Q4 2021 Telus Corp Earnings Call
The conference is now being recorded.
Good morning, everyone and welcome to the <unk> 2021 Q4 earnings.
<unk> conference call I would like to introduce your speaker Mr. Robert Mitchell. Please go ahead.
Hello, everyone and thank you for joining us today, our fourth quarter 2021 results news release, MD&A and financial statements and detailed supplemental information are posted on our website. This morning at Telus Dot com slash investors on our call today, we will have those remarks by Darren Entwistle, President and CEO , Zeno, Matchy, EVP and President home <unk>.
<unk> customer excellence, Doug French EVP and CFO . In addition for the Q&A portion I recall, we will be joined by Jim Senko, EVP and President mobility solutions now that Aurora EVP President of business solutions, Tony Garen, EVP and Chief operations Officer briefly.
Briefly on slide two this presentation and answers to questions contain forward looking statements that are subject to risks and uncertainties and made based on certain assumptions. Accordingly actual performance could differ from statements made today. So we ask that you do not place undue reliance upon them, we disclaim any obligation to update forward looking statements, except as required by law and we refer you to the risks and assumptions outlined.
In our public disclosures, including our fourth quarter and annual 2021, MD&A and filings with Securities commissions in Canada, and the U S with that over to you there.
Thanks, Ronaldo and Hello, everyone throughout 2021 tell us again achieved strong operational and financial results across our business. This is a trend that <unk> team has demonstrated over the longer term and in 2021 was once again successfully realized against the backdrop of an unprecedented operating.
Environment.
Our performance in the fourth quarter and for the full year was characterized by our hallmark combination of robust high quality and profitable customer growth across our diverse portfolio of products alongside complemented by strong financial results.
The fourth quarter concluded another year of industry, leading customer growth with 960000 total annual net customer additions, representing our best result on record for Telus.
This included yet another year of leading and best ever wireline customer growth of 255000, reflecting the potency of our expansive pure fiber network and its inherent capability.
Our industry, leading customer growth was driven by our team's passion for delivering outstanding customer experiences.
This once again contributed to strong client loyalty across our key product lines, including blended mobile phone Internet optic TV security and voice churn, which were all below 1% again in 2021.
For the full year consolidated revenue and EBITDA growth of 9% and six 4% respectively was in line with our targets for 2021.
Furthermore, we achieved strong free cash flow for the year slightly ahead of our guidance as updated in may to reflect our accelerated broadband expansion program.
This robust performance continues to be driven by consistent operational execution, leading product offerings and client service excellence bolstered by continued strong operating momentum in Telus International and Telus health and Telus agriculture.
Impressively looking at our two year performance from 2019 to 2021 through the pandemic period, our total revenue and EBITDA growth of close to 18% and 7%, respectively as well as our more than $1 7 million net new total.
Customer additions represented industry, leading performance by a notable margin.
Turning to our fourth quarter industry, leading total mobile and fixed customer growth of 272000 represented our best fourth quarter on record and increased by 19000 over this time last year.
This was driven by robust customer demand for our superior bundled offerings and our leading customer loyalty.
We achieved strong fourth quarter consolidated operating revenue and EBITDA growth of 10% and seven 6% respectively.
Again, comparing the fourth quarter of 2021 with that of 2019 prior to the pandemic total revenue and EBITDA grew by 26% and seven 4% respectively.
Let's turn now and take a look at our mobile operating results.
Telus achieved industry, leading customer growth of 193000, net additions up 10% on a year over year basis.
This included a 112000 mobile phone net new customers an increase of 25000 over last year.
Notably this brings that sum total to an industry, leading 647000 net new mobile phone subscribers achieved over the past two years.
Importantly, our team yet again delivered another quarter of industry best loyalty results and this is the hallmark of the Telus organization.
Blended mobile phone churn was 104.
Five basis point improvement from this time last year.
Moreover, postpaid mobile phone churn of zero down seven 4% for the year, a four basis point improvement over 2020 represented our eighth consecutive year of industry, leading postpaid churn well below 1%.
This performance is backed by our differentiated customers first culture that has served us so very well and are highly engaged team delivering leading digital capabilities and superior service offerings over our world, leading broadband networks when a different stack.
Asian makes.
More than ever Canadians value of fast reliable connection and the consistent recognition from independent third party organizations, such as U S. Based <unk> reinforces the superiority of Telus is world leading wireless network.
In January <unk> ranked Telus as mobile network as number one in North America and fastest in Canada for the ninth consecutive time as our team, including our engineers are network innovators, we're passionate leader key Canadians connected to the people and the information.
That matter most.
<unk> intends to extend this global leadership position as we advance the development the coverage and the commercialization of our <unk> network and its inherent functionalities.
This recognition from OCA comes on the top of the multi year accolades, our world, leading wireless and pure fiber networks have consistently earned earned for speed reliability user experience and expansiveness from numerous other independent effort.
Reports, including UK based open signal U S based PC Mag in J D power and candidates to tell us.
We are proud of the many ways in which our global bass wireless and pure fiber networks are driving economic growth driving innovation and creating jobs within our country.
