Q2 2023 TELUS Corporation Earnings Call
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Good day and welcome to the Telus 2023, Q2 earnings Conference call.
I would like to introduce your speaker Robert Mitchell. Please go ahead.
Hello, everyone. Thank you for joining us today, our second quarter 2023 results news release, MD&A and financial statements and detailed supplemental information Investor information were posted on our website. This morning on our call today will begin with remarks by Darren and Doug as usual for the Q&A portion of our call. We will be joined by a range of other executive leaders Zeno <unk> consumer <unk>.
Solutions Nuveen Aurora business solutions, Jim Senko, Chief product Officer, Tony Garen, CFO , Jeff <unk>, President and CEO of Ti.
And Sid cause Suraj, you President Telus health brief.
Briefly this presentation and answers to questions contain forward looking statements actual results could vary materially from these statements the assumptions on which they are based in the material risks that could cause them to differ are outlined in our public filings with securities commissions, including second quarter 2023, and annual 2022, MD&A is with that Darren over to you.
Thanks, very much and Hello, everyone in the second quarter, our telecom once again demonstrated execution strength.
Our <unk> business segment characterized by the potent combination of leading overall customer growth complemented by strong operational and financial results.
The robust performance of our communications technology business continues to be underpinned by our globally, leading broadband networks and of course, our customer centric culture.
This enabled our strongest second quarter on record with total customer net additions of 293000.
19% on a year over year basis, driven by strong demand for our superior product portfolio and service excellence.
Our leading customer growth is reflective of our consistent industry best client loyalty across both mobile and our fixed product lines.
The Telus team's passion for delivering customer experience excellence contributed to blended and postpaid mobile phone pure fiber internet and residential voice churn all being below 1% yet again this quarter.
Notably postpaid mobile phone churn is now in the 10th consecutive year of being less than 1% and fiber Internet has been below the 1% threshold for 14 consecutive everyone else has left the call.
It looks like no one else is going to join this call.
Goodbye.
I'll pick it up here on the interruption.
I was speaking to the fact that mobile phone churn is now in its 10th consecutive year being less than 1% and our pure fiber internet product has been below the 1% threshold now for 14 consecutive quarters.
He is quite the unique combination that certainly bodes well for the future of the organization.
In the second quarter, we delivered strong consolidated revenue growth of 13% and resilient EBITDA growth of 5% in spite of the macroeconomic challenges impacting Telus international alongside that we generated strong free cash flow growth of 36%.
Let's turn now to have a look at our mobile operating results tell us.
Telus achieved leading wireless customer growth of 234000 net additions in the second quarter.
This included strong mobile phone net additions of 110000, our best second quarter result, since 2010.
Notably this strength was driven alongside our continued focus on high quality and profitable customer growth.
It also included record second quarter connected device net additions of 124000, which were up 35% on a year over year basis.
This reflects continued strong momentum with respect to our <unk> and our Iot <unk> solutions that are so critical for the future.
Importantly, our team delivered another quarter of industry best loyalty results.
Which continues of course to be the hallmark of the Telus organization and is <unk>.
<unk> of our customers first culture in action in terms of the empirical results.
<unk>.
Blended mobile phone churn was an industry low zero dot nine 1%.
Moreover, our industry, leading postpaid mobile phone churn of zero down 73% represents the 10th quarter out of the last 14 that we have earned our customer loyalty rate below zero dot 8%.
This clearly distinguishes tell us from our competitors and indeed it is a result that is unsurpassed in North America with the churn rate that is amongst the lowest globally.
Our consistently strong performance is powered by our highly engaged team who passionately deliver superior service offerings and digital capabilities over our world leading broadband networks.
Offering customers the fastest most expensive and most reliable service in Canada.
The closeout mobile industry, leading second quarter ARPA growth of one 8% over last year was supported by roaming improvements as a result of increased international travel.
It was also buttressed by higher domestic monthly recurring revenue as well as our industry based churn rate whereby we are retaining our highest value customers. In addition of course to growth in connected devices and Iot revenues.
This once again drove strong industry best organic network revenue growth of 6% in the quarter.
Notably, our leading mobile phone lifetime revenue continues to exceed our national peers by up to 70%.
This has been a consistent story at the Telus organization for a very long time.
This is reflective of the combination of our continued focus on high quality customer growth and leading client loyalty delivered consistently as is the hallmark of our company.
Turning now to our fixed operating results, where telus delivered industry, leading second quarter wireline customer growth.
Our team achieved leading internet net additions of 35000 in the quarter up 3% on a year over year basis.
Powered by leading customer loyalty in combination with the significant advantages of Telus is expensive pure fiber network.
We continue to drive leading growth in our TV product line with net additions of 17000, which was up 13.
<unk> percent on a year over year basis.
Furthermore, residential voice losses were again, an industry low at 8000 and were relatively flat over this time last year.
Notably this leading performance reflects our continued momentum with respect to multi product intensity and the inherent churn benefits that had been so consistently successful for the Telus organization.
Healthy and leading security net additions of 15000 further reflect our successful strategy of driving profitable customer growth and multi product penetration.
Overall, we drove robust and industry, leading external fixed net additions of 59000 in the second quarter.
This performance is indicative of the strength of our unique and highly attractive bundled offerings across our truly unmatched portfolio of products and services buttressed by our ever expanding globally, leading pure fiber and <unk> networks.
Wrapped within our customer centric culture.
