Transcript Slide 1
Investor Tour March 2007 Darren Entwistle President & Chief Executive Officer Forward looking statements This session and answers to questions contain forward-looking statements that require assumptions about expected future events including 2007 targets, competition, financing, financial and operating results, and regulation that are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward looking statements will not prove to be accurate so do not place undue reliance on them. Factors that could cause actual results to differ materially include but are not limited to: competition; capital expenditure levels (including possible spectrum purchases); financing and debt requirements (including share repurchases, debt redemptions and refinancing plans); tax matters (including deferral of payment of significant cash taxes); regulatory developments (including local forbearance, local price cap regulation, spectrum auction, and wireless number portability); process risks (including conversion of legacy systems and billing system integrations); and other risk factors discussed herein and listed from time to time in TELUS’ reports. There are many factors that could cause actual results to differ materially. For a fuller listing and description of the potential risk factors and assumptions, please refer to the TELUS 2006 annual management’s discussion and analysis, 2007 targets news release issued on Dec. 14, 2006 and other filings with securities commissions in Canada (sedar.com) and the United States (sec.gov). All dollars in C$ unless otherwise specified 2 Table of contents slides starting Strategy 6 Operational update 11 Financial update 39 Investor considerations 46 Appendix 58 3 About TELUS Executing national growth strategy focused on data, IP & wireless 2006 consolidated results: Revenues $8.7B EBITDA EPS1 Capex $3.6B $3.27 $1.6B Free cash flow $1.6B 7% 9% 67% 23% 9% Enterprise value: $26B (equity $19B) Avg. daily trading: ~2.2M (recent 90 day avg.) Listings: Common: TSX T; non-voting: TSX T.A; NYSE TU Reporting segments: wireless and wireline 1 2006 EPS includes $0.48 of positive tax-related adjustments Top performing Canadian telecommunications company 4 Going to market as one team How we are organized Consumer Solutions Business Solutions Partner Solutions & TELUS Québec customer facing business units Technology Strategy Network Operations Business Transformation enabling business units Human Resources Finance & Strategy Corporate & Government Affairs supporting business units Office of CEO Customer facing structure since 2001 5 Leading the way with a proven strategy Strategic imperatives Focusing on growth markets of data and wireless Building national capabilities Providing integrated solutions Investing in internal capabilities Partnering, acquiring and divesting as necessary Going to market as one team strategic intent… to unleash the power of the Internet to deliver the best solutions to Canadians at home, in the workplace and on the move. Consistent strategy and execution 2000 2007 6 Strategic journey highlights purchase of Quebec Tel ($0.7B) and Clearnet ($6.6B) - 2000 2000 divestiture of non-core assets - $1.1B (real estate and directories) completion of national IP backbone & fibre network first in N.A. to launch Next Generation Network, enabling IP based solutions for customers - 2003 awarded national managed data solutions contract for TD Bank valued at $160M over 7 years - 2003 Verizon divested 20.5% ($2.2B) equity interest – Dec 2004 five year (2010) progressive collective agreement ratified – Oct 2005 staged launch of TELUS TV® in certain western markets – 2005-07 wireless merger into customer facing business units – Dec 2005-06 won landmark Government of Ontario managed network contract valued at $140 million over 5 years – Sept 2006 2007 7 National transformation Jan 2000 today1 • PoPs covered (millions) 7 31 • Mike (iDEN) (millions) - 26 1G 3G • Ont/Que cities 3 46 • Co-locations 2 96 • Customer POPs 5 1067 • Fibre lit (km) 0 15,600 • Platform Stentor TELUS • Network Circuit-based Next Generation (NGN) Wireless • Generation Wireline 1 as of December 31, 2006 8 TELUS infrastructure today BC Alberta Wireline 87% Wireline 13% Wireless Quebec Ontario Wireless coverage 49% 51% Backbone optical and IP network 9 TELUS’ strategic focus on data and wireless Revenue $8.7B $5.7B LD LD 23% 10% Wireless 41% 18% Wireline local Wireless Voice Voice Data 10% 27% 49% Wireline Data 19% 2000¹ 2006² ¹12 mos ending June ²12 mos ending December Wireless Data 3% Data and wireless now represent 63% of TELUS revenue 10 Operational update 2007 corporate priorities 1. Advancing TELUS’ leadership position in consumer market Combining our suite of data applications with deregulated heritage services Attaining best-in-class customer loyalty and growth through unparalleled customer experiences Achieving customer addition targets by expanding our distribution channels and addressing key market segments with new service offerings Unleashing the power of the Internet 12 2007 corporate priorities 2. Advancing TELUS’ leadership position in business market Progressing further in key industry verticals with specific applications that provide non-price-based differentiation Leveraging wireless number portability to expand our business market share in Central Canada Focusing on small business customer loyalty and growth with innovative solutions Business . . . backed by TELUS 13 2007 corporate priorities 3. Advancing TELUS’ leadership position in wholesale market Growing in domestic and international markets through recognition that TELUS is Canada’s IP leader Achieving excellence in customer service to support local forbearance in key incumbent markets Expanding our markets, channels and products by focusing on strategic relationships with our partners Enhancing our IP leadership and partnerships 14 2007 corporate priorities 4. Driving TELUS’ technology evolution and improvements in productivity and service excellence Implementing technology roadmaps for Future Friendly Home and wireless service offerings that simplify our product portfolio and improve service development and execution Rolling out consolidated customer care systems to replace multiple legacy systems in Alberta and B.C. Accelerating customer service delivery dates Striving for customer service excellence 15 2007 corporate priorities 5. Strengthening the spirit of the TELUS team and brand, and developing the best talent in the global communications industry Growing our business ownership culture with a team philosophy of “our business, our customers, our team, my responsibility” thereby attracting, developing and retaining great talent Leading the way in corporate social responsibility as we strive to be Canada’s premier corporate citizen Our business, our customers, our team, my responsibility 16 Framework for long term growth growth opportunities Non-ILEC Growth + Future Friendly Home + wireline Price Cap Regulatory Framework Organization Effectiveness challenges Technological Substitution + Competitive Intensity Short-term dilutive Strive to hold wireline EBITDA (before restructuring) flat over medium term Growth in revenues and EBITDA from wireless business = Continued improvements in consolidated results 17 TELUS total subscriber connections 9.7 10.7 10.2 (millions) Res NALs 7.2 Bus NALs Dial-up Internet High-speed Internet Wireless Q2-00 Q4-04 Q4-05 Q4-06 1 million new connections due to wireless and Internet growth 18 TELUS track record of wireless subscriber additions Gross additions (000s) Net additions (000s) 1,279 1,293 1,121 1,017 985 924 474 2000 987 418 418 431 2001 2002 2003 512 2004 584 2005 535 2006 2006: Record gross additions / net 2nd best in 7 years Net additions > 500K for third consecutive year 19 550+ 2007E Wireless subscriber growth Total wireless subscribers (M) Wireless subscribers mix 5.1 977K 4.5 Prepaid Prepaid Prepaid 19% 19% 19% 3.9 3.4 Postpaid 81% 4.1M 2003 2004 2005 2006 5.1 million Continued wireless growth with strong postpaid mix 20 review of operations – wireless Industry ARPU comparison 2005 $62 $63 2006 $56 $52 TELUS $49 Rogers Wireless BCE Wireless Data driving positive industry trend 21 $51 review of operations – wireless Wireless data growth opportunity Q4-05 Q4-06 $6.54 $6.16 $5.05 $3.17 Rogers Wireless TELUS TELUS Q4 data ARPU up 94% 22 Wireless data growth opportunity Rolling out wireless high speed (EVDO) More than 50 regions Now covers 2/3 of Cdn population Cool applications Music downloads and video games Watch 15 channels on Mobile TV Five times faster Fostering continued data growth 23 Exclusive arrangement and investment Amp’d is high-speed EVDO driven service – Spring 2007 