Moreover, our world, leading broadband networks and technology are improving the lives of Canadians by enabling online healthcare online education, and tilda working flexibility during the pandemic.
Furthermore, they are.
We are accelerating Canada's digital economy, and digital society for HIFU productivity, better competitiveness and better human welfare outcomes in the post pandemic period.
Finally, our broadband technology is supporting critical transformational change in respect to remediate any environmental state of our planet by bridging time and distance through technology virtualization.
They're advancing agriculture efficiency and effectiveness and food quality production through better data analytics.
And of course, our technology is bridging socioeconomic and geographic Dubai. So every member of our society has access to the technology and infrastructure that yields the opportunity for them to realize their full potential.
These objectives for our economy and our society reflect Telus is technology for good social purpose to progress the growth of skilled jobs, the physical and mental well being of our citizens and the lifting of marginalized constituencies as embodied in.
Our brand promise, let's make the future friendly.
For everyone.
To close our mobile fourth quarter ARPA was up 1% year over year supported by higher roaming revenues, albeit below seasonal pre pandemic levels. In addition to higher monthly recurring charges as a result of a greater mix of high value customer addition.
<unk> delivered by the Telus team.
Alongside ongoing strength in customer expansion. This supported healthy mobile network revenue growth of 5% in the quarter.
Notably compared to the fourth quarter of 2019 or pre pandemic levels mobile network revenue increased by 4% reflective of our consistent focus on high quality customer growth and excellent customer base management.
Let's turn now and take a look at our wireline operating results.
Telus delivered another quarter of robust wireline customer growth, which was yet again industry leading.
We achieved total fixed net additions of 79000 for the quarter, which impressively represented our best fourth quarter wireline customer growth on record for the Telus organization.
This was powered by leading broadband customer experiences inclusive of our unique bundles over telesis superior pure fiber network.
Indeed, our robust wireline customer growth continues to be enhanced by the significant investments, we are making in fiber and <unk> wireless technologies, including our important accelerated broadband expansion, which is progressing very nicely. Thank you very much.
Looking forward these generational investments will fuel enhanced customer growth and operating efficiencies at the same time and drive positive cash flow benefits as we complete our expedited broadband build and retire our remaining copper infrastructure.
In a minute Zeno is going to have an opportunity to provide further commentary on our industry, leading fixed results as well as our ongoing broadband expansion program.
Now, let's make a segue and take a look at Telus health.
Our team drove double digit year over year health services revenue growth for both the quarter and the full year 2021.
Moreover, we achieved important milestones along the way as we continue to meaningfully scale our health operations. These.
These milestones include covering over 20 million lives with our healthcare programs, an increase of nearly 22% on a year over year basis.
They include realizing more than 550 million digital health transactions in 2021 alone.
And they include earning over 1 million, new virtual health care members, representing a 65% increase over the prior year.
Indeed, Telus My care is now the number one virtual care brand in respect of familiarity and usage across all of the markets in which tell us operates.
We continued to leverage our leading position in healthcare technology solutions to deliver improved health outcomes for employees and citizens through access to better health information, which clearly has never been more critical within our societies.
Furthermore, Intel as agriculture through our teams ongoing efforts to integrate and grow this unique area for our company, we drove strong double digit revenue growth across our three lines of business, namely agribusiness food.
Beverage and consumer packaged goods and animal health.
Indeed, our close to 7000 customers.
Located in 50 countries around the world, including six of the top 10, food and beverage suppliers and nine of the top 10, agriculture companies globally are making a meaningful difference in scaling our operations and leading the way from a market share perspective and.
Chosen markets that we serve.
For 2021, we slightly exceeded our annual revenue objective with revenues in agriculture, including telecom connectivity hub over $400 million.
This is illustrative of the significant value, we are creating as the globally, leading provider of agriculture technology solutions and data analytics.
We look forward to expanding our disclosure with respect to agriculture for 2022 and beyond which we are confident will reinforce the value and asset of consequence, we are creating in this important area within the global Dominion.
Overall fourth quarter operating revenue for our <unk> segment increased by more than 6% on a year over year basis, whilst organic EBITDA was up over 7%.
Doug is going to have an opportunity to provide further commentary on <unk> performance in just a minute when we hear from uncle, Doug, Let's turn now and take a look at Telus International.
Earlier today <unk>.
We announced strong double digit revenue and profitability growth for the fourth quarter, concluding their first year as a public company with impressive financial results that surpassed their financial targets for 2021.
A good start and the post IPO period.
Continued robust results at Ti, including the strong performance targets that they set for themselves for 2020 to demonstrate their consistent execution and position as a leading partner of choice for Premier digital and cloud transformation experiences.
In it services for its more than 600 clients on a global basis.
These clients rely on Ci talented and engaged team along with its deep end to end digital capabilities to deliver a superior customer experience, including a unique and unparalleled mix of content moderation and artificial intelligence capabilities.
Doug is going to have an opportunity to also provide commentary on Telus international shortly.
To conclude our teams ability that consistently drive strong and profitable customer growth and financial results for the long term on the back of our differentiated asset base, our world, leading networks and the unique growth drivers.
Is that our asset mix represents provides us with the confidence in delivering on the annual targets for 2020 due that we've announced today that our best in class.
