1 ubs global communications conference november 16, 2005 new york, ny robert mcfarlane evp &...
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UBS Global Communications Conference
November 16, 2005New York, NY
Robert McFarlaneEVP & Chief Financial Officer
2 all dollars in C$ unless otherwise specified
forward-looking statementsThis presentation and answers to questions contain forward-looking statements that require assumptions about expected future events including competition, financing, labour relations developments, and financial and operating results and guidance that are subject to inherent risks and uncertainties. TELUS’ actual results, conditions, actions or events could differ materially from those expressed or implied by such statements. Factors that could cause actual results to differ materially include but are not limited to: competition; economic fluctuations; redemption, financing and debt requirements; tax matters; human resources (including ongoing impact and outcome of labour relations issues and duration and impact on operating expenses, customer service and revenue due to current labour disruption); technology (including reliance on systems and information technology); regulatory developments; process risks (including conversion of legacy systems); health and safety; litigation; business continuity events (including manmade and natural threats); and other risk factors discussed herein and listed from time to time in TELUS’ reports.
For additional information on potential risk factors and assumptions, see TELUS’ 2004 Annual Report, updates in 2005 quarterly interim reports and other filings with securities commissions in Canada and the United States.
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about TELUSBest performing Canadian telco Executing national growth strategy focused on data, IP & wireless
Financial results (12 months ended Sept 30, 2005)
Revenues $8.0B 8%
EBITDA $3.3B 11%
EPS $2.11 59%
FCF $1.5B 19%
Daily trading: 1.2M shares (recent 90 day avg)
Enterprise value: ~$23B (equity ~ $16B)
Listings: TSX: T, T.NV; NYSE: TU
Operating segments: Communications (wireline)
Mobility (wireless)
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strategic focus on data and wireless
Executing strategy drives data and wireless to 58% of revenue
$8.0B
Voice
TELUS Mobility
Data
30%
39%
19%
11%LD
12 ME Q3-05 12 ME Q2-00
$5.7B
49%
18%
10%
LDTELUS Mobility
Voice
23%
Data
Revenue
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building national capabilities – TELUS today
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leading the way with a proven strategy
Focusing on growth markets of data & 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 2005
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corporate priorities for 2005
Enhance our leadership position in wireless Leverage investments in high speed Internet Accelerate wireline performance in Ontario and Quebec Reach a new collective agreement Drive continual improvements in productivity Grow brand value through superior customer experience
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corporate priorities for 2005
Enhance our leadership position in wireless Status
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Canadian wireless penetration growth prospects
~ 4 million net adds expected over next 3 years
Source: Industry analysts and internal estimates
2003
42%
2008E
65-68%
2005
52-53%
13.4Msubs
~21Msubs
~17Msubs
enhance our leadership position in wireless
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industry subscriber growth
5.0%4.5%Penetration gain
1.8M1.5MNet subscriber additions
32.3MPopulation 31.8M
16.2MCdn wireless market 14.4M
Q3-05Q3-04
50.2%45.2%Penetration
12ME
Source: Company reports, CWTA. Includes subscriber results for Bell Wireless Alliance,Rogers Wireless p.f. Microcell, and TELUS Mobility.
