TELUS | annual report 2001

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Why did TELUS’ share price decline in 2001?

Given the complexity of stock markets, and the many factors that influence stock prices on a daily basis, it is difficult to say with precision why the TELUS share price declined but several factors stand out.

Stock markets generally faced a volatile year in 2001, ending the year with significant overall losses. The Toronto Stock Exchange 300 Index was down 14%, while the Dow Jones Industrial Index was down 7%. Stock prices were impacted by a variety of concerns including a softening global economy, September 11th terrorist attacks on the U.S. and fears of subsequent attacks, and the outcome of the war on terrorism.

The telecom sector specifically experienced considerable difficulty. More discriminating capital markets reduced the funding available to early-stage, capital intensive firms with unproven business plans. Many new entrant telecom firms, which lacked balance sheet strength and liquidity, sought bankruptcy protection or went out of business. Against this background, telecommunications companies in general have faced intense scrutiny over their balance sheets and liquidity, as well as generally declining equity valuations. Share prices of telecom firms as indicated by the NASDAQ Telecom Index declined 49% in 2001.

The share price of TELUS declined significantly in 2001, particularly post-April, despite TELUS being a healthy incumbent phone company that attained good operating results in 2001 against our targets, while significantly improving our balance sheet with a landmark refinancing program and maintaining an investment grade credit rating.

In addition to negative market and sector trends, the share price of TELUS was impacted by two notable factors which deserve some comment. The first is the April 2001 announcement by the CRTC of an adverse regulatory decision on contribution to be implemented in 2002 (see risks and uncertainties). This regulatory decision is currently estimated to reduce underlying revenue growth of 10 to 11%, to 4 to 6%. The estimated impact on consolidated EBITDA is to reduce underlying EBITDA growth of 7 to 9% to zero growth in 2002. So the anticipated 2002 regulatory impact likely was a significant firm-specific cause of a declining TELUS share price. In addition, the uncertainty regarding the potential reduction of the TELUS quarterly dividend was widely commented on in analyst reports and the media beginning in April on the release of our Annual Report. This was also likely a factor affecting TELUS share price in the market up to October.

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