This includes industry, leading operating revenue and EBITDA growth of 8% to 10% alongside free cash flow growth of one to $1 $2 billion inclusive of the final year of our accelerated broadband investment program.
These targets and their industry, leading revenue and EBITDA growth rates will be complemented by the double digit revenue and EBITDA growth anticipated anticipated at Telus health and Telus agriculture for 2022 as well as the robust guidance for 2020 due the Ti announce.
This morning, with strong double digit revenue and EBITDA growth for that organization.
Notably.
As compared to 2019, our targets for 2020 to represent 25% to 27% revenue growth and 15% to 17% EBITDA growth versus the pre pandemic period.
That represents quite a forward looking story for the Telus organization tremendous value creation, but also illustrates our strong lease we navigated the pandemic period.
Furthermore, the unparalleled scale innovation and breadth of our team underpins, our leading multiyear dividend growth program, which now quite unbelievably is in its 12 year.
Since 2004, we've returned $21 billion to shareholders, including close to $16 billion in dividend, representing some $15 on a per share basis.
Moreover, we look forward to updating you on.
On the extension of our multiyear dividend growth program commencing in 2023 at our upcoming annual General meeting in May and a few months time.
Throughout 2021, our team demonstrated an unwavering dedication to leveraging our technology innovation in concert with human ingenuity. The great positive outcomes in the global communities, where we live where we work and where we serve indeed in 2021 alone are Telus family volunteered over one.
$1 3 million hours of service in our communities and deferred circa $90 million to charitable and community organizations as we strive to make the future friendly for all I remain exceedingly grateful to the Telus team for exemplifying our leadership in <unk>.
So capitalism as we deliver outstanding results for all stakeholders.
Just our shareholders, but all stakeholders and on that note I'm going to hand, the call over to Jay.
Thank you Darrin.
As our fourth quarter results demonstrate our customers first strategy world, leading networks and superior product diversification across mobile and home continue to yield positive outcomes.
Delivered record fourth quarter results with respect to fixed customer growth with an industry, leading 79000 net additions, bringing our full year result to a record high of 255000.
Notably for the fourth quarter. This far exceeds the 46000, we delivered in the pre pandemic 2019 period.
These results build on our track record of consistently delivering strong customer growth and are reflective of our strength across segments inclusive of Nevada team on the BBB front.
Together over the last two years, we have added an industry, leading 495000 fixed customer addition.
Including 306000, Internet customers 105000, TV net additions and 165000 security customers.
The success of our whole home bundle.
<unk> package of differentiated products and services is bolstered by Jim and his team leading mobility performance and drives an average of over three products per household within our pure fiber footprint.
In turn this is leading to high brand affinity for our services and lower churn.
As demonstrated in the 2021 annual Cts report customer complaints against Keller.
<unk> relative to our national peers.
Buying our number one ranking of the fewest customer complaints among national carriers for the 10th year in a row.
This leadership showcases how our team puts our customers first debt every opportunity generating customer loyalty and building trust to further intensify our b.
For the fourth quarter Internet net additions of 40000 reflect the ongoing demand for our unparalleled Telus pure fiber internet services across homes and businesses.
Continue to drive robust TV attach rate with TV net additions totaling 18000.
Notably due to our high content engagement, we remain the only provider in North America to consistently deliver positive TV CRO.
Customers continue to recognize the unique value of our flexible packaging breadth and depth of content and fully integrated over the top streaming.
Residential voice net losses of 10000 remained low and stable as we successfully leverage our expanding pure fiber footprint bundled product offerings and strong retention efforts to retain these high margin services.
Our industry, leading security and automation. Net addition of 31000 were up 8000 over last year, reflecting the strength of our digital capabilities innovations in virtual and do it yourself installations.
And our capacity for acquiring and integrating new assets on a national basis post the acquisition of ADT, Canada.
The recent expansion of our home security and automation bundle to now include our cyber security solution with tell US online security further exemplifies the diversity of and potential for this product portfolio.
As part of our accelerated broadband build we connected 278000 homes and businesses to our pure fiber network in 2021, ending the year covering more than $2 7 million premises to our globally, leading broadband network.
We also continued our rollout of pure fiber acts candidates fastest internet speed tier with upload and download speeds of two five gigabits per second and the capability to deliver up to 10 gigabits per second on a cost effective basis.
More than half of our pure fiber footprint is now enabled with this latest technology further advancing our network leadership position and speed advantage.
To that end, we continue to successfully drive more households to tears at or above one gigabit per second achieving improved internet revenue accretion and paving the path for future service adoption.
During the quarter, we migrated 36000 copper customers to our pure fiber network, bringing our full year migrations to nearly 140000 at <unk>.
The end of 2021, only 11% of Internet and TV customers within our pure fiber footprint remains serviced by copper.
As we have shared previously moving our copper customers to pure fiber improved customer lifetime value on several dimensions, including an increase in product intensity up 25% higher <unk> per home by nearly 15% and a churn profile that is 25% lower.
Sure.
Furthermore, pure fibers higher reliability leads to a reduction of over 60% in truck rolls and lower call Center volume, along with improved self provisioning and troubleshooting.
