Q3 2005 investor conference call - Darren Entwistle presentation

Thanks, John. Good morning and thank you for joining us today. This has been another challenging quarter at TELUS. Frankly, one of many such quarters since I joined TELUS over five years ago. TELUS' consistent ability to answer the challenges reflects the depth and execution of our leadership team and our ability to deliver for our shareholders, customers and team members. Once again, shareholders are benefiting from the strong execution of our strategy that we invoked over five years ago. Indeed, notwithstanding the work stoppage that we have been experiencing for the last 15 weeks, I'm pleased to report yet again solid financial results evidenced in our third quarter performance.

Let's start by reviewing these third quarter top-line results as set out on slide four. The underlying theme this quarter is that TELUS demonstrated the resilience and strength of our industry leading business model in the face of a protracted labor disruption. At the consolidated level TELUS delivered strong revenue growth at 6% compared to the third quarter of last year. TELUS' more modest EBITDA growth of 3% was obviously impacted by the labor disruption here in western Canada. Nevertheless, in the face of the work stoppage, TELUS still delivered the best EBITDA growth in the Canadian telecom's industry. Focusing on the important bottom-line earnings and cash flow, net income was up 21% and free cash flow was up 16%.

Turning to slide five. TELUS Mobility has clearly continued to execute on its profitable growth strategy and was largely unaffected by the strike. Revenue in TELUS' wireless operation was up an impressive 16% due to another $2 increase year-over-over in ARPU, which is the 11th consecutive quarter of such growth. Moreover, TELUS generated record third quarter net additions of 138,000 subscribers. EBITDA at TELUS Mobility was up strongly once again, with 28% growth, aided by slightly lower COA and Canadian industry leading churn of 1.33%. Notably, cash flow in TELUS' wireless business, measured simply as EBITDA less Capex, was up 49% to $327 million. Clearly, the growth story at TELUS and in the Canadian wireless industry remains strong. With wireless today accounting for 42% of TELUS' revenues, 49% of TELUS' EBITDA and 57% of our simple cash flow, we are well positioned to deliver continuous value expansion for our shareholders due to TELUS' exposure to wireless in its asset mix. TELUS Communications' results were obviously impacted by the labor disruption. Overall, revenue was flat with data up 5% and long distance down 5%. However, the most obvious impact of the work stoppage was on the expense line with temporarily higher expenses for such items as management overtime, security, plus our inability to capitalize labor at business as usual levels. This translated into EBITDA being 14% lower year-over-year at TELUS Communications.

Despite Capex being lower in the quarter, cash flow at TELUS Communications was still a substantial $250 million, although down 10% due to lower EBITDA growth. As we have mentioned in the past TELUS was impacted in the initial months of the strike with high speed net additions being abnormally low at only 7,000 subscribers this past quarter. This is not a normal run rate, obviously. TELUS has put some excellent promotional offers into the market in September and now into the Christmas selling season for our ADSL service and the applications that ride on the back of it. Now that we are at full operational capability in Alberta and soon to be in the same position in British Columbia, TELUS will be fulfilling this demand for ADSL in the fourth quarter.

Let me now turn to slide six and update you on the impacts and current status of the labor situation at TELUS. As I mentioned last quarter, we were determined to bring the collective bargaining process to a positive conclusion for our shareholders, customers and team members. The process to achieve this outcome has been a challenge that has absorbed much effort and required considerable perseverance. The operational impact of the strike on customer service has been less than what we had expected. The excellence of TELUS' emergency operations planning and the robust work stoppage procedures that we put in place, effectively and expediently reassigned management personnel into front line roles. TELUS also complimented these resources with third party contractors. Another factor allowing us to provide strong customer service in the face of the work stoppage was the lack of support for the strike outside of British Columbia, with increasing numbers of Alberta team members choosing to return to work. The number of Albertans currently choosing to return to work within the bargaining unit of that province stands at 59%.

Notably, there was no strike activity east of Alberta. The operations procedures that we put in place to deal with the work stoppage worked exceedingly well in many areas, especially our call centers, where we often achieved better than normal service levels, indeed even reaching historic highs in respect of customer service delivered out of our call centers. This is important because much of TELUS' work, up to 80%, is automated today. Moreover, we have long since moved beyond being a regional telco to now being a leading national operator capable of drawing upon national resources to shore up our requirement in challenged areas of our operations geographically. During the work stoppage our ability to maintain work levels has far exceeded our original expectations. Where we had anticipated only dealing with repairs, we have been, in fact, in a position to take orders and fulfill them.

Compared to our original expectations, the impact of a work disruption was less than what we anticipated and, indeed, as I've indicated, we have exceeded customer service levels in many areas. But as well, we have also exceeded certain costs due in part to having so many union team members choosing to return to work in Alberta. Notwithstanding this, including the increased costs that we've absorbed, TELUS' financial results compare favorably with our peers in the Canadian telecom industry. Moreover, cash flow has been temporarily improved by the reduction in capital expenditures. At the consolidated level Capex was down $57 million this quarter from the same period a year ago. And this impact was reflected in the cash flow numbers that I cited earlier in my remarks.

