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, debt redemptions and refinancing plans); tax matters (including acceleration or deferral of payment of significant cash taxes); regulatory developments (including local forbearance, local 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
TELUS pursued discussions on benefits of acquisition to June 26
Potential for TELUS to pursue offer on investment grade model
Completed assessment of this opportunity considering
Disadvantageous auction process
Substantive price offered by private equity consortium
Deteriorating debt market conditions
Positive benefits of not bidding
Timeline and uncertain outcome of competition approval
Risk to TELUS shareholders
TELUS does not intend to submit a competing offer
Decision on BCE acquisition
4
Stand-alone TELUS can continue to create future value
Wireline highlights – Q2 2007
5
Committed to consolidated care platform and its benefits
Resilient wireline revenue as per operating strategy
Data growth continues to be strong at 8%
Moderate NAL loss at 3%
Converted Alberta consumers to new customer care platform
Critical billing function performed well
Initial difficulties reduced capability for new orders
Additional resources impacted EBITDA by $29 million
Backlogs and call centre operations returning to normal
Major $200 million contract with Department of National Defence
Local forbearance in key markets beginning
Fort McMurray residential service deregulated July 25th
Large urban markets waiting for deregulation decisions
Vancouver, Victoria, Calgary, Edmonton, and Rimouski
Wireline highlights – Q2 2007
6
Continued resiliency in wirelineNew regulatory framework based on market forces
Wireless highlights – Q2 2007
7
Wireless Number Portability impacts
Churn increased 15 basis points
Higher gross and net additions contributed to higher COA
Investment in customer retention increased 32%
Wireless revenue growth of 11%
18th consecutive quarter of increased year over year ARPU
Data revenue growth up 64%
Operating profit (EBITDA) increased by 3%
Continued resiliency in wirelineReiterating full year wireless segment guidance
Wireless highlights – Q2 2007
8
AMP’D Mobile entered bankruptcy proceedings in U.S.
TELUS discontinuing sales in Canada
Continued rollout of high-speed EVDO and EVDO Rev A network
Introduction of new CDMA/GSM Blackberry World Edition
Advanced Wireless Services spectrum auction
Rules expected in fall for auction early 2008
TELUS advocates an open and fair auction process
Continued resiliency in wirelineCanadian wireless industry remains competitive and successful
Consolidated highlights – Q2 2007
9
Strongly positioned to advance growth strategy
Committed to improving performance in coming quarters
Second quarter impacted by special events
Committed to original consolidated guidance for 2007
Balancing interests of debt and equity holders
Refinanced $1.5 billion 7.5% notes at lower interest cost
Repurchased $170 million of shares in quarter
Repurchased 45.6 million shares for $2.1 billion since 2004
Quarterly per share dividend 37.5 cents, up 36%
Wireless segment – Q2 2007 financial results
11
($M) Q2-06 Q2-07 Change
Revenue 945 1,048 11%
EBITDA1 441 451 2.2%
Capital expenditures 147 173 17%
1 EBITDA includes non-cash charge of $1.8M in Q2-07 for net cash settlement feature of options granted prior to 2005. Excluding this charge EBITDA (as adjusted) increased by 2.7%
Higher COA & retention costs related to WNP impacted EBITDA while EVDO Rev A investments contribute to capex increase