Our differentiated products and services truly set us apart relative to our peers.
In consumer health, we continue to drive growth through Telus health, Mike here and living well companion, providing critical virtual care to Canadians for their primary care mental health Allied health and personal emergency response services respectively.
Our service quality ratings are consistently rated at four nine out of five by our patients and we continue to expand our service offering now including digital pharmacy.
As we progress through 2022, we will drive further growth through our superior bundling, we will ramp our digitization efforts and transform our service platform to drive cost improvements.
<unk> by the efficacy of our pure fiber network and our team's passionate focus on putting customers first we are well positioned to continue achieving positive financial outcomes, including higher margins and cash flow this year and.
With that I'll pass it over to you Doug for additional insight into our financial results.
Zane Wang and Hello, everyone.
Our Q4 results extend our proven track record of leading financial and operational results led by smart and strategic growth initiatives and our strong and consistent execution.
In December we successfully completed the sale of the financial services business for 500 million. This amount is not included in our operating revenue our adjusted EBITDA. It is in the other income line.
In the quarter, we continue to see growth coming from all our business areas.
<unk> network revenue growth improved sequentially for the sixth consecutive quarter, increasing by 5% compared to $3. Seven in Q3. This network revenue was resolved included a $27 million year over year increase in roaming revenue as travel activity increase.
Bromine revenue exited the year, just below 70% of pre pandemic levels and assuming trends related travel trends related into the future. We anticipate a recovery gradually throughout 2022.
As we continue to see the strong adoption of unlimited data plans overage charges are now decline and <unk>.
Data overage represents only less than 2% of mobile <unk>.
The strong adoption of our unlimited data plan since driven increased customer satisfaction as well as lower calls to our call center fewer bill credits and that is leading to a benefit in our direct mobile contribution which improved by 120 basis points in Q4 on.
On the fixed side of our business data revenue growth was above 10% for the sixth quarter in a row with Q4 growth coming in close to 12% and up 26% over Q4 2019 underlying this result residential internet revenue grew an impressive 20% year over year driven by double.
<unk> digit growth in residential Internet ARPA and continued market share gains.
Notably we also continue to see good traction on our <unk> front and drove positive consolidated consolidated <unk> EBITDA growth on a year over year basis for both the year and the quarter. This positive trend sets us up for a strong momentum going into 2022 as naveen and his team continue to look to.
To build and accelerate our <unk> growth, including the monetization of <unk>.
Overall <unk> adjusted EBITDA came in at six 7% in Q4 and organic growth was seven 3%.
Telus International continued to drive impressive operating momentum with double digit revenue and adjusted EBITDA growth for both the quarter and the year.
<unk> CX grew.
Growth was driven by industry.
Industry verticals, and particularly strong growth from tech and games E Commerce, and fintech, including double digit growth from services to tell us.
Our Q4 results bring our annual performance within our guidance ranges for both revenue and EBITDA, Despite a dynamic operating environment.
Free cash flow also finished ahead of our year end guidance.
As we executed on our capital acceleration plans, effectively managing Coa and cor with valuable and profitable loading and retention, while continuing to increase our copper to fiber migration and digitize effort digitization efforts, leading to improved cost structure.
Looking ahead, we announced robust consolidated target today with an operating revenue and adjusted EBITDA growth of 8% 10%.
Notably these leading 2022 targets are driven by organic growth of all product areas, including the growth in health and AG effective cost management as we focus on profitable loading and a consistent strategy that we have followed for many years.
While we continue to drive economically accretive loading across all our products backed by expanding our pure fiber and fiber networks.
Which will support positive financial incomes outcomes and sustainable free cash flow.
With Covid restrictions being present for the significant part of Q1 2020 to Q1, we will have a lot of the same pandemic impacts of the second quarter of 2021, we anticipate our growth profile to steady improve subsequent to Q1 2022 aligning with our expectations.
The economic recovery.
Notably when we compared 2019, our guidance implies as Darren highlighted pretax pre pandemic levels of 27% operating growth and 17% adjusted EBITDA growth and.
Impressively since 2019 through to the end of 2022, we anticipate to generate cumulative EBITDA growth of almost a $1 billion.
This industry, leading result is attributable to our strong operational execution delivering on our strategic initiatives and the quality of our asset mix.
More the more than $1 7 million customer additions that we've added over the past few years demonstrates the significant economic value created for our stakeholders supporting future strong revenue and EBITDA expansion for.
For 2022, we are targeting free cash flow of up to $1 2 billion, representing a potential increase of more than 400 million <unk>.
Included in free cash flow, we have R 22.
2022 accelerated capital spend of $750 to $790 million that is the remaining amount of our $1 5 billion acceleration.
In addition, we expect handset investments to increase with upgrades that were deferred during the pandemic.
Our free cash flow outlook includes anticipated capital expenditures of $3 4 billion, a slight decline relative to 2021, while still delivering all of our original operational targets.
Importantly, we remain committed to capex moderating to a baseline of $2 5 billion or less beginning in 2023.
Detailed assumptions of our 'twenty two targets can be found in section $9 three of our posted MD&A.
