Transcript Document

Darren Entwistle
President & CEO
Investor Meetings
Toronto, ON
March 12 - 13, 2009
TELUS forward looking statements
Today's presentation and answers to questions contain statements about expected future
events and financial and operating results of TELUS that are forward-looking. By their nature, forwardlooking statements require the Company to make assumptions and predictions about future events,
and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking
statements will not prove to be accurate. Readers are cautioned not to place undue reliance on
forward-looking statements as a number of factors could cause actual future results and events to
differ materially from that expressed in the forward-looking statements.
Accordingly our comments are subject to the disclaimer and qualified by the assumptions
(including assumptions for 2009 targets referred to in TELUS’ 2008 annual Management’s discussion
and analysis including capital expenditures, share purchases and operational efficiency initiatives),
qualifications and risk factors referred to in TELUS’ 2008 annual Management’s discussion and
analysis (including those associated with operational efficiency, funding and share repurchases,
technology and network build, large client deals), and other risk factors discussed herein and listed
from time to time in TELUS reports and other public disclosure documents including its annual report,
annual information form, and other filings with securities commissions in Canada (on www.sedar.com)
and in the United States (on EDGAR at www.sec.gov).
For further information, see Financial and operating targets and Risks and risk
management, in Sections 1.5 and 10 respectively of TELUS’ 2008 annual Management’s discussion
and analysis. Except as required by law, TELUS disclaims any intention or obligation to update or
revise forward-looking statements, and reserves the right to change, at any time at its sole discretion,
its current practice of updating annual targets and guidance.
Strategic overview
Building on efficiency and long-term growth
Strategic focus on wireless
$6.0B
Revenue
$9.7B
Wireless
48%
Wireless
18%
2000
2008
12 mo. June
Executing strategy drives wireless growth, now 48% of revenue
3
Strategic focus on data
$6.0B
Data
10%
Voice
2000
12 mo. June
$9.7B
Revenue
Data
29%
Voice
2008
Executing strategy drives data growth, now 29% of total revenue
4
Our strategic imperatives and intent
Strategic imperatives
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Focusing on growth markets of data and wireless
Building national capabilities
Partnering, acquiring and divesting as necessary
Providing integrated solutions
Investing in internal capabilities
Going to market as one team
Strategic intent… to unleash the power of the Internet
to deliver the best solutions to Canadians at home,
in the workplace and on the move.
Consistent strategy and successful execution 2000  2009
5
TELUS 2009 priorities
 Execute on TELUS’ broadband strategy, leveraging our investments in
leading wireline and wireless networks to deliver winning solutions for our
customers
 Increase the efficiency of our operations to improve TELUS’ cost structure
and economic performance
 Outpace the competition and earn the patronage of clients through an
engaged TELUS team
Achieved 83% of 40 public consolidated financial targets
over the past 8 years
6
Investing in operational efficiency
Investing in operational efficiency
Restructuring charges since 2002
($ millions)
50 – 75
59
68
902 – 927
852
20
54
53
570
28
Included 25% or 6500
net reduction
(~ 8,000 gross) in
wireline positions
2002
2008
2009E
EBITDA savings help offset strategic near-term dilutive investments
8
Wireless
Total active employees
International
Emergis
Wireline
8,600
8,100
5,200
7,700
6,900
5,400
5,700
6,300
3,300
4,900
6,700
7,900
1,100
