Transcript M - About TELUS

Q3 2009 TELUS
investor conference call
Robert McFarlane
EVP & Chief Financial Officer
Darren Entwistle
President & CEO
Joe Natale
EVP & President, Consumer Solutions
November 6, 2009
TELUS forward looking statements
Today's session and our answers to questions contain statements about
expected future events and financial and operating results of TELUS that are
forward-looking. By their nature, forward-looking statements require the
Company to make assumptions 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
guidance and a preliminary assessment of expected 2010 capital expenditure
levels), qualifications and risk factors (including those associated with the
deployment and operation of the new national high-speed packet access
network and associated introduction of new products, services and systems)
referred to in the Management’s discussion and analysis in the 2008 annual
report, and in the 2009 first, second and third quarter reports. 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.
Agenda
 Wireless and wireline segment review
 Consolidated financial review
 Updates
 OEP
 2009 guidance
 Corporate developments
 Questions and Answers
3
Wireless segment – Q3 2009 financial results
($M)
Q3-08
Q3-09
Change
1,202
1,206

0.3%
682
693

1.6%
1
3

n.m.
EBITDA
526
517

(1.7)%
Capex (excl. spectrum)
133
193

45%
Revenue (external)
Operational expenses
Restructuring costs
Data revenue & subscriber growth offset by voice ARPU erosion
Capex reflects investments in HSPA network build
4
Wireless subscriber results
Wireless subscribers
Total
net additions
1.2M
Prepaid
19%
149K
125K
Postpaid
81%
5.2M
Q3-081 Q3-09
1 Includes
6.4 million total
the impact from analogue network turndown of 27.6K subscribers.
Postpaid additions stable at 131K
and represented 105% of mix
5
Wireless ARPU
Data
$64.14
10.19
53.95
Q3-08
Voice
$59.45
12.05
% of ARPU
16%
84%
47.40
Q3-09
Q3-08
20%
80%
Q3-09
ARPU consistent with YTD trend down 7% due to voice
erosion partially offset by good data growth
6
Blended wireless ARPU trend
$62.73
$64.14
$62.16
$58.39
$58.61
$59.45
Q1-08 Q2-08
Q3-08
Q4-08
Q1-09
Q2-09
Q3-09
$61.88
ARPU has been stable to slightly increasing YTD
since significant drop in Q4-08
7
Wireless data revenue
$229M
$181M
$116M
BlackBerry
Tour
Q3-07
Q3-08
Q3-09
27% annualized data growth driven by continued smartphone
adoption and to be enhanced by iPhone launch
8
Wireless marketing and retention
Q3-08
Q3-09
Change
447
420

(6)%
1.68%
1.55%

(13) bps
COA per gross add ($)
358
320

(11)%
COA expense ($M)
160
135

(16)%
99
117

18%
Gross adds (000s)
Churn1
Retention expense ($M)
1 Q3-08
includes impact from analogue network turndown of 27.6K subscribers, otherwise churn was 1.52%.
Note: Measurement of costs of acquisition and retention refined in 2009. Prior year comparisons restated.
COA decrease due to lower marketing expenses and commissions
Investments in retention focused on smartphones
9
Wireline segment – Q3 2009 financial results
Q3-08 Q3-09
Operational expenses1
Restructuring costs
1,248
1,205
(3.4)%
823
804
9

Revenue (external)
Change

($M)
(2.3)%
29 
n.m.
EBITDA
449
406

(9.6)%
Capital expenditures
340
365 
7.4%
1 Excluding
defined benefit pension expenses from both periods, operating expenses down 5.4%
EBITDA impacted by restructuring and pension costs
Continued higher capex to support broadband expansion
10
Wireline segment – EBITDA normalized
Q3-08 Q3-09
EBITDA
Defined Benefit pension
expense/(recovery)
Restructuring costs
EBITDA normalized
449
406
(23)
4
9
29
435
439
Change

($M)
(9.6)%
 0.9%
Underlying EBITDA up 1% when excluding
DB pension expense and restructuring costs
11
Internet subscribers
High-speed Internet
net additions
Internet subscribers
Dial-up
8%
96K
13K
9K
Q3-08
Q3-09
1.1M
High-speed
92%
1.2 million total
HSIA net adds improved sequentially but lower YoY
12
TELUS TV subscribers
TELUS TV
net additions1
TELUS TV subscribers1
137K
22K
63K
12K
Q3-08
1
Q3-09
Q3-08
Q3-09
Includes both TELUS IP TV and TELUS Satellite TV subscribers
Strong subscriber growth with net adds up 83%
Total subscriber base up 117%
13
Stabilized residential NAL losses
Q1-08
-51K
Q2-08
-48K
Q3-08
Q4-08
Q1-09
Q2-09
Q3-09
-42K
-41K
-41K
-41K
-53K
4th consecutive quarter of YoY improved residential line loss
Stabilizing due to effective winbacks and bundling efforts
14
Consolidated – Q3 2009 financial results
($M excluding EPS)
Q3-09
Change
Revenue
2,450
2,411