Our balance sheet remains very healthy heading into 2022, including available liquidity of over $2 billion, while our net debt to EBITDA ratio ended the year at $3, one seven X down from $3 four a five one year earlier.
Excluding the impact of spectrum licensees since 2019, our EBITDA leverage ratio would have been $2 six eight.
With regards to our leverage remains committed to investment grade credit ratings, and we are confident that our outlook combined with the 2023 significant decline in our capital expenditures.
<unk> hit those targets and look forward to continuing our strong operating momentum and further advancing our leadership growth in 2022, Robert back to you.
Thanks, Doug behind can we proceed with questions. Please.
Yes of course first question comes from Jerome <unk> from Deutsche Bank.
Sir go ahead.
Hi, Thanks for taking my questions two for me if I may.
First Doug you mentioned that the overage was now approximately 2% of <unk>.
That's in the context of.
I believe <unk>.
Ltd.
<unk>.
Data consumption do you think we could expect this to be bottoming.
Approximately at this level or do you think there's more to go with the transition to unlimited.
Then a second question.
Would be the rationale for selling the financial solutions business.
You are intact.
This.
Not something you wanted to pursue.
There are different competitive environments.
If you can provide context on that please.
So I will let Doug handle the second question first and then I'll hand, it over to Jim for commentary.
So we've continued to look at our <unk>.
<unk> and the value of all of our asset base.
So we've talked numerous times about our copper to fiber migrations and how we can monetize real estate in the long term, we looked at the financial services area.
And it has great potential.
But it is not core to us and so we found it was a perfect win win as a opportunity for the purchaser and for us too.
We remain our focus in our strategic areas of health AG and Ti and so.
That's why the sale happen and we will continue to use those resources to.
To invest in our strategic growth strategic growth areas I think are an interesting stat as well on.
If you look at that asset that came to tell us.
The acquisition of emerges back in 2008, if you look at the proceeds from the financial services disposition.
The EBITDA that we've been able to secure.
Over the past eight years, we effectively got the emergence health business for free and I think Thats Smart financial management and a good concentration of our strategy on the growth opportunity going forward within the health area and then the other thing that I think is important is that we've retained the commercial relationship.
With that asset. So we can provide them with Telus is services that supports what they want to do on the financial services upfront. So there'll be a legacy commercial relationship that will continue on Jim over to you.
Look our Telus brand unlimited mix increased significantly year over year up 34% and the majority of our <unk> brand is now on unlimited I think where you see data overage is still in the flanker space.
But more and more of our kudo customers are migrating up to Tullow switches, which is great news and I think you've got to get back to we continue to see benefits from the consistent high quality customer additions switches.
Moving that mix to unlimited and then our base management activities have really been minimizing the volatility around our rate plan changes and so feeling really strong.
About where our <unk> and <unk>.
I look at the remaining 2% in the flanker space is a huge opportunity to drive.
Upsell.
And move customers towards unlimited, especially with <unk>.
Device lifecycle is coming through and that's a real opportunity for driving that upsell.
Next question. Please thank.
Thank you.
Alright next question comes from drew Mcreynolds from RBC.
Please go ahead drew.
Yes, thanks, very much and obviously.
Congrats on the results and the outlook.
<unk> exceeded my expectations a couple for me.
Maybe starting with you Doug on the guidance.
Thanks for the additional granularity just in terms of Covid impacts just remind us.
Just kind of where that where the pockets of of headwinds are lingering here for you.
In 2022.
And then second question maybe for using on.
The multi gig symmetrical household for Internet can you give us a little sense of really what the demand or how the demand for that is evolving.
In your fiber footprint.
What do you see in terms of adoption and penetration of just to multi gig and the importance that household to put on the symmetrical side.
And then lastly.
Just could you give us an update maybe for you Doug just where you are with respect to assessing strategic scenarios or options for Telus health and Telus AG. Thank you.
Okay, Doug why don't you kick it off and then.
<unk>. Thank you.
On the headwinds obviously roaming is going to be the largest as we as we look into 2022 and the speed of recovery of wave that may happen, we have highlighted that with a lot of the lockdowns in the first quarter that roaming has fallen off a little bit from the trends we saw in the fourth quarter. So.
Youll see that that pressure out of the gate, but we believe it will rebound as the year progresses.
The flow through impact to health care and some of the transactional services have been a bit of a headwind with COVID-19 , but are improving.
Substantially as the year ended we haven't seen that slow down a lot with the recent.
The recent changes, but it is a potential.
And then probably the last one being business and business is always going to be more volatile with depending on the recovery plan.
<unk> has a lot and maybe we can ask devine to top up in a moment.
<unk> has a lot of plans on how we will actually turn bids and keep the momentum that we currently have in bids to to overcome any of those headwinds.
On the health and AG one.
And our future potential will continue.
Asset in and.
I will bring back to you that when the timing is right.
But.
What we're going to continue to build the assets of consequence.
And any any partner any IPO any timing around that will be a win for ourselves a win for the organization to to drive it further.
And it will be strategic not financially make that decision.
Yes.
Dana you want to go ahead, Sir absolutely true thanks for the question so.
