Transcript Document

CIBC Whistler Institutional
Investor Conference
Robert McFarlane
EVP & Chief Financial Officer
February 27, 2003
Forward-Looking Legal Disclaimer
This presentation contains forward-looking statements about
expected future events and financial and operating results
that are subject to risks and uncertainties. TELUS’ actual
results, performance, or achievement could differ materially
from those expressed or implied by such statements. For
additional information on potential risk factors, see TELUS’
Annual Information Form, and other filings with securities
commissions in Canada and the United States.
TELUS disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
All dollars in C$ unless otherwise specified.
Slide 2
Agenda
 About TELUS
 Q4 & 2002 review
 2002 Performance vs. Targets
 2003 Outlook
Slide 3
About TELUS
 Canada’s only national pure-play, facilities-based, fullservice telecom provider
 2nd largest Canadian telco
 Executing national growth strategy focused on data, IP
& wireless from position of financial strength
 2002:
Revenues C$7.0B
EBITDA
C$2.52B
 Operating segments:
 Enterprise value:
 Daily trading1:
Slide 4
1
recent 3 month average
Communications: wireline
Mobility: wireless
~C$14B (equity ~ $6B)
1.1M shares
About TELUS Communications
ILEC: full service in W. Canada and E. Quebec
Non-ILEC: data & IP for business in C. Canada
Revenue (2002)
$5.0B
EBITDA (2002)
$2.0B
POPs covered
7.5M
Network Access Lines
4.9M
Local/LD Market Share
97%/78%
Total Internet Subscribers
802K (410K High-speed ADSL)
Fibre IP backbone
national
Strategic alliance
Verizon Communications
Slide 5
About TELUS Mobility
Leading national wireless provider
Subscribers
3M
Revenue
$2.0B
EBITDA
$535M
CDMA footprint
coast to coast 1X
iDEN Mike network
only one in Canada
Spectrum position
best in Canada
Licensed POPs
Cdn. Population (31.4M)
Network coverage
27.4M (~90%) + roaming
Strategic relationships
Verizon Wireless & Nextel
Slide 6
Q4 & 2002 review
2002 Highlights – Consolidated
 Difficult telecom environment & price cap impact
 Met or exceeded key financial targets “on Street”
 EBITDA before restructuring costs was flat YoY as
Mobility, OEP1 & ITCs2 offset regulatory impacts
 Capex reduction drove significant improvement in
cash flow
1
2
Slide 8
Operational Efficiency Program
Investment Tax Credits
Q4 Review - Consolidated
Q4-01
Q4-02
Change
Revenue
$1.87B
$1.79B

3.9%
Revenue (normalized)1
$1.87B
$1.90B

2.1%
EBITDA2
$598M
$645M

7.8%
EBITDA (normalized)1,2
$598M
$720M

20%
Negative impact of regulatory decisions masks
underlying growth in Revenue & EBITDA of 2% & 20%
1
2
2002 normalized for regulatory impacts (contribution and price cap decisions)
Excludes restructuring & workforce reduction costs
Slide 9
Q4 Review - Consolidated
Normalized EBITDA Trend1
($M)
2001
618
650
Q1
1
2002
690
699
614
Q2
727
720
598
Q3
Q4
2002 has been normalized for regulatory impacts (contribution and price cap decisions)
Slide 10
 20%
Q4 Review - Consolidated
Q4-01
1
Q4-02
Change
-
$241M

-
Disc. Operations2
($3.1M)
-

-
Net Income/(Loss)
($47M)
($139M)

198%
EPS (per GAAP)
($0.16)
($0.41)

156%
EPS 3
($0.16)
$0.05

131%
Restructuring costs
EPS from continuing operations exhibiting significant
upward growth
1
Restructuring & workforce reduction costs
Gain on sale of Directory Operations
3 Normalized for after-tax restructuring costs
2
Slide 11
Q4 Review - Consolidated
Q4-01
Q4-02
Change
Capex
$592M
$416M