25,500
2001
20,400
19,000
19,500
19,600
19,300
19,400
19,000
2002
2003
2004
2005
2006
2007
2008
Wireline positions flat despite incumbent growth in HSIA and TTV
and national growth in large clients deals
9
Total connections
10.7
11.1
11.6
(millions)
Res NALs
Bus NALs
6.0
Dial-up Internet
High-speed Internet
Wireless
1999
2006
2007
2008
Since 1999, connection per employee increased by 15%
10
Accelerating operational efficiency
External supplier
Simplification of
and consultant
products
rationalization
and processes
Employee
Operation-wide
positions and
expense control
compensation
optimization
Business
process
outsourcing
Accelerated efficiency initiatives in Q4 and into 2009
11
Analysis of active employees
2008
2007
Chg
19,000
19,400
(400)
TELUS International (TI)
7,900
6,700
1,200
Emergis (Added Jan 2008)
1,100
0
1,100
28,000
26,100
1,900
8,600
8,100
500
36,600
34,200
2,400
Wireline (ex TI and Emergis)
Total Wireline
Wireless
Total
Wireline positions down 2% due to efficiency initiatives
and flexibility in new collective agreement
12
Investing in our business
TELUS’ funding position
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Solid operating performance and prudent financial policies and guidelines
Sustainable cash flow, strong balance sheet, and ample liquidity
NCIB lever can be toggled contingent on cash and investment opportunities
Significant discretionary capex focused on long-term growth
Strong balance sheet and cash flow generation gives TELUS the
opportunity to reinvest in our business and return cash to shareholders
14
Investing $2.05 billion in our business in 2009
 2009 represents a peak year in capital spend
 Excellent track record of investments in core business in domestic market
 Focused on broadband growth investments:
Broadband
Broadband
Wireless
Wireline
 Investment in TELUS International ~1% of capex / ~2% opex / EBITDA +
 Investment in large client deals and Emergis ~ 5% capex
Investments are focused on strategic imperatives and long-term growth
15
Reinvesting $2.05 billion in our business
2009E
TELUS
International
Wireline and
wireless
customer
growth
Broadband
Sustainment and
volume related –
non discretionary
Strategic growth discretionary
Efficiency
*Verticals includes large client deals (LCDs) and Emergis
Investments focused on strategic imperatives & long-term growth
16
16
TELUS capital intensity and historical average
Wireline
Wireless
Consolidated
20%
25%
22%
20%
19%
15%
14%
10%
5%
0%
2002
2003
2004
2005
2006
2007
2008
2009E
2009E consolidated capital intensity at similar historical
average levels despite major broadband builds
17
Returning cash to shareholders
 5 consecutive annual dividend increases
 5.6% increase - $1.90 for 2009
 20% increase - $1.80
 36% increase - $1.50
 38% increase - $1.10
 33% increase - $0.80
 5 consecutive NCIB totaling $2.8B 1,204
5.5B
($millions)
NCIB
Dividends
1,212
1,271
2.8B
2.7B
864
327
249
2004
312
2005
412
2006
521
2007
584
600
2008
2009E
Cumulative
Total return of $5.5 billion to shareholders over past 6 years
18
Total Return – TELUS vs. global incumbent peers
19
1
TELUS
40%
2
BCE
10%
3
Singapore Tel
9%
4
Telefonica
-8%
5
Portugal Tel
-8%
6
AT&T
-15%
7
Verizon
-18%
8
Swisscom
-23%
9
Telstra
-27%
10
Hellenic Tel
-32%
11
New Zealand Tel
-50%
12
Royal KPN
-71%
13
Telecom Italia
-72%
14
France Telecom
-75%
15
NTT Corp
-75%
16
Deutsche Telekom
-80%
17
BT Group PLC
-81%
18
PCCW
-95%
*Source: Thomson Reuters. Total return based on share price change
and reinvested dividends from Dec 31, 1999 to December 31, 2008
Investing in Future Friendly Home
Moderate Network Access Line losses vs. peers
1
Other
 Wireline challenges:
 Wireless substitution
 VoIP competition
 Second lines declining
 Long distance declining
-3.2%
-3.6%
-5.0%
-6.6%
-7.4%
2007
2008
1 Includes
-9.7%
a weighted average of Bell, MTS and Bell Aliant.