Indeed, the generational investments that we've made and the global Best network technologies that are the cornerstone of our leading customer growth and the significant ongoing profitable market share gains that we have driven over so many years and will continue to do so on a go forward basis.
Furthermore, these investments will continue to drive important and extensive socio economic benefits for our communities and Canadian citizens for many many many decades to come.
Let's turn now and take a look at Telus businesses solutions.
Our team within Telus business solutions continues to deliver on its track record of contributing meaningfully to the success of the wider Telus organization.
Notably this includes delivering another strong quarter with 6% revenue growth and profitable EBITDA contribution growth across our <unk> product lines.
This is enabled by a team that is absolutely dedicated to propelling its position as one of the leading b to b organizations on the planet.
And it's a story of differentiation at tell us versus our peers.
During the quarter our team secured several notable wins to bring our highly differentiated assets and capabilities to meet the evolving needs of our customers.
This included a significant deal to deploy our intelligent smart building technology that will modernize retail operations for H and M. One of the world's leading retailers.
We recently moved our Telus, agriculture, and consumer goods business or Tac ended TBS.
This will clearly support enhanced efficiency and effectiveness measures and is reflective of our collective commitment in respect of realizing quantum growth and our compelling tack business.
Second quarter tell us agriculture, and consumer good revenues of $79 million were relatively flat on a year over year basis, and this disappoint says it.
It reflects headwinds in our agribusiness vertical due to softness related to macroeconomic challenges and as well. It reflects one time professional services revenues that were realized in the second quarter of 2022.
We continue to expect progress on our top line.
And to see that flow through to profitability in this business for the second half of 2023, resulting in positive annual growth.
<unk> agriculture, and consumer goods team will leverage the expertise the law.
Leverage the experience and the leveraged the high performance culture and talent of our GBS team, ensuring that we are well positioned to accelerate our customers for sales marketing channel and holistic go to market efforts, including exciting and plentiful.
Cross selling opportunities.
<unk> remains steadfast in our objective to accelerate and significantly scale, our tax business into a potent asset of consequence focused on becoming the world's largest global independent provider of digital technologies and data insights connecting customers from producer.
<unk> to consumers across the agricultural products food and packaged goods industries.
Let's turn now and take a look at our Telus health business unit.
We achieved second quarter revenues of $428 million in Telus health up 212%.
Notably when normalizing for life works EBITDA grew by 11%.
These results reflect the continued growth and increasing scale of our health operations since our acquisition of <unk> in 2022, enabling us to make meaningful progress on our goal to be the most trusted wellbeing company in the world.
And this includes covering more than 68 million lives around the world with our health care services and health care programs, an increase of nearly $46 million on a year over year basis.
And includes supporting health outcomes are nearly $153 million digital health transactions. During the second quarter of 2023. This was up more than 5% over the same period a year ago and.
It includes increasing our virtual care membership to five 3 million up nearly 50% over the prior year.
We expect <unk> to continue its explained growth and sustained expansion underpinned by the integration and innovation of our diverse product suite and care delivery that enables us to support the evolving needs of our customers around the world.
Importantly, since acquiring <unk>. Our team has now committed to driving $425 million in annualized synergies by the end of 2025 up from $250 million.
This includes $325 million expected to be realized through operating cost synergies from continued integration.
Continued optimizing of our organizational structure systems and of course, optimizing the real estate portfolio of Telus health within the wider Telus fold.
Furthermore, we expect to drive at least $100 million from revenue synergies over the same period fueled by cross selling health services.
And the potent products that we have within our portfolio.
Two our Telus health customer base, but also across the wider tell us portfolio of assets.
The realization of these synergies will allow us to reinvest in the growth of the business and improve our profitability, whilst we focus on delivering efficient.
Effective secure and truly best in class health and wellness solutions to our customers.
Notably to date, we've achieved $127 million in combined annualized synergies towards this overall objective of $425 million.
Now, let's take a look at Telus International.
As we announced in July increasing macroeconomic pressure has temporarily impacted service demand from some of <unk> larger tech clients as they aggressively address their own cost structures slowing expected revenue and profit growth for 2023.
In response, our Ti team is actually significant incremental cost efficiency programs, including staff reductions to address lower service volumes.
Ti importantly is also driving additional automation and generative AI enabled solutions to further optimize its cost structure and of course its go to market sales opportunities which are significant.
Despite these near term challenges.
<unk> remain highly confident in Gi strategy, the team and their investment thesis.
This is amplified by meaningful opportunities in respect of digital transformation, particularly within generative AI adoption and the continuing critical importance of differentiated digital customer experience solutions in the market, which remains a vibrant tailwind for <unk> medium.
And long term growth and profitability.
Doug will provide further commentary on both T Jack and Telus International's second quarter results in just a moment.
Before I close let me turn to the significant investment, which we are announcing today in an extensive efficiency and effectiveness initiative across tell us.
This is against the backdrop of rapid transformation in our industry and the ways in which our customers want to engage with us.
Furthermore, it is in response to the evolving regulatory.
Competitive and macroeconomic environment that we currently face.
Where we want to realize success within.
Importantly, the transformational investments.
We are prudently making.
Now.
Our building upon.
The sanguine investments that Telus has made over the course of two decades in building, the best culture, and enabling industry, leading customer experiences over our globally, leading wireless and pure fiber broadband networks.
And they are allowing us to accelerate our well progressed plans to digitally revenue revolutionize our business and further streamline operating costs meaningfully that bodes so well for the future success of this organization.
