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Telecom

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Title: Telecom


1
Telecom Cable TV Fixed Income
Conference September 13, 2006 Robert
McFarlane EVP Chief Financial Officer
2
Forward-looking statements
  • Presentations and answers to questions today
    contain forward-looking statements that require
    assumptions about expected future events
    including income trust conversion and timing,
    financing, financial and operating results, and
    2006 guidance that are subject to inherent risks
    and uncertainties. There is significant risk that
    predictions and other forward-looking statements
    will not prove to be accurate so do not place
    undue reliance on them.
  • There are many factors that could cause actual
    results to differ materially. For a full listing
    and description of the potential risk factors and
    assumptions, please refer to the TELUS 2005
    annual report, updates in the 2006 quarterly
    reports, Sept. 11, 2006 income trust proposal
    news release and other filings with securities
    commissions in Canada and the United States.

3
Agenda
  • About TELUS
  • TELUS wireless review
  • TELUS wireline review
  • TELUS consolidated review
  • Credit profile
  • QA
  • Appendix
  • Definitions

3
4
About TELUS
  • Executing national growth strategy focused on
    data, IP wireless
  • Financial results (12ME June 30, 2006)
  • Revenue 8.4B
  • EBITDA 3.3B
  • FCF 1.5B
  • Enterprise value 26B (net debt 5.7B)
  • Listings TSX T, T.A NYSE TU
  • Reporting segments wireless and wireline

Best performing Canadian telco
4
5
Leading the way with a proven strategy
  • Focusing on growth markets of data wireless
  • Building national capabilities
  • Providing integrated solutions
  • Investing in internal capabilities
  • Partnering, acquiring and divesting as necessary
  • Going to market as one team

Strategic intent to unleash the power of the
Internet to deliver the best solutions to
Canadians at home, in the workplace and on the
move.
Consistent strategy and execution 2000 ? 2006
5
6
Wireless-wireline merger rationale
  • Advance our industry leading strategy
  • Achieve meaningful commercial differentiation in
    the market
  • Capitalize on technology convergence of wireless
    and wireline
  • Drive continued operating efficiency and
    effectiveness

One team, united behind one strategy, defined by
one brand
6
7
Strategic focus on data and wireless
Revenue
20062
20001
LD
Wireless Voice
LD
10
23
41
Wireless
18
Voice
Data
Voice
10
28
49
Wireline Data
Wireless Data
19
2
5.7B
8.4B
2 12 months ending June 2006
1 12 months ending June 2000
Data and wireless now represent 62 of revenue
7
8
Strategic focus on wireless generating cash flow
Cash Flow
20062
20001
(EBITDA less capex)
Wireless 22
Wireless 59
Wireline 41
Wireline 78
1.1B
1.9B
1 12 months ending June 2000
2 12 months
ending June 2006
Wireless now represents 59 of Cash Flow
8
9
Total subscriber connections
10.4
(millions)
9.9
9.4
Res NALs
Bus NALs
Dial-up Internet
High-speed Internet
Wireless
Q2-06
Q2-05
Q2-04
Connections increasing with strong wireless and
Internet growth
9
10
TELUS subscriber trends
Change
Jun-06
Jun-04
3-year trend
31
?
4.7M
3.6M
Wireless subscribers
33
?
831K
624K
High-speed Internet
?
4.6M
(4)
4.8M
NALs
10
11
Wireless
12
Wireless segment financial results
Change
H1-06
H1-05
18
?
1,827M
1,555M
Revenue
19
?
837M
704M
EBITDA1
20
?
209M
174M
Capital expenditures
19
?
628M
530M
Cash flow (EBITDA less capex)
1 Includes 3M in restructuring workforce
reduction costs in H1-06
Excellent revenue, EBITDA and cash flow growth
12
13
Increasing Canadian wireless penetration
review of operations
Dec-03
Dec-08E
Jun-06
42
65 - 68
53.5
Penetration
Source Industry analysts, CWTA
4 to 5 million net additions expected over next
2.5 years
13
14
Wireless data ARPU growth
63.18
60.84
Data ARPU
4.45
2.30
Q2-05
Q2-06
ARPU growth led by 93 increase in wireless data
14
15
Industry ARPU comparison
review of operations wireless
Q2-06 prepaid ARPU
Q2-06 postpaid ARPU
72
67
63
26
14
13
TELUS Wireless
Rogers Wireless
BCE Wireless
TELUS Wireless
Rogers Wireless
BCE Wireless
Significant ARPU premium over peers
15
16
Staying ahead on wireless data
  • Expanding EVDO high speed wireless service
  • 24 major urban markets
  • Cool new applications
  • Music downloads and video games
  • Watch 15 channels on Mobile TV
  • TELUS Mobile Radio powered by XM Canada
  • 5 times faster
  • Ampd Powered by TELUS coming in 2007

