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Darren Entwistle, Executive Chair
Joe Natale, President and Chief Executive Officer
John Gossling, EVP and Chief Financial Officer
Q4 2014 and 2015 Targets
investor conference call
February 12, 2015
TELUS forward looking statement
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 2015 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 2015
annual targets, semi-annual dividend increases through 2016 and our ability to sustain and
complete multi-year share purchase program through 2016), qualifications and risk factors
referred to in the fourth quarter Managements review of operations and in the 2014 annual
Management’s discussion and analysis, 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.
2
Executing on our strategy
• Increasing customer connections
• Focusing on delivering exceptional customer experience
• Investing for future sustainable growth
• Returning significant cash to our shareholders
• Establishing strong 2015 financial targets
TELUS consistently delivering strong results
and returning significant cash to shareholders
3
Stronger wireless postpaid net additions
Wireless
subscribers1
Postpaid net adds (000s)
106
100
113
113
1.0M
prepaid
118
12%
78
8.1M
total
88%
Q2-13 Q2-14
Q3-13 Q3-14
Q4-13 Q4-14
7.1M
postpaid
Year over year postpaid net additions up for a
second consecutive quarter
1 Wireless
operating indicators exclude Public Mobile subscribers, which are all prepaid.
4
Industry-leading wireless churn
Blended1
Postpaid
1.51%
1.12%
1.41%
1.33%
0.97%
0.94%
Q4-12 Q4-13 Q4-14
Q4-12 Q4-13 Q4-14
Sixth consecutive quarter with postpaid churn <1%
1 Wireless
operating indicators exclude Public Mobile subscribers, which are all prepaid.
5
Smartphone & data adoption driving ARPU growth
6.8
6.5
7.1
$60.95
$61.86
$64.20
81%
77%
66%
Q4-12
Q4-13
Q4-14
Postpaid subscribers (millions)
Q4-12
Q4-13
Q4-14
Blended ARPU1
Smartphone % of postpaid
Q4 smartphone penetration up four points to 81% of
postpaid base supporting strong ARPU growth of 3.8%
1 Wireless
operating indicators exclude Public Mobile subscribers, which are all prepaid.
6
Industry-leading lifetime revenue per subscriber1,2
$4,827
$4,036
Q4-12
$4,387
Q4-13
Q4-14
Customers First focus supporting industry-leading lifetime
revenue per subscriber – up 10% YoY
1
2
Lifetime revenue derived by dividing ARPU by blended churn rate.
Wireless operating indicators exclude Public Mobile subscribers, which are all prepaid.
7
Growing wireline subscriber base
RGU1 net adds (000s)
59
42
High-speed Internet
TELUS TV
Business NALs
48
50
Residential NALs
-19
-30
Total wireline RGU net adds
-24
-25
Q4-13
Q2-14
Q3-14
Q4-14
29
23
24
25
Delivering positive wireline subscriber growth
1
Revenue generating units
8
Key fourth quarter operating highlights
• Strong postpaid wireless subscriber growth
• Lowest postpaid churn in North America
• Industry-leading and growing ARPU
• Industry-leading and growing lifetime revenue per customer
• Most rapidly growing wireline business in Canada
2015 targets reflect confidence we can continue to set TELUS
apart and create further value for our customers and investors
1
For definition, see section 5.1 in Q4 2014 Management’s review of operations.
9
Q4 2014 wireless financial results
($ millions, except margin)
Q4 2014
y/y change
Revenue (external)1
1,744
+10.0%
Network revenue
1,549
+8.0%
629
+6.3%
35.8%
(1.2) pts
188
(11.7%)
EBITDA
EBITDA margin2
Capital expenditures
TELUS delivers another strong quarter of wireless results
1 Q4/14
and Q4/13 includes Public Mobile revenue of $16M and $9M respectively, composed of network revenues of $16M and
$7M respectively, and equipment and other revenues of $NIL and $2M respectively.
2 EBITDA as a percentage of total revenue.
10
Q4 2014 wireline financial results
($ millions, except margin)
Revenue (external)
EBITDA
EBITDA (excl. restructuring)
EBITDA margin1
EBITDA margin (excl. restructuring)
Capital expenditures
Q4 2014
y/y change
1,384
+1.5%
372
+3.4%
392
+3.1%
26.0%
+0.4 pts
27.4%
+0.4 pts
382
+4.9%
Strong EBITDA growth and margin expansion reflecting
continued revenue growth momentum and efficiency flow-through
1
EBITDA as a percentage of total revenue.