The generational investments we have made are fueling significant economic efficiencies and we will ensure we remain market leaders in driving innovation and value for our customers realizing profitable growth for our shareholders and supporting our team members and the communities within which we live work and.
Sure.
The accelerated program, we are announcing today will yield expected cumulative annual cost savings of more than $325 million.
Building smartly upon the terrific digital progress that this organization has made on our leading basis over the last few years aided and abetted by the Telus International organization.
Whilst this investment will temporarily dilute our strong free cash flow in 2023 importantly, it will support stronger free cash flow expansion in the years ahead as well as the progression and affordability of our leading multi year dividend growth program.
Given the scale of this incremental program.
It is with a heavy heart that we are proceeding with 6000 staff reductions across our global footprint.
Including approximately 4000 in <unk>, and 2000 of Telus international including offering early retirement and voluntary departure packages.
As a result of these extremely difficult decisions, we now expect incremental restructuring investments of up to $475 million in 2023.
Our winning strategy at Telus remains unchanged and our transformational efforts will be buttressed by our decades long track record of successfully navigating exogenous factors from regulatory and competitive to macroeconomic and most recently through the global pandemic.
Where we distinguish ourselves so admirably.
Our resilience and ability to embrace change and continuously evolve the way we operate are cornerstones of our tellers culture and the technology that we deploy in combination and these two things will continue to fuel our future and all the success that we will realize.
In closing I'd like to extend my sincere appreciation to our more than 80000 team members retirees family members and friends, who have collectively volunteered and 260 communities across 32 countries. Thus far for our 18th annual Tech.
<unk> days of giving making 2023, our most giving year yet in.
Indeed since 2000, our Telus family has contributed $2 2 million days of volunteerism more than any other company in the world.
Helping to improve the lives of people across the globe that need a helping hand.
Myself, our leadership team and the Telus Board of directors remain exceedingly grateful for our team's passionate efforts to support our global communities as we strive to deliver outstanding results for all of our stakeholders.
Example, refine our world leadership in social capitalism.
And on that note I'll hand, the call over to Doug.
Thank you Darren and hi, everyone.
Network revenue increased by 6% year over year, our ninth straight quarter of strong year over year growth driven by high quality customer additions, which has been supported by record population growth along with higher mobile ARPA.
Our growth has been also supported by our superior product bundling across home and mobile customer service excellence and globally, leading networks or ARPA growth of one 8% in Q2 reflects one that 8% in Q2 reflects the continuing roaming benefits however at a lower level as we lap.
The Q1 recovery.
We anticipate roaming to remain positive contributor to growth in Q3, and Q4, but in smaller increments.
Fight a highly competitive operating environment, particularly in the flanker space, we delivered positive year over year growth in domestic <unk>.
In the second quarter, reflecting high quality loading and strong base management.
As we progress through the back half of the year, we are targeting <unk> growth approaching 2% for 2023.
Fixed data services revenue growth grew by six 2% year over year, driven primarily by strong customer growth across Internet security and television and higher revenue per internet customer within fixed we also achieved strong <unk> growth of 5%.
Our leading fixed customer growth reflects our superior bundled offers and our leading pure fiber network.
Customers are continuing to move through our higher internet speed tiers, recognizing our superior customer excellence of our pure fiber network, the compelling value of symmetrical speeds and the value and reliability of our leading portfolio of bundled offerings on the <unk> front inclusive of both mobile and fixed services, we continue to.
See positive financial results with revenue and EBITDA contribution up year over year and.
In health revenue increased by $291 million in Q2 over last year, primarily reflecting the contribution of life works as well as organic growth EBITDA contribution in our health business area continues to grow steadily along with margins in the mid teens, which we.
<unk> to increase over time as.
As part of our broader cost efficiency program.
Our health team is improving their cost structure as we actively and complete the lifeworks integration.
Longer term, we continue to anticipate meaningful health revenue synergies from cross selling opportunities and continued March margin expansion benefiting from the optima cost optimization.
Overall, <unk> revenues were up nearly 14% over last year and adjusted EBITDA grew by eight 1%.
In Gi, we pre released the Q the second quarter results on July 13th operating revenues from external customers were higher by seven 6% year over year driven by additional services provided by.
By existing clients and new clients, including those from our Willow tree acquisition.
A strengthening of the U S to Canadian dollar exchange also benefit the <unk> revenue growth.
<unk> adjusted EBITDA was down 19% consistent with their pre release last month earlier.
Earlier this month, primarily due to the reduction in service revenues from larger tech clients combined with higher service delivery costs and our AI business. These.
These imbalances are due to the timing of some of the European labor reduction regulations and will be part of our future cost reduction initiatives.
Our <unk> team remains firmly focused on managing through these near term headwinds with a keen eye on efficiency and effectiveness and in order to support their margin and cash flow generation.
Overall consolidated operating revenues increased by 13% year over year and adjusted EBITDA grew by 5%.
Consolidated net income and EPS were both down approximately 60% due to higher depreciation and amortization from our growing asset base, including Lifeworks Willow tree and our generational investments in pure fiber and <unk> networks.
Macroeconomics, notably our <unk> operating segment also impacted EPS and higher financing costs from our higher data outstanding reflecting the investments in our growth strategy as well as higher interest rates in Q2 net income and EPS were also impacted by higher restructuring costs as it relates to <unk>.
Our cost efficiency initiatives free cash flow of $279 million increased 36% year over year, primarily by lower capital expenditures and higher adjusted EBITDA. This was partially offset by the increase in cash interest paid higher restructuring primarily due to the lump sum.