Canadian wireless market growth continues to accelerate
enhance our leadership position in wireless
11 Continued excellent results despite labour disruption in the West
37%$857M$625MCash Flow (EBITDA less capex)
50 bps11.2%10.7%Capital intensity2
30%$1.12B$0.86BEBITDA1
18%$2.42B$2.06BRevenue
ChangeYTD
Q3-04
1 Earnings before interest, taxes, depreciation and amortization
enhance our leadership position in wireless
financial results
2 Capex over total revenue
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subscriber results
Record third quarter net additions despite labour disruption
net additions
YTDQ3-04
YTDQ3-05
326K349K
4.3 M
total wireless subscribers
postpaid82%
prepaid18%
3.5 M
0.8 M
enhance our leadership position in wireless
postpaid
prepaid
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Source: Company reports
TELUS Mobility Rogers Wireless1 BCE Wireless
$59
$48 $49
$61
$51$49
YTD Q3-04
YTD Q3-05
1 Pro forma Microcell
Increased data usage driving TELUS Mobility’s ARPU growth
industry ARPU
enhance our leadership position in wireless
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$3,100
$405
1.60%
13%
TELUS Mobility subscriber economic best in Canada
$2,500Avg. lifetime revenue per sub
$372COA2 per gross addition
2.06%Blended churn
BCERogers
profitable subscriber growth
COA / Lifetime revenue 15%
$4,400
$356
1.38%
TELUS
8%
YTD Q3-05
enhance our leadership position in wireless
2 Cost of acquisition (COA) per gross addition.
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industry subscriber & EBITDA growth
1.7M
12ME Q3-05 net additions
Source: Company reports. EBITDA is sum of reported EBITDA for BCE, Rogers Wireless p.f. Microcell, and TELUS Mobility.
TELUSMobility
31%
Capturing disproportionate share of industry EBITDA growth
$803M
12ME Q3-05 EBITDA growth
TELUSMobility
44%
enhance our leadership position in wireless
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wireless data driving growth
enhance our leadership position in wireless
Further data growth fostered by November launch of EVDO
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corporate priorities for 2005
Enhance our leadership position in wireless Leverage investments in high speed Internet
Status
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high-speed Internet subscriber growth
Labour disruption impacted marketing and demand
high-speed Internet subscribers
Q3-04 Q3-05
655K736K
986K
total Internet subscribers
high-speed 75%
dial-up25%
736K
250K
leverage investments in high speed Internet
562K
Q3-03
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Continued high-speed Internet growth
Launched suite of IP applications:
Home Networking (May, 2004)
HomeSitterTM (Nov, 2004)
Large employee IPTV trials since April 2004
TELUS TV moving to next stage with targeted roll-out this month
leverage investments in high speed Internet
“Future Friendly” home
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corporate priorities for 2005
Enhance our leadership position in wireless Leverage investments in high speed Internet Accelerate wireline performance in Ontario
and Quebec
Status
21Continued profitable growth & on track to achieve full year guidance
non-ILEC revenue & EBITDA
YTDQ3-04
YTDQ3-05
404466
YTDQ3-04
YTDQ3-05
(26)14
EBITDArevenue($M)
accelerate wireline performance in Ontario & Quebec
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940
170
2005E
4
Jan. 2000
building wireline scale in Central Canada
Taking a disciplined approach to profitable growth
EBITDA ($M)
Revenue ($M)
accelerate wireline performance in Ontario & Quebec
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corporate priorities for 2005
Enhance our leadership position in wireless Leverage investments in high speed Internet Accelerate wireline performance in Ontario
and Quebec Reach a new collective agreement
Status
ongoing
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Oct 10 - TELUS & TWU reached tentative agreement supported by TWU leadership 3 week ratification process of town hall meetings
Oct 30 - TWU members vote narrowly against agreement
53 vote difference of over 9,000 cast
Nov 6 – tentative agreement supported by TWU leadership
Mail-in ballot process with vote result expected this week
Goal to achieve improved flexibility & competitiveness for benefit of all
labour relations events update
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Emergency plan working extremely well 59% of Alberta union employees working Various expenses temporarily higher Temporary benefit to cash flow as capex deferred
Progressing to return to more normal levels of customer service despite work disruption
