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Robert McFarlaneEVP & Chief Financial Officer
December 16, 2008
TELUS 2009 Targetsinvestor conference call
This session and answers to questions contain forward-looking statements that require assumptions about expected future events and financial and operating results that are subject to inherent risks and uncertainties. There is significant risk that assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements and assumptions as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed. 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 guidance.
See Key Assumptions and Forward Looking Statements in TELUS Dec. 16, 2008 Targets news release. Factors that could cause actual results to differ materially include, but are not limited to: competition (including more active price competition and the likelihood of new wireless competitors beginning to offer services in 2009 following the AWS spectrum auction); economic growth and fluctuations (including the global credit crisis, and pension performance, funding and expenses); capital expenditure levels (increased in 2009 and potentially future years by the Company’s fourth generation (4G) wireless deployment strategy and any new Industry Canada wireless spectrum auctions); financing and debt requirements (including ability to carry out refinancing activities and fund share repurchases); tax matters (including acceleration or deferral of required payments of significant amounts of cash taxes); human resource developments; business integrations and internal reorganizations (including post-acquisition integration of Emergis); technology (including reliance on systems and information technology, broadband and wireless technology options and choice of suppliers, expected technology and evolution path and transition to 4G technology, expected future benefits and performance of HSPA (high speed packet access) / LTE (long-term evolution) wireless technology, successful implementation of the network build and sharing arrangement with Bell Canada to achieve cost efficiencies and reduce deployment risks, successful deployment and operation of new wireless networks and successful introduction of new products, services and supporting systems); regulatory approvals and developments (including interpretation and application of tower sharing and roaming rules, the design and impact of future spectrum auctions, the new media proceeding and possible changes to foreign ownership restrictions); process risks (including conversion of legacy systems and billing system integrations); health, safety and environmental developments; litigation and legal matters; business continuity events (including manmade and natural threats); any prospective acquisitions or divestitures; and other risk factors discussed herein and listed from time to time in TELUS’ reports and public disclosure documents, including its annual report, annual information form, and other filings with securities commissions in Canada (on www.sedar.com) and in its filings in the United States, including Form 40-F (on EDGAR at www.sec.gov).
For further information, see Section 10: Risks and risk management in TELUS’ 2007 annual Management’s discussion and analysis, as well as updates reported in section 10 of TELUS’ 2008 quarterly Management’s discussion and analyses.
TELUS forward looking statements
2008 guidance update
2009 assumptions & targets
Summary
Questions and answers
Agenda
2008 segmented guidance – update
Wireline 2008 previous
guidance Nov.7/082008 revised
guidance
Revenue $5.025 - 5.05B approx $5.025B
EBITDA $1.75 - 1.775B unchanged
4
Segmented EBITDA guidance unchanged
Wireless2008 previous
guidance Nov.7/082008 revised guidance
Revenue $4.65 - 4.675B approx $4.625B
EBITDA $1.975 - 2.025B unchanged
2008 consolidated guidance - updated
2008 previous
guidance Nov.7/082008 revised
guidance
Revenue $9.675 - $9.725B approx $9.65B
EBITDA1 $3.725 - $3.8B unchanged
EPS – basic $3.45 - $3.60 unchanged
Capex (excl. $882M for AWS spectrum)
approx $1.9B approx $1.825B
5
EBITDA & EPS guidance unchangedLower capital expenditures reflects $75M deferral to 2009
1 2008E EBITDA includes an estimated $55-60M of restructuring expenses versus $20M in 2007.
2009 targets
Strong wireless industry penetration growth similar to 2008 of 4.5 pts
Downward pressure on TELUS wireless ARPU to continue
Competitive wireless entry from most new entrants to begin in 2010 with possible entry beginning Q4-09
Ongoing competitive activity from cable-TV / VoIP players
Ongoing focus on efficiency initiatives with $50-$75M restructuring & workforce reduction costs (approx $55-$60M in 2008)
Exchange rate to average $0.80 USD/CAD
Sensitivity: EBITDA +/- $8M with +/- $0.01 move in rate
Statutory tax rate of 30 to 31% (down 50 bps from 2008)
Net cash tax payment of approx $320-$350M
2009 target assumptions
7
Pension assumptions
2009 pension expense and funding to increase ~$100MPension funding fully tax deductible
8
Defined Benefit (DB) 2008E 2009E
Discount rate 5.5% 7.0%
Long-term expected return 7.25% no change
Pension expense/(recovery) $(100M) nil
Pension funding $97M $200M
Total (incl. DB and Defined Contr.)
Pension expense/(recovery) $(35M) $70M
Pension funding $160M $265M
2008E 2009E
~4.625
4.975 to 5.1
2009 wireless revenue target ($B)
9
Increase of 8 to 10% driven by subscriber additions and data revenue growth
2008E 2009E
1.975 to 2.025
2.1 to 2.175
2009 wireless EBITDA target ($B)
10
Growth of 5 to 9%
2008E 2009E
~5.025
5.05 to 5.175
2009 wireline revenue target ($B)
11
Growth of up to 3% as data growth offsets increasing competitive intensity
2008E 2009E
1.75 to 1.775 1.65 to
1.725
2009 wireline EBITDA target ($B)
12
Target reflects increased pension expense of $100M
Note: 2008 and 2009 EBITDA includes $55-$60M and $50-$75M in restructuring costs, respectively.