<unk> from the ratification of our TWU agreement and our ongoing efficiency programs.
As announced on July 13th we revised our annual target for consolidated revenue and adjusted EBITDA to reflect Telus International's updated outlook, notably the implied annual financial target for our <unk> operating segment remains unchanged.
Today, we updated our 2023 free cash flow guidance to reflect a higher expected restructuring disbursements related to the accelerated cost efficiency programs throughout all parts of our organization.
While these decisions are difficult to undertake that reflect our innovation for our customers and our required the requirement to address the pressures from the current regulatory competitive macroeconomic environments, while embracing our significant digital progression.
Restructuring costs are now anticipated to be up to $750 million for the full year, an increase of $475 million from our original assumption.
As Darren highlighted the annual cost savings from the incremental accelerated program arent pits are anticipated to be approximately $325 million for the full year and about 80% of that will be to the <unk> segment.
The $325 million, we anticipate a small portion of the benefits to begin accruing in the back half of this year.
Distant with our capital plan, we anticipate approximately 85% of our annual capital expenditures of $2 6 billion target to be in the first three quarters of the year and we reaffirmed our $2 6 billion guidance for the year on Capex.
The expected decline in our capital program in Q4 is aligned with our seasonal build plan.
Our growth profile and robust balance sheet position continue.
And our well established dividend program will continue into the future. The initiatives. We take today will be supporting all of that we will continue to focus on executing our cost efficiency and effectiveness opportunities driving down our cost structure on a permanent basis with that I will turn it over to Robert for the Q&A.
Thank you Doug Fredrik could we please proceed with questions.
Certainly in <unk>.
A reminder, if anyone else would like to queue up you can press star one on your telephone keypad.
The first question, we have is coming from.
<unk> please.
Please go ahead.
Hi, Thanks for taking my questions first one I have is.
I'm interested in the Digitization of your operations, obviously, you've invested a lot.
And this over the last few years.
Do you believe that you are a bit in advance in terms of your digitization versus global peers.
Might've done.
Jeff why don't you take that on our top up if necessary.
Yes, I think there is no doubt at all that the impact our digital transformation is having and has had on the business has given us a competitive advantage I think it does two things concurrently and historically I think these have been perceived to be mutually exclusive but we've demonstrated that.
That's not the case one it has meaningfully improved the cost to serve in terms of driving efficiency and effectiveness in those systems that we rely upon to support our customers and then equally importantly, I think it has improved the client experience by making it easier for them to do business with us to procure our products.
In services to request changes add additions et cetera, and as a consequence, that's driving better adoption increased subscriber net adds increased share of wallet and lifetime average revenue. So I think it is beyond contestation that having been an early adopter of digitally enabled.
Interactions with our team members and our customers that gives us an advantage in the marketplace.
And without the investments and progress that we've made on the digital front, the AI front and currently and prospectively degenerative AI front.
Would not be capable of realizing the cost efficiencies that we've articulated today.
We're realizing these cost efficiencies and looking to contemporaneously increase the service quotient of this organization and I think that's a huge competitive differentiator for Telus versus our peer group and the relationship between Telus and Ti has been absolutely key to realizing.
At this position and what it portends for the future.
Great and second one I would have.
You've updated your guidance in mid July .
Europe dating it again this time has anything changed since mid July or is it just that the restructuring decision in paper work has to be done.
Doug why don't you.
On this one yes.
Nothing has changed from that.
The perspective of two weeks ago. It was in essence, bringing this forward with the overall story and.
Execution of our results I think that would have been hard to do that in a pre release and so we wanted to have the pulse of picture of our overall operating results concurrent with the restructuring initiatives and finalizing those to the extent we discuss today.
Great. Thank you.
Thanks, Ron Frederic Thanks question. Please.
And our next question comes from.
Here.
Yankee.
<unk> Bank. Please go ahead.
Alright, great. Thank you for taking my question.
I would like to start just by asking a question on your leverage and capital allocation priorities over.
Over the last year, we have senior leverage go from three 2% to $3 eight.
<unk> invested heavily in Capex for sure but also in acquisitions.
This ratio is now above your long term range.
Help us understand the expected pace of the decline that you think this.
This ratio is going to take especially given the upcoming spectrum auctions coming up any targets on leverage that you can share with us here and just a follow up to this question you have supported Ti in several ways.
More recently through a couple of stock buyback.
Acquisitions can.
Can you provide us.
Some understanding as to how much more you are.
Are willing to support Ti specifically when it comes to stock acquisition.
This is a question that keeps coming up with investors and I think get some clarity on that would be helpful. Thank you.
Okay, I'll, let Doug take the first part of the question and I'll top up on the second part.
I think when you look at our industry, leading EBITDA growth and the fact that we've been coming to the end of our.
Accelerated capital spend in this year is the decrease in capital spend was a good example of that.
Youre going to see that capital continue to be moderated into the future.
With even the initiatives, we talked about today on bringing down our our long term cost structure for enhanced margins.
We have full confidence we're going to delever.
Well into the future on free cash flow.
And that these initiatives, if anything will solidify even a stronger balance sheet into the future.
So when you look at the growth areas, we have confidence in EBITDA growth and value Jen and consistence with the demand on capex going forward coming down.
I think it's pretty clear that Telus is now in a period, where the sources of cash will chronically exceed the uses of cash and that bodes well for the balance sheet of the organization as well as our strategic positioning from an investor.
<unk> thesis.
Secondly, as you would know.
