Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer

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Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer Darren Entwistle President & Chief Executive Officer May 5, 2011 Q1 2011 TELUS investor conference call

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Q1 2011 TELUS investor conference call. Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer Darren Entwistle President & Chief Executive Officer. May 5, 2011. TELUS Forward Looking Statement. - PowerPoint PPT Presentation

Transcript of Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer

Page 1: Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer

Robert McFarlaneEVP & Chief Financial Officer

Joe NataleEVP & Chief Commercial Officer

Darren EntwistlePresident & Chief Executive Officer

May 5, 2011

Q1 2011 TELUSinvestor conference call

Page 2: Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer

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TELUS Forward Looking Statement

Today's presentation and answers to questions contain statements about expected future events and financial and operating performance of TELUS that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions 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 performance 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 2011 annual guidance), qualifications and risk factors (including those for semi-annual dividend increases to 2013) referred to in the Management’s discussion and analysis in the 2010 annual report and in the 2011 first quarter report. 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.

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Agenda

Wireless and wireline segment review

Consolidated financial review

Updates

Regulatory

Operations

Dividend

Questions and Answers

Page 4: Robert McFarlane EVP & Chief Financial Officer Joe Natale EVP & Chief Commercial Officer

Q1 2011 wireless financial results

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Strong revenue and EBITDA growth of over 11% driving strong cash flow growth of 9%

($M) Q1-10 Q1-11 change

Revenue (external) 1,177 1,308 11%

EBITDA 495 551 11%

EBITDA margins1

(total revenue)41.8% 41.8% no change

Capex 59 76 29%

EBITDA less capex 436 475 8.9%

1 Margins on network revenue in Q1/11 and Q1/10 were 45.8% and 45.5%, respectively

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Wireless subscriber results

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Net additions impacted by loss ofFederal Government subscribers

prepaid18%

Wireless subscribers

postpaid82%

Postpaidnet adds

7M total

5.8M

1.2M

Q1-10

65K

52K

Q1-11

Totalnet adds

Q1-10

51K

32K

Q1-11

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Wireless data revenue

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Data revenue growth accelerated to 44% driven by strong smartphone adoption

Q1-10

$254M

Q1-11

$366M

$204M

Q1-09

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Marketing and retention

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Record gross addsHigher churn and COA/COR expense reflect increased

competition and increased smartphone loading

Q1-10 Q1-11 change

Gross adds (000s) 356 388 9.0%

Churn 1.55% 1.70% 0.15 pts

COA per gross add $322 $348 8.1%

COA expense $114M $135M 18%

Retention expense $123M $147M 20%

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Blended ARPU analysis

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ARPU up 3.7% y/y as strong datagrowth more than offsets voice decline

Data

Q1-11

$57.89 Voice$55.80

Q1-10

% of ARPU

Q1-11Q1-10

24%

76% 69%

31%13.14

42.66 40.18

17.71

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Q1 2011 wireline financial results

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Wireline results reflect Transactel transaction, continued erosion of legacy services and strong growth in Optik TV

($M) Q1-10 Q1-11 change

Revenue (external) 1,200 1,223 1.9%

EBITDA1 448 435 (2.9)%

EBITDA margins(total revenue)

36.2% 34.4% (1.8) pts

Capex 252 333 32%

EBITDA less capex 196 102 (48)%

1 Q1-11 Adjusted EBITDA of $419M excludes $16M non-cash gain from TELUS’ acquisition of Transactel

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TELUS’ acquisition of Transactel

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Acquisition complements and diversifies contact centre capabilities

TELUS increased its economic interest from approx 30 to 51% of Transactel, a business process outsourcing and call centre company with facilities in Central America

Enhances TELUS International’s business process outsourcing capacity, particularly Spanish / English-language capabilities

Allows for multi-site redundancy Clients include variety of third party MNOs in various industries

Financial results included in wireline segment effective Feb. 1 Recognized a gain of $16 million on pre-existing minority interest in Q1-11 in

“Other operating income” Economic interest to be increased to 95% in Q2-11

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Normalized wireline EBITDA

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Normalized wireline EBITDA down 4%

($M) Q1-10 Q1-11 change

EBITDA 448 435 (2.9)%

Gain on Transactel acquisition

- (16)