WNP update
12
Results reflect first full quarter of WNP
Industry1 TELUS
Gross additions 8.0 % 16%
Net additions 1.6% 3.5%
Churn 6 bps 15 bps
COA 3.0% 7.9%
1 Based on Q2-07 wireless results from Rogers, Bell, and TELUS
Wireless EBITDA normalization
13
($M) Q2-06 Q2-07 Change
EBITDA (as adjusted)1 441 453 2.7%
Incremental COA (due to higher loading) - 20
Incremental cost of retention (COR) - 27
EBITDA (excl. incremental COA & COR) 441 500 13%
With advent of WNP, higher COA and COR significantly affected EBITDA growth
1 Excludes non-cash charge of $1.8M in Q2-07 for net cash settlement feature of options granted prior to 2005.
Amp’d Mobile Canada Update
14
Parent Amp’d Mobile, Inc. entered bankruptcy in U.S. in June
Disruptions of Amp’d Live content expected - Amp’d Mobile sales discontinued in Canada
Voice and basic messaging services continue for Amp’d clients
Migration of Amp’d Canada subscribers now underway
No notable impact expected on reported revenue or subscribers
Impact of writedowns on Q2-07 results: $11.8M write-off in ‘other expenses’ for Amp’d US venture capital
investment Approx. $2M opex impact on EBITDA $5M for accelerated depreciation of assets used to support Amp’d Negative EPS impact of approximately 4 cents
Amp’d Mobile subscribers being migrated to TELUS
total wireless subscribers
Postpaid 80%
Prepaid 20%
net additions
Q2-06 Q2-075.3 million
4.2M
1.0M
Wireless subscriber results
Continued strong net additions
15
prepaid
postpaid128K124K
77%83%
Wireless ARPU growth
Data ARPU
Q2-07
$63.65
6.58
57.07
16
48% increase in data more than offsetting voice decline
Voice$63.18
4.45
58.73
Q2-06
1.61.8
1.451.3
Source: Company reports, analyst reports. Sprint Nextel and T-Mobile USA Q1-07.
* TELUS estimates for Rogers blended churn – not including 90K TDMA subscriber write down in Q2-07
2.6
1.6*
Q2 2007 wireless churn (%)
Churn remains at best in class levels
17
2.7
Wireline segment – Q2 2007 financial results
18
($M) Q2-06 Q2-07 Change
Revenue 1,190 1,180 (0.8)%
EBITDA (reported) 456 434 (4.9)%
Capital expenditures 311 309 (0.9)%
Results impacted by implementation of new wireline billing and client care system in Alberta
Wireline revenue profile
19
($M) Q2-06 Q2-07 Change
Voice – Local 523 516 (1.5)%
Voice – Long Distance 206 168 (19)%
Data 403 435 7.8%
Other 58 62 7.6%
Total External Revenue 1,190 1,180 (0.8)%
Continued solid data growth offsets local and LD erosion
Long distance revenue normalized
($M) Q2-06 Q2-07 Change
Long distance revenue (reported) 206 168 (19)%
One-time system implementation adjustment
(13)
Long distance revenue (normalized) 206 181 (12)%
20
Flat to positive wireline revenue growth adjusted for system implementation impact
Total external revenue (excl. system impacts)
1,190 1,193 0.3%
Wireline EBITDA normalization
21
($M) Q2-06 Q2-07 Change
EBITDA 456 434 (4.9)%
System implementation impacts:
LD revenue adjustment
Increased labour costs
-
-
(13)
(16)
EBITDA (excl. system impacts) 456 463 1.5%
System implementation significantly impacted wireline EBITDA
1.13 million total
Internet subscribers
High-speed85%
Dial-up15%
High-speed Internet net additions
Q2-06 Q2-07
963K
172K
High-speed Internet subscribers
Results reflect system implementation in AlbertaLowering annual guidance from > 135K to > 125K
22
29K
14K
% of network access lines lost (yr. over yr.)
Q1-06
-2.7%
Q2-06
-2.6%
Q3-06
-2.8%
Q4-06
-3.0%
Network access line results
-2.9%
Q1-07
Stable overall line losses due to business line growth
23
-3.1%
Q2-07
Wireless
High-speed Internet
Dial-up Internet
Res NALs
Bus NALs
(millions)10.910.4
Q2-07Q2-06
9.9
Q2-05
TELUS total subscriber connections
24
Connections increasing with wireless and Internet growth
Consolidated – Q2 2007 financial results
25
($M excluding EPS) Q2-06 Q2-07 Change
Revenue 2,135 2,228 4.4%
EBITDA1 897 885 (1.4)%
EPS (reported) 1.03 0.76 (26)%
EPS (excl. tax adjustments) 0.69 0.73 5.8%
Capital Expenditures 459 482 5.0%
Increased expenses related to WNP, new system implementation & Amp’d affected results
1 EBITDA includes non-cash charge of $1.8M in 2007 for net cash settlement feature of options granted prior to 2005. Excluding this charge EBITDA (as adjusted) decreased by 1.2%
$1.03
Q2-06
Other(incl.
