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TELUS 2010 Targets

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Robert McFarlane
EVP & Chief Financial Officer
Darren Entwistle
President & CEO
December 15, 2009
TELUS 2010 Targets
investor conference call
TELUS forward looking statementsTELUS forward looking statements
This session and answers to questions contains forward-looking statements that require assumptions about expected future events and financial
and operating results that require assumptions and 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’ 2010 Targets news release dated December 15, 2009.
Factors that could cause actual results to differ materially include, but are not limited to: Competition (including more active price competition; the
expectation that new wireless competitors will be offering services in early 2010 as a result of the 2008 advanced wireless services (AWS)
spectrum auction; industry growth rates including wireless penetration gain; actual network access line losses, TELUS TV and wireless subscriber
additions experience; variability in average wireless revenue per unit as well as variability in subscriber acquisition and retention costs that are
dependent on subscriber loading and retention volumes, smartphone sales and subsidy levels, and TELUS TV installation costs); economic growth
and fluctuations (including strength and persistence of the economic recovery in Canada, and pension performance, funding and expenses); capital
expenditure levels in 2010 and beyond (due to the Company’s wireline broadband initiatives, 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) ;
tax matters (including acceleration or deferral of required payments of significant amounts of cash taxes); human resource developments (including
current collective bargaining in the TELUS Québec region and collective bargaining agreements expiring in late 2010); business integrations and
internal reorganizations (including ability to successfully implement cost reduction initiatives and realize expected savings); technology (including
reliance on systems and information technology, broadband and wireless technology options and roll-out plans, choice of suppliers and suppliers’
ability to maintain and service their product lines, expected technology and evolution path and transition to 4G technology, expected future benefits
and performance of high-speed packet access (HSPA) / long-term evolution (LTE) wireless technology, successful implementation of the wireless
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 (such as new HSPA devices), new 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, and possible changes to foreign ownership restrictions); process risks (including conversion of legacy systems
and billing system integrations, and implementation of large complex enterprise deals that may be adversely impacted by available resources and
degree of co-operation from other service providers); health, safety and environmental developments; litigation and legal matters; business
continuity events (including manmade and natural threats); any future 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 SEDAR at sedar.com) and in its filings in the United States, including Form 40-F (on EDGAR at sec.gov).
For further information, see Section 10: Risks and risk management in TELUS’ annual 2008 Management’s discussion and analysis, as well as
updates reported in Section 10 of TELUS’ 2009 quarterly Management’s discussions and analyses.
2009 guidance update
2010 assumptions & targets
Summary
Questions and answers
AgendaAgenda
($M, excluding EPS)
2009 previous
guidance Nov. 6/09
2009 revised
guidance
Revenue $9,600 to $9,700 approx $9,600
EBITDA $3,475 to $3,575 approx $3,475
EPS (reported) $3.10 to $3.30 no change
Capex approx. $2,100 no change
4
2009 consolidated guidance - updated2009 consolidated guidance - updated
Revenue and EBITDA trending to lower end of guidance
Restructuring costs raised by $30M
Revenue and EBITDA trending to lower end of guidance
Restructuring costs raised by $30M
Restructuring costs updated to approx. $190M vs approx. $160M