Doug and the team have done a superb job.
Timing the balance sheet of the organization with the investment profiles that we have undertaken in areas like fiber and five G. We've got an average term to maturity on our debt profile of 11 years and our cost of debt is quite attractive just a touch over four <unk>.
<unk> and of course that that is tax affected given the tax paying position of this organization.
In terms of Ti.
Yes, we have made.
Investments in Ti on.
On the edge in the past we've done that.
Because we have a high degree of confidence in.
The Ti organization and its growth prospects, but it's not just because we are confident in an external and its external growth prospects.
We recognise critically as we've just spoken to.
Ti is a critical enabler of <unk> growth strategy supporting everything that we're doing from customer service excellence to the digital transformation of our organization that's put us in such a strong position.
We as an organization belief as you would expect.
Ti is significantly undervalued and has a deals up the macroeconomic challenges in front of it with the right moves the medium and longer term prospects for the organization are exceedingly strong.
Having said that we expect Ti to stand on its own two feet.
And that policy. So in terms of answering are fielding any questions that you are getting in that regard.
We do not intend to buy Ti back into the Telus organization.
I think that we might do would be entirely opportunistic and only around the edges. We expect the organization to stand on its own two feet.
And drive growth and we think that the organization, particularly post the efficiency measures that they are now implementing is going to have a fantastic platform for future growth and are very eager anchor tenant within the Telus organization, but tremendous prospects on an external basis.
Clearly leveraging what we think are terrific accelerators for Ti and respective generative AI and how uniquely the Telus International organization.
Positioned in that regard, it's also a huge opportunity for Ti to product type. The success that has helped drive at tell us and drive those solutions not just across the comms and media sector, but on a wider basis within its external client perimeter. So that's policy.
ATI was down on its own two feet and I think the future will be very bright.
Thanks Peter.
Next question please.
Okay. Thank you. Our next question comes from drew Mcreynolds.
RBC. Please go ahead.
Yes, thanks very much.
Two for me.
First I guess, maybe for you Doug on the restructuring.
Obviously, I think youre the only one that includes us and free cash flow guidance, everyone restructuring so there shouldn't be any surprise there but.
It feels a little bit.
Back foot front foot as part of this that is required probably because of some cost inflation, but also front foot because of.
Your ability to be ahead of the curve and digitize. So maybe comment on if that's correct and then just secondly on the $325 million and run rate annualized savings.
Should we think about that flowing through in 2024.
By our calculations it's about.
500 basis points of year over year, EBITDA growth, but I'm sure, it's not that simple as adding that in 2024 because.
There's other things that I am sure offset so just.
Setting expectations here just broadly on that front. Thank you.
Alright, Doug go for it.
Thanks drew.
So we do plan to execute a majority of the plan within 2023, there are some of the restructuring initiatives, though that do have a longer term benefit.
And there would be some that would be call it multi year and that that payback such as the real estate rationalization.
An example.
And you are right that will definitely be some give and takes between the.
The cost efficiencies versus other other pressures within the market dynamics as highlighted by Darren earlier so.
So I would profile the majority of it coming through in the early to mid part of next year, but balanced through with some of the items that we've talked about lapping.
Bromine is an example, youll see that that will slow down into 2024 as we've.
Lap the Covid uptick and then it's declining and having less of an impact into the future and that's just one example of where you would see that partial offset.
But when we looked at it it is a long term plan. It is looking through the initiatives in front of us and driving the efficiency savings as quickly as possible is definitely at R. R.
Our desired outcome.
Thank you Fredrik next question please.
Thank you. Our next question comes from Simon Flannery of Morgan Stanley . Please go ahead.
Great. Thank you very much.
I wanted to talk a little bit more about competition I think you talked about increased flanker competition, perhaps you could just characterize that and do you think this is temporary or longer term change and to what extent is there a risk of trade down from the premium plans and maybe spur.
Specifically on the West we've had several months of Shaw and Rogers integration you.
You put up some good kpis, but what are you seeing on the ground. There is there any real change in the competitive intensity on the converged product set out west.
Thanks Simon.
Jim Zeno why don't you hit that one.
Okay, why don't I go first.
Excuse me.
Headwinds I think are pretty well known.
But.
We're also.
Some good.
<unk> so.
Bring your own phone customer growth is strong and thats growth without device subsidy.
<unk> plus.
Is holding its value versus <unk> and <unk>.
And we're seeing bundling accelerating especially.
Not just in the west, but we're also seeing good bundling opportunities in Eastern Canada now just been great.
Look we're pleased with how we navigated Q2.
We had our best new customer growth since 2010, we are the only major carrier sustaining ARPA growth can turn continued churn leadership significant industry lead on customer lifetime value, our roaming growth was 145% versus pre pandemic.
Are those were those.
Those were all solid.
Bundling <unk> plus family discount or protecting our premium customers, we're sustaining our customer renewal volumes with your with a year over year step up so we've been able to manage our margins in areas like access points to device subsidies.
We've relaunched public mobile balanced customer growth and margin, so 100% digital 100% redesign for simplicity.
Cost of service six times lower than tell us.
Allows us to meet the prices, while maintaining premium margins.
And I think going forward.
We're confident in our prospects for continued.
Backed by our consistent strategy really best networks customer experience bundling.
Focus on execution.
We anticipate ongoing subscriber strength from the growth and immigration and from product intensity. We continue to manage our margins with thoughtful mix of digital bring your own phone and access points to buy subsidies.