(1.6)%
Operating expenses
1,465
1,456

(0.6)%
10
32

n.m.
EBITDA
975
923

(5.3)%
EPS
0.89
0.88

(1.1)%
Capital Expenditures1
473
558

18%
Restructuring costs
1
Q3-08
Q3-08 capital expenditures exclude $882 million payment for AWS spectrum licenses otherwise capital
expenditures down 59%.
Consolidated results impacted by economic softness
and increased restructuring and pension costs
15
Consolidated – EBITDA normalized
Q3-08
EBITDA
Q3-09
975
923
(25)
4
Restructuring costs
10
32
EBITDA (normalized)
960
959
DB pension expense/(recovery)
Change

($M)
(5.3)%
Normalized EBITDA flat when excluding
DB pension expenses and restructuring
16
Investing in operational efficiency
Total restructuring costs ($M)
Expected
approx.
$160
Actual
59
53
38
4
Q2-08
28
$113
32
10
Q3-08
Q4-08
Q1-09 Q2-09
Q3-09
2008A
2009E*
Emphasis on operational efficiency
initiatives driving increased restructuring costs
* See forward looking statement caution
17
Analysis of full time equivalent employees
27,900
26,300
(1,600)
7,950
7,800

(150)
700

700
34,800

TELUS International
Q3 2009

Total (domestic)1
YE 2008
(1,050)
Black’s Photography
Total
35,850
Change
 TELUS International reduction not necessarily indicative of full year trend
1 Total
(domestic) excludes 700 FTEs from the Black’s Photography acquisition.
Exceeding YE target of >1500* reduction in domestic FTEs
* See forward looking statement caution
18
EPS continuity
$0.89
$0.02
($0.06)
Q3-08
Reported
Pension
costs
$0.02
$0.02
$0.84
Excl.
Tax
Adj.
($0.05)
Restr.
costs
$0.88
Dep’n and
Amort
Lower shares
o/s & lower
tax rates
Other
Q3-09
Reported
EPS up 7% excluding restructuring & pension costs
and four cents of positive tax-related adjustments
19
Consolidated guidance update
($M, excluding EPS)
Revenue
$9,600 to $9,700
EBITDA1
$3,475 to $3,575
EPS (reported)
Capex
1
2009 revised
guidance*
$3.10 to $3.30
approx. $2,100
Underlying EBITDA growth would be (2)% to flat adjusted for restructuring of $59M and approx. $160M
in 2008 and 2009E respectively, and a $118M increase in 2009 defined benefit pension expense
Revised guidance reflects revisions to both
wireless and wireline segments
* See forward looking statement caution
20
Preliminary 2010E capex outlook ($B)
~$2.1
$1.75
2006 – 2008
average1
1 2008
2009E*
2010E*
excludes payment for wireless spectrum.
Expecting 2010E capex to be as low as $1.7 billion
returning to 2006 - 2008 average historical levels
* See forward looking statement caution
21
Other developments
 Balancing interests of equity and debt holders
 Dividend maintained and moving to 3% discount on dividend
reinvestment and treasury share issuance
 CRTC’s Globalive foreign ownership and control decision
 CRTC had no choice but to uphold federal law and clearly
outlined the nature of Globalive’s considerable non-compliance
 Globalive can restructure its affairs to remedy their situation
 Political interference is not appropriate to remedy situation, but
in any event, any possible Cabinet review should be a public
process
 TELUS never against foreign ownership, just that rules should
apply uniformly to all communications companies in Canada
 Situation highlights need to pre-qualify bidders in future
auctions as TELUS has consistently advocated
22
Darren Entwistle
President & CEO
Joe Natale
EVP & President, Consumer Solutions
Black’s Photography
 In September, acquired 113 retail stores across Canada
 Most in premium mall locations
 72% based in Ontario
 Launched camera phone sales November 5
Addition of Black’s stores strengthens
TELUS’ wireless distribution
24
TELUS launches Canada’s largest 3G+ network
 HSPA network launched November 5
 Provides service to more than 30 million Canadians
 Enabling wireless applications with fast download speeds
 International roaming to more than 200 countries
 Clear strategic and competitive advantages
TELUS to benefit from future global ecosystem, economies
of scale and enhanced roaming revenues
25
TELUS vs Rogers - HSPA east coverage
* Based on Rogers’ Sept. 14, 2009 public announcement of HSPA+ coverage within the cities indicated (using associated census metropolitan areas).