Fostering continued wireless data growth
16
17
Exclusive Ampd arrangement and investment
  • Ampd Mobile responsible for marketing, freshest
    and exclusive entertainment content, and
    optimized handsets
  • Targeting 18 to 35 age demographic and lifestyle
  • TELUS responsible for managing sales and
    distribution, billing, client care, network
    options and pricing
  • Exclusive licensing and service agreement not a
    traditional MVNO
  • Ampd Mobile is a premium brand with high ARPUs
    focused on mobile media (not traditional voice)
    and postpaid
  • TELUS Ventures invested US7.5M in US business of
    Ampd Mobile, Inc.

17
18
Wireless industry economics comparison
Q2-06
BCE
Rogers
TELUS
51
55.951
63.18
ARPU
1.60
1.821
1.30
Blended churn
3188
3074
4860
Avg. lifetime revenue per sub
419
397
394
COA per gross add
13.1
12.9
8.1
COA / lifetime revenue
1Calculated using prepaid and postpaid metrics
due to non-disclosure by Rogers
TELUS subscriber economics compare favourably
18
19
Staying ahead in North American performance
Q2 YTD cash flow yield1 of national wireless
companies ()
34
33
26
21
21
12
12
Sprint Nextel
TELUS Wireless
Rogers Wireless
T-Mobile
BCE Wireless
Verizon Wireless
Cingular
1 EBITDA less capex as a percentage of total
revenue. Source Company reports
Highest Q2 YTD cash flow yield in North America
19
20
2006 wireless guidance
2006 guidance2
annual change
?
Revenue
3.8 to 3.875B
15 to 18
?
EBITDA
1.7 to 1.75B
18 to 21
?
approx. 450M
Capex
11
Wireless net adds
560 to 590K
flat
1 See forward looking statement caution
2 August 4, 2006
Solid wireless momentum
20
21
Wireline
22
Wireline segment financial results
Change
H1-06
H1-05
2.1
?
2.39B
2.44B
Revenue
9.3
?
923M
1,017M
EBITDA1
6.4
?
968M
1,034M
EBITDA (excl. restructuring)
12
?
570M
508M
Capital expenditures
31
?
353M
510M
Cash flow (EBITDA less capex)
1 Includes 17M and 45M in wireline
restructuring costs in H1-05 and H1-06
respectively
Results reflect challenging wireline environment
and increased restructuring
charges
22
23
Year-over-year NAL declines
Trailing six quarters ended Q2-06

Q1
Q2
Q3
Q4
Q1
Q2
Source Merrill Lynch, company reports
2005
2006
23
24
Future Friendly Home
  • Suite of IP applications
  • Home Networking (wireless LAN)
  • HomeSitterTM
  • TELUS TV targeted roll-outs in
  • Edmonton and Calgary 2005/2006
  • Vancouver lower mainland 2006/2007

24
25
Expanding TELUS TV availability
financial review
  • Offering customers differentiated entertainment
  • Choice of 200 digital stations
  • Customized channel packaging
  • Interactive programming guide
  • Video on demand
  • myTELUS channel
  • Call display

Targeted launches to continue
25
26
Non-ILEC revenue EBITDA
EBITDA (M)
Revenue (M)
650-675
632
561
555
25-30
21
2004
2003
2005
2006E1
2004
2005
2006E1
2003
(22)
(29)
1 August 4, 2006 guidance. See forward looking
statement caution.
Continued focus on profitable, long-term growth
26
27
2006 wireline guidance1
2006 guidance 2
annual change
Revenue
4.825 to 4.850B
0 to (1)
?
?
Non-ILEC Revenue
650 to 675M
3 to 7
?
EBITDA
1.8 to 1.85B
0 to (3)
?
Non-ILEC EBITDA
25 to 30M
18 to 42
?
approx. 1.15B
Capex
26
?
High speed net adds
gt 125K
gt52K
1 See forward looking statement caution
2 August 4, 2006
Guidance reflects challenging wireline environment
27
28
Consolidated Review
29
TELUS Consolidated
Change
H1-06
H1-05
5.6
?
4.22B
3.99B
Revenue
2.2
?
1,760M
1,721M
EBITDA
47M
17M
Restructuring costs
4.0
?
1,807M
1,738M
EBITDA (excl. restructuring)
16
?
706M
611M
EBIT
36
?
1.63
1.20
EPS (reported)
1 Normalized for tax-related adjustments,
retroactive regulatory decisions and and a BC Tel
bond litigation accrual, EPS in H1-05 H1-06,
would have been 1.06 and 1.29, up 22
Strong gains in revenue and EPS
29
30
Strategic operating model
Growth opportunities
Challenges
Competitive Intensity
Technological Substitution
Non-ILEC Growth
Future Friendly Home
Organization Effectiveness
Price Cap Regulatory Framework