Thank you had sort of a two part question one on the adoption of $2 five in the pure fiber acts as well as what we're seeing in terms of upside on one gig and beyond I'll address those two essentially drew one of the things to think about is we've always made really smart cap capacity investments in our network and so.
So that the pure fiber Ax has certainly provided that speed advantage in the halo product of the $2 five and beyond opportunity, but it's also driven by some capacity upgrades that we needed to do is to future proofing our network.
And we're doing it on the back of being able to provide incremental speed tiers.
In terms of the take rate Doug highlighted the revenue growth that we've enjoyed on the internet front, particularly on residential and what I would say there is that we still have.
A proportion of our customers that are not taking one gig, but a higher mix of our new loads that are trending to take one gig and more so we have a ton of upside potential as we push customers up the curve in terms of taking those higher speed tiers and in terms of customer demand for cemetery.
We've seen that I would say explode through the pandemic.
In the context of prior to the pandemic I don't think a lot of customers would have recognized we were putting a lot of work into educating customers on the benefits of symmetry the capabilities of pure fiber, but now thats a recognized benefit and its a valued benefit to pull customers into the pure fiber footprint. So we're.
Seeing a lot of customers.
Recognize and want the value tier fiber in terms of the capacity to have multiple streams in their household multiple video conferences and of course with our security services multiple video feeds as well. So we see that demand continue to continuing to increase and we see the value potential and upside potential.
It's very high.
Okay.
Drew just on the health front.
I've said this before but I can't emphasize that enough you can really draw inference from the model that we followed on Ti.
As to what the future portends as it relates to both Telus health and Telus agriculture.
The next thing is this is very much front of mind in the here and now for us in terms of that future and how we cultivate the optionality.
Maybe just some elements that might be helpful to you. If we were going to do something with those businesses in the future. Our desire of course similar to Ti would be to establish a transaction currency in servitude to the strategy and the better the transaction currency the better the addressable market of opportunities that we have.
If we're going to get a great transaction currency, that's going to be down to the multiyear track record that we develop in advance in terms of double digit revenue EBIT and cash flow growth for those assets.
Secondly, we want to focus on scale of these.
Assets have to be meaningful for us what we call it <unk> asset <unk>.
Consequence.
Creating that largess is something thats very much front of mind for us.
We are and I highlighted this in my comments, we are pursuing market leadership.
Don't want to be a player we want to be the market leader in the select markets on health and AG and we want to do that both domestically and prospectively at the international level and of course, we're already with a foot in that camp on the AG front and then the last thing that you can expect that from US is we're going to.
Bring our customer service excellence game to bear that has helped our core business. So very much and then every check move that we make when we think about fibre five G. Our digital leadership of our cloud transformation and then the fact that we've evolved to being a broadband software as a service company.
That particular paradigm is going to be inculcated within that thesis for health and AG, because theyre going to be data analytics businesses.
And then the other element that you can watch for is how we leverage the ti asset to support the growth of health and AG given the ambitions that I've just laid out but this is very much for us here and now we're thinking about a day in and day out because the results that we generate now set up a great transaction currency tomorrow, because that's what the valuation is going to be predicated.
Fitted upon including as well as obviously the future earnings potential as well.
Got it that's.
Great color, thanks very much.
Great.
Thanks drew behind next question. Please.
Next question comes from Jeff Fan from Scotiabank. Please go ahead, Jeff.
Thank you.
Everyone.
Just a follow up correspond doug's comment about the guidance for free cash flow for 2022.
I think you've mentioned.
Some spending related to handsets in handset investments I just wanted to see if you can elaborate on that a little bit.
As to whether there is volume driven purely or if there is some assumption regarding competition around handset subsidies.
The second question is around the five G.
The ecosystem.
I think Darren you've talked a lot about commercialization of new <unk> applications.
There's a long runway and opportunity just wondering.
If you can give us an update as to how you see 2022 progressing on that front.
And if there is any contribution I guess.
The revenue relates.
Related to the <unk> new applications in your 2022 guidance. Thanks.
Doug go ahead, sorry, thanks, Geoff on the cash flow and when you think through the last couple of years Digitization was a significant opportunity and success for us.
There was a great mix of.
Call it contracted customers in <unk> and there was also a lot of deferrals.
Business and consumer customers, who just waited.
Two to upgrade.
And not do it on a digital environment. So everything Thats included in our 2022 forecast is volume related.
There is nothing built into assume increased subsidy.
Beyond our normal market condition.
Okay, maybe I'll ask <unk> to comment on the commercialization and just a second.
You are quite right, Jeff, we've said repeatedly that <unk> not a sprint.
And a lot of other jurisdictions the expectations have been overcooked and I don't think thats sort of any one particular will be well.
For us as we deploy new spectrum, new technology and develop the right products services and applications for our commercialization that takes time, particularly given this is a <unk> opportunity that we're pushing.
I would note that eight typically tell us versus other companies around the world, we're progressing into <unk> from a position of superior strength as it relates to both our <unk> LTE network and its performance relative to <unk> operators in other jurisdictions as well as the fact.
Our wireless network technology is complemented by our pure fiber network that underpins it and of course, leveraging the network sharing agreement that we have in place with our partner that helps everything in terms of deployment.
