cibc whistler institutional investor conference robert mcfarlane evp & chief financial officer...
TRANSCRIPT
CIBC Whistler InstitutionalInvestor Conference
Robert McFarlaneEVP & Chief Financial Officer
February 27, 2003
Slide 2
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
Slide 3
Agenda
About TELUS
Q4 & 2002 review
2002 Performance vs. Targets
2003 Outlook
Slide 4
About TELUS
Canada’s only national pure-play, facilities-based, full-service telecom provider
2nd largest Canadian telco Executing national growth strategy focused on data, IP &
wireless from position of financial strength 2002: Revenues C$7.0B
EBITDA C$2.52B Operating segments: Communications: wireline
Mobility: wireless Enterprise value: ~C$14B (equity ~ $6B) Daily trading1: 1.1M shares
1 recent 3 month average
Slide 5
About TELUS Communications
ILEC: full service in W. Canada and E. Quebec Non-ILEC: data & IP for business in C. Canada
Revenue (2002) $5.0B
EBITDA (2002) $2.0B
POPs covered 7.5M
Network Access Lines 4.9M
Local/LD Market Share 97%/78%
Total Internet Subscribers 802K (410K High-speed ADSL)
Fibre IP backbone national
Strategic alliance Verizon Communications
Slide 6
About TELUS Mobility
Cdn. Population (31.4M)Licensed POPs
27.4M (~90%) + roamingNetwork coverage
Verizon Wireless & NextelStrategic relationships
best in CanadaSpectrum position
only one in CanadaiDEN Mike network
coast to coast 1XCDMA footprint
$535MEBITDA
$2.0BRevenue
3MSubscribers
Leading national wireless provider
Q4 & 2002 review
Slide 8
2002 Highlights – Consolidated
Difficult telecom environment & price cap impact
Met or exceeded key financial targets “on Street”
EBITDA before restructuring costs was flat YoY as Mobility, OEP1 & ITCs2 offset regulatory impacts
Capex reduction drove significant improvement in cash flow
1 Operational Efficiency Program2 Investment Tax Credits
Slide 9
Q4 Review - Consolidated
Q4-01 Q4-02 Change
Revenue $1.87B $1.79B 3.9%
Revenue (normalized)1 $1.87B $1.90B 2.1%
EBITDA2 $598M $645M 7.8%
EBITDA (normalized)1,2 $598M $720M 20%
Negative impact of regulatory decisions masksunderlying growth in Revenue & EBITDA of 2% & 20%
1 2002 normalized for regulatory impacts (contribution and price cap decisions)2 Excludes restructuring & workforce reduction costs
Slide 10
Q4 Review - Consolidated Normalized EBITDA Trend1
598
699
614618
720
650690
727
Q1 Q2 Q3 Q4
2001 2002
($M)
1 2002 has been normalized for regulatory impacts (contribution and price cap decisions)
20%
Slide 11
Q4 Review - Consolidated
Q4-01 Q4-02 Change
Restructuring costs1 - $241M -
Disc. Operations2 ($3.1M) - -
Net Income/(Loss) ($47M) ($139M) 198%
EPS (per GAAP) ($0.16) ($0.41) 156%
EPS 3 ($0.16) $0.05 131%
EPS from continuing operations exhibiting significant upward growth
1 Restructuring & workforce reduction costs2 Gain on sale of Directory Operations3 Normalized for after-tax restructuring costs
Slide 12
Q4 Review - Consolidated
Q4-01 Q4-02 Change
Capex $592M $416M 30%
Capex Intensity1 31.7% 23.2% 8.5pts
EBITDA-capex $6.7M $229M 3,318%
1 Ratio of capex to total revenues
Significant reduction in capex drove strong improvement in capital intensity & dramatic cash
generation increase
Slide 13
Significant downward trend in capex intensity ratio
1 Ratio of capex to total revenues
Q4 Review - Consolidated Capex Intensity1
37%
23% 24%
32%
2001 20022001 2002Q4 YTD
Slide 14
Consolidated Free Cash Flow
(26)
(1,354)
Dramatic increase in YoY Free Cash Flow1 in 2002
2001 2002($M)
1 EBITDA less capex, cash interest, cash taxes, and cash dividends
Slide 15
Deleveraging
Q1-02Q2-02
Q3-02 Q4-02 Target
Net Debt : Capital
57.9% 58.7% 55.8% 56.6% 50% long-term
Net Debt : EBITDA
3.5x 3.6x 3.4x 3.3x 3.0x in Dec ’03
Expect significant leverage drop in 2003/2004 due to increased EBITDA and FCF
New December 2004 debt: EBITDA target < 2.7x
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TELUS C$ 7.5% 2006
GOC 8.75% 2005
GOC (Feb 24/03): $112.79
TELUS (Feb 24/03): $100.13
May 31 - Jul 11Credit rating under review:
DBRS (May 31)Moody's (Jun 14)
S&P (Jul 11)
Aug 5Commenced buying back TELUS debt
Sep 19Completed equity-