30%
Capex Intensity1
31.7%
23.2%

8.5pts
EBITDA-capex
$6.7M
$229M
 3,318%
Significant reduction in capex drove strong
improvement in capital intensity & dramatic cash
generation increase
1
Ratio of capex to total revenues
Slide 12
Q4 Review - Consolidated
Capex Intensity1
Significant downward trend in capex intensity ratio
37%
32%
24%
23%
2001
1
2002
Q4
Ratio of capex to total revenues
Slide 13
2001
YTD
2002
Consolidated Free Cash Flow
($M)
2001
2002
(26)
Dramatic increase in YoY
Free Cash Flow1 in 2002
(1,354)
1
EBITDA less capex, cash interest, cash taxes, and cash dividends
Slide 14
Deleveraging
Q1-02
Net Debt :
Capital
Net Debt :
EBITDA
Q2-02
Q3-02
Q4-02
Target
57.9% 58.7% 55.8% 56.6% 50% long-term
3.5x
3.6x
3.4x
3.3x
3.0x in Dec ’03
New December 2004 debt: EBITDA target < 2.7x
Expect significant leverage drop in 2003/2004 due
to increased EBITDA and FCF
Slide 15
TELUS Public Debt Performance
Relative Price Performance
TELUS Corporation C$ 7.5% 2006 v GOC 8.75% 2005
(Assuming $100 invested on May 24, 2001)
$110
GOC (Feb 24/03):
$112.79
$100
$90
May 31 - Jul 11
Credit rating under review:
DBRS (May 31)
Moody's (Jun 14)
S&P (Jul 11)
$80
$70
TELUS (Feb
24/03):
$100.13
Aug 5
Commenced buying
back TELUS debt
$60
Sep 19
Completed equityfunded debt buyback
TELUS C$ 7.5% 2006
GOC 8.75% 2005
23-Feb-03
22-Jan-03
21-Dec-02
19-Nov-02
18-Oct-02
16-Sep-02
15-Aug-02
14-Jul-02
12-Jun-02
11-May-02
9-Apr-02
8-Mar-02
4-Feb-02
3-Jan-02
2-Dec-01
31-Oct-01
29-Sep-01
28-Aug-01
27-Jul-01
Slide 16
25-Jun-01
24-May-01
$50
Communications Segment
Slide 17
2002 Highlights
Communications Segment
 Significant negative regulatory impacts
 Revenue shortfall offset by OEP progress ahead
of plan & favourable ITC1 settlement
 Data growth - 16% reported, 9.7% organic
 Gained considerable market share in ADSL
 Disciplined 23% annual reduction in capex
 Significantly improved cash flow
1
Investment Tax Credits
Slide 18
Q4 Review – Communications
Change
Q4-01
Q4-02
Change
1,392
543
1,244
517


11%
4.9%
Capex
Cap. Intensity2
387
27.3%
291
23.0%


25%
4.3pts
-
EBITDA-capex
156
226

44%
-
($M)
Revenue 1
EBITDA
(ex. neg. reg.
impacts)


