0.8% Voice – Long Distance 239 234  2.1% Data 332 358  7.9% Other 73 70  4.1% External Revenue 1,186 1,200  1.1% positive revenue growth driven by data growth & lower LD revenue decline communications segment revenue profile

  9. Communications segment High-speed Internet net additions Total Internet subscribers 152K ~125K High Speed Q3 Q3 Dial-up 31K 47K 69% 31% Q2 19K 27K Q2 Q1 Q1 44K 32K Q Actual Q Outlook 948K 2003 2004 on track to achieve 2004 annual target of 125K high-speed Internet subscriber growth

  10. Communications segment large deals and higher CPE revenue deliver improved revenue and EBITDA in Q3 non-ILEC revenue & EBITDA 2004 ($M) 145 2003 138 Q3 Q3 Q3 Q3 (3) (6) Revenue EBITDA

  11. Communications segment Q1-02 Q2-02 Q3-02 Q4-02 Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 non-ILEC delivers improved revenue and EBITDA in Q3 non-ILEC revenue & EBITDA Core Revenue Asset Disposition EBITDA 152 145 141 139 138 138 136 131 128 123 117 (2) (3) (6) (6) (9) (14) (15) (18) (23) (30) (36)

  12. Communications segment delivering operational efficiency Operational Efficiency Program (OEP) – 2001 to 2003 • Cumulative annual savings of $530 to 535M YE 2004 & onward 2004 efficiency initiatives • $16M in restruct. & workforce reduction costs in Q3 ($33M YTD) • Now expect $50M in restruct. & workforce reduction costs in 2004 up from previous guidance of $30M • Combining Business & Client Solutions into one unit to improve efficiency & effectiveness under leadership of Joe Natale • Consolidating IT operations from 15 to 2 locations continued focus on institutionalizing cost efficiency

  13. strong consolidated free cash flow ($M) Q3-03 Q3-04 EBITDA1 $752 $818 Capex (304) (320) Cash Restructuring Payments (net of expense) (30) 6 Net Cash Interest (14) (21) Non-Cash Share Based Compensation - 7 Net Cash Tax Recovery 36 12 Free Cash Flow 440 503 Share Issuance2 (non-public) 21 27 Cash Dividends (42) (45) Acc. Rec. Securitization Program reduction (4) - Working Capital/Other 105 28 Cash avail. for debt reduction & pref. redemp. $520 $513 Net change in LTD & Preferred share redemption3 (434) (248) Net Change in Cash $86 $265 1 Includes restructuring & workforce reduction costs. 2 Proceeds from Treasury shares issued under the employee share purchase and option plans. 3 $37M of preference & preferred shares were redeemed during Q3-04 (nil in Q3-03).

  14. long-term de-leveraging targets achieved 15 mos ahead of plan long-term financial policy targets Q3-03 Q3-04 Guidance Net Debt : Capital 53.7% 49.7% 45 to 50% (long term)   Net Debt : EBITDA 2.7X 2.2X <2.3X1(end of 2004) <2.2X2(new target for end of 2004)  1 As provided August 6, 2004 2 As provided October 29, 2004

  15. long-term financial policy targets • Maintaining net-debt to EBITDA & capitalization targets • TELUS continues to target credit ratings of BBB+ to A- • further debt reduction expected given strong FCF generation • Today announcing several shareholder value enhancing initiatives

  16. dividend increase • Quarterly dividend increased by 5¢ to 20¢ for Jan. 1, 2005 payment • Dividend increase moves TELUS into top quartile among dividend paying S&P/TSX companies for both yield & payout ratio • Consistent with a dividend growth approach, targeting a dividend payout ratio guideline of 45 to 55% of net earnings

  17. normal course issuer bid (NCIB) • Board approval for NCIB to repurchase up to 10% of public float or 25.5M shares upon obtaining regulatory approval • 14.0M common shares & 11.5M non-voting shares • Maximum shares to be purchased over rolling 30 day period is 2% of outstanding shares • Expect de-levering to continue despite NCIB due to strong free cash flow generation • Capital flexibility maintained with NCIB

  18. changes to Dividend Reinvestment Plan (DRIP) • DRIP amended to allow purchase on open market as well as issue from Treasury • Effective January 1, 2005 open market purchases • 3% discount on DRIP discontinued • Puts TELUS in line with other NA telcos

  19. revised 2004 guidance - Mobility previous 2004 guidance1 updated 2004 guidance Revenue (external) $2.675 to 2.725B  $2.775 to 2.8B EBITDA $1.05 to 1.1B  $1.1 to 1.125B Capex approx. $350M no change Wireless net adds 375 to 425K 425 to 475K 1 Previously updated August 6, 2004.

  20. revised 2004 guidance - Communications previous 2004 guidance1 updated 2004 guidance Revenue (external) $4.7 to 4.8B $4.725 to 4.775B Non-ILEC revenue $525 to 550M no change EBITDA $1.925 to 1.975B $1.925 to 1.95B Non-ILEC EBITDA $(30) to (40)M $(30) to (35)M Capex approx. $950M no change High-speed net adds approx. 125K no change 1 Previously updated August 6, 2004.

  21. positive guidance changes reflect strong performance at both TELUS Communications & TELUS Mobility revised 2004 guidance - consolidated previous 2004 guidance1 updated 2004 guidance Revenue $7.45 to 7.55B  $7.5 to 7.575B EBITDA $2.975 to 3.075B $3.025 to 3.075B EPS $1.30 to 1.50 $1.40 to 1.50 Capex approx. $1.3B no change Free Cash Flow $1.15 to 1.25B  $1.25 to 1.3B Net Debt : EBITDA 2.3X or less 2.2X or less 1 Previously updated August 6, 2004.

  22. Questions?

  23. investor relations 1-800-667-4871 telus.com ir@telus.com

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