We believe the retail flanker <unk> price points will drive step up, especially from the growth we're getting on view IOP newcomer growth.
But that we see as a positive.
And then <unk> plus bundling bring it back family discounts are all holding in attracting our premium customers. So.
We continue to expect our full year <unk> growth.
We're very very relentlessly focused on customer margin.
I don't know if you want to top up.
Yeah, maybe maybe I will add a few points with respect to the west as you highlighted there Simon and the competitive intensity so to build on Jim's point, we're going to be ultra focused on amp, who driving wallet share in product intensity and the customer loyalty that we continue to.
Build on and garner as well as the superiority of our network capabilities and also the real product differentiation, we're able to offer our customers from.
From areas like home security and automation to consumer health.
Are absolutely unique in the market and so those are areas where we're at.
We're continuing to see the opportunity to grow wallet share and grow our customer loyalty and affinity.
And so in terms of what we're seeing in the competitive environment, we're really seeing consistency with respect to how we are executing on our strategy from the get go you're seeing us able to monetize some of the elements of our strategy from a cost takeout perspective.
And and the Digitization perspective, but to Darren earlier points, that's been on the back of foundational investments. We've made in both the network and the digital side and it also enabled our ability to do rapid product development and rapid go to market for our new product.
And so that's serving us incredibly well so we're continuing to see.
Strong outputs on the back of our pure fiber <unk> bundling, we see better wallet share and customer household growth and better loyalty and as well as better cost to serve across the board and we're just heads down and focused on continuing to drive that strategy.
As you've seen in our results continued traction in that strategy.
Great. Thanks for the color.
It's pretty simple Simon five point strategy that Youll see from this organization quarter in quarter out, which is leverage best network leverage best customer service leverage best product portfolio leverage best channels, and digital capabilities and leverage best cost base. That's the five.
Point plan.
Thank you.
Thanks, Simon next question please.
Thank you. Our next question comes from Vince Valentini of TD Securities. Please go ahead.
Yes, thanks, very much first sorry, if I missed it.
Cost savings from the new restructuring program.
Don't see anything in the Telus International release, but it's a public company. So I assume they have to provide some numbers. So hopefully you can help us out how much of the $325 million will be on the <unk> side versus the Ti side.
So I think we did actually referenced that in our call earlier today than it was $40 million in year.
And that USD not Canadian.
Yes, 40 annual run rate.
No 10 year.
Lots of restructuring dollars, yes.
Oh, that's restructuring Doug sorry, Okay, yes.
Joe 40 million U S out of the $4 75 Canadian restructuring cash is on the GI side do you have a similar figure on the 325 ongoing operating savings.
About 20% of that was Ti.
So I wanted to ask my first because then my follow up would be if I, if I take 80% of that.
325, and then I take the new very impressive synergy target youre throwing out a knife works getting up to $4 25 by the end of 2025.
Even with.
Before we even at a dollar of revenue growth is it safe to assume that the EBITDA run rate in 2025 ish is circa $600 million.
Higher than what we're seeing this year.
I think Vince we'll update guidance for next year is appropriate I think.
<unk> question on some of the offsets that may happen, including <unk> and some of the other pressures on the market size would potentially be a bit of volatility factor that this is going to hedge against.
So I think.
The cost savings there, yes down the path you suggested but I think there's other initiatives that will balance side as we look into 2024, but we're expecting to still have industry, leading growth as youre, implying and the efficiencies will be holistically lucrative.
Okay. Thank you.
Thanks, Vince next question please Frederic.
Our next question comes from Tim Casey of BMO. Please go ahead.
Thanks.
Two questions one I am wondering if the.
Challenges you've had at Telus International how that is influencing how you're approaching Telus health in its path to.
Some sort of corporate event and.
Second.
We are getting questions on how youre thinking about your dividend growth.
And your three year commitments to 7% I'm wondering if you could frame that in light of I guess the headwinds in Telus international but.
Your announcement today of.
Restructuring and restructuring savings going forward.
Okay.
Let me kick it off with.
Ti and Telus health too.
Very explicitly answer your question Tim.
Ti.
Despite what's transpired in Q2.
Remains an exemplary model for Telus health.
The Ti organization has had an excellent track record of success historically.
Hannah surpassed expectations on many instances in the past leading up to add and post the IPO process.
<unk> track record of success on differentiation.
Product development.
Affinity has been absolutely key for that organization and the duration of the success I think is quite telling.
So the hiccup that's transpired in Q2 does not diminish Ti I think is the right model as it relates to Telus health and one of the other key attributes.
<unk> success is the duality of their performance in terms of both organic growth and.
Smart inorganic moves that.
We are well integrated and significant value was created from those acquisitions and I think that again, it's a good model for the total organization to follow our expectations <unk> remains undiminished.
And if anything I would say, they're embolden and accelerating.
The other thing that is clear and maybe we need to make it more clear.
Ti is not just a terrific enabler tell us on everything from customer service to digital progression.
But ti.
As a significant enabler of Telus health itself as Telus health those through improvements on cost efficiency and customer service excellence.
The development and digital and Jen AI progression, they will be aided and abetted by Ti every single step of the way.
Of course, <unk>, which focuses on the health vertical as well and we will take those capabilities and not only serve Telus health, while our product ties them within the overall external market.
And so I think thats quite a compelling composition.
And we're very much looking forward to realizing the synergies that we've articulated foretell itself.
$425 million level, where we've highlighted $325 million of hard synergies in terms of key efficiencies that ti will be supporting along the way to make sure that we deliver against that 325 number.
