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

2004 – 3rd quarter review

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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 - PowerPoint PPT Presentation

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Page 1: 2004 – 3rd quarter review

2004 – 3rd quarter review Robert McFarlaneEVP & Chief Financial OfficerOctober 29, 2004

Page 2: 2004 – 3rd quarter review

2

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%)

Q3 highlights

Page 3: 2004 – 3rd quarter review

3

consolidated results

Change

1 Incl. 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.

37%$157M$114MNet Income

38%

$0.44$0.32EPS2

7.8%$1.95B$1.81BRevenue

8.7%$818M$752MEBITDA1

Q3-04Q3-03

excellent revenue, profitability & free cash flow growth

14%$503M$440MFree Cash Flow3

Page 4: 2004 – 3rd quarter review

4

consolidated – EPS continuity

normalized quarterly EPS increase of $0.21 or 77%

growth

$0.44

Q3-04

EPS reported

Q3-03

38%$0.32

0.03 Restr. & workforce reduction -

0.01Share-based compensation -

$0.48EPS normalized 77%$0.27

- Income tax settlement (0.05)

Page 5: 2004 – 3rd quarter review

5outstanding results across the board

Mobility segment financial summary

1 EBITDA less capex

Mobility segment

21%747620External Revenue

32%324246EBITDA

46%220150Cash Flow1

8.7%10395Capex

Q3-04 Change($M) Q3-03

Page 6: 2004 – 3rd quarter review

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Wireless subscriber growth

Q3 net adds up 35%, with strong postpaid growth - net additions guidance revised upwards by 50K

Mobility segment

Total wireless subscribersWireless net additions

3.8M

17%Prepaid

83%

Postpaid

67K

2003

103K

Q1

Q2

431K

76K

2004

114K

Q1

Q2

425 to 475K

Q Actual Q Outlook

136KQ3101K

Q3

newguidance

Page 7: 2004 – 3rd quarter review

7

communications segment financial summary

1 Incl. restructuring & workforce reduction costs of $16.2M & $2.3M for Q3-04 & Q3-03, respectively.2 EBITDA (aft. Restructuring) less capex.

Q3-04 Change($M) Q3-03

1.1%1,2001,186External Revenue

2.4%494507EBITDA (aft. restructuring)1

6.6%278298Cash Flow2

3.6%216209Capex

revenue growth reverses historical trend EBITDA flat excluding $16M in restructuring costs

Communications segment

0.3%511509EBITDA (bef. restructuring)

Page 8: 2004 – 3rd quarter review

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communications segment revenue profile

Communications segment

positive revenue growth driven by data growth & lower LD revenue decline

Q3-04 Change($M) Q3-03

0.8%538543Voice - Local

7.9%358332Data

1.1%1,2001,186External Revenue

4.1%7073Other

2.1%234239Voice – Long Distance

Page 9: 2004 – 3rd quarter review

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high-speed Internet subscriber growth

on track to achieve 2004 annual target of 125K

Communications segment

Total Internet subscribers

69%

High Speed

High-speed Internet net additions

31%Dial-up

948K

32K

2003

27K

Q1

Q2

152K

44K

2004

19K

Q1

Q2

~125K

Q Actual Q Outlook

31KQ347KQ3

Page 10: 2004 – 3rd quarter review

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138145

(6) (3)Revenue

Q3

non-ILEC revenue & EBITDA

Q3

EBITDA

Q3 Q3

2003

2004($M)

Communications segment

large deals and higher CPE revenue deliver improved revenue and EBITDA in Q3

Page 11: 2004 – 3rd quarter review

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non-ILEC revenue & EBITDA

non-ILEC delivers improved revenue and EBITDA in Q3

Communications segment

145

131128138138139141

152136

123117

(36) (30) (23) (18) (15)(6) (6) (2) (9) (14)

(3)

Core Revenue Asset Disposition EBITDA

Q1-02 Q2-02 Q3-02 Q4-02 Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04

Page 12: 2004 – 3rd quarter review

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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

Communications segment

delivering operational efficiency

Page 13: 2004 – 3rd quarter review

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$513

28

(45)

503

12

(21)

(320)

$818

Q3-04

$520

105

(42)

440

36

(14)

(304)

$752

Q3-03

Cash avail. for debt reduction & pref. redemp.

Working Capital/Other

Cash Dividends

Free Cash Flow

Net Cash Tax Recovery

Net Cash Interest

Capex

EBITDA1

($M)

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).

strong consolidated free cash flow

6(30)Cash Restructuring Payments (net of expense)

7-Non-Cash Share Based Compensation

-(4)Acc. Rec. Securitization Program reduction

2721Share Issuance2 (non-public)

(248)(434)Net change in LTD & Preferred share redemption3

$265$86Net Change in Cash

Page 14: 2004 – 3rd quarter review

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long-term financial policy targets

long-term de-leveraging targets achieved 15 mos ahead of plan

45 to 50% (long term)

49.7%53.7%Net Debt : Capital

Q3-04 GuidanceQ3-03

<2.3X1 (end of 2004)

<2.2X2 (new target for

end of 2004)

2.2X2.7XNet Debt : EBITDA

1 As provided August 6, 20042 As provided October 29, 2004

Page 15: 2004 – 3rd quarter review

15

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

long-term financial policy targets

balanced approach to debt holders and shareholders

Page 16: 2004 – 3rd quarter review

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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

dividend increase

quarterly dividend increased by 33%

Page 17: 2004 – 3rd quarter review

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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

normal course issuer bid (NCIB)

normal course issuer bid for up to 10% of float

Page 18: 2004 – 3rd quarter review

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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

changes to Dividend Reinvestment Plan (DRIP)

Page 19: 2004 – 3rd quarter review

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425 to 475K375 to 425KWireless net adds

no change

$1.1 to 1.125B

$2.775 to 2.8B

updated 2004 guidance

approx. $350M

$1.05 to 1.1B

$2.675 to 2.725B

previous 2004 guidance1

Capex

EBITDA

Revenue (external)

revised 2004 guidance - Mobility

1 Previously updated August 6, 2004.

Page 20: 2004 – 3rd quarter review

20

$(30) to (35)M$(30) to (40)M Non-ILEC EBITDA

no change

$1.925 to 1.95B

no change

$4.725 to 4.775B

updated 2004 guidance

approx. $950M

$1.925 to 1.975B

$525 to 550M

$4.7 to 4.8B

previous 2004 guidance1

EBITDA

Capex

Non-ILEC revenue

Revenue (external)

no changeapprox. 125KHigh-speed net adds

revised 2004 guidance - Communications

1 Previously updated August 6, 2004.

Page 21: 2004 – 3rd quarter review

21

no changeapprox. $1.3BCapex

$1.25 to 1.3B

$1.40 to 1.50

$3.025 to 3.075B

$7.5 to 7.575B

updated 2004 guidance

$1.15 to 1.25B

$1.30 to 1.50

$2.975 to 3.075B

$7.45 to 7.55B

previous 2004 guidance1

EPS

Free Cash Flow

EBITDA

Revenue

2.2X or less2.3X or lessNet Debt : EBITDA

revised 2004 guidance - consolidated

1 Previously updated August 6, 2004.

positive guidance changes reflect strong performance at both TELUS Communications & TELUS Mobility

Page 22: 2004 – 3rd quarter review

Questions?

Page 23: 2004 – 3rd quarter review

investor relations

1-800-667-4871telus.com [email protected]