2010 targets
Wireless industry penetration growth of approximately 4% pts
Competitive wireless entry from new entrants in early 2010
Increased TELUS wireless subscriber loading in smartphones
following HSPA network launch and access to new devices
Reduced downward pressure on TELUS ARPU with continued
voice ARPU erosion offset in part by increased data and
roaming revenue growth
Expect continued stabilization in residential NAL losses and
continued pressure in SMB market from cable-TV/VoIP players
Continued wireline broadband footprint expansion for TELUS
with ADSL 2+ coverage approaching 90% of urban areas by
YE 2010 and start of VDSL 2 deployment
2010 wireless/wireline target assumptions2010 wireless/wireline target assumptions
6
Expect significant increase in COA/COR resulting from
increased loading and subsidy levels for smartphones, and to
lesser extent, increased TTV loading
Ongoing focus on efficiency initiatives with approx. $75M in
restructuring & workforce reduction costs
2010 EBITDA savings of approx. $135M generated by
efficiency initiatives
Statutory tax rate of 28.5 to 29.5%
Cash tax payments to peak in 2010 at $385 to $425M due to
timing of installments (approx $270M in 2009)
2010 consolidated target assumptions2010 consolidated target assumptions
7
Defined Benefit pension assumptionsDefined Benefit pension assumptions
8
($M) 2009 2010E
Discount rate 7.25% 5.75%
Long-term expected return 7.25% No change
Pension expense $17 $47
Pension funding $191 $141
Preliminary pension expense up $30M
Cash contribution expected to be down $50M
Preliminary pension expense up $30M
Cash contribution expected to be down $50M
2009E 2010E
4,675 to
4,725
4,950 to
5,100
9
2010 wireless revenue target ($M)2010 wireless revenue target ($M)
Increase of 5 to 9% driven by increased subscriber loading
and data revenue growth and full year of Black’s
Increase of 5 to 9% driven by increased subscriber loading
and data revenue growth and full year of Black’s
2009E 2010E
1,900 to
1,950
1,925 to
2,025
10
2010 wireless EBITDA target ($M)2010 wireless EBITDA target ($M)
Growth of between zero to 5% despite margins being
impacted by increased smartphone subsidies
Growth of between zero to 5% despite margins being
impacted by increased smartphone subsidies
2009E 2010E
approx
4,900
4,850 to
5,000
11
2010 wireline revenue target ($M)2010 wireline revenue target ($M)
Revenue change of up to 2% due to data revenue
offsetting continued local and LD trends
Revenue change of up to 2% due to data revenue
offsetting continued local and LD trends
2009E 2010E
approx
1,550
1,575 to
1,675
12
2010 wireline EBITDA target ($M)2010 wireline EBITDA target ($M)
Growth of 2 to 8% due to efficiency initiatives and reduced
restructuring costs offsetting dilution from TELUS TV growth
Growth of 2 to 8% due to efficiency initiatives and reduced
restructuring costs offsetting dilution from TELUS TV growth
($M) 2009E 2010E Change
EBITDA approx 1,550 1,575 to 1,675 2 to 8%
Defined Benefit
pension expense
19 45
Restructuring costs approx 180 approx 60
EBITDA normalized approx 1,749 1,680 to 1,780 (4) to 2%
13
Wireline segment – EBITDA normalizedWireline segment – EBITDA normalized
EBITDA favourably impacted by lower restructuringEBITDA favourably impacted by lower restructuring
Investing in operational efficiencyInvesting in operational efficiency
Acceleration of operating efficiency initiatives
increases 2009 restructuring costs by $30M
Acceleration of operating efficiency initiatives
increases 2009 restructuring costs by $30M
14
Total restructuring costs ($M)
2008 2009E
approx 190
59 113
Expected
Actual
2010E
approx 75
Q4
2007
20
77
2002 – 2006
773
2008 2009E
9.1
9.7
2007
15
approx
9.6
2010 consolidated revenue target ($B)2010 consolidated revenue target ($B)
Growth of 2 to 5% driven by wirelessGrowth of 2 to 5% driven by wireless
2010E
9.8 to
10.1
2009E
16
2010EIncreased DB
pension expense
Operational
EBITDA
2010 consolidated EBITDA target ($M)2010 consolidated EBITDA target ($M)
Reported EBITDA growth of 1 to 6%Reported EBITDA growth of 1 to 6%
approx
3,475
3,500 to
3,700~40M
~(30)M
Reduced
Restr cost
~115M
