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Q1 2014 investor conference call May 8, 2014 Darren Entwistle, Executive Chair Joe Natale, President and Chief Executive Officer John Gossling, EVP & Chief Financial Officer

Q1 2014 investor conference call May 8, 2014

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Darren Entwistle, Executive Chair Joe Natale, President and Chief Executive Officer John Gossling , EVP & Chief Financial Officer. Q1 2014 investor conference call May 8, 2014. TELUS forward looking statement. - PowerPoint PPT Presentation

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Page 1: Q1 2014 investor conference call   May 8,  2014

Q1 2014investor conference call May 8, 2014

Darren Entwistle, Executive ChairJoe Natale, President and Chief Executive OfficerJohn Gossling, EVP & Chief Financial Officer

Page 2: Q1 2014 investor conference call   May 8,  2014

2

Today's presentation and answers to questions contain statements about financial and operating performance of TELUS (the Company) and future events, including with respect to future dividend increases and normal course issuer bids to 2016 and 2014 annual targets 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 2014 annual targets, semi-annual dividend increases through 2016, ability to sustain and complete multi-year share purchase programs through 2016), qualifications and risk factors referred to in the first quarter Management’s discussion and analysis, in the 2013 annual report, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). 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.

TELUS forward looking statement

Page 3: Q1 2014 investor conference call   May 8,  2014

Executing on our strategy

3

TELUS delivering strong results and returning significant cash to shareholders

• Delivering strong first quarter results

• Returning significant capital to shareholders

• Investing for future sustainable growth

• Advancing through world class leadership progression

Page 4: Q1 2014 investor conference call   May 8,  2014

Healthy postpaid net additions

4

Postpaid net adds (000s)

Q1-13

59

Q1-14

Wireless subscribers1

7.8M total

1.0Mprepaid

87%

13%

6.8Mpostpaid

48

1 Wireless subscribers excludes Public Mobile prepaid subscribers as at March 31, 2014.

Continued healthy expansion of postpaid subscriber baseand mix shift toward higher value postpaid

Page 5: Q1 2014 investor conference call   May 8,  2014

Industry-leading wireless churn

5

1.48%

Q1-13

1.39%

Q1-14

Blended Postpaid

1.11%

Q1-13

0.99%

Q1-14Q1-12Q1-12

1.55%

1.14%

North American industry-leading postpaid churn resultsLowest Q1 in seven years - third consecutive quarter with postpaid

churn < 1%

Page 6: Q1 2014 investor conference call   May 8,  2014

Smartphone & data adoption driving ARPU growth

6

Q1-12 Q1-13 Q1-14

6.2 6.6 6.8

Postpaid subscribers (millions)Smartphone % of postpaid

$60.04 $61.24$58.87

Blended ARPU

Q1-12 Q1-13 Q1-14

56%68%

78%

Q1 smartphone penetration up 10 points to 78% of postpaid base supporting continued strong ARPU growth

of 2%

Page 7: Q1 2014 investor conference call   May 8,  2014

Industry-leading lifetime revenue per subscriber1

7

Q1-13 Q1-14

$4,406$4,057

1 Lifetime revenue derived by dividing ARPU by blended churn rate

Q1-12

$3,798

Customers First focus generating industry-leading lifetime revenue per subscriber

Page 8: Q1 2014 investor conference call   May 8,  2014

Strong Future Friendly Home subscriber growth

8

Combined TV and High-Speed net additions continue to exceed residential NAL losses by two times

TELUS TVResidential NALs

High-speed Internet

Q3-13 Q4-13Q2-13

53K59K

44K

-32K -33K

31K 34K 38K

19K21K

-34K

34K

16K50K

Q1-13

-25K -24K

27K

Q1-14

21K

48K

13K

20K 34K12K16K 24KTotal wireline customer net adds

34K34K

Page 9: Q1 2014 investor conference call   May 8,  2014

Key first quarter operational highlights

9

Supporting value creation for investors and return of significant cash to shareholders

• Leading postpaid wireless subscriber growth – 57% share of net adds generated by major national carriers

• Lowest postpaid churn in Canada & North America• Industry leading ARPU and fastest growing network revenue• Industry leading lifetime revenue per customer • Most rapidly growing wireline business in Canada• Strong EBITDA performance and revenue growth in both

wireless and wireline

Page 10: Q1 2014 investor conference call   May 8,  2014

Q1 2014 wireless financial results

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($ millions, except margin) Q1 2014 y/y change Revenue (external)1 1,555 +5.6%

Network revenue 1,443 +5.3%

EBITDA2 690 +3.6%

EBITDA (excl. Public Mobile) 700 +5.1%

EBITDA margin3 44.0% (0.9) pts

EBITDA margin (excl. Public Mobile) 45.3% +0.4 pts

Capital expenditures 165 +23%

TELUS delivers another strong quarter of wireless results

1 Includes Public Mobile revenue of $24M, composed of network revenues of $21M and equipment and other revenues of $3M 2 For definition, see section 11.1 in Q1 2014 Management’s discussion and analysis.3 EBITDA as a percentage of total revenue.