Short-term dilutive
Strive to hold wireline EBITDA (before
restructuring) flat over medium term
?
Growth in revenues and EBITDA from wireless
business

Continued improvements in consolidated results
30
31
Push to implement the Telecom Policy Report
  • Supporting TPR panel and Industry Canadas
    thought leadership

Other CRTC developments
  • 2005 VoIP decision re-affirmed by CRTC
  • Re-assessing aspects of local forbearance
    decision
  • Mobile TV broadcasting not regulated
  • Third local price cap proceeding underway for
    2007

Opportunity for positive regulatory and policy
change
31
32
2006 consolidated guidance summary
annual change
2006 guidance1
Revenue
8.625 to 8.725B
? 6 to 7
EBITDA2
3.5 to 3.6B
? 6 to 9
2.90 to 3.10
EPS3
? 48 to 58
approx. 1.6B
Capex
? 21
1.55 to 1.65B
Free Cash Flow
? 6 to 13
1 September 11, 2006 guidance (unchanged from Aug
4/06), and reflects est. 7M of expenses in 2006
related to trust conversion. See forward looking
statement caution 2 Including restructuring
workforce reduction costs of 54M in 2005 and up
to 100M in 2006 3 Including 34 cents of positive
tax-related adjustments in 2006
Annual consolidated financial guidance remains
unchanged 2007 guidance planned for December 2006
32
33
Income trust transaction overview
  • Sept. 11/06 announced approved proposal for
    reorganization into income trust
  • Represents conversion of TELUS in its entirety
  • Via plan of arrangement under Business
    Corporations Act (B.C.)
  • Subject to approval of 2/3rds of each class of
    shares
  • To be one class of Fund Unit vs current dual
    class share structure
  • Anticipate initial distributions of between 3.90
    to 4.10 on annualized basis
  • Compares to current 1.10 annualized dividend

Conversion entails increase in cash distributions
by 255 to 273
33
34
Strategic rationale for TELUS conversion into
Income Trust
  • Transaction supports advancement of national
    growth strategy
  • Optimizes ability to make future growth
    investments
  • Enhances tax efficiency at TELUS and
    significantly increases cash distributions to
    shareholders
  • Ensures integrated operations drive customer
    service excellence and competitive
    differentiation
  • Avoids costs and governance complexity of a
    partial conversion
  • Offers investors high quality assets, strong
    predictable cash flow and prospect of growth

Creating Canadas premier income trust
34
35
Benefits of proposed conversion in January 2007
  • Tax efficiency as TELUS has fully utilized its
    tax assets as of June 30, 2006
  • TELUS now generating current tax liability on go
    forward basis
  • Status quo would entail paying cash taxes
    commencing in 2008
  • Optimal timing for TELUS as expect to be able to
    shelter 2006 tax liability on conversion, in
    addition to ongoing tax efficiencies
  • Optimal timing for shareholders as taxable deemed
    disposition on conversion of shares for units
    generally not payable until April 2008
  • Beneficial to debt holders as increases future
    cash flow for debt servicing

35
36
Return of capital pre and post conversion
per share
3.90 to 4.10
Normal Course Issuer Bid
4
Dividends paid
3.38 2,3
3.30
Income trust cash distribution
3
2.62 1
2
0.82
1
0.60
2003
2004
2005
2006
2007E3
1 Total Cash per Share annualized 2006
dividend, plus YTD NCIB as at Aug 30, 2006
2 Total Cash per Share annualized 2006
dividend, plus YTD NCIB as at Aug 30, 2006
annualized
36
3 See forward looking statement caution
37
Transaction time line1
  • Notice of special meeting of TELUS shareholders
    Nov. 2006
  • Information circular mailing Dec. 2006
  • Special shareholder meeting Jan. 2007
  • Obtain regulatory and other approvals
  • Closing and conversion expected late Jan. 2007

1 See forward looking statement caution
To create premier income trust in Canada
37
38
Credit Profile
39
Debt overview
  • Simplified debt structure with 86 of total debt
    now at TELUS Corporation
  • Average term to maturity is 5.0 years (at June
    30, 2006)
  • Fixed to floating ratio currently 99 fixed
  • 3.7B of existing debt denominated in US and
    fully hedged
  • No long-term debt maturities until 2007 when
    US1.2B TELUS Notes and 70M TCI Medium Term
    Notes mature