The competitiveness of our functionality and cost efficiency.
Putting the <unk> infrastructure in place but.
But I do believe that this is going to be meaningful for this organization.
Not hugely material in R 22 results beyond the Capex that we're spending to enable that.
We're going to be pushing up.
Over 80% coverage on our <unk> footprint by the time 2022 finishes off will be operationalized, our mid band spectrum, and we will have our stand alone <unk> network operational by the midpoint of the year clearly the focus for us.
You've got smartphone ubiquity, leveraging <unk> network connectivity.
Is to be smart.
<unk> creators of data usage, the machine to machine opportunity within the Iot World is huge.
We are excited by it and as you know it has particularly pertinent applications.
Protocols that are key to us.
There is logistics, the manufacturing or agg and healthcare are pretty exciting and of course, it's not just the data flows and the bandwidth the data analytics that you can monetize as well along the way and we are excited by what thats going to do to support <unk> ameliorated.
In the years ahead as well as the fact that the cost curve on <unk> should support the margin strength of the wireless business. So I'll hand, it over to Nadeem to give you a flavor of what we're thinking about from a commercialization point of view as it relates to our product portfolio and the market opportunities that we're seeking.
To address.
Yes, thanks, very much Darren and.
Thanks for the question Jeff.
So I would I would start by reiterating Dan's point that <unk> and Iot is a is a marathon and definitely not a sprint and we're quite bullish on our plans to commercialize <unk> and Iot and a big part of our return to growth in <unk> overall is our ability to.
Outrun declining parts of our business with next generation growth capabilities, and we feel confident that we can continue to accelerate that growth in 2022 and beyond.
We believe <unk> and Iot will be a significant significant part of that continued accelerated growth along with other key <unk>.
Fixed and wireless next generation services and our plan to commercialize <unk> includes.
Few components so of course <unk>.
Wireless solutions monetizing mobile edge computing as well as network slicing capabilities will.
We will also be enabling key vertical solutions you heard Darren just speak about agriculture and health another key vertical as smart cities, where you may have seen our press release from yesterday around the ecosystem that we're creating for me.
Fatalities in partnership with Google and <unk>.
There will also be a number of horizontal capabilities that will be commercializing. So one example is transportation our recent general motors strategic partnership being.
Great use case of what were doing there.
And in terms of Iot, we expect growth in terms of not only connections but also.
<unk> growth as we will see industry shifting on to <unk> networks, as the chipsets and device availability improves.
The number of the Oems start embedding.
Those newer <unk> chipsets into their equipment.
In addition, given the high quality and large volume of data that will come from the combination of our networks both.
As well as fixed broadband networks.
Services and overall industry.
<unk> solutions in the ecosystem associated we'll also see acceleration in our ability to add value to this data and monetize it and Darren mentioned the importance of data in AG and health and the combination adjacencies.
Our overall <unk> data across those verticals will be.
A very important component of our go forward commercialization plans.
<unk>.
I would end by saying that.
All of this bodes well for strong growth in <unk>, and Iot devices data usage and industry solution value add use cases in the coming years not only for our net new customers, but as Darren said, we have a very strong foundation of Iot subscribers that we can.
Build off of and grow from.
Thanks.
Thank you.
Thanks, Jeff next question please.
Of course, our next question comes from Vince Valentini.
From TD Securities. Please go ahead. Thanks.
Thanks, very much I wanted to stick with the that handset comment you made that for a second I. Appreciate the color on just being volume related that you are expecting but just to make sure. We have the quantum rate within your guidance. It looks like it's about a $2 million to $300 million impact if we triangulate your free cash flow guidance versus the EBITDA and capex and interest in <unk>.
And cash tax guidance, you've provided I want to make sure it sounds right or is there some other working capital usage.
Counts for the Delta.
And the free cash flow other than just handset volumes.
Just a clarification from you is I want to make sure I just understand when you are saying seven 3% organic EBITDA growth for key tech versus $6. Seven reported what are you adjusting for is that just the financial services business.
You sold or is there something else.
And then last question, maybe for Daniel or that you can take it.
I wanted to just make sure I have this math right on to fiber.
Program Youre disclosing so if you have $1 3 million fiber subs on a footprint of 2.7 million homes that are now upgraded our premises.
Great.
11% of customers in those areas are still on copper.
Implies 146 million total customers on that $2 7 million total footprint or approximately 54% penetration. So I just want to make sure we're reading and triangulating the numbers youre disclosing to us properly. Thank you.
Okay.
On the free cash flow one there is some other small items in there I'd say.
When you include cash taxes, and other items, but I would say they are less than less than $100 million. So year reconciliation is directionally.
Reflective.
On your second question.
No it's not the TFS sale.
Organic is we actually have made some investments, particularly in our virtual platform for health care that has required. Some investment initially that are paying off very very shortly into the future, but we drive a lot of synergies with our product set so exactly actually the other acquisitions that have been a little bit dilutive out of the.
And the J curve investment leading to that longer term.
Integrated strategy so.
That is not an impact at all.
Dana.
Thanks for the question Vince so.
I think the challenge on the fiber footprint and comparing that with copper is that.