labour relations disruption impacts
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corporate priorities for 2005
Enhance our leadership position in wireless Leverage investments in high speed Internet Accelerate wireline performance in Ontario
and Quebec Reach a new collective agreement Drive continual improvements in productivity
Status
ongoingdefer to 2006
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EBITDA growth & margin expansion
Solid EBITDA growth and improvements in EBITDA margin
Consolidated EBITDA
YTD Q3-05
$2.3B
41.4%42.3%
$2.6B
YTD Q3-04
EBITDA margin
drive continual improvements in productivity
40.1%
$2.1B
YTD Q3-03
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corporate priorities for 2005
Enhance our leadership position in wireless Leverage investments in high speed Internet Accelerate wireline performance in Ontario
and Quebec Reach a new collective agreement Drive continual improvements in productivity Grow brand value through superior customer
experienceMobilityCommunications
Status
ongoingdefer to 2006
challenged
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Wireline
During labour disruption, comprehensive contingency plans activated to minimize customer impacts
Generally meeting or exceeding call centre standards
Installations backlogged as expected but improving
Area of continued focus
Recognized by the National Quality Institute with a Gold Trophy for quality under Canadian Awards for Excellence program, includes rating on excellence for customer focus
Wireless
Best-in-class levels as evidenced by low churn
customer service update
Continued focus on customers in spite of labour disruption
grow brand value through superior customer experience
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Source: Company reports
Sprint Rogers Wireless
TELUS
low churn relative to N. American peers
YTD Q3-05 wireless churn (%)
VerizonT-mobile Cingular BCE
3.50
2.80
2.202.06
1.601.38
1.30
grow brand value through superior customer experience
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TELUS commercials
grow brand value through superior customer experience
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Issued notice of early redemption of $1.6B Notes payable on Dec. 1
TELUS has repurchased 17.9M shares under normal course issuer bid (NCIB) for $742M from Dec-04 to Sept-05 70% of 25.5M shares permitted
Quarterly dividend increase of 37.5% to 27.5 cents from 20 cents for Jan 1, 2006 payment Consistent with dividend growth approach, targeting a
dividend payout guideline of 45 to 55% of sustainable net earnings
shareholder value enhancing initiatives
Track record of returning capital to shareholders
TELUS consolidated
33 Focus on wireless and data strategy driving growth
2005 consolidated guidance summary
1 Provided on November 10, 20052 Variance from 2004 actuals3 Including restructuring & workforce reduction costs of $20 to $50M4 Including favourable impacts for tax related matters of $0.21, and estimated Q4 impact of note redemption
$1.4 to 1.5BFree Cash Flow
approx. $1.3BCapex
$1.90 to 2.00EPS4
YoY
change2
EBITDA3
Revenue
updated 2005 guidance1
$3.250 to 3.325B
$8.1 to 8.15B
TELUS consolidated
8 to 16%
20 to 27%
5 to 8%
7 to 8%
1%
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appendix
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about TELUS Mobilityleading Canadian national wireless provider 2005 Mobility (12 months ended Sept 30. 2005)
Revenue $3.2B 18%
EBITDA $1.4B 34%
Net additions 536K 9%
CDMA foot print coast to coast 1X
iDEN mike network only one in Canada (Nextel in the USA)
Spectrum position 55 MHz in major markets
Licensed POPs 32.3M: Canadian Population
Network coverage 30.2M (94%)
Roaming partners Verizon (PCS) and Nextel (iDEN) in N.A.
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about TELUS Communications
ILEC: full service in W. Canada and E. Quebecnon-ILEC: data & IP for businesses in Central Canada 2005 Communications (12 months ended Sept 30, 2005)
Revenue $4.8B 2%
EBITDA $1.9B 2%
Internet subscribers 986K total – 75% high-speed Network access lines 4.7M 2%
Fibre IP backbone national
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framework for medium term growth
Price Cap Regulatory Framework
Competitive Intensity
Technological Substitution + +
Non-ILEC Growth
Future Friendly
Home
Organization Effectiveness+ +
Strive to hold wireline EBITDA (before restructuring) flat over medium term
=
Growth in revenues and EBITDA from large exposure to wireless business
Continued improvements in consolidated results
Growth Opportunities Challenges
Short-term dilutive
Wireline