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Q3 2007 TELUS investor conference call
November 2, 2007
This session and answers to questions contain forward-looking statements that require assumptions about expected future events including 2007 guidance, 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); tax matters (including acceleration or deferral of payment of significant cash taxes); regulatory developments (including local forbearance, wireless number portability, the timing, rules, process and cost of future spectrum auctions, and possible changes to foreign ownership restrictions); 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 full listing and description of the potential risk factors and assumptions, please refer to the TELUS 2006 annual report and updates in the 2007 quarterly reports (see Section 10 Risks and Risk Management in Management’s discussion and analysis), and other filings with securities commissions in Canada (sedar.com) and the United States (sec.gov).
All dollars referenced are in C$ unless otherwise specified.
TELUS forward looking statements
2
Darren Entwistlemember of the TELUS team
November 2, 2007
Q3 2007 TELUSinvestor conference call
Wireline highlights – Q3 2007
4
Wireline performance improves sequentially
Resilient wireline revenue as per operating strategy
Data growth continues to be strong at 9%
Moderate NAL loss at 3%
New billing and client care system impacts Q3 to lesser degree
Costs reduced by 50% to $8 million in Q3 from Q2
125% sequential improvement in high-speed net adds
Operating Profit (EBITDA adjusted) down 3% year over year
Wireless highlights – Q3 2007
5
Wireless revenue growth of 9%
Wireless subscriber base up 11%
Data revenue growth up 56%
Wireless Number Portability impacts improving sequentially
Acquisition and retention costs reduced $29 million
EBITDA margin (adjusted) of 47% increased 4 pts from Q2
ARPU decreased 1%
Wireless guidance adjusted downward
Continued resiliency in wirelineSequential improvement in wireless performance
Positive deregulatory developments - wireline
6
New regulatory framework based on market forces
Residential forbearance in 6 urban markets
Business phone service deregulated in 35 exchanges in Alberta, BC and Quebec or approx two-thirds of total business lines