funded debt buyback
TELUS Public Debt PerformanceRelative Price Performance
TELUS Corporation C$ 7.5% 2006 v GOC 8.75% 2005(Assuming $100 invested on May 24, 2001)
Communications Segment
Slide 17
Slide 18
2002 Highlights Communications Segment
Significant negative regulatory impacts
Revenue shortfall offset by OEP progress ahead of plan & favourable ITC1 settlement
Data growth - 16% reported, 9.7% organic
Gained considerable market share in ADSL
Disciplined 23% annual reduction in capex
Significantly improved cash flow
1 Investment Tax Credits
Slide 19
Q4 Review – Communications
($M)
Q4-
01
Q4-02
Change
Change
(ex. neg. reg. impacts)
Revenue 1 1,392 1,244 11% 2.6%
EBITDA 543 517 4.9% 11%
Capex 387 291 25% -
Cap. Intensity2 27.3% 23.0% 4.3pts -
EBITDA-capex 156 226 44% -
Underlying EBITDA growth & cash generation improved 11% and 44%, respectively from efficiency improvements
1 Excludes intersegment revenues2 Ratio of capex to total revenues
Slide 20
TELUS BCE & MTS U.S. Composite
1
2
(1.1%) (1.1%)
(3.8%)
NAL Decrease (Q4-02 vs. Q4-01)
Canadian NAL losses below U.S. peer averages
1 Weighted average calculation2 Comprised of: Bell South, SBC Communications, and Verizon;
weighted average calculation
Q4 Review – CommunicationsNetwork Access Lines (NALs)
Slide 21
Q4 Review – Communications
43K ADSL net adds in Q4 to total 195K for the year;91% YoY growth in subscriber base
Velocity ADSL Internet Net Adds (000's)
131
195
2001 2002
58 in Q4
431 in Q4
58
20 in Q4
2000
1 Q4 net adds were net of an approximate 3,400 subscriber count adjustment
Slide 22
Central Canada 2002 Performance
Significant scale & increasing profitability
Central Canada Wireline (ILEC & Non-ILEC)
Revenue ($M) EBITDA ($M)
2001 2002 2001 2002
840
57
(9)
632
Slide 23
17 16 2031 38
60
105
133117 123
136152
(18)(38)(36)(35)(33)(28)(24)
(11)(37) (36) (30) (23)
Q1-00 Q2-00 Q3-00 Q4-00 Q1-01 Q2-01 Q3-01 Q4-01 Q1-02 Q2-02 Q3-02 Q4-02
Revenue EBITDA
Q4 Review – CommunicationsNon-ILEC1,2
($M)
1 Minor adjustments were made in Q3-02 to reflect current customer account classification2 Note: 2002 YTD Non-ILEC revenues: $527.3M and 2002 YTD EBITDA: $(107.2)M
2002 YoY improvement of $192M in revenue &
$38M in EBITDA
Slide 24
TELUS Québec Feb. 25 Announcement
TELUS Québec & Government of Québec announced $500M investment & job creation program
On strategy and in current capex program
In recognition of investment, Quebec to provide employment subsidies
Half of new jobs to be created in large urban areas
Expected benefits - $90M under 3 govt. programs
Raises TELUS’ profile with Government of Québec
Slide 25
Q4 Review – Communications OEP – Employee Reductions
1 Excludes the impacts of staff increases associated with acquisitions during H2-2001
2002 reductions ahead of plan
2001 2002 2003
Phase I (Jun / Q4-01) 8001
Phase II (Q1/Q2-02) 1,000
Phase III: (Q3-02) 1,700
(Q4-02) 2,500
(Q1/Q4-03) 1,300
TOTAL 800 5,200 1,300
~ 6,500
Slide 26
Q4 Review – Communications OEP – Savings & Expenses
Estimated Phase I to III OEP EBITDA savings:
2002 $150M
2003 ~ $450M
2004+ ~ $550M
Phase I costs: $211M ($198M in 2001, $13M in 2002)
Estimated Phase II & III restructuring & workforce reduction expense:
Per Acctg. Per Cash
2002 $557M $172M
2003 ~ $20M $285M
Slide 27
Improving Efficiency Consolidated Revenue & EBITDA per Employee1
Revenue per employee
$197
$272
2000 2002
EBITDA per employee
2000
$98
2002
$76
(thousands)
1 Based on total employees at year-end
Mobility Segment
Slide 28
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2002 HighlightsMobility Segment
Successful completion of integration (incl. billing conversions)
2002 net adds flat YoY despite significant industry slowdown
Financial and operating results ahead of plan and street expectations
Slide 30
Q4 Review – Mobility
($M) Q4-01 Q4-02 Change
Network Revenue 424 491 16%
EBITDA 55 129 133%
Capex 205 125 39%
Capex Intensity1 (%) 42.6 22.6 20pts
EBITDA-capex (150) 3.4 102%
Flat expenses, strong network revenue growth & reduced capex drove cash flow improvement
1 Ratio of capex to total revenues
Slide 31
Q4 Review – Mobility