lower avg o/s shares)
Net tax related
adjustments
EPS continuity
26
Billing & client care
system
Q2-07Amp’d write-down
$0.31
$0.14
$0.04
COA & COR
$0.76
Normalized EBITDA1
1 Normalized to exclude billing system, restructuring, acquisition & retention, and AMP’d impacts
$0.13
$0.06
$0.08
$0.05
Restructuring costs
Share buy backs – 3rd Normal Course Issuer Bid
27
Q2-07 In 2007Since NCIB
inception
Total investment (M) $170 $370 $2,140
Total shares (M) 2.7 6.2 45.6
Shares outstanding (M) - 331.7 26.8
% change in o/s shares(end of period)
1.8%
Year to date
7.5%
since Dec-04
Outstanding shares already 2% lower than at 2006 year end
Strong record of returning capital
1
2
3
4
2003 2004 2005 2006 2007E1,2
Dividends
Share repurchases
$ per share
0.60
3.30 3.43
0.82
3.73
0.801.10
1.50
0.60
2.33
0.22
2.50
2 See forward looking statement caution.
1 Annualized dividend, plus YTD NCIB share repurchases as at June 30/07, annualized
2.23
28
1.11
Launched unsecured commercial paper program in Q2
Backstopped by credit facility
Can issue up to $800 million
$664 million issued, as at June 30
Successfully raised $1 billion in March at 4.8% blended
Redeemed $1.5 billion 7.5% Notes on June 2007 maturity
Financing update
29
Strong balance sheet with extended maturities and lower interest
TELUS debt maturity schedule ($M)
No significant debt maturities until 2011
Debt Deferred FX Hedge Liability
30
0500
1,0001,500
2,000
2,5003,000
$ 3,500
2007 2008 2009 2010 2011 2012 2013 2014+
2007 guidance* - consolidated
2007 guidance1 YoY growth
Revenue $9.175 to $9.275B 6 to 7%
EBITDA (as adjusted)2 $3.725 to $3.825B 4 to 7%
EPS (as adjusted)3 $3.25 to $3.45 17 to 24%
Capital expenditures approx. $1.75B 8%
Original consolidated guidance reconfirmed
* See forward looking statement caution
2 Excludes expense of approx. $180 million in 2007 for net cash settlement feature for options.3 Excludes an after-tax charge per share of approx $0.33 for cash settlement feature for options. Year over year growth rate normalized for $0.48 of positive tax-related adjustments in 2006.
1 Confirmed August 3, 2007
31
($8)
135
$191
19
(0.7)
(459)
$897
Q2-06
$286
350
$186
(7)
(3)
(482)
$885
Q2-07
Funds avail. for debt redemption
Accounts Receivable Securitization
Free cash flow (before cash settled option pmt)
Restructuring payments (net of expense)
Cash income taxes; and other
Capex
EBITDA
($M)
(271) (213)Interest expense paid
13 15Non-cash portion of share-based compensation
(95) (125)Dividends
13 0.2Share Issuance (non-public)
($18) ($532)Net change in cash
(10) (817)Net debt issuance / (repayment)
Working capital & other (2) 68
(249) (170)Purchase of shares for cancellation (NCIB)
Appendix – Free cash flow (2007 definition)
(8)
(9)Cash related to other expenses
Free cash flow $191 $162
Cash settled options paid -
(24)
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 measures