Wholesale services hearing has potential to reduce restrictive regulation
Regulatory freedom increases overall competitiveness
Continued resiliency in wirelineRegulation based on competitive realities
Wireline regulated revenue analysis
Consumer and Business Retail Revenue
Price caps 2006 Forbearance Post 2007
Deregulation enhances TELUS’ competitive flexibility
7
RegulatedUnregulated
39% 61%
Unregulated
Regulated
72%
28%
Unregulated
Regulated
Advanced wireless spectrum auction
8
Government directive promotes reliance on market forces
Competition Bureau ruled that three wireless carriers is competitive for Canada
Declining voice ARPU demonstrates competitive intensity
Spectrum auction rules should not deviate from policy direction
Continued resiliency in wirelineTELUS advocates an open and fair auction process
Consolidated highlights – Q3 2007
9
Strongly positioned for ongoing investment
Revenue growth of 5% led by wireless and data
Operating profit (EBITDA adjusted) up 3%
EPS up 32% quarter over quarter and up 11% normalized
Adjusted annual consolidated 2007 guidance1
Revenue range adjusted slightly downward
EBITDA range narrowed towards lower half
EPS range increased and narrowed to $3.55 to $3.65
Free cash flow remains strong at over $500 million
1. See forward looking statement caution.
Strong record of returning capital
10
Shares repurchased in quarter
4.3 million shares
$232 million
Shares repurchased since Dec. 2004
50 million shares
$2.4 billion
New quarterly dividend of 45 cents
New dividend up 20% to $1.80 annualized
$0.80
$1.50
$1.80
$1.10
2005 2006 2007 2008E1
33%
38%
36%
20%Annualized Dividend Growth
1. See forward looking statement caution.
Robert McFarlaneEVP & Chief Financial Officer
November 2, 2007
Q3 2007 TELUSinvestor conference call
Wireless segment – Q3 2007 financial results
12
($M) Q3-06 Q3-07 Change
Revenue 1,010 1,105 9.4%
EBITDA1 483 521 7.9%
EBITDA (as adjusted) 483 523 8.3%
Capital expenditures 113 132 17%
1 EBITDA includes $2.3M expense in Q3-07 for net cash settlement feature of options granted prior to 2005. Excluding this charge, EBITDA (as adjusted) increased by 8.3%. Q3-07 also includes $2.9M in working capital write-off related to Amp’d. Adjusted for both items, EBITDA increased 8.8%
Subscriber growth drives revenue higher while COA and retention costs improve
total wireless subscribers
Postpaid 80%
Prepaid 20%
net additions
Q3-06 Q3-07 5.4 million
4.3M
1.1M
Wireless subscriber results
Continued strong net additions
13
prepaid
postpaid135K137K
73%79%
73%
Wireless ARPU
Data ARPU
Q3-07
$64.80
Increase in data ARPU offset by voice decline
14
Voice
$65.67
Q3-06
7.20
57.60
5.11
60.56
ARPU analysis
Positive factors
Data revenues up 56% - increased usage, increased adoption
Migration of voice centric subs adopting full featured devices/PDAs
Negative factors
Impact of prepaid on subscriber mix
Maturing Mike (iDEN) subscriber platform
Increased in-bucket usage and continued competitive pressures
Reduced roaming growth
Overall ARPU down 1.3% in the second quarter
15
1.71.8
1.431.27
1 Q3-07 wireless churn, except T-Mobile USA and BCE which reflect Q2-07
Source: Company reports, analyst reports
2.7
1.51
Q3 2007 wireless churn1 (%)
TELUS churn stable post WNP introduction and remains at near best in class levels
16
2.7
Wireless operating metrics improvement
Gross additions up 9% despite COA of $379, down 2% YoY and 11% sequentially
Retention spend as % of network revenue down 0.4 pts YoY to 6.3% and 1.9 pts sequentially while maintaining low churn
EBITDA margin increased 4.1 pts sequentially to 47%
Sequential improvement in key operating metrics
17
2007 guidance* - wireless
2007 previous guidance1
2007 revised guidance
Revenue $4.325 to 4.375B $4.275 to 4.3B
EBITDA (as adjusted)2 $1.95 to 2.0B $1.925 to 1.95B
Capex approx. $550 M no change
Subscriber net adds > 550K approx. 530K
Wireless guidance updated to reflect year-to-date results
* See forward looking statement caution
2 Excludes expense of approx. $25 million in 2007 for net cash settlement feature for options
1 Last updated on August 3, 2007
18
Wireline segment – Q3 2007 financial results
19
($M) Q3-06 Q3-07 Change
Revenue 1,200 1,205 0.4%
EBITDA (reported)1 470 466 (0.7)%
EBITDA (adjusted) 470 457 (2.7)%
Capital expenditures 311 303 (2.8)%
Revenues stable while profitability remains challenging
1 EBITDA includes expense recovery of $9.5M in Q3-07 for forfeiture of options previously expensed under net-cash settlement feature. Excluding this recovery EBITDA (as adjusted) decreased 2.7%
Wireline revenue profile
20
($M) Q3-06 Q3-07 Change
Voice – Local 533 511 (4.1)%
Voice – Long Distance 199 181 (8.9)%
Data 411 446 8.6%
Other 57 66 15%
Total External Revenue 1,200 1,205 0.4%
Good data growth leads to positive wireline revenue growth
Wireline EBITDA normalization
21
($M) Q3-06 Q3-07 Change
EBITDA (adjusted)1 470 457 (2.7)%
System implementation impacts:
Increased labour costs - 8
Quality-of-Service decisions - (5)
EBITDA (normalized) 470 460 (2.1)%
EBITDA impacted by incremental expenses related to new billing & client care system in AB
1 EBITDA as adjusted includes expense recovery of $9.5M in Q3-07 for forfeiture of options previously expensed under net cash settlement feature
1.16 million total
Internet subscribers
High-speed86%
Dial-up14%
High-speed Internet net additions
(sequential)
Q2-07 Q3-07
994K
165K
High-speed Internet subscribers
Results reflect significant rebound in subscriber loading due to renewed marketing efforts post system implementation in AB
22
14K
31K
% of network access lines lost (yr. over yr.)