Adjusted EBITDA 448 419 (6.5)%

One-time benefits (10) -

Normalized EBITDA 438 419 (4.3)%

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TELUS TV subscribers

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Strong momentum continues with TV net adds up 52% y/yand total subscribers up 80%

Q1-10

29K

44K

Q1-11

TELUS TV net additions*

TELUS TV subscribers*

* Includes both IP TV and TELUS Satellite TV subscribers

Q1-11Q1-10

199K

358K

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TELUS high-speed Internet results

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Strong growth in HSIA net adds reflects success of enhanced Optik service bundle since launch in June 2010

Q1-10

3K 3K

Q2-10

15K

Q3-10 Q4-10 Q1-11

18K16K

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TELUS network access lines

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Residential line losses improved 34% y/yBusiness line increase reflects gain in wholesale customers

Q1-11

Q1-11

-50K

-33K

-8K

2KQ1-10Q1-10

BusinessResidential

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Q1 2011 consolidated financial results

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Strong revenue and earnings growth driven by wireless

($M) Q1-10 Q1-11 change

Revenue (external) 2,377 2,531 6.5%

EBITDA1 943 986 4.6%

EPS (basic) 2 0.85 1.01 19%

Capex 311 409 32%

EBITDA less capex 632 577 (8.7)%

2 Q1-11 Adjusted EPS of $0.97 for Q1-11 excludes after-tax Transactel gain of $0.04 per share

1 Q1-11 Adjusted EBITDA of $970M, up 2.9% excl. $16M non-cash gain from acquisition of Transactel

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EPS continuity analysis ($)

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Excluding one-time Transactel gain, underlying EPS up 14%

0.85

Normalized EBITDA1

Pension & Restr.

costs

Financing costs

1 Normalized EBITDA excludes pension and restructuring costs, and Transactel gain

Q1-11 reported

1.01

Lower tax rates

0.97Excl. Trans.gain

0.04

Transactel gain

Dep & Amort

0.020.03 0.03

- 0.02

Q1-10 reported

0.02

Higher O/S

shares

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Tentative collective agreement reached with TWU

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Tentative agreement is a progressive contract that reflects competitive marketplace and balances needs of team

members, customers and shareholders

TELUS and TWU agreed to terms of a tentative collective agreement on April 11

TWU recommending ratification to their membership and will be holding ratification meetings across country until early June

Tentative agreement includes compensation increases of 1.5% in year one, 2% in years two through four and 2.5% in year five

A ratified agreement will enable our team to focus on continued execution of our strategy and corporate priorities for 2011

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TELUS to deploy 4G+ wireless LTE

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Investment in LTE urban build is consistent with TELUS' consolidated capital expenditure targets for 2011

Consistent with our strategy on technology evolution, TELUS announced the planned launch of its wireless 4G+ long-term evolution (LTE) network in 2012

Construction on TELUS‘ 4G+ LTE network will begin in latter half of 2011 in major urban markets across Canada

TELUS' LTE deployment will use AWS spectrum purchased for $882 million in Industry Canada's auction in 2008 for this purpose

Potential rollout into rural Canada will be dependent on Industry Canada auction of frequencies in 700 MHz spectrum band

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700 MHz spectrum auction

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To ensure that 700 MHz is utilized outside of urban areas there must be a “use it or lose it” build out requirement

700 MHz spectrum consultation process ongoing – TELUS and other parties filed reply comments on April 6

Access to 700 MHz for TELUS would support truly innovative broadband applications throughout Canada & bridge digital divide

TELUS most spectrally efficient major carrier in North America on a MHz per pop basis and has need for more capacity to support data growth

Cable companies and regional carriers have financial resources to bid and be successful in an open auction and should not be advantaged by access to any set aside spectrum

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2500/2600 MHz spectrum auction

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Access to 2500/2600 MHz spectrum would allow TELUS to meet anticipated data demand in urban locations

First round comments filed by TELUS and other parties on April 19 Industry Canada to auction 60 MHz of clawed back spectrum plus additional

spectrum in regions (Alberta, Atlantic Canada) where Rogers and Bell, through Inukshuk partnership, did not obtain 2600 MHz spectrum

2500/2600 MHz spectrum aligns with 3GPP standards for LTE Rogers and Bell

Currently have a de facto Canadian monopoly and head start in launching mobile services in this band