-
41pts1.68%2.09%Churn
$56
3.0M
Q4-02
ARPU
Subscribers
ChangeQ4-01
-$56
16%2.6M
~20% ARPU premium to competitors maintained Material improvement in churn rate
Slide 32Total Canadian wireless industry estimates. Source: Company & analyst reports
2002 net additions of 418K flat with 2001 - represents increased share of industry net additions
2001
TELUS Mobility
22%
TELUS Mobility
33%
Increased Share of Net Additions
2002E
1.9M ~1.25M
Slide 33
Strong service revenue market share despite lower number of subscribers
Market Share of Subscribers
TELUS Mobility
25%
TELUS Mobility
29%
Share of Service Revenues
Total Canadian wireless industry estimates. Source: Company & analyst reports
Market Share of Service Revenues
12.0M ~$6.4B
Slide 34
2002 Review – MobilityHow far we have come in 2 years
Proforma 2000 2002 Change % Change
Digital POPs (M) 22.6 27.4 4.8 21%
Subscribers (000s) 2,160 2,996 836 39%
ARPU ($) 59 55 (4)
(6.8)%
Churn (%) 1.98 1.80 18pts
9.1%
Lifetime revenue ($) 2,980 3,056 76 2.5%
Subscriber base up 39%Industry-leading value per subscriber has increased
Slide 35
2002 Review – MobilityHow far we have come in 2 years
Proforma ($M) 2000 2002 Change % Change
Network Rev. 1,396 1,853 457 33%
EBITDA 173 535 362 209%
Capex 534 460 74 14%
Cap. Intensity1 33% 23% 10pts -
EBITDA-capex (360) 75 435 -
Tripling of EBITDA and capex reduction drove a $435M improvement in annual cash flow
1 Ratio of capex to total revenues
2002 Performance vs. Targets
Slide 37
2002 Consolidated Financial Targets Original Public Targets vs. Actuals
2002 Actual
Original Target
Target Met?
Revenue ($B) 7.01 7.35 to 7.45
EBITDA ($B) 2.52 2.475 to 2.525
EPS before restr. costs ($) 0.43 0.15 to 0.20
Capex ($B) 1.70 2.10 to 2.20
Achieved profitability and cash flow targets despite revenue shortfall
2003 Outlook
Slide 39
2003 Priorities
Driving wireline operational efficiency
Delivering significant wireless cash flow growth
Strengthening financial position
Improving Central Canada profitability
Reaching collective agreement
Slide 40
2003 Consolidated Targets
2003 Targets
Change
Revenue $7.2 to 7.3B 3 to 4%
EBITDA $2.7 to 2.8B 7 to 11%
EPS $0.35 to 0.55 $1.10 to 1.30
Capex approx. $1.5B 12%
Expect significant profitability & cash flow growth
Slide 41
2003 OutlookLeading North American Telecom Performance
9.2%
5.5% 4.8%
2.1%0.5%
(2.6%)
(19.1%)
(11.0%)
(6.6%)
TELUS MTS SprintBCE
SBC
Verizon
AT&T
Aliant
BellSouth
Note: TELUS data based on 2002 actual results & average of 2003 targetsOther 2003 estimates provided by TD Securities, based on analysts estimates
Projected EBITDA Growth Rates – 2003E
EBITDA target growth — top echelon for N.A. telecoms
Slide 42
2003 OutlookLeading North American Telecom Performance
11% 10%
(0.4)%(4.0%)
19%
(21.0%)
(8.0%)(5.0%)
52%
TELUS MTS
Sprint
BCE
SBCVerizon
AT&T
AliantBellSouth
Projected EBITDA-Capex Growth Rates – 2003E
Note: TELUS data based on 2002 actual results & average of 2003 targetsOther 2003 estimates provided by TD Securities, based on analysts estimates
Cash Flow (EBITDA – Capex) up $400 to $500M
Slide 43
TELUS Mobility – outstanding results TELUS Communications – better than expected
progress on OEP Capex intensity significantly reducing as planned FCF positive in H2-02 & 2003 Expect significant leverage drop in 2003/4 2003 EPS up by $1.10 to $1.30, to 35 to 55 cents
Summary
Executing to plan
Questions?
Answers!
Slide 44
Slide 45
Appendix2002 Consolidated Free Cash Flow
(172) (2002)
$675
(102)
430
545
(26)
(136)
(35)
(676)
(1,698)
2,518
2002
Funds available to repay debt
Cash Restructuring Costs (2001)
Equity Issuance
Working Capital/Other2
Free Cash Flow1
Cash Dividends
Cash Taxes
Interest
Capex
EBITDA1
($M)
1 Before restructuring and workforce reduction costs2 Including sale of accounts receivable
Slide 46
Appendix Consolidated Free Cash Flow H2-2002
($M) H2-2002Q2-02 Guidance
H2-2002Actual
GuidanceMet?
EBITDA1 $1,265 to 1,315 $1,308 Capex ~(845) (743) Interest (350) to (375) (332) Cash Taxes (30) (16) Cash Dividends (80) (83) ~Free Cash Flow1 ($65) to $10 $135
1 Before restructuring & workforce reduction costs