Q1-06 Q2-06
-2.6%
Q3-06
-2.8%
Q4-06
-3.0%
Network access line results
-2.9%
Q1-07
Stable overall line losses
23
-3.1%
Q2-07 Q3-07
-3.0%-2.7%
2007 guidance* - wireline
2007 previous guidance1
2007 revised guidance
Revenue $4.85 to 4.9B $4.85 to 4.875B
EBITDA (as adjusted)2 $1.775 to 1.825B $1.8 to 1.825B
Capex approx. $1.2B no change
High-speed Internet net adds > 125K approx. 110K
Wireline EBITDA tightened to high end of range
* See forward looking statement caution
2 Excludes expense of approx. $145 million in 2007 for net cash settlement feature for options
24
1 Last updated on August 3, 2007
Consolidated – Q3 2007 financial results
25
($M excluding EPS) Q3-06 Q3-07 Change
Revenue 2,211 2,310 4.5%
EBITDA (as adjusted)1 952 980 2.9%
EPS (as adjusted)1 0.94 1.23 31%
EPS (as adj. excl. tax adjustments) 0.85 0.95 11%
Capital Expenditures 424 434 2.4%
Q3-07 results reflect rebound from Q2-07
1 EBITDA and EPS exclude expense recovery of $7.2M, and 1 cent, respectively, in Q3-07 for net cash settlement feature of options granted prior to 2005. Including this recovery, reported EBITDA and EPS increased by 3.6% and 32% respectively
Q3-06
Other(incl.
lower avg o/s shares)
Net tax related adj.
EPS continuity
26
Q3-07Reported
Financing exp.
$1.24
EBITDA(Adjusted)
Dep’n & Amort
$0.94
0.19
0.06 0.04 0.03
0.05 0.01$1.23
Cash settled option
expense recovery
Q3-07Adj.
Share buy backs – 3rd Normal Course Issuer Bid
27
Q3-07 Q3-07 YTDSince NCIB
inception
Total investment (M) $232 $602 $2,372
Total shares (M) 4.3 10.5 49.9
Outstanding shares (M) - 327.4 31.0
% change in o/s shares(end of period)
3.9%
YoY
8.7%
since Dec-04
Shares outstanding down 4% YoY and 9% since inception
Cash settlement of options has avoided 2.7M shares issuance YTD
Return of capital update ($ per share)
2004 2005 2006 2007E1,2
Dividends
Share repurchases
1.50
2. See forward looking statement caution. 3. Annualized dividend
1. Annualized dividend, plus YTD NCIB share repurchases as at Sept.30/07, annualized
2.42
28
1.81
0.82
3.30 3.43
3.92
0.22
0.60
2.50
0.80 1.10
2.33
Strong record of returning capital to shareholders
2008E3
1.80
2007 guidance* - consolidated
2007 previous guidance1
2007 revised guidance
Change over 2006
Revenue $9.175 to 9.275B $9.125 to 9.175B 5 to 6%
EBITDA (as adjusted)2 $3.725 to 3.825B $3.725 to 3.775B 4 to 5%
EPS (as adjusted)3 $3.25 to 3.45 $3.55 to 3.65 9 to 12%
Capex approx. $1.75B no change 8%
Full year 2007 consolidated guidance updated EPS up to reflect tax-related adjustments
* See forward looking statement caution
2 Excludes expense of approx. $170 million in 2007 for net-cash settlement feature for options3 Excludes an after-tax charge per share of approx $0.32 for net-cash settlement feature for options
1 Last updated on August 3, 2007
29
Questions?
investor relations1-800-667-4871telus.comir@telus.com
$128.1
$519.9
(1.2)
(0.8)
(423.9)
$952.3
Q3-06
$119.8
$509.7
3.3
(1.1)
(434.1)
$987.0
Q3-07
Funds avail. for debt redemption
Free cash flow (before cash settled option pmt)
Restructuring payments (net of expense)
Cash income taxes; and other
Capex
EBITDA
($M)
(12.4) (39.7)Interest expense paid
14.4 3.5Non-cash portion of share-based compensation
(93.8) 0.0Dividends
37.3 0.1Share Issuance (non-public)
($6.8) ($1.2)Net change in cash
50.1 (171.0)Net debt issuance / (repayment)
Working capital & other (215.5) (151.0)
(119.7) (232.2)Purchase of shares for cancellation (NCIB)
Appendix – Free cash flow (2007 definition)
(8.5) (9.2)Cash related to other expenses
Free cash flow $519.9 $502.9
Cash settled options paid - (6.8)
(185.0) 50.0Accounts Receivable Securitization
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,
cash interest received and excess of share compensation expense over share
compensation payments, subtracting cash interest paid, cash taxes, capital
expenditures, cash restructuring payments, 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
Appendix - definitions
TELUS definitions for non-GAAP measure
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