Amp’d Mobile responsible for marketing, freshest and exclusive entertainment content, and optimized handsets TELUS manages sales, distribution, billing, client care, network options and pricing Targeting 18 to 35 age demographic and lifestyle Exclusive licensing and service agreement – not an MVNO Amp’d Mobile is a premium brand with high ARPUs focused on mobile media (not traditional voice) and postpaid TELUS Ventures invested US $7.5M in Amp’d Mobile, Inc. 24 Amp’d Is Mobile Media 2006 wireless churn (%)1 3.1 2.6 2.4 2.3 1.9 1.6 1.5 1.33 Source: Company reports; Merrill Lynch 1 Q3 churn where annual not available Low churn relative to global peers 26 1.2 1.2 TELUS wireless EBITDA & cash flow growth 1,751 1,443 EBITDA ($M) EBITDA less Capex ($M) 1,142 815 1,324 1,975 1,427 1,038 788 535 455 356 173 75 2000¹ 2001² 2002 2003 2004 2005 2006 (288) (360) ¹ Pro forma acquisition of Clearnet ² EBITDA (excluding restructuring) for 2001 & 2002 3 Midpoint of 2007 targets normalized for pre-tax option expense of $30 to $50 million. 27 2007E3 Wireless profitability comparison 2006 TELUS Other Cdn avg. US avg. EBITDA margin (total rev.) 45% 43% 32% Capex intensity (total rev.) 11% 12% 18% Cash flow1 yield (total rev.) 34% 31% 14% 1 EBITDA less capex Source: Company reports North American leader in wireless profitablity 28 2006 wireless cash flow yield1 comparison (%) 36 34 32 32 30 28 25 19 19 76% 76% 17 TELUS* 135% 56% 56% 102% 82% 104% 56% 88% population penetration 1 EBITDA less capital expenditures divided by revenue Source: Merrill Lynch, UBS. TELUS actual results. Other wireless carriers estimated. High cash flow yield, with attractive penetration opportunity 29 Canadian industry subscriber growth 2003 2004 2005 2006* Net subscriber adds 1.5M 1.6M 1.8M 1.7M TELUS share of adds 28% 33% 32% 32% Population penetration 42.3% 46.7% 51.8% 56.4% Penetration gain 4.1pts 4.4pts 5.1pts 4.6pts Source: Company reports, CWTA * Does not include wholesale figures Growth of 4 - 5 points per year for past 4 years 30 review of operations Increasing Canadian industry wireless penetration 2003 2006 2009E* Penetration: 42% 56% ~70% Subscribers: 13.4M 18.5M ~23M Source: Industry analysts * See forward looking statement caution 4 to 5 million net additions expected in Canada over 3 years 31 financial review Wireline update Data growth largely offsetting declining local and LD Strong high-speed Internet net additions TELUS TV provides long-term opportunity riding on broadband platform Making inroads in Central Canadian business market e.g. Government of Ontario $140 million 5 year contract Improving regulatory situation Comparative resiliency in wireline 32 High-speed Internet subscriber growth High-speed Internet subscribers (000s) 917 690 Total Internet subscribers 763 Dial-up 17% 562 917K 2003 2004 2005 High-speed 83% 1.1 million 2006 Continued strong net addition growth 33 194K financial review Staged roll out TELUS TV Offering customers differentiated entertainment Choice of 200+ digital stations Customized channel packaging Interactive programming guide Video on demand myTELUS channel Call display Operating on ADSL2+ platform Launched in Edmonton, Calgary and Vancouver 34 TELUS TV 35 Incoming call from Kim Smith (604) 555-1234 Close Year-over-year NAL declines Trailing six quarters ended Q4-06 (%) TELUS BCE AT&T (SBC) Verizon BellSouth -2.2 -2.0 -2.4 -2.5 -2.7 -2.6 -2.8 -3.0 -3.2 -3.3 -3.7 -4.2 -5.0 -5.1 Q3 Q4 Q1 Q2 Q3 Q4 2005 -5.6 -6.0 -6.1-6.2 -6.3 2006 Source: Merrill Lynch, Company reports 37 -6.2 -6.7 -6.9 -7.4 -7.5 -7.6 -5.8 -6.1 -6.4 -7.0 -6.9 Non-ILEC (Ontario and Quebec) revenue & EBITDA Revenue ($M) EBITDA ($M) 657 555 561 632 2003 2003 2004 2005 2006 (29) 2004 (22) 21 2005 32 2006 Continued focus on profitable, long-term growth in Central Canada 38 Financial update TELUS Consolidated 2005 2006 Change Revenue $8.14B $8.68B 6.6% EBITDA1 $3.30B $3.59B 9.0% $1.96 $3.27 67% $2.07 $2.79 35% Capex $1.32B $1.62B 23% Free cash flow $1.47B $1.60B 9.2% EPS2 EPS (excl. non-recurring items) 1 2005 EBITDA includes $133M net expenses, excluding any revenue or indirect impacts, from labour disruption. EBITDA includes restructuring and workforce reduction costs of $54M and $68M, for 2005 and 2006, respectively 2 2005 EPS includes negative impact of $0.25 from labour disruption and $0.06 from early bond redemption. EPS includes favourable tax related adjustments of $0.20 and $0.48, for 2005 and 2006, respectively. Strong growth in revenue driven by data and wireless 40 2007 Consolidated targets summary 2007 targets change Revenue $9.175 to 9.275B 6 to 7% Normalized EBITDA1,2 $3.725 to 3.825B 4 to 7% $3.25 to 3.45 17 to 24% approx. $1.75B 8% Normalized EPS2,3 Capex EBITDA includes rrestructuring and workforce reduction costs, estimated to be approx. $50M in 2007. 