2008E
1,750 to 1,775
2009 wireline EBITDA target ($M)
13
2009Etarget
1,650 to 1,725
Excluding incremental pension expense, underlying wireline EBITDA growth of up to 3%
Incremental DB pension
expense
~(100)
0 to 50
EBITDA growth
Operating efficiency program (OEP) update
Announced at Q3 acceleration of annual OEP initiatives
Managing costs in declining parts of our business to maintain performance and free up resources for growth areas of business
In Q4 have exceeded 2008 annual OEP guidance
Restructuring cost estimate increased to $55 to $60 million (from $50 million)
Multiple OEP initiatives underway continuing into 2009
2009 targets include $50 to $75 million of restructuring costs, predominantly in wireline segment
14
Operating efficiency initiatives enhance operating performance and fund growth investments
2008E 2009E
9.1~9.65
2007
8.7
2006
2009 consolidated revenue target ($B)
15
10.025 to 10.275
Increase of 4 to 6.5% led by wireless
2008E 2009E
2009 consolidated EBITDA target ($B)
16
2009 EBITDA growth of up to 4%
Note: 2008 and 2009 EBITDA includes $55-$60M and $50-$75M in restructuring costs, respectively.
3.725 to 3.8
3.75 to 3.9
2008E1
3,763
2009 consolidated EBITDA target ($M)
17
2009Etarget
3,750 to 3,900
Excluding incremental pension expense, underlying EBITDA growth of 2 to 6%
EBITDA growth
~(100)
87 to 237
IncrementalDB pension
expense1 Midpoint of 2008E guidance range
20071 2008E2006
2009 EPS ($)
18
Positive tax related adjustments
1 2007 EPS (adjusted) excludes non-cash charge of $0.32 per share for the net cash settlement feature of options
Underlying 2009 EPS growth of up to 10%
2009E
3.33
4.11 3.45 to 3.60
3.40 to 3.70
2.833.33
3.30 to
3.45
1 Midpoint of updated 2008 guidance
2009 EPS continuity ($)
19
2009 EBITDA growth partially offset by pension and financing costs
~3.53~3.38
~0.15
2008E1 Tax Related
adj.
2008Enormal.
EBITDA growth
0.25 to 0.55
0.22 0.06
Pension Financing Lower o/s shares &
Other
3.40 to 3.70
2009E
0.05
Depr & Amort
0.03
2008E 2009E
~1.825~2.05
2009 consolidated capex target ($B)
20
TELUS continues to invest prudently for future growth, including broadband wireless and wireline network builds
2009 capex components
21
$75M of capital expenditures originally planned for 2008 deferred to 2009
National next generation wireless shared network build
Investments in broadband network infrastructure to improve high speed coverage & develop new applications
Success based investments to support new contract wins
Investments in cost efficiency initiatives
Increased investment focused on strategic growth initiatives
Quarterly dividend previously increased by 5.6% to 47.5 cents per share per quarter for Jan 2, 2009 payment
Planned renewal of NCIB as early as Dec. 20, 2008*
To allow for repurchase of up to 4M common and 4M non-voting shares
Purchases to be managed so TELUS remains within long-term financial policy targets
* Subject to acceptance by TSX
22
Return of capital
Fifth annual dividend increase
Maintaining strong financial policies and credit ratings:
Dividend payout ratio of 45 to 55% of sustainable earnings
Net debt to EBITDA of 1.5 to 2.0 times
Credit ratings in range of BBB+ to A- or equivalent
Financial policy guidelines
23
Firm commitment to our consistent long-term financial policy guidelines
TELUS’ funding position
TELUS’ strong balance sheet a result of prudent long-term financial policies
24
Committed $2B credit facility does not expire until May 2012
TELUS confirmed today commitments from Canadian bank syndicate for renewal of $700M 364-day credit facility
Strong position with sustainable cash flows and ample liquidity
Could term-out some existing short-term financing if conditions become advantageous
TELUS long-term debt maturity schedule
25
Long Term Debt
Deferred FX Hedge Liability
No significant long-term debt maturities until 2011
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019+
C$ billions
Outstanding amount on 2012 credit facility (as at Sept. 30, 2008)
26
Summary – building on strength
Continuing to invest for future based on prudent financial policies and funding strength
2008 guidance update:
Revenues and capex revised downward while EBITDA and EPS unchanged
2009 targets reflect
Continued revenue growth
Continued execution on operating efficiency initiatives
EBITDA moderately up excluding DB pension expense impact
EPS, excluding tax adjustments, to increase by up to 10%
Capex reflects growth investments in new wireless network, broadband, and success based contracts
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
Appendix - definitions
TELUS definitions for non-GAAP measures
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~(485)
2009E
Net Cash Interest
$3,750 to 3,900EBITDA
($M)
~(40)Other1:
Free Cash Flow
1 Includes restructuring expense (net of cash payments), share based compensation (net of cash payments) and cash payments related to charitable donations and securitization fees
~(2,050)Capex
840 to 990
Appendix – 2009E Free cash flow
Net cash tax payment (320) to (350)
Cash pension contribution (in excess of expense) ~(200)
Free Cash Flow (incl. cash pension contribution) 640 to 790
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