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Q2 2003 investor conference call - Darren Entwistle presentation

Good morning, and thank you for joining us for our 4th Quarter and 2003 review.

Let me begin by giving you a recap of the full year 2003 financial highlights commencing with Slide 4. As shown here, our consistent strategy and operational execution is translating into excellent financial results. The continued strong performance at TELUS Mobility, when combined with our Operational Efficiency Program on the wireline side of the business generated 13% growth at the consolidated EBITDA level and a margin improvement of 400 basis points to 40%. At the bottom line, TELUS delivered in 2003 substantial net income of $332 million and $0.92 in earnings per share, which is well in excess of the annual dividend of $0.60. Noteworthy for both equity and debt investors this year has been the significant increase in free cash flow to $961 million. We have used this cash to reduce our debt by $872 million, which has been reflected by all four credit rating agencies, upgrading our debt rating outlooks.

Slide 5 shows a significant increase in cash generation from both our Communications and TELUS Mobility business segments. As you can see, each business has generated a $400 million increase in cash flow, as measured simply by EBITDA less capex.

The next three slides serve to highlight how we have driven superior financial results for our share and debt holders alike.

Slide 6 shows that TELUS' actual EBITDA growth in 2003 of 13% puts us in the top quartile of global telecom companies, which has been consistently the case as we released our successive quarterly results this past year.

Slide 7 illustrates that our growing EBITDA, coupled with reduced capital expenditures drove a world-leading 94% increase in cash flow last year.

Starting on Slide 8, let me now update you on three of our corporate priorities that we set out in 2003. First is TELUS Communications' Operational Efficiency Program. We finished 2003 with a 1500 person net reduction in our staffing level, exceeding the 1300 target. The conclusion of this program has allowed us to achieve our cumulative operating savings target with $454 million saved. This staff reduction puts us on track for ongoing annual savings of $550 million in 2004 and beyond.

Slide 8 also highlights the second priority, which was to enhance TELUS Mobility's leading operating and financial performance. TELUS Mobility now represents a full third of our consolidated revenue base which is growing strongly at 17% per year due to double-digit subscriber growth, increasing ARPU and industry-leading customer retention. There is immense value being driven in the Canadian wireless sector that is heartening to long-time investors in the industry. Today the Canadian wireless industry is characterized by growing, rather than declining, ARPU, combined with reducing churn. This means that the lifetime value of each customer has increased and this is especially true at TELUS Mobility. Our lifetime revenue per wireless subscriber is currently calculated at $3900, up $800 or 28% higher than a year ago. This is greater growth than our major competitors and it's 14% above the lifetime revenue at BCE Mobility and 71% above that at Rogers Wireless.

The strong revenue growth at TELUS Mobility combined with disciplined cost control contributed to a significant 53% year-over-year increase in EBITDA to total $815 million. This represents an impressive 800 basis point increase in margin to 34%. This is the second year in a row that we have grown EBITDA at TELUS Mobility by 50% or better, and our operating margins have expanded 1500 basis points over the last 24 months. This EBITDA growth and margin expansion is the highest of any major North American wireless provider that we are aware of.

Slide 9 provides an update on our third priority, to reach a collective agreement with our unionized employees. I would like now to give a short report on the outcome of the flurry of labour relations developments that transpired during the month of January.

As you may be aware, TELUS Communications offered binding arbitration to the TWU and on January 30th, the union accepted this offer of arbitration. Binding arbitration has been used successfully in Canada in the past to assist unions and companies to implement major contract changes due to evolving industry circumstances. The parties are now negotiating, with assistance from federal mediators, the choice of one or more third party arbitrators, the terms of reference for arbitration and an agreed timeline for the process. We will keep you updated on developments as we follow this process to a conclusion this year. Rest assured that I will honour my commitment to our investors, customers and employees to realize the changes necessary in our collective agreement to enshrine the future competitiveness of TELUS and the welfare of our employees for the benefit of our shareholders and customers alike.

Turning to Slide 10, let me update you on IP telephony, a top-of-mind issue for investors in telecom recently. To begin, let me point out that IP telephony has been a focus of our data growth strategy since 2000 and it's the reason we were able to launch into this business in a meaningful way in 2003. IP telephony is a core business and expertise for us nationally, in business and in residential. TELUS has been making investments in infrastructure and people for three and a half years to support this technology escalation and deliver the benefits of a reduced operating cost, enhanced functionality and more robust service management for our customers to enjoy.

First, let's look at the business side. TELUS, with our next-generation network now operational and with business IP applications in the marketplace, has a sizeable head start over our peers in North America and, indeed, around the world. We are today providing carrier grade IP telephony with quality, reliability and security that far surpasses internet telephony being offered by others. TELUS IP-One provides customers with cost and productivity efficiencies, but most importantly, compelling applications that deliver tangible business benefits. IP-One provides a future-friendly web portal, including visual voice mail, ad hoc teleconferencing, integrated messaging and find-me and follow-me services.

Turning now to Slide 11 and consumer IP telephony, let's assess both the competitive threat and the opportunity that IP telephony presents for TELUS. TELUS is ready and able to leverage our lead in business IP telephony into the consumer market. TELUS welcomes the current competition and understands that their offerings may become more robust over time. We firmly believe we are differentiated from the emerging competitors. IP is core to our operations for both the business and consumer markets, which is not true for many of the new entrants.

Telephony is a complex business that TELUS knows well and will take others time to perfect as they realize that ongoing success will require more than leveraging a development in technology, but rather the provisioning, maintenance and billing of a customer solution over the longer term, including the significant capex required to make this happen, a hallmark of life in the telephony world. TELUS' IP telephony offering will be available both on primary lines and secondary lines and will have quality of service features that our customers demand and a functionality set that differentiates us from the competition.

On a different vein, observers need to consider that Canada has some of the lowest local prices, combined with some of the best core telephony services in the world. It has regulated and declining prices with flat to declining margins, hardly a mouth-watering market entry opportunity for an emerging player. It is interesting to contrast this with, let's say, the Canadian cable TV market in terms of available margins and overall market growth.

On the regulatory front, we think there should be symmetry between established telcos and new entrants. We also note that there is just two years left on the current price cap regime. To the extent that new entrants leverage new technology to enter the local access market, including internet telephony, cable telephony or, indeed for that matter, fixed wireless substitution, we believe the regulator will look more favourably on deregulation. By definition, this would be favourable to TELUS, with the wide customer base we serve and future opportunities on price flexibility under a more lenient regulatory regime.

Let me conclude on Slide 12 and 13 with two outlook views that bode well for ongoing improvements in the valuation of TELUS in 2004 and beyond. As a precursor, let me note that we take the setting and attaining of our public targets very seriously, as we recognize that they provide increased certainty and transparency for investors. TELUS has a strong track record of honouring our commitments. Last year we exceeded five of six consolidated financial targets. Looking back over the last three years, we have hit 19 of 22 consolidated financial targets. The chart at Slide 12 compares our 2004 targets for operating earnings growth against our global peers, so not only in 2003 but again in 2004, TELUS at 7% EBITDA growth is expected to be at the forefront of global telecom companies.

The second investor consideration is cash flow growth for 2004. Again, our targeted 14% increase in cash flow places TELUS in a leading position amongst global telecom companies. Let me assure you that the TELUS team continues to work hard on delivering on all of our priorities and public targets. This effort is based on the clear and consistent national growth strategy that underpins our performance.

Now, over to George to review TELUS Mobility's strong quarter and recent developments in the wireless industry.

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Q4 2003 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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