Robert McFarlaneEVP & Chief Financial Officer
CIBC World MarketsInstitutional Investor ConferenceFebruary 20, 2004
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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.
forward-looking legal disclaimer
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about TELUS
Canada’s 2nd largest telco
Executing national growth strategy focused on data, IP & wireless
2004E1: Revenues $7.45 to 7.55B
EBITDA2 $2.95 to 3.05B
Free Cash Flow $1.13 to 1.23B ($3.21 to
$3.49/sh)
Operating segments: wireline: TELUS Communications
wireless: TELUS Mobility
Enterprise value: $16.4B
Daily trading3: 1.0M shares1 Targets announced December 18, 2003
2 Earnings before interest, taxes, depreciation & amortization including restructuring and workforce reduction cost
3 Recent 3 month average. TSX: T, T.A; NYSE: TU
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TELUS Communications segment
ILEC: full service in W. Canada and E. Quebec Non-ILEC: data & IP for business in Central Canada
Revenue (2004E)1: $4.8 to 4.85B
EBITDA (2004E)1: $1.975 to 2.025B
Network Access Lines: 4.9M
Total Internet Subscribers: 881K (562K high-speed)
Fibre IP backbone: national
Strategic alliance: Verizon Communications
1 Targets announced December 18, 2003
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TELUS Mobility segment
31.7M: Cdn. PopulationLicensed POPs:
29.5M (93%)Network coverage:
Verizon Wireless & NextelStrategic relationships:
best in North AmericaSpectrum position:
only one in Canada (Nextel in US)iDEN Mike network:
coast to coast 1XCDMA footprint:
$975M to 1.025BEBITDA (2004E)1 :
$2.65 to 2.7BRevenue (2004E)1 :
3.4MSubscribers:
leading Canadian national wireless provider
1 Targets announced December 18, 2003
4th quarter & 2003 review
7
2003 Q4 review – consolidated
change
significant increase in earnings
1 Excludes restructuring & workforce reduction costs of $16M & $241M for Q4-03 and Q4-02, respectively.
$189M$50M$(139)MNet Income
$0.54
$0.13$(0.41)EPS
1.7%$1.83B$1.79BRevenue
8.3%$699M$645MEBITDA1
Q4-03Q4-02
8
2003 Q4 review – consolidated
1 Ratio of capex to total revenues.2 Free Cash Flow defined as: EBITDA less capex, net cash interest, cash taxes, cash dividends;
before restructuring & workforce reduction payments.
$164M$84M$(80)MFCF (before restr. payments)2
1 pt24%23%Capex Intensity1
4.6%$435M$416MCapex
Q4-03 changeQ4-02
strong improvement in free cash flow generation
$250M$30M$(220)MFCF (after restr. payments)
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generating cash flow growth($M)
746
1,136
20032002
Communications
significant in YoY cash flow (EBITDA less capex)
52%
75
456
20032002Mobility
508%
10
2003 Q4 review – deleveraging
45 to 50% long term
53.0%56.6%Net Debt : Capital
Q4-03 guidanceQ4-02
significant increase in free cash flow results in deleveraging well ahead of targets
3.0X
(original)
<2.8X (Jul-03)
<2.7X (Dec-03)
2.6X3.3XNet Debt : EBITDA
11
2003 Initial Targets 1 Exceeded?
Revenues $7.15B $7.2 to 7.3B
EBITDA 2 $2.84B $2.7 to 2.8B
EPS $0.92 $0.35 to 0.55
Capex $1.25B ~$1.5B
Free Cash Flow $961M $300 to $600M
Net Debt to EBITDA2 2.6X 3.0X 1 Provided on December 16, 2002 Targets Call.
2 Excluding restructuring & workforce reduction costs.
2003 comparison to initial targets – Consolidated
3
Reported EPS included $0.21 benefit from income tax recoveries. 3
4
4 Before restructuring & workforce reduction payments.
exceeded consolidated targets with exception of revenue
12
2003 Q4 review – Communications segment
Q4-03 change($M) Q4-02
5.0%1,1821,244Revenue1
revenue softness led to profitability decline despite expense reduction
1 Normalizing to exclude cumulative price cap & asset disposition impacts of $49.7M & $23.2 in Q4-03 & Q4-02, respectively, revenue declined 2.8%.
2 Ratio of capex to total revenues.3 EBITDA less capex.
1.5%509517EBITDA
2 pts25%23%Capex Intensity2
8.7%206226Cash Flow3
4.1%303291Capex
7.2%697750Opex
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2003 Q4 review – Communications segment
underlying EBITDA growth
7% underlying EBITDA growth & 5 pt margin improvement when normalized
cum. growth
509
Q4-03
EBITDA (reported)
($M) Q4-02
(1.5)%517
45%
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Normalized EBITDA Margin
price cap impact
530Norm. EBITDA (Sub-total) 4.7%506
5 pts40%
4.7%-
0.6% - Investment Tax Credits
(11)
11 pension expense 6.8%-
540Norm. EBITDA (Total) 6.8%506
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2003 comparison to initial targets – Communications
2003 Initial Targets1 Met/Exceeded?
Revenues $4.79B $5.0 to 5.05B Non-ILEC
Revenues $555M $575M 2
EBITDA3
$2.03B $2.075 to 2.15B Non-ILEC
EBITDA ~($29)M ~($60)M Capex $893M ~$1.05B High-speed net adds 152K 150 to 175K 1 Provided on December 16, 2002 Targets Call.2 Normalized for asset dispositions, actual 2003 non-ILEC revenues would be $576M.3 Excluding restructuring & workforce reduction costs.
