Transcript Q4-06 Conference Call

Q4 2006 TELUS investor
conference call
Robert McFarlane • EVP & Chief Financial Officer
February 16, 2006
2006 – fourth quarter wireless review
Wireless segment – financial results
Q4-05
Q4-06
Revenue
$877M
$1.02B

16%
EBITDA1
326M
432M

33%
Capital expenditures
144M
106M

26%
1
Q4-06 includes $3M in restructuring & workforce reduction costs
Record fourth quarter EBITDA
16
Change
Wireless subscriber results
Net additions
Total wireless subscribers
235K
92K
977K
182K
52K
4.1M
Prepaid
19%
143K
130K
61%
71%
Q4-05
Q4-06
Postpaid
81%
5.1 million total
Total subscribers up 12% and strong postpaid mix
17
Wireless ARPU growth
Data ARPU
$64.50
$62.54
$6.16
$3.17
59.37
58.34
Q4-05
Q4-06
ARPU growth driven by 94% increase in data
18
Profitable growth strategy
Q4-05
Q4-06
ARPU
$62.54
$64.50
Blended churn
1.42%
1.33%
 9 bps
Lifetime revenue
$4404
$4850

10%
$449
$436

3.0%
10.2%
9.0%
COA
COA/lifetime revenue
Change

3.1%
120 bps
TELUS subscriber economics improving & remain best in class
19
2006 wireless results compared to original targets
2006 actual
results
2006 original
targets1
Revenue
$3.86B
$3.775 to $3.825B

EBITDA
$1.75B
$1.7 to $1.75B

Capex
$427M
approx. $450M

535K
> 550K

Wireless net adds
1 Provided
on December 16, 2005
Met or exceeded three of four targets
20
met or
exceeded
2006 – fourth quarter wireline review
Wireline revenue profile
Q4-05
Q4-06
Change
$537M
$528M
 1.7%
Voice – Long Distance
212M
198M
 6.7%
Data
400M
435M
 8.8%
Other
61M
74M
$1.21B
$1.23B
Voice – Local
External Revenue

 2.0%
Solid data growth offsets erosion in local and LD
21
21%
High-speed Internet subscriber growth
Total Internet subscribers
High-speed Internet net
additions
Dial-up
17%
44K
27K
917K
Q4-05
Q4-06
High-speed
83%
1.1 million total
Continued strong net addition growth
22
194K
Wireline segment – financial results
Q4-05
Q4-06
Revenue
$1.21B
$1.23B

2.0%
EBITDA1
409M
447M

9.2%
Capital expenditures
230M
309M

34%
1
Change
Includes $36M and $5M in wireline restructuring costs in Q4-05 and Q4-06 respectively;
Q4-05 EBITDA includes $50M net expense impact of labour disruption.
23
Wireline EBITDA normalization
Q4-05
Q4-06
% Change
$409M
$447M
 9.2%
Labour disruption impact
50M
-
Restructuring costs
36M
5M
$494M
$452M
EBITDA (reported)
EBITDA (subtotal)1
EBITDA (adjusted for cost of sales related to FFH)
Adjusted EBITDA down 4.3%
24
 4.3%
Non-ILEC revenue and EBITDA
($M)
Revenue
165
EBITDA
172
7.1
Q4-05 Q4-06
11
Q4-05 Q4-06
Central Canada Non-ILEC profitability continues to improve
25
Network access line results
% of network access lines lost, YoY
Q4-05
Q1-06
-2.4%
Q2-06
Q3-06
Q4-06
-2.6%
-2.7%
-2.8%
-3.0%
Increased residential losses due to increased competition,
partially offset by business line growth
26
TELUS total subscriber connections
9.7
10.2
10.7
(millions)
Res NALs
Bus NALs
Dial-up Internet
High-speed Internet
Wireless
Q4-04
Q4-05
Q4-06
Connections increasing with strong wireless and Internet growth
27
2006 wireline results compared to original targets
2006 actual
results
2006 original
targets1
$4.82B
$4.825 to $4.875B
$657M
$650 to $700M
EBITDA
Non-ILEC EBITDA
$1.84B
$32M
$1.8 to $1.85B
$25 to $40M
Capex
$1.19B
$1.05 to $1.1B



154K
> 100K

Revenue
Non-ILEC Revenue
High-speed net adds
1 Provided
met or
exceeded


on December 16, 2005
Met original EBITDA and non-ILEC targets with significant
outperformance in high speed Internet additions
28
2006 – fourth quarter consolidated review
TELUS Consolidated
Q4-05
Q4-06
Change
Revenue
$2.09B
$2.25B
 8.0%
EBITDA1
$734M
$878M

$0.22
$0.70
$374M
$415M
EPS
Capex
1
20%
 218%

11%
Q4-05 EBITDA includes $52M net expenses, excluding any revenue or indirect impacts, from labour
disruption
Strong growth in revenue driven by data and wireless
29
Consolidated EBITDA normalization
Q4-05
Q4-06
% Change
$734M
$878M
 20%
Labour disruption impact
52M
-
Restructuring costs
36M
8M
EBITDA (subtotal)
822M
886M
EBITDA (reported)
EBITDA (adjusted for (wireless/FFH) cost of sales)
 6.1%
Adjusted for acquisition costs, EBITDA up 6.1%
30
EPS normalization
Q4-05
Q4-06
% Change
$0.22
$0.70
 218%
Labour disruption impact
0.10
-
Tax related adjustments
0.01
(0.06)
Early bond redemption
0.06
-
EPS (reported)
EPS (Adjusted)1
1
$0.39
$0.64
 64%
Adjusted further for restructuring costs, EPS would have been $0.46 and $0.66 for Q4-05 and
Q4-06, respectively, up 43%
Adjusted EPS up 64%
31
EPS continuity
$0.08
$0.07
$0.03
$0.02 $0.01
$0.70
$0.10
$0.17
$0.22
Q4-05
EBITDA 2005 lab. Lower
Tax- Decr. in Other Lower
growth dis. costs financing related
depr’n &
avg
costs adjustments o/s
amortiz’n
shares
Q4-06
Tremendous growth evident in underlying EPS, led by EBITDA
32
2006 consolidated results compared to original targets
2006 actual
results
2006 original
targets1
Revenue
$8.68B
$8.6 to $8.7B