I look forward to significantly improving upon the $100 million.
Of revenue synergies from the plentiful cross selling opportunities that we have.
And on the dividend growth side.
If anything the initiatives, we talked about today well.
Solidify our passion to continue that going and our commitment to keeping that going.
Our decisions are off a free cash flow into <unk> point, and our discussion that free cash flow will.
Accelerate as we move into the future and we don't see our commitment to that changing at all.
Thank you.
The reverse.
Thanks, Tim Frederick next question. Please.
Thank you. Our next question comes from Stephanie price of CIBC. Please go ahead.
Good morning.
I think that your thoughts around capital allocation between the base.
Okay.
As you noted free cash flow.
Accelerates from here I'm, just curious, how you're thinking about where that.
Marginal dollars.
Better.
Alright.
Yes.
So if you look at the.
Preponderance of our capital composition, how we've.
Executed discretionary decisions on capital allocation, Firstly Ti has two standard its own two feet leveraging its own balance sheet.
Its own transaction currency, which is why we're interested in valuation improvement for that organization for tell us I think it's been fairly transparent.
The big consumers of capital, which I think have paid off handsomely and you can see it in the best in class operating results that we have generated.
Number one we have invested and will continue to invest in wireless network technologies.
<unk> <unk> to <unk> <unk> plus.
And of course, the spectrum that fuels our capacity along the way.
Second Youll see us continue to invest in pure fiber broadband with <unk>.
Tenant attributes of product intensity realization significantly above three.
A cost to serve in terms of the external network that 70% better than copper our revenue per home, that's 20% better than copper our margin per home, that's 25% better than copper and the churn rate, that's 20% better than copper.
Youll continue to see us make those investments.
Number three has been our focus on digital.
Digital progression digital transformation.
Hi.
And generative AI moving that continuum, along the way, we wouldn't be able to do what we're doing today in terms of staff level efficiencies without what we've done over the last 36 months.
In that regard.
That's a really critical factor for us because to be able to make those moves and because of our digital competency and capability set did not miss a beat in our go to market operations or our customer service excellence I think is a really distinguishing story fourth area for US is success based capital.
And this is demonstrably within the core business of this organization and you can see it reflected within our operational loading features.
Then the last area is supporting the growth of our data centric businesses.
Data centric businesses on health and if you look at what's happening around the world today, the efficacy of what we're doing on data insights on health or data insights on AG or data insights on consumer packaged goods.
Is stronger today than what it has ever been and so that's where we will be focusing the preponderance of our capital and I think what we have spent and how we have spent it from a composition point of view historically is prescient in terms of what you can expect us to do prospectively.
Thanks for that and just a quick follow up on the cost efficiency program with Crimson head count reductions from the Telecom unit already just curious if you can talk a bit about the staff reduction goals for the telecom units specifically.
Yes so.
The staff reduction goals are 4000.
Within our tech business incremental and 2000 within Telus International and potentially some incremental steps on ti over the remainder of the year in terms of optimizing it.
Staff levels within its organization.
Sure.
Within our telecom business, our communications technology business is 4000 incremental too.
To the 1000 that we already had within our base plan for 2023. So it brings the total to 5000 within.
The <unk> part of the business and we think Thats the right quantum.
Right now to support what we want to achieve in terms of profitability and cash flow for 2024, and 2025 and 2026.
Think it sets us up well and when you look at that improved profitability because of those moves.
With a diminished capital appetite.
2020 for 2025 and 2026.
Do think that the lucrative efficiencies that I mentioned earlier and the way that they will buttress and amplify our EBITDA results within our <unk> business in combination with a slowing capital consumption profile will be hugely generally.
Two the cash profile of the organization, which is why I made the comment on our dividend growth model of quite the reverse I think our dividend growth model.
Is crystallized in a stronger fashion than what it has ever been in terms of delivering against our forecast and what our management.
Management's expectations.
In terms of the accretion of our dividend within the 7% to 10% range over the next 36 months and it's not lost on me as a personal investor Entellus.
That this is over and above the 6% yield.
The dividend currently represents on our trading price.
Thanks for the color.
Thanks, Stephanie Fredric, we have time for two more questions. Please.
Certainly our next question comes from David Barden of Bank of America. Please go ahead.
David Barden of Bank of America.
David are you on mute.
Yes.
It's Dave.
And for Dave sorry about that.
Yes.
On my first question.
You referenced the regulatory competitive and macro factors sort of driving forces.
We're influencing forces behind that cost efficiency program.
I was wondering if you could add some context.
Are you seeing this as kind of an increasing area of uncertainty as youre looking into 2024 and beyond or are those just.
Are they stable factors that are always being considered that are just driving.
A need in the investment case for digital transformation, and it's not an increasing level of uncertainty for you.
And secondly on bundling.
As referenced.
Repeatedly and it's.
A source of strength for the organization is there any sort of additional color you could provide on.
Where you are on that journey, how much is left which which services you are finding the most traction bundling which ones.
It might be growing.
In their bundling outlook.
Just any kind of color on where that stands it would be helpful. Thank you.
Okay.
Zeno why don't I ask you to speak to the bundling front.
And I'll kick it off with an answer on the regulatory.
Side of things.
Firstly.
I think we made an error.
Colleen and regulatory factors exogenous.
Clearly if we've learned anything over the last 23 years.
Tori factors are endogenous within R. R.
Our industry.
And there is a <unk>.
I expect a development.