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2003 Q4 review – Mobility segment
($M) Q4-02 Q4-03 change
External Revenue 550 643 17%
EBITDA 129 190 48%
Capex 125 132 5.8%
Capex Intensity1 23% 20% 3 pts
Cash Flow2 3 58 $55M
outstanding results across the board
1 Ratio of capex to total revenues.2 EBITDA less capex.
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2003 Initial Targets Met/Exceeded?
External Revenues $2.36B $2.2 to 2.25B
EBITDA2 $815M $625 to 650M
Capex $360M ~$450M
Wireless net adds 431K 400 to 450K
1 Provided on December 16, 2002 Targets Call.2 Excluding restructuring & workforce reduction costs.
2003 comparison to initial targets – Mobility
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Mobility met or exceeded all 2003 targets
2003 corporate priorities
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2003 TELUS corporate priorities
delivering operational efficiency
improving Central Canada profitability
enhancing wireless performance
improving levels of customer service
strengthening financial position
reaching a collective agreement
Met/exceeded?
2004
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delivering on operational efficiency program
Q4-03 Cumulative1Cum.1
Targets2
5 44 43
- 33 33
Net Staff Reductions 700 7,500 7,3003
Savings ($M) 25 454 4501 Refers to the duration of the Operational Efficiency Program, June 2001 through December 2003.2 As disclosed in management's discussion and analysis in the 2002 TELUS Annual Report.3 800 in 2001; 6,500 in 2002 & 2003.
Actual Results
Customer contact centres closed or consolidated
Communications segment phone store closures
met or exceeded all OEP targets
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87
107
20032002Communications EBITDA1 per FTE2
delivering on operational efficiency program($000s)
23%
23% productivity improvement at Communications
1 Excludes restructuring & workforce reduction costs.2 Full-Time Equivalent (FTE) employees – average for the period.
21
138 139 141
117133
105
60
38
3120
16
138
123 136
152
(24) (28)(33) (35) (36) (38) (37) (36)
(30)(23)
(18) (15) (6) (6) (2)
Q2-00 Q3-00 Q4-00 Q1-01 Q2-01 Q3-01 Q4-01 Q1-02 Q2-02 Q3-02 Q4-02 Q1-03 Q2-03 Q3-03 Q4-03
Core Revenue Asset Disposition EBITDA
improving Central Canada profitability
9th Consecutive quarter of EBITDA improvement
($M)
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TELUS Mobility Rogers AT&TBCE Wireless
$55
$45$47
Source: Company reports
2002
2003
$57
$47$48
industry ARPU up year over year
Microcell
$40$38
enhancing wireless performance
ARPU
23
$630M
EBITDA growth
focused on profitable growth over subscriber growth
enhancing wireless performance
profitable subscriber growth
Source: Company reports. Sum of reported net adds & wireless EBITDA for BCE, Rogers Wireless, Microcell, TELUS Mobility
TELUSMobility
45%
1.4M
subscriber growth
30%
TELUSMobility
2003 industry
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enhancing wireless performance
Mobility’s share of TELUS’ EBITDA & cash flow
Mobility’s rapidly expanding cash flow now represents 29% of consolidated EBITDA and EBITDA less capex
21%
29%
20032002EBITDA
9%
29%
20032002 EBITDA less capex
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BCE AWE
2.7%2.6%
1.6%
2.0%1.8%
1.5% 1.4%
TELUSVerizonSprintPCS
Rogers Nextel
3.2%
CingularMicrocell
3.0%1
2.7%
T-Mobile
TELUS’ low churn rate reflects superior customer service
1 T-Mobile USA Q3-03 YTD churn rates
2003 churn rates
enhancing wireless performance/improving customer service
churn
26
strengthening financial position
2003 global telecom performanceEBITDA1 % growth rates
AT&T
19
15
98
(3) (3)(4) (5)
(6)
(14)
(18)
1314
2 1
(0.3)
2
Telia FT DT TELUS KPN MTS Telstra Nippon BCE
%
BT PCCWAliant VZBLS SBCSprint
(18)
As at February 10, 2004
Notes: 1 Excluding restructuring TELUS data based on 2002 & 2003 results Other results provided by Bloomberg, company, and analyst reports
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strengthening financial position 2003 credit rating update
Dec.18 – Moody’s rating review for ‘possible upgrade’
Sept. 12 – Moody’s outlook to ‘positive’ from ‘stable’
Aug. 8 – S&P outlook to ‘stable’ from ‘negative’
June 16 – DBRS trend to ‘stable’ from ‘negative’
May 28 – Fitch outlook to ‘stable’ from ‘negative’
April 16 - Moody’s outlook to ‘stable’ from ‘negative’
credit ratings are lagging indicators of strengthened financial position
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2003 summary
Q4 2003: continued excellent Mobility results across the board well
ahead of plan
OEP enabled normalized Communications EBITDA growth despite revenue softness