EBITDA2
$3.59B
$3.5 to $3.6B

$3.27
$2.40 to $2.60

Capex
$1.62B
$1.5 to $1.55B

Free cash flow
$1.60B
$1.55 to $1.65B

EPS3
met or
exceeded
1 Provided
on December 16, 2005
Original targets included restructuring & workforce reduction costs of approx. $100M, vs. actual
2006 results of $68M
3 2006 EPS includes $0.48 of positive tax-related adjustments
2
TELUS achieved 4 out of 5 original targets driven by wireless
33
Share repurchase programs
2004
2005
2006
Total
Total cost ($M)
$78
$892
$800
$1,770
Total shares (M)
2.2
20.8
16.4
39.4
85%1
73%2
79%
350.1
337.9
 20.6
% of total program
Total end of period
shares outstanding (M)
358.5
1 Twelve month 25.5 million share repurchase program to Dec. 19, 2005
2 Twelve month 24 million share repurchase program to Dec. 19, 2006
Track record of share repurchases leading to 6% reduction in
shares outstanding
34
$ per share
Strong record of returning capital
Share repurchases
4
3.90
Dividends
3.30
3.43
3
2.40
2.50
2
2.33
1.50
0.82
1
0.60
2003
1.10
0.22
0.60
0.80
2004
2005
2006
2007E1,2
1
Annualized dividend, plus share repurchases in 2006 as estimate for 2007. Assumes lower average shares
outstanding of 330 million to 335 million in 2007.
2
See forward looking statement caution. Assumes continuation of share repurchase program
35
Cash settled options program update
 Introducing cash settlement for vested options
 Mitigates share dilution by avoiding treasury issuance
 Expect  non-recurring, non-cash pre-tax operating
expense of $150M to $200M in Q1-07
 $120M to $150M in wireline, $30M to $50M in wireless
 Reported EPS impact of $0.30 to $0.40
 Cash payments deductible for tax purposes when
options exercised and cash paid out
 Cash tax savings of up to $70M over 3 years
Shareholder friendly initiative
36
Pension update
 Strong investment performance in 2006
 In aggregate, TELUS pension funds are now in going
concern surplus
 Expect to make $112M in cash contributions in 2007
(DB plans)
 Major pension assumptions unchanged
 Discount rate of 5.0%
 Long term rate of return of 7.25%
TELUS pension plans fully funded in aggregate
37
Financing update
 TELUS has commitments from 18 financial institutions
for new $2 billion credit facility
 More favourable terms and extends maturity to 2012
 Can be utilized to back up CP issuance
 Replaces $1.6 billion of existing credit facilities
$800 million facility expiring May 2008
$800 million facility expiring May 2010
 Accounts receivable securitization agreement extended
by one year to July 18, 2008
 Current plan for $1.5B 2007 note refinancing is through
combination of L-T debt issuance and new CP program
TELUS liquidity position remains very strong
38
Corporate governance update
Stock option issuance practices, backdating
 Voluntary internal audit of stock option and long term
incentive practices resulted in a “well controlled” rating
Sarbanes-Oxley
 Have completed all work required for SOX 404 compliance
 90 processes and 740 key controls addressed
 Ready to certify compliance with SOX 404 on internal
control over financial reporting for Dec. 31, 2006 audited
financial statements
Leading the way in corporate governance
39
2007 Consolidated targets summary
2007 targets
change
Revenue
$9.175 to 9.275B

6 to 7%
Normalized EBITDA1
$3.725 to 3.825B

4 to 7%
$3.25 to 3.45

16 to 24%
approx. $1.75B

8%
Normalized EPS1,2
Capex
1
Excluding $150M to $200M of non-recurring, non-cash expenses associated with cash settlement of
options, EPS impact of $0.30 to $0.40
2
Year over year growth rate normalized for $0.48 of positive tax-related adjustments in 2006
2007 targets reflect healthy performance expected in wireless
40
investor relations
1-800-667-4871
telus.com
[email protected]
Appendix
Free cash flow
($M)
EBITDA
Capex
Cash Restructuring Payments (in excess of expense)
Net Cash Interest
Non-Cash Share Based Compensation
Net Cash Tax Recovery
Free cash flow
Share Issuance (non-public)
Purchase of shares for cancellation (NCIB)
Dividends
Accounts Receivable Securitization
Working capital & other
Funds avail. for debt redemption
Funds applied to redemption of debt
Net change in cash
42
Q4-05
Q4-06
$734
(374)
$878
(415)
5
(6)
(306)
(218)
3
(10)
47
5
$110
19
(229)
$233
22
(200)
(97)
350
(30)
$124
(1,437)
(127)
150
(58)
$20
(6)
($1,313)
$14
Appendix
Definitions
 EBITDA: Earnings, after restructuring and workforce
reduction costs, before interest, taxes, depreciation and
amortization
 Capital intensity: capex divided by total revenue
 Cash flow: EBITDA less capex
 Free cash flow: EBITDA, adding Restructuring and
workforce reduction costs, cash interest received and excess
of share compensation expense over share compensation
payments, subtracting cash interest paid, cash taxes, capital
expenditures, and cash restructuring payments
TELUS definitions for non-GAAP measures