2.6%
11%
Underlying EBITDA growth & cash generation improved 11%
and 44%, respectively from efficiency improvements
1
2
Excludes intersegment revenues
Ratio of capex to total revenues
Slide 19
Q4 Review – Communications
Network Access Lines (NALs)
NAL Decrease (Q4-02 vs. Q4-01)
TELUS
(1.1%)
BCE & MTS
(1.1%)
U.S. Composite
1
Canadian NAL losses below
U.S. peer averages
1
2
Weighted average calculation
Comprised of: Bell South, SBC Communications, and Verizon;
weighted average calculation
Slide 20
(3.8%)
2
Q4 Review – Communications
43K ADSL net adds in Q4 to total 195K for the year;
91% YoY growth in subscriber base
195
431
in Q4
131
58
in Q4
58
20
in Q4
2000
2001
2002
Velocity ADSL Internet Net Adds (000's)
1
Slide 21
Q4 net adds were net of an approximate 3,400 subscriber count adjustment
Central Canada 2002 Performance
Central Canada Wireline (ILEC & Non-ILEC)
840
632
Significant scale &
increasing profitability
57
(9)
2001
2002
Revenue
Slide 22
($M)
2001
2002
EBITDA ($M)
Q4 Review – Communications
Non-ILEC1,2
Revenue
($M)
2002 YoY improvement
of $192M in revenue &
$38M in EBITDA
EBITDA
152
136
133
117
105
123
60
17
16
Q1-00
Q2-00
(11)
1
2
(24)
20
Q3-00
(28)
31
Q4-00
(33)
38
Q1-01
(35)
Q2-01
Q3-01
(36) (38)
Q4-01
(37)
Q1-02
(36)
Q2-02
Q3-02
(30)
Minor adjustments were made in Q3-02 to reflect current customer account classification
Note: 2002 YTD Non-ILEC revenues: $527.3M and 2002 YTD EBITDA: $(107.2)M
Slide 23
(23)
Q4-02
(18)
TELUS Québec Feb. 25 Announcement
 TELUS Québec & Government of Québec announced
$500M investment & job creation program
 On strategy and in current capex program
 In recognition of investment, Quebec to provide
employment subsidies
 Half of new jobs to be created in large urban areas
 Expected benefits - $90M under 3 govt. programs
 Raises TELUS’ profile with Government of Québec
Slide 24
Q4 Review – Communications
OEP – Employee Reductions
2001
Phase I
(Jun / Q4-01)
Phase II
(Q1/Q2-02)
2002
8001
1,000
Phase III: (Q3-02)
1,700
(Q4-02)
2,500
(Q1/Q4-03)
TOTAL
2003
~ 6,500
1,300
800
5,200
1,300
2002 reductions ahead of plan
1
Excludes the impacts of staff increases associated with acquisitions during H2-2001
Slide 25
Q4 Review – Communications
OEP – Savings & Expenses
 Estimated Phase I to III OEP EBITDA savings:
2002
$150M
2003
~ $450M
2004+
~ $550M
 Phase I costs: $211M ($198M in 2001, $13M in 2002)
 Estimated Phase II & III restructuring & workforce
reduction expense:
Per Acctg. Per Cash
Slide 26
2002
$557M
$172M
2003
~ $20M
$285M
Improving Efficiency
Consolidated Revenue & EBITDA per Employee1
(thousands)
$272
$197
$98
$76
2000
2002
Revenue per employee
1 Based
Slide 27
on total employees at year-end
2000
2002
EBITDA per employee
Mobility Segment
Slide 28
2002 Highlights
Mobility Segment
 Successful completion of integration (incl. billing
conversions)
 2002 net adds flat YoY despite significant
industry slowdown
 Financial and operating results ahead of plan
and street expectations
Slide 29
Q4 Review – Mobility
($M)
Network Revenue
EBITDA
Capex
Capex Intensity1 (%)
EBITDA-capex
Q4-01
Q4-02
Change
424
55
491
129


16%
133%
205
42.6
(150)
125
22.6
3.4


39%
20pts
102%

Flat expenses, strong network revenue growth &
reduced capex drove cash flow improvement
1
Ratio of capex to total revenues
Slide 30
Q4 Review – Mobility
Subscribers
ARPU
Churn
Q4-01
Q4-02
Change
2.6M
$56
3.0M
$56

-
16%
-
2.09%
1.68%

41pts
~20% ARPU premium to competitors maintained
Material improvement in churn rate
Slide 31
Increased Share of Net Additions
2002 net additions of 418K flat with 2001 - represents
increased share of industry net additions
2001
2002E
TELUS
Mobility
22%
TELUS
Mobility
33%
1.9M
Total Canadian wireless industry estimates. Source: Company & analyst reports
Slide 32
~1.25M
Share of Service Revenues
Strong service revenue market share despite lower
number of subscribers
Market Share
Market Share of
of Subscribers
Service Revenues
TELUS
Mobility
25%
TELUS
Mobility
29%
12.0M
Total Canadian wireless industry estimates. Source: Company & analyst reports
Slide 33
~$6.4B
2002 Review – Mobility
How far we have come in 2 years
Proforma
2000
2002
Change
Digital POPs (M)
22.6
27.4

4.8
2,160
2,996

836

39%
ARPU ($)
59
55

(4)

