Building Business Acumen® Welcome to Building Business Acumen® Acumen Learning

Pop Quiz (page 35): For Fiscal Year 2010: How much cash was on hand? How much cash was generated from operating activities? What was EBITDA ($)? What was the EBITDA Margin (%)? What was the Operating Income ($)? What were the Earnings Per Share?

What were Operating revenues? What was your Return on Assets? How much did Operating revenues grow year over year? How much did EBITDA grow year over year? How much did Earnings per Share (EPS) grow year over year?

After Business Acumen, You Will (Objectives): Know what measures are important to Darren, and how you impact them. Understand 5 fundamental drivers that all businesses focus on. Have a better understanding of the financial statements and how you stack-up against competitors. Have an action plan on how you will positively impact company results. Become a better communicator of company strategy and performance.

Business Can be Tough! Only 5-10% of business start-ups survive past 5 years. 16% of CEOs lose their job every year. 70% of merger and acquisition activities fail to increase shareholder value. Wall Street Journal, May 2008

When it comes to running a business successfully, the street vendor and the CEOs of some of the worlds’ largest and most successful companies talk and think very much alike. -Ram Charan The verbiage at the bottom, “So that you understand how the decisions you make impact key company measures”, is a new objective that AGU would like us to reinforce in the teaching.

Cash is King! “Cash is a company’s oxygen supply.” -Ram Charan “Cash is more important than your mother." Al Shugart Former Seagate CEO

“Cash Flow from Operations” = Core Business Activity Two Types of CASH Business managers refer to CASH in primarily two ways: CASH Balances and Cash equivalents CASH FLOW from Operations “Cash Flow from Operations” = Core Business Activity

Cash “Particularly noteworthy for investors was the upswing in free cash flow in 2010, up by 95 per cent to $947 million due to improved operating earnings and reduced capital expenditures. The strong cash flow position and prospects for continued earnings growth allowed us to increase the dividend by 10.5 % last year to a record high of $2.10 on an annual basis.” TELUS 2010 Annual Report

Cash--Benchmark Companies

Key Ideas: Cash and Cash Flow (Page 9) Anything we do to increase revenues or cut costs impacts Cash and Cash Flow… But we can also impact Cash by paying slower or collecting faster with the same sales revenue and costs.

Activity: How Functions Impact CASH How do you individually impact CASH and CASH FLOW? Capture your ideas on page 9 in the participant guide. Ideas: -Increase Customer retention -Pay slower -Collect faster -Improve understanding of company expenses

Profit Every business must earn a return that is greater than the cost of using other people’s money. -Ram Charan No Margin, No Mission. -Stephen Covey

Two ways to impact Profit Revenues (Sales) $ 100 - Operations and restruct. $ 62.7 = EBITDA $ 37.3 37.3% - Depreciation/Ammort. $ 17.8 = Operating Income $ 19.5 19.5% - Interest, Taxes, etc. $ 8.9 = Net Income $ 10.6 10.6% Show and explain the basic P&L components. Since these folks will likely understand a P&L, go through this quickly. What is likely most relevant for them is to understand what the S&P averages are. TELUS Averages for FY 2010.

Driving Profit High and Low Profit Margins S&P Average is: 11% Who has much higher profit margins? Microsoft 29% Google 25% Coca-Cola 22% Why the high margins? We could have three versions of this slide that show the margin box shrinking and the volume box increasing, then vice versa. I think this approach would be easier for the facilitators to show….but I am worried that this will get confused with revenues up and costs down. I may favor not showing this concept at all but simply have a discussion about companies with high margins versus companies with thin margins. This discussion could take place two slides earlier when showing GE’s net profit margin.

Driving Profit High and Low Profit Margins S&P Average is: 11% Who has much lower profit margins? WestJet 5.2% Wal-Mart 3.5% Costco 1.8% Air Canada 0.9% Why the low margins? We could have three versions of this slide that show the margin box shrinking and the volume box increasing, then vice versa. I think this approach would be easier for the facilitators to show….but I am worried that this will get confused with revenues up and costs down. I may favor not showing this concept at all but simply have a discussion about companies with high margins versus companies with thin margins. This discussion could take place two slides earlier when showing GE’s net profit margin.

Profit “We must continue to maintain healthy profits and cash flow to fund our core strategic growth initiatives that sustain our future performance” Robert McFarlane, 2010 Annual Report TELUS Acquisitions to drive Profit and Growth Long-term: 2005: Ambergris Solutions (call centers internationally) 2006: Assurent Secure Technologies 2007: Emergis 2008: FastVibe

Assets (read from pg. 12 in manual) Balancing Asset Strength & Asset Utilization

Assets

Growth In today’s business world, no growth means lagging behind in a world that grows every day… Investors expect it, employees are more energized by it, customers are generally attracted to it and executives are measured by it.

Growth

Anticipate Customer Needs! People What’s more important than meeting Customer Expectations? Henry Ford: “If I would have asked my customers what they wanted, they would have said a faster horse.” Peter Drucker: “Culture eats strategy for breakfast” Anticipate Customer Needs!

PEOPLE Steps to assess focus and performance pg. 17 PEOPLE Steps to assess focus and performance Step 1: Who is your most critical customer right now? Step 2: What does your customer most want from you? Step 3: How would your customer rate you on your performance? Step 4: What 2 things can you do to improve your rating? 23

Business Drivers (Page 18) Cash -On hand -Generation Assets -Strength -Utilization Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees

Cash Example (Page 20)

Highest and lowest profit margin companies Profit Example Automobiles: Highest and lowest profit margin companies Company A Company B Annual Sales $10.1B $181.1B Net Profit Margin 23.5% -24%

Asset Utilization Example Company A Company B 71 Door Handles 228 25 Cooling Systems 99 53 Antennas 171 6 Cars Mfg per Line 1 $3,800 Cost Advantage per Car $0

Growth Example

TELUS Corporate Priorities - 2011

Profit “P&L” Top Line +1.8% EBITDA = $3,643 or 37.3% +4.8% 10.6% Operating Profit Margin = 19.5% 10.6% Net Profit Margin (+3.6%) Bottom Line +2.5%

Increase Revenues by 100K +100 - 62 + 38 + 38 - 9 (24% Tax rate) + 29

Decrease costs by 100K - 100 - 100 +100 +100 - 24 + 76

Assets = Liabilities + Equity “Balance Sheet” Financial Strength Most Liquid Total Current Assets Least Liquid Total Assets Due First Total Current Liabilities Due Last Total Liabilities and Shareholders Equity

2010 17M 2,546M 3,643M 37.3 1,908 3.22 9,779 5.30 1.8 4.8 2.5

Business Drivers for Sustainable Profitable Growth Cash -On hand -Generation Assets -Strength -Utilization Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees Statement of Cash Flows P&L Balance Sheet

Where to Find Information (page 55) * nasdaq.com * finance.google.com * reuters.com * hoovers.com * yahoo.com * smartmoney.com Glossary: page 58

One final thought… People will work hard for a paycheck, harder for a person, and hardest for a reason.