TELUS consistently compares favourably to
North American peers due to business line growth
21
-8.1%
-9.3%
Expanding and enhancing broadband footprint
 Balanced approach including FTTx rollout
 Target appropriate technology based on demand and geography
 Brownfield (existing homes) - shortening loops, ADSL 2+, VDSL 2
 Building out FTTP in MDUs and new Greenfield developments
 100 Mbps GPON market trials for costs, demand, technical viability
 Enabling TELUS TV offerings – HDTV, PVR, HD Video on Demand
 Enables new ADSL offerings – 15 Mbps Turbo Internet service
Increasing speed and capacity of broadband to enhance
TELUS TV and core Internet speed and offerings
22
TELUS TV – 2008 highlights
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Mass market in Edmonton / Calgary in 2008
Approx 90% HD footprint in Edmonton
Positive subscriber momentum / demand
Continued rollout in AB, BC and Quebec
HDTV in 2008 – up to 33 HD Channels
Introduced PVR capabilities (up to 60 hours)
Introduced HD Video on Demand
Up to three simultaneous channels of switched video
Seeing strong demand with
increased traction in subscriber loading
23
TELUS TV benefits
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Subscription based model – month to month, 1 year, 2 year, 3 year
Promotions vary with length of contract term (i.e. PVR rental only on 3 yr)
All new TELUS TV set top box rentals are HD capable
Flexibility for customer to choose programming – bundles / a la carte
Positive customer feedback in terms of video quality
TTV enabling multiple service solutions – local, long distance, Internet, TV
Bundling services results in enhanced
customer loyalty and retention
24
Investing in enterprise
Key industry verticals – enterprise segment
Established Verticals
Public Sector
Healthcare
Finance Sector
Energy Sector
Building scale economies to secure
leadership position in key markets in Canada
26
Benefits of large client deals
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Superior value proposition - next generation IP solutions are world class
Success based capex and opex - after winning multiple-year client contracts
Cash flow positive and contribute to financial strength over long term
Depth of J-curve can depend on length of contract
Low churn, non contract growth and high customer renewal
Winning large clients deals is key to advancing national growth
strategy
27
Major contract wins across Canada
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Quebec Government – up to $900 million over 10 years
Department of National Defence – $200 million over 5 years
TD Bank – $180 million contract over 5 years
Government of Ontario – $140 million contract over 5 years
Yellow Pages Group – $90 million over long term
Ville de Montreal – $87 million over 10 years
Hamilton Health Sciences - $137 million over 15 years
Co-operators - $66 million over 6 years
Excellent progress in Canadian business market
28
TELUS’ growth in enterprise segment
2000
Virtually unknown in
large corporate market
outside Western
Canada
Opportunity

2008
Leverage investment in
national
Next Generation Network
Excellent
reputation for
innovation, transition
and operations of
large client deals
Challenge
Customer dissatisfaction with
incumbents
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Customer risk aversion
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Migration fears
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Potential IP platform to drive
strategic solutions
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Few reference clients
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Outcome
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Top score for client
satisfaction
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Cumulative $2.6B in contract
value won
Need to convert to IP platform
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Anchor clients in key verticals
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Support western base
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Non-contract growth
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Leverage IP technology
