events archive

Q3 2004 investor conference call - Darren Entwistle presentation

Good morning, and thank you for joining us today. Let me begin by noting that this is a particularly satisfying quarter upon which the TELUS leadership team has the opportunity to report. In addition to excellent results, today we are announcing a series of shareholder value-enhancing initiatives.

At the consolidated level, third quarter results were very strong, with an 8% growth in revenue, a 9% increase in EBITDA, a significant 37% increase in net income, and the generation of $503 million of free cash flow. Once again, investors are reaping the benefit of the strategic direction that we set four years ago, our commitment to our plan, and our ability to execute upon it.

Industry leading results from TELUS Mobility on all financial and operating metrics is the most significant driver of our strong performance.

Turning to slide four, TELUS Communications had a positive quarter as well, and for the first time in two-and-a-half years, enjoyed quarter-over-quarter revenue growth. This was driven by an 8% increase in data revenue, an improvement in non-ILEC results in central Canada, and only a modest 2% decrease in long distance revenue.

This latter result, reflected the different strategy to long distance pricing from TELUS relative to some of our competitors. Indeed, all of our pricing decisions, whether they be with respect to long instance rates, a potential acquisition, or a sponsorship opportunity, will be supported by rigorous diligence, a disciplined focus on economics, and a strong sense of responsibility to our investors. The non-ILEC operations continue to experience a ramp up effect with the implementation of various large multi-year contracts.

For example, revenue from the TD contract more than doubled to $2.6 million this quarter. The implementation of the TD managed data network is going well, with almost 1,000 of the 1,200 sites converted to TELUS.

Importantly, for investors, the long term recurring benefit of this contract is not yet reflected in our non-ILEC EBITDA result.

To date, including the Q3 EBITDA result, the upfront OPEX to implement the network has caused a dilution to EBITDA, but this is now expected to become slightly accretive in Q4 and growing thereafter. While this reflects well in our national wireline strategy, we continue to remain cautious given the sustained softness inherent in the global wireline industry.

Now let's turn to slide five. I'd like to share with you a vision of the potential value creation that we foresee at TELUS over the next three to four years.

First, consider the bright industry outlook for wireless penetration in Canada. Analysts expect us to move to from 45% penetration today to a 55 to 60% range by the end of 2007. Representing over a million new subscribers per year, for the industry. As one of three major operators in Canada, TELUS Mobility will continue to benefit from this increased penetration. This is even more meaningful when you consider the magnitude of wireless revenue in proportion to the total TELUS revenue profile. Wireless revenue was 39% of TELUS revenue this quarter, up from 36% in the second quarter, and is expected to continue growing in significance.

In a moment, George will take you through the details of our North American leading performance at TELUS Mobility, including 21% revenue growth, and 32% EBITDA growth.

Second, consider the $3.5 billion of debt maturing in 2006 and 2007. Based on our free cash flow outlook, these events should appear more as repayment events, than as major refinancing events. Unlocking bottom line earnings expansion and acting as a catalyst for equity value creation. When you combine these outlook considerations, I believe it is a realistic goal for TELUS to aspire to lead telecom operators around the globe in respect of four key investor value metrics: Revenue growth, EBITDA growth, EPS growth, and cash flow growth. Indeed, our continued strong performance points to our leadership in these areas.

On slide six, you can see that our expected revenue growth at 5.5%, puts us in a leadership position amongst our peers.

On slide 7, with projected 2004 growth in EBITDA at 8%, TELUS leads the global telecom performance for the second year in a row.

On slide eight, with a projected 12% growth in simple cash flow, defined as EBITDA less capital expenditures, TELUS again remains at the forefront for the second consecutive year.

The next slide shows that TELUS also compares well against our peers based on projected EPS growth at 58% in 2004.

The strategy TELUS has executed upon for the past four years, and will continue to execute upon going forward, is clearly reaping industry-leading results.

Moving to slide 10, I'm pleased to report to investors, that based on our third-quarter performance and positive future outlook, the board of directors of TELUS has approved four shareholder value creating initiatives.

First, we are increasing the quarterly dividend by 33%, to 20 cents per share.

Second, in order to give investors increased clarity in respect of our dividend growth model, we are announcing a forward-looking dividend payout target. TELUS is now targeting the dividend payout ratio in the range of 45 to 55% of net earnings.

Third, we have announced board approval for a normal course issuer bid to purchase up to 25.5 million TELUS shares, subject to obtaining regulatory approval. At today's share prices, this would equate to over $700 million.

Fourth, we are pursuing various initiatives to avoid share dilution by restricting the issuance of shares from treasury. Instead, we will fulfill share issuance requirements by pursuing open market purchases.

Hopefully, these initiatives will be welcomed by our equity investors and are entirely consistent with our long-standing goal of balancing the interests of both shareholders and debt holders. Let me assure debt holders that while we've achieved certain of our long-term debt targets, we'll continue to focus on debt repayment and the achievement of higher investment grade ratings over time.

Finally, let me also assure all investors, that the TELUS team will continue to work hard in delivering against all of our priorities and our financial targets. We appreciate and value your continued support.

Now, let me turn over to George and Bob to recap the quarterly highlights.

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Q3 2004 investor conference call - presentations

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