management's discussion & analysis
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management's discussion & analysis
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1. overall performance
1.1 Materiality for disclosures
Management determines whether or not information is "material" based on whether it believes a reasonable investor's decision to buy, sell or hold securities in the Company would likely be influenced or changed if the information were omitted or misstated.
1.2 Economic growth and the telecommunications market
The Conference Board of Canada recently estimated Canadian real GDP growth in 2004 at 2.6%. In the context of a resilient Canadian economy in 2004, Canadian wireless industry revenues are estimated to have grown by about 18% as more Canadians adopt and expand their use of wireless services. TELUS Mobility achieved 19.2% revenue growth and its largest ever wireless subscriber net additions of 512,400. On the other hand, price competition and technological substitution of voice services to wireless and Internet contributed to further softness in Canadian wireline industry revenues, which declined by an estimated 2%. In the wireline business market, there is greater acceptance of Internet protocol or IP-based services, such as TELUS' IP-One services, and as a result, TELUS signed up additional business customers.
In the wireline consumer market, awareness of voice over Internet protocol (VoIP) services increased following a number of new service introductions by competitors, but it was not a significant competitive factor in 2004. TELUS' major cable-TV competitors have begun to or have announced their intention to offer VoIP telephony in its incumbent territories in 2005. Additional competition is expected from existing competitors that offer VoIP. See Risks and uncertainties Competition and Technology for the competitive and technology factors facing TELUS.
1.3 Consolidated highlights
Consolidated Operating revenues and EBITDA increased significantly in 2004, when compared with 2003, driven by continued significant TELUS Mobility growth as well as improved results in the Communications segment, which has now experienced three quarters of sequential revenue growth and year-over-year growth in the third and fourth quarters of 2004. Net income increased due to improved operating profitability, lower Financing costs and lower effective income tax rates. Basic and diluted Earnings per share increased in 2004 as a result of higher Net income, partly offset by a larger number of shares outstanding. Strong growth in EBITDA combined with lower restructuring payments contributed to free cash flow growth. Cash used by financing activities decreased due mainly to lower repayments of debt maturing in 2004.
1.4 Performance relative to targets and revised guidance
TELUS met or exceeded all of its original consolidated targets for 2004, except for capital expenditures. TELUS Mobility exceeded or met all of its original targets, while TELUS' Communications segment original targets were not achieved, except for high-speed Internet subscriber net additions. TELUS met or exceeded all of its consolidated and segmented final guidance for 2004.