strong growth in Consolidated EBITDA margins & EPS profitability
YE Dec 2003: met or exceeded all 2003 operational efficiency, profitability,
cash flow & leverage targets
results reflect successful 2003 execution & provide foundation for positive 2004 outlook
2004 corporate priorities and targets
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2004 priorities
reaching collective agreement reflecting competitive dynamics
providing superior customer service
revitalizing wireline growth
enhancing North American leadership position in wireless
driving towards a leadership position in high-speed Internet access
continuing benefits from operational efficiency
… leading the way into 2004
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reaching a collective agreement
Union chose binding arbitration Jan. 30, 2004
Next steps
select arbitrator(s), set terms of reference & timeline
Generic terms of reference include:
growth & competitiveness of a company & competitive dynamics of its industry
company’s ability to operate efficiently, improve productivity & meet standards of service
comparability with other industry collective agreements
good labour-management relations
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providing superior customer service
repair answer (611)
CRTC Standard = 80% of calls in 20 seconds or less
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Aug
-02
Sep
-02
Oct
-02
Nov
-02
Dec
-02
Jan-
03
Feb-
03
Mar
-03
Apr
-03
May
-03
Jun-
03
Jul-0
3
Aug
-03
Sep
-03
Oct
-03
Nov
-03
Dec
-03
New trouble management system introduced (LYNX).
Natural Disasters(Fires, Floods, Power Outage)
611Repair Answer
Contact Centres4 to 2
611Repair Answer
Staff22% 9 months exceeding
CRTC Standard
VancouverCable Cut
Jan-
04Fe
b-04
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revitalizing wireline growth
TELUS NGN IP applications
TD Bank Financial Group win Oct. 2003
$160M 7-year contract for Managed Data Solution for over 1,200 branches Canada wide
NGN with IP VPN security & enhanced services cannot be matched by competitors
IP-One launched Nov. 2003
first carrier-grade hosted and managed telephony application for business in Canada
full suite of IP-based advanced services integrating voice-mail, e-mail, data & images via secure online Web portal
341 EBITDA less capex divided by total revenue
Source: Bloomberg & analyst reports, except TELUS (midpoint of 2004 targets)
enhancing North American leadership position in wireless
cash flow yield leader2004E cash flow yield1 (%) (analyst estimates)
24% 24
17 16
1312
11
18
12
Nextel US Avg VerizonWireless
RogersWireless
CDN Avg Sprint PCS AT&TWireless
CingularTELUSMobility
35 2004 targets reflect strong earnings & cash flow growth
2004 consolidated targets summary
1 Includes ~$30M in restructuring & workforce reduction costs. 2 Update to original target of $950M to $1.05B as stated on December 18, 2003 targets call. Current and go-forward definition removes cash dividends paid ($172M and $180M (target) in 2003 & 2004, respectively) and is now: EBITDA less: capex, cash interest, cash taxes, cash restructuring & stock compensation.
2%approx. $1.225BCapex
14 to 36%$1.05 to 1.25EPS
5 to 8%
change
EBITDA1
Revenue
2004 targets
$2.95 to 3.05B
$7.45 to 7.55B
34 to 46%Free Cash Flow2 $1.13 to 1.23B
4 to 6%
> 0.1XNet Debt to EBITDA < 2.5X
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improving free cash flow1
improving FCF leading to significant debt reduction
2001 2002
2003
$(1.14)B
$(140)M
$1.13B to 1.23B
2004E
$845M
1 EBITDA excluding restructuring & workforce reduction costs less cash interest paid, cash taxes, and capital expenditures plus cash interest received and excess stock compensation expense over stock compensation payments.
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2004E global telecom performanceprojected Cash Flow (EBITDA - Capex) % growth rates
AT&T
14
1110
75
53 2 2 2
(3)(4)
(11) (11)
(23)
3
11
TELUS Telstra Aliant Telia MTS BCE Nippon FT DT PCCW BLS Sprint
%
BT VZ KPNSBC
As at February 10, 2004
Notes: TELUS data based on 2003 results & mid-point of 2004 targets Other estimates provided by Bloomberg, company and analyst reports
(23)
why invest?
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why invest in TELUS?
delivering focused telecom growth strategy in Canada
track record of achieving public targets
leading wireless provider generating significant cash flow
incumbent wireline business generating robust cash flow
Central Canada expansion increasingly profitable
technology leadership in IP
industry-leading earnings & cash flow growth
questions?
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