As we continue to build out the fiber footprint whenever it's a new footprint where of course in a <unk>.
A lower state of both penetration organically as where as well as in a lower percentage of copper to fiber migration for that respect respective new footprint.
So.
In addition to that the numbers that you've quoted we've quoted in terms of our footprint represent both business and consumer connection and capability and we look at that on a premise basis and then to look at.
To try and triangulate back that back to share our penetration view.
There are several things in terms of.
Is that footprint actually occupied.
And then what's the rate of growth of occupation and penetration of the overall Internet service. So it's not a clearer triangulation, but I think what you can deduce from all of the disclosures that we've provided is we're continuing to grow the footprint, we're continuing to penetrate that footprint both organically in terms of net new.
Additions as well is in the copper to fiber migration and we're doing that at a very aggressive pace and we are making commitments on ensuring that we get.
<unk> a closure on that base by the end of the year.
Okay. Thank you.
Thanks, Vince I mean, how do we have time for one more question. Please.
Our next question comes from Simon Flannery from Morgan Stanley . Please go ahead Simon.
Great. Thank you very much thanks for fitting me in.
It was good to see that your margin your EBITDA guidance is pretty consistent with your revenue growth guidance for 2022.
I think.
We're getting a lot of questions on inflation, you, obviously flagged supply chain around inventory. So perhaps just talk about how youre managing costs and how you're ensuring that you are able to keep fairly stable margins in the businesses.
What's happening with inflation and your various segments. Thanks a lot.
Thanks, Simon a.
Couple of items, there were definitely have worked through a lot of our supply chain to get multiyear commitments and ensure that we're getting.
The supply we need for a lot of the most essential services, but you are right. There are pressures coming in on call. It the more variable supply chain that everyone's going to have on an annual basis all of the initiatives that we've been talking about in our capital acceleration from copper to fiber migrations to the.
The digitization investments to the simplification programs that we've done with our customers is going the other direction and driving efficiency and effective throughout our business.
So we're continuing to say offset and mitigate some of those external pressures with our internal operational excellence.
And that is how we're keeping the margins.
Flat to improving over time.
Okay, and any color on supply chain easing over the course of the year and better handset supply.
Yes.
Q4 was it was an interesting quarter it was quite competitive.
So much more rate based promotional activity from the flanker competitors due to some inventory constraints.
On our side.
We've weathered the storm very very well our investments in digital are investments in omnichannel capabilities enable us to optimize.
Our inventory across channels, where we werent stranding inventory.
And our store footprints and we could get our inventory to the customers.
And maximize the supply that we had additionally, our investments on CPO and mobile clinic played a really key role in providing additional device supply, which we which we benefited from so we felt we felt really really good in terms of <unk>.
These investments put us publicly.
Very good spot and managing the ups and down on the inventory.
And then we're driving better also a better mix in financial outcomes from that.
Okay. Thank you.
Thanks, Simon Darren over to you for closing remarks.
In the vein of trying to be helpful for investors and the analyst community.
I'd like to postulate, a three part model.
Which I would recommend be the models that you use to assess our business over the next three to five years.
So module one.
Within that construct would be our ability to leverage the significant momentum.
We have created within our <unk> mobility business both individually.
And collectively and certainly <unk> seen that in our results and I think that bodes well that momentum for the future second component would be our <unk> proppant resurrection strategy. So that we get an accretive profitable contribution not just as it relates to 'twenty, two and the momentum front, but thereafter on the <unk> front and Thats been something.
Absent from the Teller story for the past six years.
The other component of module, one would be our leadership on technology clearly for us what we been able to do on fiber what we've been able to do on <unk> and now <unk> as well as our leadership position on digital is making a huge difference in terms of the competitive advantage and when.
You combine that with the next element, which is our customers first service excellence culture at our organization at yielding retention scores with customers that are global best.
You have a lifetime value creation via wireline or wireless frankly as is unsurpassed.
And then the last component of module, one is cost reduction cost reduction cost reduction.
We need to do it to fund our business.
And we need to exact cost efficiencies from our tech investments from five <unk> and fiber all the way through to digital.
Second module.
Our ability to scale and create value from Ti health.
And so it's a simple story.
We want to drive these business at scale and its evaluation conversation.
We're looking to build significant value within that asset base.
And rinse and repeat on Ti and follow the path of Gi, whether it relates to health or agg.
The third module is cash generation.
So it's a story for us of quality EBIT Dag growth coming from modules, one and two sustainable quality significant EBITDA growth coming from modules, one and two.
Complemented by ameliorating capital appetite, such that we get into a situation of growing.
Situation, where the sources of cash are chronically exceeding the uses of cash.
And that is a fantastic combination of modules, one and two in concert and then of course the final element of module three is what do we do with that cash.
And I think the answer to that question, which is returning it to shareholders and so that's really the model for looking at organization not for next quarter, but for the next three to five years across those three modules as to what you can expect from us when it comes to value creation.
Thank you Darren and thank you everyone for joining US today, please feel free to reach out to the IR team with any follow ups and take care everyone.
Everyone. This concludes the Telus 2020 , One Q4 earnings conference call. Thank you for your participation and have a nice day.
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