Should be restricted from bidding on clawed back spectrum to allow entry Should be capped individually and/or together due to co-owned Inukshuk

holdings

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Industry vertical integration update

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CRTC’s recent decisions reinforce pre-existing principle that consumers need protection from undue preference

by carriers who own content

Recent CRTC decisions support pre-existing principle of programming content non-exclusivity on reasonable commercial terms

Regulatory measures taken in U.S. for Comcast acquisition of NBC Universal set a good precedent

June 2011 public policy hearing on effects of consolidation and vertical integration in Canadian broadcasting industry

TELUS and the public believe CRTC needs to implement measures to effectively address and deter any anti-competitive behaviour by carriers from content ownership in a timely manner

Safeguards prohibiting carriage exclusivity and ensuring access to content on fair terms (price and packaging conditions) are essential to ensure sustainable competition

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Q1 2011 summary

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Revenue and earnings growth of 6.5% and 19% driven by wireless.Annualized dividend raised 4.8% to $2.20 per share

Wireless

Double digit revenue and EBITDA growth reflecting outstanding ARPU growth of 3.7%

Accelerating smartphone adoption driving data revenue growth of 44%

Wireline

Revenue growth driven by strong data growth of 11%

Continued strong TV and HSIA adds and improving residential NAL losses reflecting success of Optik services and marketing

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Strong smartphone adoption driving data growth

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Smartphone base increased 76% y/y to 2.2MData revenue growth increased by 44% y/y

33%46%

54%

1Q10 4Q10 1Q11

Smartphone gross sales(as % of postpaid gross sales)

22%33%

38%

1Q10 4Q10 1Q11

Smartphone penetration(% of postpaid cumulative base)

Smartphone adoption continues to accelerate Now represents 54% of postpaid gross loads Represents over 70% of postpaid retention

units compared to less than 1/2 a year ago

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16K

29K

15K

Continued Optik momentum, Future Friendly Home

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Q4-10Q3-10

66K

53K 18K

38K

48K

Q1-11

44K

Q2-10

32K

Q1-10

32K

29K

60K

3K

TELUS TVResidential NALs

High-speed Internet

TV & HSIA loading more than offsetresidential NAL losses for third consecutive quarter

-50K -51K -39K -37K -33K

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Providing shareholder clarity on dividend growth model*

25* See forward looking statement caution.

Over last eight years, TELUS has delivered eight increases in the dividend and paid out $4 billion

4.8% dividend increase to 55 cents quarterly – July 4, 2011 Consistent dividend payout guideline of 55-65% of sustainable

earnings Announce intention to continue semi-annual declarations to

2013 – May and November Expectation of circa 10% annual increase in dividend through

2013

Subject to board decisions takinginto account financial outlook

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Appendix – free cash flow

2011Q1

2010Q1

C$ millions

Adjusted EBITDA (excludes Transactel gain) 943 970Capex (311) (409)

Net Employee Defined Benefit Plans Expense (Recovery) (3) (9)

Employer Contributions to Employee Defined Benefit Plans (45) (235)

Interest expense paid (38) (61)

Cash Income Taxes and Other (251) (66)

Non-cash portion of share-based compensation 8 3

Restructuring payments (net of expense) (49) (23)

Free Cash Flow (before share-based compensation payment) 254 170

Share Based Compensation Paid (7) (8)

Free Cash Flow (per current public guidance methodology) 247 162

(150) (169)Dividends

Working Capital and Other (41) (178)

Funds Available for debt redemption 77 (164)

Net Issuance (Repayment) of debt (72) 170

Increase (Decrease) in cash 5 6

Dividends reinvested (DRIP) 21 54

Non-voting shares issued - 17

Acquisitions and other - (50)

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Appendix – definitions

EBITDA: Earnings before interest, taxes, depreciation and amortization

Capital intensity: capital expenditures divided by total revenue

Cash flow: EBITDA less capex

Free cash flow: EBITDA, adding Restructuring costs, net employee defined benefit plans expense, cash interest received and excess of share-based compensation expense over share-based compensation payments, subtracting the non-cash gain on Transactel, cash interest paid, cash taxes, capital expenditures, restructuring payments and employer contributions to employee defined benefit plans.

Cost of retention (COR): total costs to retain existing subscribers, often presented as a percentage of network revenue