** Based on coverage maps made publicly available by Rogers on Oct. 23, 2009.
Coverage areas are approximate as of October 2009. Actual coverage and network service can vary and are subject to change.
26
TELUS vs Rogers - HSPA west coverage
* Based on Rogers’ Sept. 14, 2009 public announcement of HSPA+ coverage within the cities indicated (using associated census metropolitan areas).
** Based on coverage maps made publicly available by Rogers on Oct. 23, 2009.
Coverage areas are approximate as of October 2009. Actual coverage and network service can vary and are subject to change
27
TELUS launches iPhone 3GS
Running on Canada’s largest 3G+ network
28
TELUS launches BlackBerry Bold 9700
 Full QWERTY keyboard
 Easy HTML browsing with
trackpad navigation
 3.2 megapixel camera
Running on Canada’s largest 3G+ network
29
TELUS’ a leader in smartphones
HTC
Hero
LG New
Chocolate
Nokia
E71
Sierra 306
Internet Key
Running on Canada’s largest 3G+ network
30
TELUS’ simple and clear wireless pricing
 New Clear Choice™ suite of wireless consumer rate plans
 New Clear and Simple™ business rate plans
 Based on feedback from Canadians
 Consistent with TELUS’ future friendly brand promise
 Fewer and simpler rate plans
 No SAF or carrier 911 fees
 General rate plan increase of $5 with basic voicemail 3
 Expect loading, churn and cost efficiency benefits
Simplified rate plan structure supports focus on AMPU
31
Summary
 Results and guidance impacted by recession, competitive
intensity and introduction of new devices
 Continued execution on operating cost efficiency
 Strategic investments in broadband coming to fruition
 Early launch of HSPA network and device offerings
 Acceleration of TELUS TV service
 Leading change in wireless market for benefit of Canadians
Strategic project execution is significantly improving
TELUS’ operational and competitive position
32
Questions?
investor relations
1-800-667-4871
telus.com
[email protected]
Appendix – free cash flow
C$ millions
EBITDA
Capex
Net Employee Defined Benefit Plans Expense (Recovery)
Employer Contributions to Employee Defined Benefit Plans
Spectrum
Interest expense paid (includes income tax interest income)
Cash Income Taxes and Other
Non-cash portion of share-based compensation
Restructuring payments (net of expense)
Donations and securitization fees included in other expense
Free Cash Flow (before share-based compensation payment)
Share Based Compensation Paid
Free Cash Flow (per current public guidance methodology)
Purchase of shares for cancellation (NCIB)
Dividends (Q2-08 dividend remitted June 30, 2008)
Acquisitions (includes proceeds from sale of property and other assets for Q3’08)
Working Capital and Other
Funds Available for debt redemption
2008
Q3
2009
Q3
975
923
(473)
(25)
(27)
(882)
(43)
(558)
(2)
12
(9)
(48)
(5)
(479)
(3)
(482)
3
(31)
(19)
5
3
(4)
274
(8)
(75)
-
266
(149)
5
(26)
9
(543)
(13)
78
-
Net Issuance (Repayment) of debt
100
433
(70)
Increase (Decrease) in cash
(10)
8
A/R Securitization
34
Appendix
Appendix -–2009E
2009EFree
Freecash
cashflow*
flow
($M)
EBITDA (after restructuring)
Capex
2009E
$3,475 to 3,575
~(2,100)
Net Cash Interest
~(415)
Net cash tax payment
~(270)
Other
Free Cash Flow
Cash pension contribution (in excess of expense)
Free Cash Flow1 (pre-dividend payments)
1 see
20
$710 to 810
~(175)
$535 to 635
Free Cash flow definition on Appendix slide
* See forward looking statement caution
35
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, net
employee defined benefit plans expense, cash interest received and excess of
share compensation expense over share compensation payments, subtracting
cash interest paid, cash taxes, capital expenditures, cash restructuring payments,
employer contributions to employee defined benefit plans, and cash related to
Other expenses such as charitable donations and securitization fees
 Cost of retention (COR): total costs to retain existing subscribers, often presented
as a percentage of network revenue
TELUS definitions for non-GAAP measures