11
Q4 2014 consolidated financial results
($ millions, except EPS)
Q4 2014
y/y change
Revenue
3,128
+6.1%
EBITDA
1,001
+5.3%
EPS (basic)
0.51
+8.5%
Capital expenditures
570
(1.2%)
Free cash flow
337
148%
Strength in both wireless and wireline delivering strong
consolidated growth in revenue and profitability
12
EPS continuity analysis
$0.47
Q4-13
(as reported)
$0.05
$0.01
($0.01)
($0.01)
$0.51
EBITDA
Lower O/S
shares (NCIB)
Depreciation
Financing
& Other
Q4-14
(as reported)
EPS growth reflects strong EBITDA growth
and lower shares outstanding from active NCIB program
13
2015 targets and
key assumptions
See forward-looking statement in TELUS fourth
quarter 2014 and 2015 targets news release
2015 segmented targets1
Wireless ($B)
2015 targets
Targeted change
Network revenue (external)
$6.175 to $6.300B
3 to 5%
EBITDA (excluding restructuring)
$2.850 to $2.950B
3 to 7%
2015 targets
Targeted change
Revenue (external)
$5.525 to $5.625B
2 to 4%
EBITDA (excluding restructuring)
$1.550 to $1.625B
1 to 6%
Wireline ($B)
Segmented targets building on our
strong momentum achieved in 2014
forward looking statement caution and assumptions in Section 1.5 of fourth quarter 2014 Management’s review of
15
operations.
1 See
2015 consolidated targets1
$B, except EPS
2015 targets
Targeted change
$12.350 to $12.550
3 to 5%
$4.325 to $4.500
3 to 7%
EPS
$2.40 to $2.60
4 to 13%
Capital expenditures
Similar to 2014
____
Revenue
EBITDA (including restructuring)
Targets demonstrate benefits of ongoing network and service-related
investments, combined with customer-focused operational execution
forward looking statement caution and assumptions in Section 1.5 of fourth quarter 2014 Management’s review of
16
operations.
1 See
2015 key assumptions1
• Pension accounting discount rate of 3.90%
• Defined benefit pension expense of approximately $132M (approximately
$106M in Employee benefits expense and $26M in Financing costs)
• Defined benefit pension plan cash funding of approximately $88M
• Restructuring and other like costs of approximately $75M
• Cash taxes in the range of $280 to $340M
• Statutory income tax rate of 26.0 to 26.5%
Key assumptions and sensitivities listed in section 1.5
in Q4 Management’s review of operations
forward looking statement caution and assumptions in Section 1.5 of fourth quarter 2014 Management’s review of
17
operations.
1 See
Our balance sheet strength
• Long-term net debt to EBITDA ratio of 2.19x at year end 2014
• Excellent debt maturity schedule with average maturity1 at
10.9 years and average cost of debt at approximately 4.7%
• Over $2 billion of available liquidity
• Investment grade credit ratings provide ready access to capital
market funding
Strong balance sheet supporting broadband investments,
spectrum purchases and returning capital to shareholders
1 Average
term to maturity figure excludes commercial paper
18
Returning significant cash to shareholders
$11.0B
• Executing on multi-year dividend growth
and share purchase programs
$4.4B
Buybacks
$6.6B
Dividends
• 15 dividend increases since 2004 to
current $0.40/share or $1.60 annually
• 3.3M shares purchased through our
advanced 2015 NCIB program through
January 2015 for $136M
2004 to 2014
cumulative
Strong track record of returning capital to shareholders by
returning over $11 billion to shareholders since 2004
19
Investor Relations
1-800-667-4871
telus.com/investors
[email protected]
20
Appendix – free cash flow comparison
Q4 - 2014
Q4 - 2013
2014
2013
EBITDA
Capex (excluding spectrum licenses)
1,001
(570)
951
(577)
4,216
(2,359)
4,018
(2,110)
Net employee defined benefit plans expense
Employer contributions to employee defined benefit plans
22
(15)
(128)
1
15
11
337
(28)
(112)
(233)
(3)
(16)
(86)
(141)
(25)
(166)
27
(27)
(113)
(120)
(22)
17
136
(213)
(229)
(8)
33
(281)
585
304
87
(88)
(410)
(464)
74
1
1,057
(1,171)
(612)
(913)
(49)
(53)
(58)
(1,799)
1,523
(276)
108
(200)
(360)
(438)
24
9
1,051
(67)
(1,000)
(852)
(261)
(23)
139
(1,013)
1,242
229
Interest expense paid, net
Income taxes paid, net of refunds
Share-based compensation
Restructuring (disbursements) net of restructuring costs
Free Cash Flow
Spectrum
Purchase of Common Shares for cancellation
Dividends paid to holders of equity shares
Cash payments for acquisitions and related investments
Real estate joint ventures
Working Capital and Other
Funds available for debt redemption
Net issuance of debt
Increase in cash
21
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 5.1 in the 2014 fourth
quarter Management’s review of operations
22
2015E free cash flow
2014A
2015E
EBITDA (net of restructuring)
$4,216
$4,325 to 4,500
Capex
(2,359)
~(2,359)
Simple Cash flow
1,857
1,965 to 2,140
Net cash tax payment1
(464)
(280) to (340)
Net cash interest payment
(410)
~(450)
162
~40
1,145
1,245 to 1,420
Other2
Free Cash Flow (before dividends, spectrum
and pension contributions)
Cash pension contribution
Free Cash Flow (before dividends and spectrum)
(88)
1,057
~(88)
1,155 to 1,330
1 Midpoint
used to calculate FCF range
includes share based compensation, restructuring net of restructuring costs, net employee defined
benefit plans expense
2 Other
23
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