economic performance
revenue, earnings and cash flow
Industry overview
In 2005, the telecommunications market displayed general trends similar to recent years. The wireless sector continued to drive growth and equity values, while the wireline sector remained soft with some recovery in data revenues. Canadian telecommunications operators continued to follow strategies focused on core operations, including efficiency measures and the integration of recent consolidations, to support cash flow.
The Canadian telecom industry generated revenues of approximately $35.5 billion in 2005, with Bell Canada and its affiliated regional telecommunications companies representing about 48 per cent of the total. As the second largest full-service telecommunications provider in Canada, TELUS generated $8.1 billion in 2005, or about 23 per cent of the total.
Overall revenue growth in the Canadian telecom market in 2005 was approximately three per cent, similar to that experienced in 2004, and roughly in line with overall GDP (gross domestic product) growth. Wireless continued to be the growth engine for the sector with wireless revenues growing approximately 16 per cent over 2004. Offsetting wireless growth was continued general industry weakness in wireline voice with declining long distance and legacy data revenues, partially offset by growth in enhanced data services. With a consistent focus on wireless, data and IP, over the past five years, TELUS outpaced the industry average with seven per cent consolidated revenue growth. Similar growth rates for TELUS and the industry are expected in 2006.
With continued challenges in margins and growth rates in legacy voice and data services, incumbent local exchange carriers (ILECs) are facing pressure to continue to focus on enhanced operating efficiencies. Indeed, most of the major ILECs have signaled an intent to invest in restructuring wireline operations to improve efficiencies in 2006. At TELUS, this has been an ongoing priority for four years.
TELUS’ strategic focus on delivering national business service in data and IP, its consistent execution against its business priorities and targets, and its large exposure to the fast-growing Canadian wireless market position the company well to leverage continued above-average consolidated growth in 2006 and beyond.
Certain financial performance information presented here is extracted from our audited financial statements for the year 2005. A complete review of TELUS’ financial and business information is available in our online annual report at telus.com/annualreport.
TELUS financial highlights
Operating revenues grew seven per cent in 2005 to $8.1 billion, led by strong wireless growth. Operating earnings, or EBITDA (earnings before interest, taxes, depreciation and amortization), increased seven per cent, led by a 26 per cent wireless EBITDA growth.
Net income increased by $135 million in 2005 on strong wireless growth partially offset by temporary expenses associated with the labour disruption in Western Canada. Cash flow, defined as EBITDA less capital expenditures, increased $205 million to $2.0 billion in 2005 despite the impact of the labour disruption.
Revenue composition – TELUS’ total operating revenues in 2005 consisted of 38 per cent from voice (local and long distance) revenues, 40 per cent from wireless revenues and 19 per cent from data revenues. Combined data and wireless revenues were 59 per cent of total operating revenues in 2005, a three basis point increase from 2004. This is consistent with our continued focus on the growth markets of data and wireless and caused healthy revenue growth.
Segmented information – The company reports on two segments, wireline and wireless. The following table provides a segmented breakdown of various financial data.
Capital expenditures – TELUS’ capital expenditures of $1.3 billion in 2005 were the same as the previous year. Sixty-four per cent of the 2005 capital expenditure was spent in B.C. and Alberta with 34 per cent spent in Ontario and Quebec. This compares to 63 and 36 per cent, respectively, of capital expenditures spent in the same provinces in 2004.
Unleashing the power of the Internet – TELUS is the second largest Internet service provider (ISP) in Western Canada with one million Internet customers. In 2005, we increased our high-speed Internet subscriber base by 11 per cent, to end the year with 763,000 high-speed Internet subscribers across Canada. We are striving to have a majority of households in British Columbia, Alberta and Eastern Quebec connected to TELUS high-speed Internet service. The company has invested approximately $900 million in this high-tech infrastructure.
Wireless serving 4.5 million Canadians – Our wireless subscriber base grew by 584,000 subscribers in 2005 and we now serve more than 4.5 million subscribers from coast to coast. Our total network coverage of 30.6 million people brings digital wireless service to 94 per cent of the Canadian population.
Vendor payments – TELUS’ total vendor payments in 2005 were approximately $4.9 billion (including GST and PST). Eighty-eight per cent of these vendor payments were made to Canadian companies or multi-national companies with locations in Canada, with the remaining 12 per cent made to non-Canadian vendors. This compares to 82 per cent and 18 per cent, respectively, in 2004.
Comparative performance – The following chart summarizes TELUS’ financial performance by comparing our revenue, EBITDA and cash flow growth to global telecom companies for the past three years. The chart provides evidence that TELUS consistently performs at world-class levels.