Within the regulatory environment that seems to have characterized every single year that I have been with the organization and.
That is something that we have to live with on a normalized basis in terms of the strategy of this organization and the operating tempo. We are clearly in terms of both magnitude and diversity scene.
Seen every form of regulatory challenge over the past 20 years, hence the endogenous comment and I do think that this organization.
Has distinguished itself with a demonstrable track record that is truly second to none and processing these challenges and in some cases opportunities and.
And moving the business forward with.
Terrific success.
And that's no different than what's happening within 2023, whether it relates to mandated access components when it relates to the development of the <unk>.
Model, whether it relates to facilities based competition and the like I would say right now all of those developments are just normalized within the overall tell the strategy.
And we get on with absorbing them with mitigating them and what's coming up with strategies to overcome.
Those regulatory impediments to our business and the most demonstrable example is what we have done today when you look at the efficiencies that we're driving.
They are preemptive.
<unk> of how we see certain regulatory challenges evolving in the months and years ahead, and we want to get ahead of it our ability to take cost out of the business today.
We will prepare us to better absorb any regulatory impediment.
<unk>.
And we're an organization that just wants to control our own destiny, along the way.
The other thing that we are doing is we will always tune.
Our employment.
And our investment according to the regulatory environment.
And if we are seeing regulatory challenges or impediment.
That is going to see us diminished the job profile within the Telus organization in response to that and or also diminished the investment profile, we will put shareholder money to work in the areas that can generate the best return overall for our <unk>.
Stakeholders.
And then thirdly.
We challenged the regulatory environment by doing what we think is right for our country.
And when you look at the affordability of the solutions that are out there now from wireless to wired.
Hi.
And do a deep dive on the value propositions of each of the three brands within our wireless ecosystem.
Clearly clearly we are evidence.
The affordability objective being met and a very fulsome fashion.
We are also delivering a quality of service.
Then our portfolio to Canadian citizens in terms of regulatory oversight that is second to none globally, we have the best networks and the best customer service on the planet.
And then.
The third axiom to our regulatory agenda is to invest in areas, where theres, a lighter regulatory touch a benign regulatory environment or less regulatory intrusion and disruption and clearly when you see what we're doing with Telus international and the growth prospects there.
There as that business returns to both double digit revenue growth and margins that are well in excess of 20% or what we're doing globally with tell us help on the digital front or what we're doing globally with tell us agriculture and consumer goods on the digital front leveraging data insights.
On a disruptive basis to drive growth within those industries.
Our areas that fall outside the yolk of the Canadian regulatory paradigm and I think they will yield significant value creation for investors prospectively. So that is the regulatory theorem for this organization.
And I think we have evidentiary documentation and empirical track record.
That says we've run that particular game plan well over the past two decades.
Dana.
By the way.
And so I think it would be overly simplistic to think about bundling from only a wireline wireless perspective.
We look at bundling across the journey.
We have several brands some of those brands help us to identify new prospects that we can bring into our ecosystem and then we look at the level of product intensity.
And it's a self fulfilling prophecy because as you add products and as you add.
Other digital touch points into the customer's journey and into the household you improved economies of scope and scale you improve the revenue and you improve the cost structure and so because we had such a significant breadth of products.
I highlighted across our home security automation, our online security, our consumer health portfolio in.
In addition to the incredible products, we have across our core services and our entertainment and other portfolios.
We look at this from a perspective of continuous growth and that drives both revenue and cost to serve and so as you look even if you looked at for example, a newcomer journey.
That customers need and that customer's desires in terms of what they need in their household is going to change over time. So there is a significant beef management opportunity and we look at that journey across the multitude of our products. We have the most products relative to our peers and we're going to.
To build and deploy new product categories, some of which will be aligned to the product areas. We're in and some of it of which will be net new areas that we can grow new digital digital relationships with our customers.
Okay very helpful. Thank you so much.
Thanks, Matt final question. Please Frederic.
Okay.
Your final question comes from Sebastiano Petti with Jpmorgan. Please go ahead.
Hi, Thanks for taking the question I just wanted to see if you could provide a bit more color on perhaps maybe the margin and T tech within the second quarter was there anything onetime in nature.
Or anything we should be thinking about in terms of comps.
And in that context.
The back half trajectory.
Honestly, you have some synergies coming in.
But you are also comping.
It works in September beginning in September of last year, and so some of the puts and takes around that and how we should perhaps be thinking about underlying growth within the <unk> Tec.
On an ex synergy or ex.
Lifeworks basis. Thank you.
Okay, Doug we'll kick this one off thank you.
Yes in the second half there are a couple of onetime items from last year. We did have a toehold investment in life works, which on the execution of the deal created a gain and you would have seen that through and we disclose that.
In the third quarter of last year.
That would be our mainline.
Couple of small call put option gain.
<unk> that occur periodically through quarters that also would be in the second half of the year.
But the total that would be the main one two to acknowledge for Q3.
We would also be a mistake to because of the lapping of life works assume that the growth profile of Q4 relative to Q3 is significantly diminished.
We are forecasting a more consistent performance across Q3 and Q4 in the second half of the year. So I would guide you in that regard.
Great. Thank you very much.
Thanks for that channel.
Thank you everyone for joining us today, please feel free to reach out to the IR team. If you have any follow ups and for those in Canada. We wish you a wonderful long weekend.
Thank you and this concludes the Telus 2023 Q2 earnings conference call. Thank you for your participation and have a nice day.
Everyone else has left the call.
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