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Low churn and high renewal
rates
29
Enhancing leadership position in healthcare
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Health care vertical an area of strategic importance in Canada
Acquisition of Emergis complemented TELUS’ strong presence in this area
Leveraged partnership to win a significant number of new client relationships
$500M in 2009 Federal Budget to enable e.health records
2008 Health Company of the Year
TELUS is well positioned to participate in
evolution of healthcare delivery in Canada
30
Investing in wireless
Technology roadmap at TELUS
2007
2008
2009
2010
2011
2012
2013
HSPA
LTE*
7 – 30 Mbps
50 Mbps+
EVDO
Rev A
3.2Mbps
GSM/UMTS Ecosystem
CDMA 2000 Ecosystem
* Theoretical. Standards in progress
Future proofing our technology roadmap
32
Wireless technology evolution at TELUS
 National next generation wireless network build
 Using High Speed Packet Access (HSPA) technology
 Launching service by early 2010 / 2009 peak capex year
 Optimal transition to 4G, long term evolution (LTE)
 Vendors: Nokia Siemens Networks and Huawei Technologies
 HSPA mobile phone call, video telephony call and data call completed
 TELUS benefits from network sharing agreement with Bell
 Lowering costs and increasing speed of national build
 Offering widest national coverage by early 2010
 Using existing 850/1900 MHz wireless spectrum
Joint next generation wireless network overlay for 2010
33
Canadian wireless industry sustaining growth
Population penetration gain
Population penetration
52%
42%
4.1%
2003
47%
56%
4.6%
61%
65%
4.6%
4.9%
5.1%
4.4%
2004
2005
2006
2007
2008
Canadian wireless revenues grew by 11% in 2008
34
TELUS’ multi brand strategy
 Premium brand
 Basic brand
 Vertical brand
 Smartphone focused
 Limited handsets
 Business focussed
 Full service brand
 Talk and text
 Push to talk centric
 Subscription model
 No contract model
 Subscription model
 High ARPU with data
 Lower ARPU
 Solid metrics
 Low churn
 Lower cost structure
 Low capex
 Growth market
 Growth market
 Mature market
Goal for multi-brand strategy to provide
similar EBITDA flow through
35
Industry net additions and share of net adds
Net additions / share of net adds
408K
26%
351K
515K
23%
33%
651K
604K
41%
39%
2007
Source: Company reports
588K*
38%
2008
* Digital net additions excluding analogue turndown
TELUS increased share of net additions by 5 points to 38%
36
Wireless ARPU
Data
Voice
$63.56
7.02
2007
-1.3%
$62.73
$63.70
9.84
7.95
2008
Q4-07
-2.4%
$62.16
11.17
Q4-08
Q4 ARPU decline impacted by Mike & economic slowdown
Exiting 2008 with lower ARPU growth in worsening economy
37
Building on wireless data growth
 Growing wireless data usage through smartphone adoption
 Data revenue growth of 55% in 2008
 Partially offsetting wireless voice declines
$690
data revenue ($million)
Data rev. as % of network rev
$446
16%
2007
2008
$280
$131
4%
2005
5%
2006
55% data revenue growth driven by smartphone adoption
38
2008 Wireless marketing efficiency
ARPU
$63
$64
$54
16%
17.5%
13%
1.52%
1.47%
1.60%
Avg. customer tenure (months)
64
68
63
Lifetime revenue per customer
$4,145
$4,333
$3,394
COA&COR per gross addition
$590
$730
$550
COA&COR % lifetime revenues
14%
17%
16%
Data revenue % of total ARPU
Churn1
1 – Churn excludes turndown of analogue network
Source: Company reports and TELUS estimates
TELUS is a leader in marketing efficiency
39
2008 Wireless profitability
EBITDA Margins1 (% of total wireless revenues)
43.0%
44.4%
39.5%
3.9%
9.0%
7.9%
Network revenue flow thru to EBITDA1
20.8%
33.8%
45.6%
CAPEX intensity
11.8%
14.7%
11.0%
Cash flow yield1,2
31.3%
29.7%
28.5%
EBITDA growth1
1 – TELUS and Rogers EBITDA as adjusted excludes non-cash expenses associated with cash
settlement of options
2 – Cash flow yield is defined as EBITDA (as adjusted) less capex divided by total wireless revenue
Source: Company reports and TELUS estimates
Initial costs relating to Koodo rollout impacted EBITDA growth
2009 focus on efficiency to improve EBITDA flow through
40
Questions ?
John Wheeler
Vice President, Investor Relations
(604) 697-8154
[email protected]
Robert Mitchell
Director, Investor Relations
(416) 279-3219
[email protected]