2 EBITDA excludes $150 to $200M of non-recurring, non-cash expenses associated with cash settlement of options. EPS impact of $0.30 to $0.40. 3 EPS year over year growth rate normalized for $0.48 of positive tax-related adjustments in 2006. 1 2007 targets reflect healthy performance expected in wireless 41 2007 Wireline targets 2007 targets Capex High-speed net adds 1 to 2% $1.775 to 1.825B (3) to (1)% Normalized EBITDA1 $4.85 to 4.9B Revenue change (12)% or better approx. $1.2B > 135,000 Con’t strong growth 1 EBITDA excludes $120 to $150 million of non-recurring, non-cash expenses associated with cash settlement of options. 42 2007 Wireless targets summary 2007 targets Revenue Normalized EBITDA1 Capex Wireless sub. net adds 1 change $4.325 to 4.375B 12 to 13% $1.95 to 2.0B 11 to 14% approx. $550M 29% > 550,000 >3% EBITDA excludes $30 to $50 million of non-recurring, non-cash expenses associated with cash settlement of options. 43 2007 EPS continuity 10 to 35 to 9¢ $3.27 $3.25 to 3.45 15¢ 55 ¢ 11¢ $2.79 48¢ 2006 1 Taxrelated adjust. 2006 EBITDA normal. growth Lower fin. costs Decr. in avg o/s shares Higher dep. 2007E1 normal. EPS excludes $0.30 to $0.40 of non-recurring, non-cash expenses associated with move to cash settlement of options. Strong normalized EPS growth of 16 to 24% 44 Consolidated free cash flow1 trend ($ billions) 1.29 2004 1.57 1.525 to 1.625 1.45 2005 2006 2007E2 1 2007 definition. Calculated as EBITDA adding Restructuring and workforce reduction costs, cash interest received and excess of share compensation expense over share compensation payments, less cash interest paid, cash taxes, capital expenditures and cash restructuring payments, subtracting cash payments related to Other expenses such as charitable donations and A/R securitization expense 2 Normalized for expected cash impact due to option cash settlement of approximately $100M midpoint . Increased EBITDA and lower financing costs lead to FCF growth 45 Investor considerations Return of capital summary Renewed 24M share repurchase program in Dec. 2006 Authorized to repurchase up to 12M common and 12M non-voting (up to 7% of total shares outstanding) Introducing cash settlement for vested options - mitigates shareholder dilution Dividend increased by 36% to 37.5 cents per quarter for Jan 1, 2007, consistent with dividend growth approach Annualized dividend in line with targeted payout ratio guideline of 45 to 55% of sustainable net earnings Annualized dividend now at all time high of $1.50 47 $ 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 48 Cash settled options program update Introduced 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 Limits dilution and creates cash tax savings 49 Financial update – March 2007 Closed $2B credit facility to 2012 Can be utilized for commercial paper issuance Announced and priced issue of $1B 5 and 10 year Notes $300M at 4.5% to 2012 $700M at 4.96% to 2017 Part of refinancing 7.5% $1.5B due in June 2007 TELUS liquidity position very strong 50 Credit profile Pro forma debt structure - maturities C$ millions 3500 3000 2500 2000 1500 1000 500 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172018+ Existing debt New issuance Deferred FX hedge liability Pro forma maturity structure post-2007 note refinancing 51 Investing capital in 2007 for long-term growth Wireless capex increase of $125 million to approx. $550 million Within 11-13% intensity range Wireline capex unchanged at approx. $1.2 billion Strong housing formation in West Broadband network enhancement program Implementing IT customer system consolidation Success based capex for contracts such as Govt. of Ontario Investing to create future value 52 Regulatory developments Wireless local number portability effective Spring 2007 Opportunity in business market in Central Canada Deregulation by federal government Local forbearance decision likely effective April 2007 Based on competitive