($M) 2009E 2010E Change
EBITDA approx 3,475 3,500 to 3,700 1 to 6%
Defined Benefit
pension expense
17 47
Restructuring costs approx 190 approx 75
EBITDA normalized approx 3,682 3,622 to 3,822 (1.5) to 4%
17
Consolidated segment – EBITDA normalizedConsolidated segment – EBITDA normalized
Normalized EBITDA growth of up to 4%Normalized EBITDA growth of up to 4%
18
Positive tax related adjustments
2009E
3.10 to
3.30
2.64
to
2.84
2010 EPS ($)2010 EPS ($)
EPS excluding tax related adjustments up 6 to 20%EPS excluding tax related adjustments up 6 to 20%
2010E
2.90 to
3.30
2009E 2010E
19
2010 consolidated capex target ($M)2010 consolidated capex target ($M)
approx
2,100
approx
1,700
Capex returning to historical levelsCapex returning to historical levels
2008120072006
1,8591,770
1,618
1 Excludes $882M in AWS spectrum
2009E2 2010E2
20
Consolidated capex intensity levelsConsolidated capex intensity levels
Decline in capital intensity driven by substantial
completion of wireless 3G+ network in 2009
Decline in capital intensity driven by substantial
completion of wireless 3G+ network in 2009
200812007
20%
19%
22%
17%
1 Excludes $882M payment for AWS spectrum
2 Midpoint of guidance
2009E 2010E
21
Free cash flow ($M)Free cash flow ($M)
2010 cash flow growth of 39 to 75%2010 cash flow growth of 39 to 75%
200812007
1,388
361
approx
550
765 to
965
1,243
AWS spectrum
22
Strong position with sustainable cash flows and ample liquidity
Committed $2B credit facility does not expire until May 2012
TELUS’ Dec. 2009 5.05% Cdn$1B note issuance used to call
30% of total US$3B June 2011 notes and related FX swaps
(effective cost 8.493%)
Consistent with TELUS’ prudent Treasury management
Costs related to early redemption expected to result in after
tax impact in Q4 of approx. $0.21 per share
Plan to refinance remaining 2011 maturity over next 18 mths
TELUS’ funding positionTELUS’ funding position
TELUS’ strong balance sheet a result
of sound long-term financial policies
TELUS’ strong balance sheet a result
of sound long-term financial policies
23
TELUS long-term debt maturity scheduleTELUS long-term debt maturity schedule
Extending and levelling out of maturity profileExtending and levelling out of maturity profile
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020+
C$ billions
Long Term Debt
Deferred FX Hedge Liability
CP + Credit Facility Drawdowns
A/R Securitization
Consolidated revenue growth of up to 5% driven by wireless
Increased smartphone loading
Consolidated EBITDA growth due to wireless revenue growth
and reduced wireline costs due to efficiency initiatives offsetting
significant subsidy increase and expected subscriber growth
Decline in capital intensity driven by substantial completion of
wireless 3G+ network in 2009
Free Cash flow growth of more than 40%
24
Summary - 2010 targetsSummary - 2010 targets
Opportunity in 2010 to leverage investments in our core
business, wireless growth and operating efficiency
Opportunity in 2010 to leverage investments in our core
business, wireless growth and operating efficiency
investor relations
1-800-667-4871
telus.com
ir@telus.com
Questions?
Percentage increases calculated from 2010 ranges to mid-point of 2009 ranges
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, net
employee defined benefit plans expense, cash interest received and excess of
share compensation expense over share compensation payments, subtracting
cash interest paid, cash taxes, capital expenditures, cash restructuring payments,
employer contributions to employee defined benefit plans, 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
TELUS definitions for non-GAAP measuresTELUS definitions for non-GAAP measures
Appendix – definitionsAppendix – definitions
~(450)
2010E
Net Cash Interest
$3,500 to 3,700EBITDA
($M)
~(80)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
~(1,700)Capex
865 to 1,065
Net cash tax payment (385) to (425)
Cash pension contribution
(in excess of expense)
~(100)
Free Cash Flow
(incl. cash pension contribution) 765 to 965
27
Appendix – 2010E Free cash flowAppendix – 2010E Free cash flow
2009E
~(415)
~$3,475
~35
~(2,100)
~725
~(270)
~(175)
~550