39
40
Credit profile
Current debt structure
TELUS Corporation Maturity Bank1 - 3
Year 0.8B revolver May 2008
- 5 Year 0.8B revolver May
2010 US 7.5 Notes C1.5B June 2007 US 8.0
Notes C3.0B June 2011 C 5.0
Notes C0.3B June 2013
100
  • TELUS Communications Inc.
  • Maturity
  • Mortgage Bonds 0.030B July 2010
  • MTNs 0.070B Feb 2007
  • Debentures 0.799B 2010 to
    2025
  • Net Sr. Notes to TC 2.5B

1 Canadian dollars or U.S. dollar equivalent.
At June 30, 2006, 74M in borrowings existed
under the Bank credit facilities. TCI may also
borrow on the bank credit facility.
86 of total debt at TELUS Corporation
40
41
Credit profile
Current debt structure - maturities

Process of refinancing 2007 maturity already begun
41
42
TELUS US1.2B Notes maturing in 2007
  • TELUS US1.2B 7.50 Notes mature June 1, 2007
  • At time of issue, swapped into C1.8B liability
    with yield of 8.109
  • Notes are redeemable at any time in whole or in
    part at the US Treasury yield plus 25 basis
    points
  • TELUS may consider early redeeming a portion of
    notes
  • TELUS has already taken two steps to refinance
    notes
  • Interest rates locked for 500M of future fixed
    rate debt through forward starting interest rate
    swaps
  • In May 2006 TELUS issued 300M 5 7 year Note to
    repay a portion of the foreign exchange liability

May 2006 300M 7-year note offering met strong
demand
42
43
Committed credit facilities
  • Total committed credit facilities of 1.6B
  • 3-year 800M credit facility due in May 2008
  • 5-year 800M term facility due in May 2010
  • Term of facilities extend beyond the maturity
    date of TELUS' June 2007 public note maturity
  • Reinforces TELUS' strong liquidity position

43
44
Consolidated leverage
Jun-06
Jun-04
Jun-05
Jun-03
7,223
6,096
Net debt (M)
5,740
9,120
51.9
46.0
Net debt Capital
45.5
55.7
1.7x
1.8x
2.4x
3.0x
Net debt EBITDA
16
23
FCF1 Net debt
27
4
1 12-month trailing Free cash flow
Strong leverage improvement / credit enhancement
44
45
Credit ratings
  • All four rating agencies upgraded TELUS ratings
    in 2005
  • Moodys reiterated rating, changed outlook to
    positive May/06
  • DBRS rating under review Sep/06
  • Moodys affirmed rating, with a developing
    outlook Sep/06

Credit rating changes in 2005 2006
Credit rating overview for TELUS Corporation
45
46
Long term financial policy targets
long term policy
Q2-06
45 to 50
Net Debt Capital
45.5
?
1.7x
1.5 to 2.0x
Net Debt EBITDA
?
gt1B
Minimum liquidity
1.5B
?
? 3 of 4
BBB to A-
Credit rating
BBB
Conversion does not change TELUS debt targets /
lessens risk profile
46
47
Recognized leader in disclosure
  • Annual Report on Annual Reports
  • TELUS 2005 Annual Report ranked BEST in world
  • Canadian Institute of Chartered Accountants
    (CICA)
  • Best Corporate Governance Disclosure in Canada
  • 2004 Annual Report received Award of Excellence
  • 11 consecutive years of recognition
  • IR Magazine (Canada) awards
  • 2006 Best annual report disclosure policy
  • Member of 2007 Dow Jones Sustainability Index
  • only North American telco in global index

e.Com Report Watch
47
48
Why invest in TELUS?
  • Premium asset mix - high wireless exposure
  • Offer investors high quality assets, strong
    predictable cash flow and prospect of growth
  • Orderly refinancing of 2007 notes already
    underway
  • Significant gt1B of annual free cash flow
    generation pre-trust conversion
  • Trust conversion announced
  • Increases cash flow and lessens TELUS risk
    profile
  • Beneficial to debt holders as increased future
    cash flow for debt servicing
  • TELUS has met or exceeded all leverage targets
  • Excellence in reporting, transparency and
    governance

Track record of delivering on commitments to
investors
48
49
investor relations 1-800-667-4871 telus.com ir_at_tel
us.com
50
Appendix
Definitions
  • EBITDA Earnings, after restructuring and
    workforce reduction costs, before interest,
    taxes, depreciation and amortization
  • Capital intensity capex divided by total revenue
  • Cash flow EBITDA less capex
  • Cash flow yield EBITDA less capex, divided by
    total revenue
  • Free Cash Flow EBITDA, adding Restructuring and
    workforce reduction costs, cash interest received
    and excess of share compensation expense over
    share compensation payments, subtracting cash
    interest paid, cash taxes, capital expenditures,
    and cash restructuring payments

TELUS definitions for non-GAAP measures
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