choice Directive to CRTC now in force Rely on market forces to maximum extent feasible Ensure competitive and technological neutrality Wireless spectrum auction likely by early 2008 Regulation increasingly based on competitive realities 53 Leading global telecom performance Growth in 2003 2004 2005 2006 Revenue top 25% #1 top 25% top 25% EBITDA top 25% #1 top 25% top 25% - top 25% top 25% top 25% EPS Source: Bloomberg and TD Securities, for major global incumbent telecoms TELUS performing well relative to global telecom peers 54 Excellence in disclosure and governance e.Com Annual Report on Annual Reports Report TELUS 2005 AR ranked 1st in world Watch Canadian Institute of Chartered Accountants (CICA) Best Corporate Governance Disclosure in Canada for second year 2005 Annual Report received Award of Excellence Corporate Reporting - Communications & Media sector 12 consecutive years of recognition IR Magazine (Canada) awards • 2007: Best Communications with retail market 2006: Best annual report & disclosure policy 2005: Best Sr. mgmt. communications & web site Dow Jones Sustainability Index Only North American telco in global index 55 Investor considerations Consistent and proven strategy Strong revenue and earnings growth, high exposure to wireless Continued strong wireless and Internet subscriber growth Focus on investment in growth areas Robust free cash flow generation Track record of returning capital to investors Excellence in reporting, transparency and governance Creating value with on strategy performance 56 Investor Relations 1-800-667-4871 telus.com [email protected] Appendix Share repurchase programs 2004 2005 2006 Total Total cost ($M) $78 $892 $800 $1,770 Total shares (M) 2.2 20.8 16.4 39.4 85%1 73%2 79% 350.1 337.9 20.6 % of total program Total end of period shares outstanding (M) 358.5 1 Twelve month 25.5 million share repurchase program to Dec. 19, 2005 2 Twelve month 24 million share repurchase program to Dec. 19, 2006 Track record of share repurchases leading to 6% reduction in shares outstanding 59 2007 free cash flow detail ($B) normalized Free cash flow (2007 definition1) 1.6 1.525 to 1.625 2006 1 2 2007E2 2007 definition of FCF subtracts cash payments related to Other expenses Expected cash impact due to option cash settlement of approximately $100M midpoint 2007 Free Cash Flow expected to remain high 60 2007E free cash flow detail 2007E ($M) EBITDA $3,525 to 3,625 Add back: cash settled option expense EBITDA normalized Capex ~200 $3,725 to 3,825 ~(1,750) Net Cash Interest ~(430) ~(20) Other1: Free Cash Flow (before cash settled option pmt.) $1,525 to 1,625 Cash settled options paid2 (75) to (125) Free Cash Flow $1,425 to 1,525 1 Includes restructuring expense (net of cash payments), net cash taxes, other share based compensation (net of cash payments) and cash payments related to Other expenses 2 Cash settled option payments are tax deductible and reduce treasury share issuance 61 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 (2006): 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 Free Cash Flow (2007): Consistent with FCF above and subtracting cash payments related to Other expenses such as charitable donations and A/R securitization expense TELUS definitions for non-GAAP measures 62 Credit rating overview TELUS Corporation Agency Rating Outlook DBRS A (low) Stable trend S&P BBB+ Stable outlook Fitch BBB+ Stable outlook Moody’s Baa1 Stable Outlook TELUS at targeted credit rating with all 4 rating agencies 63 Darren Entwistle President & Chief Executive Officer Darren Entwistle was appointed President and CEO in July 2000 Before joining TELUS, Darren held a number of leadership positions in the UK at Cable & Wireless from 1995 to 2000, culminating in being appointed President of the European business market in 1999. Prior to that he served in a number of leadership positions at Mercury Communications (UK), including Strategy Director and General Manager of Corporate Finance. Board of Governors of the International Institute of Telecommunications. Board of Directors of TD Bank Financial Group, and McGill University; and Chair of the Conservatory of Music's Capital Campaign. Bachelor of Economics (Honours) degree in Economics from Concordia University, an MBA in finance from McGill University and a diploma in Network Engineering from the University of Toronto 64