(6.8)%
Churn (%)
1.98
1.80
 18pts

9.1%
2,980
3,056


2.5%
Subscribers (000s)
Lifetime revenue ($)
76
% Change
21%
Subscriber base up 39%
Industry-leading value per subscriber has increased
Slide 34
2002 Review – Mobility
How far we have come in 2 years
Proforma ($M)
2000
2002
Network Rev.
1,396 1,853
Change
% Change

457

33%
EBITDA
173
535

362

209%
Capex
534
460

74

14%
Cap. Intensity1
33%
23%

10pts

-
EBITDA-capex
(360)
75

435

-
Tripling of EBITDA and capex reduction drove a $435M
improvement in annual cash flow
1
Ratio of capex to total revenues
Slide 35
2002 Performance vs. Targets
2002 Consolidated Financial Targets
Original Public Targets vs. Actuals
2002
Actual
Original
Target
Target
Met?
Revenue ($B)
7.01
7.35 to 7.45

EBITDA ($B)
2.52
2.475 to 2.525

EPS before restr. costs ($)
0.43
0.15 to 0.20

Capex ($B)
1.70
2.10 to 2.20

Achieved profitability and cash flow targets despite
revenue shortfall
Slide 37
2003 Outlook
2003 Priorities
 Driving wireline operational efficiency
 Delivering significant wireless cash flow growth
 Strengthening financial position
 Improving Central Canada profitability
 Reaching collective agreement
Slide 39
2003 Consolidated Targets
2003
Targets
Change
Revenue
$7.2 to 7.3B

3 to 4%
EBITDA
$2.7 to 2.8B

7 to 11%
EPS
$0.35 to 0.55
 $1.10 to 1.30
Capex
approx. $1.5B

12%
Expect significant profitability & cash flow growth
Slide 40
2003 Outlook
Leading North American Telecom Performance
Projected EBITDA Growth Rates – 2003E
9.2%
5.5%
4.8%
2.1%
TELUS
BCE
MTS
Aliant
0.5%
Sprint
(2.6%)
Verizon
(6.6%)
BellSouth
EBITDA target growth — top echelon
for N.A. telecoms
(11.0%)
SBC
(19.1%)
AT&T
Note: TELUS data based on 2002 actual results & average of 2003 targets
Other 2003 estimates provided by TD Securities, based on analysts estimates
Slide 41
2003 Outlook
Leading North American Telecom Performance
Projected EBITDA-Capex Growth Rates – 2003E
52%
Cash Flow (EBITDA – Capex)
up $400 to $500M
19%
TELUS BCE
11%
10%
MTS
Aliant
(0.4)%
(4.0%)
BellSouth
(5.0%)
Sprint SBC
(8.0%)
Verizon
(21.0%)
AT&T
Note: TELUS data based on 2002 actual results & average of 2003 targets
Other 2003 estimates provided by TD Securities, based on analysts estimates
Slide 42
Summary
 TELUS Mobility – outstanding results
 TELUS Communications – better than expected
progress on OEP
 Capex intensity significantly reducing as planned
 FCF positive in H2-02 & 2003
 Expect significant leverage drop in 2003/4
 2003 EPS up by $1.10 to $1.30, to 35 to 55 cents
Executing to plan
Slide 43
Questions?
Answers!
Slide 44
Appendix
2002 Consolidated Free Cash Flow
($M)
2002
EBITDA1
2,518
Capex
(1,698)
Interest
(676)
Cash Taxes
(35)
Cash Dividends
(136)
Free Cash Flow1
(26)
Working Capital/Other2
545
Equity Issuance
430
Cash Restructuring Costs (2001)
(102)
(2002)
(172)
Funds available to repay debt
1
Slide 45
2
Before restructuring and workforce reduction costs
Including sale of accounts receivable
$675
Appendix
Consolidated Free Cash Flow H2-2002
H2-2002
H2-2002
Q2-02 Guidance
Actual
Guidance
Met?
$1,265 to 1,315
$1,308

Capex
~(845)
(743)

Interest
(350) to (375)
(332)

Cash Taxes
(30)
(16)

Cash Dividends
(80)
(83)
~
($65) to $10
$135

($M)
EBITDA1
Free Cash Flow1
1
Before restructuring & workforce reduction costs
Slide 46
Investor Relations
1-800-667-4871
www.telus.com
[email protected]