Page 11: Q1 2014 investor conference call   May 8,  2014

Q1 2014 wireline financial results

11

($ millions, except margin) Q1 2014 y/y change Revenue (external) 1,340 +4.4%

EBITDA 387 +5.0%

EBITDA margin1 28.0% +0.2 pts

Capital expenditures 331 (0.6)%

Strong EBITDA growth and margin expansion reflecting continued revenue growth and focus on efficiency

1 EBITDA as a percentage of total revenue.

Page 12: Q1 2014 investor conference call   May 8,  2014

Q1 2014 consolidated financial results

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($ millions, except EPS) Q1 2014 y/y change Revenue 2,895 +5.0%

EBITDA 1,077 +4.2%

EBITDA (excl. Public Mobile) 1,087 +5.1%

EPS (basic) 0.61 +8.9%

Capital expenditures 496 +6.2%

Simple cash flow (EBITDA less capex) 581 +2.5%

Strong growth in revenue and profitabilitydriven by wireless and wireline

Page 13: Q1 2014 investor conference call   May 8,  2014

EPS continuity analysis

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EPS growth driven by strong EBITDA growthand lower shares outstanding

Q1-13(as reported)

EBITDA(ex. Public

Mobile)

Lower shares

outstanding

Q1-14(as reported)

Financing costs and

Depreciation & Amortization

$0.56$0.06

$0.03 ($0.02) ($0.01)

Public Mobile

$0.61($0.01)

Higherincome

tax rates

Page 14: Q1 2014 investor conference call   May 8,  2014

TELUS financing update

• Successfully issued $1 billion in two tranche debt offering at attractive interest rates

• Average cost of long-term debt 4.89%

• Average term to maturity of long-term debt 10.3 years

• Extended credit facility to May 2019 and expanded size from $2.0 billion to $2.25 billion

14

TELUS balance sheet remains instrong position with significant liquidity

Page 15: Q1 2014 investor conference call   May 8,  2014

Returning significant cash to shareholders

• Executing on multi-year dividend growth and share purchase programs

• Dividend - $0.38/share or $1.52 annually up 11.8% over last year

• 5.4M shares purchased in 2014 for $202M at average price of $37.45

15

2004 to mid-2014cumulative

$10.1B

$4.0B

$6.1B

Buybacks

Dividends

Strong track record of returning capital to shareholders

Page 16: Q1 2014 investor conference call   May 8,  2014

16

Investor Relations1-800-667-4871telus.com/[email protected]

Page 17: Q1 2014 investor conference call   May 8,  2014

Appendix – Q1 2014 free cash flow comparison

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2014 2013  Q1 Q1EBITDA 1,077 1,034Capital expenditures (excluding spectrum licenses) (496) (467)Net employee defined benefit plans expense 22 26Employer contributions to employee defined benefit plans (29) (36)Interest expense paid, net (60) (57)Income taxes paid, net (224) (148)Share-based compensation 16 12Restructuring (disbursements) net of restructuring costs (15) (6)Free Cash Flow 291 358Dividends (222) (208)Purchase of Common Shares for cancellation (159) -Cash payments for 700 MHz spectrum licences (229) -Cash payments for acquisitions and related investments (37) (26)Real estate joint ventures (14) (4)Working Capital and other (240) (139)Funds available for debt redemption (610) (19)Net issuance (repayment) of debt 326 (66)Decrease in cash (284) (85)

Page 18: Q1 2014 investor conference call   May 8,  2014

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Appendix - definitions

• EBITDA does not have any standardized meaning prescribed by IFRS-IASB. We have issued guidance on and report EBITDA because it is a key measure used to evaluate performance at a consolidated level and the contribution of our two segments. For definition and explanation, see Section 11.1 in the 2014 first quarter Management’s discussion and analysis.