Let me now update you on the recent events in the negotiation and ratification of a new collective agreement as set out on slide seven. As you may know, I engaged personally at the bargaining table and after two weeks of effort TELUS and the TWU were pleased to have reached a negotiated tentative agreement on the 10th of October. This tentative agreement was recommended by the TWU leadership and taken out for ratification in a series of town hall meetings. TELUS was, of course, disappointed to have this agreement defeated three weeks later on October 30th by a very narrow 53 vote difference amongst the 9,000 people who had cast their votes. Encouragingly, TELUS and the TWU reached another tentative agreement this past Sunday. This agreement is again supported by the TWU executive leadership and, as well, their bargaining committee. Thankfully, the second ratification process is designed to be more expedient than the previous one. We expect the outcome of a mail-out and mail-in ballot to be completed and announced by the end of next week. TELUS is intent on seeing the benefits of this five year collective agreement soon begin to flow for the benefit of all stakeholders, including unionized employees who will benefit from the best remuneration and the best employment security in the Canadian telecom and cable industries.

This new agreement will also provide for improved union and management relations that will benefit from the establishment of a common interest forum and the cessation of all legal undertakings by both parties. Moreover, this new agreement will also and importantly benefit TELUS' customers who can now be better served with more flexibility, including enhanced service hours and improved responsiveness from the TELUS team. And finally, and importantly again, TELUS investors will benefit from increased productivity from outsourcing non-core aspects of our business from consolidating certain functions and from increased time on the job by TELUS employees. Given that we are in the midst of a ratification process, we are not in a position to communicate the details of the new collective agreement at this juncture. Suffice to say for now, that the cost of the new collective agreement is consistent with the representations that we have made to shareholders thus far. Clearly, resolving this long running situation will allow TELUS to focus more effectively and efficiently on the competitive challenges and, as well, the opportunities that are inherent within our industry.

With that in mind, let's look at two of the new growth opportunities in our wireless and wireline business units as shown on slide eight. TELUS is today announcing that TELUS Mobility is launching its new wireless high speed network, known to many as EVDO, in five major Canadian cities, Vancouver, Calgary, Edmonton and Montreal. The new service will offer business clients wireless data transmissions at typical speeds of 400 to 700 kilobits per second, which is at least six times faster than existing data services. This should be a catalyst for further and continued data growth at TELUS Mobility.

For example, EVDO will increase the effectiveness of the applications delivered by the Sierra Wireless AirCard and other new data services that are now emerging including mobile TV. I'm also pleased to announce today the extension of our future friendly home strategy within TELUS Communications and the expansion of our suite of services for Mobility and security to now include entertainment. TELUS TV is ready to move beyond the trial phase at TELUS Communications. In both Edmonton and Calgary we will begin a phased neighborhood roll-out of our innovative all digital television service. TELUS TV delivers differentiated and unparalleled customer choice without resorting to value destroying price discounting. With or without a collective agreement ratification, our skilled team members will be selling and delivering TELUS TV into the homes of our customers in Alberta.

Let's now conclude on slide nine. As is our practice, we are updating our 2005 annual guidance today, which reflects both the negative impact of the four month labor disruption on the wireline business and, as well and importantly, the ahead of plan trajectory of our wireless business. The resilience of the TELUS business model is evident in that certain downward revisions in TELUS Communications' results for this year are offset and mitigated by strength at TELUS Mobility in the face of the work stoppage. A clear substantiation of the business model that we had put in place over the last five years. To illustrate, we are now raising our revenue guidance for TELUS Corporation by an additional $50 to $75 million. Moreover, due in part to lower capital expenditures, we are raising the free cash flow outlook for TELUS Corporation by $150 million for the year to $1.4 to $1.5 billion. TELUS Corporation has demonstrated our commitment to return capital to investors, to deliver, in essence, against the expectations that we have set with them, specifically, capital that is surplus to our requirements for investment into our core businesses.

This was clearly illustrated again in the third quarter, which saw TELUS announce the early redemption of $1.6 billion of notes previously due in May, 2006, in December now 2005. TELUS also delivered on the continued execution of a share repurchase program with a further $233 million expended in the quarter for a total of $742 million thus far. And finally, TELUS has announced today a 37.5% increase in the TELUS dividend to be paid in January 2006. The increase from $0.20 in our dividend per quarter to $0.275 is entirely consistent with our sustainable dividend growth model first announced a year ago. And as well, it demonstrates the transparency we provided investors with a clear dividend policy guideline.

Notably, this is only the second step in the long-term execution of our dividend growth model. Despite the non-recurring operating challenge of the labor disruption, the solid execution of our consistent strategy, focussed on wireless and data growth, has allowed us to deliver these value enhancing actions. Let me now turn things over to Bob to brief you on the excellent operational and financial results that continue to be generated by the team of people at TELUS.

Q3 2005 investor conference call - presentations

John Wheeler, vice-president, investor relations
Darren Entwistle, president and chief executive officer, TELUS Corporation
Robert McFarlane, executive vice-president and chief financial officer
Question period
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