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the future is friendly
In 2004, we continued to deliver on the benefits of the clear and consistent strategy we developed and put into action back in 2000. Four years ago, we committed to deliver on our national growth strategy focused on data, Internet protocol (IP) and wireless. Our relentless execution of this strategy has provided a strong foundation for our current achievements and positions us for continued success in 2005 and beyond.
Darren Entwistle
Member of the TELUS Team
2004 a momentous year for TELUS
A disciplined focus on our core business in the Canadian telecommunications market, combined with aligned and committed execution to plan, is proving effective. We are delivering on our brand promise of making the future friendly for our many stakeholders.
Through 2004, we built upon TELUS' considerable momentum in the wireless and data areas. Our high exposure to wireless is viewed favourably by investors, with TELUS Mobility ranked as the best performing wireless company in North America. Our managed data entry into the Central Canadian business market has also shown demonstrable progress in respect of the improved results achieved in the second half of 2004.
For the second year running, your company reported either leading or top quartile financial and operational results in the global telecom industry on a range of indicators. Superior wireless growth and solid results from our wireline business yielded a six per cent increase in revenue, a 10 per cent growth in operating earnings, a 75 per cent increase in net income and a 54 per cent increase in all-important free cash flow to $1.3 billion at TELUS Corporation. Moreover, TELUS was successful in meeting or exceeding five of its six consolidated 2004 targets.
Our disciplined approach and sense of investor responsibility are also evident in what TELUS chose not to do in 2004. We did not enter a bidding contest when our offer to purchase the wireless operator, Microcell, was topped by Rogers Wireless. In this same vein, while we were disappointed that we did not win the telecommunications sponsorship bid for the 2010 Olympic and Paralympic Winter Games in Vancouver/Whistler, we felt our bid submission reflected strongly our sense of fiduciary responsibility. TELUS remains proud of its significant contribution in bringing the 2010 Games to Canada in the first place.
TELUS continued to honour its commitment to balance the interests of shareholders and debt holders again in 2004. Our first priority has been to repay the debt we incurred to implement our wireline and wireless infrastructure nationally. To this end, we reduced net debt by $1.1 billion in 2004, following an $839 million reduction in 2003. During 2004 and more than a year ahead of schedule, TELUS achieved two of its long-term de-leveraging targets; specifically, net debt to EBITDA of 2.2 times or less and net debt to total capitalization of 45 to 50 per cent.
With de-leveraging ahead of plan and strong free cash flow, we announced a series of shareholder value-enhancing initiatives in October, including:
- a quarterly dividend increase of 33 per cent to 20 cents per share, recognizing the desires of income-oriented shareholders
- a dividend payout ratio guideline of 45 to 55 per cent on net earnings, providing a framework by which investors can assess the potential for future dividend increases
- a Normal Course Issuer Bid to repurchase up to 25.5 million TELUS shares, recognizing the desires of our growth-oriented investors and enhancing the value of the remaining shares. TELUS' bid was put into effect in late December, and by year-end we had purchased 2.2 million shares for $78 million
- measures to restrict earnings dilution by reducing future issuances of TELUS shares, helping maintain the value of existing shares.
We have received support and appreciation from many of our investors for this comprehensive set of shareholder-friendly actions.
A highlight of 2004 was the sale of TELUS shares by Verizon Communications. In the fourth largest equity offering ever undertaken in Canada, Verizon successfully sold all of its 73.5 million TELUS shares for $2.2 billion. This move was consistent with Verizon's strategy to focus on investing in its core U.S. market by selling international assets. TELUS shareholders benefited from the sale of Verizon's 20.5 per cent stake, including the receipt of a $148 million cash payment from Verizon; the reduction of $97 million in future payments to Verizon that were previously contracted; and an enhanced and highly beneficial long-term wireless roaming agreement with Verizon Wireless. The oversubscribed share offering that increased our public share float by 26 per cent, provided TELUS with a more diverse global shareholder base and increased our Canadian ownership.
For the second year in a row, shareholders have enjoyed large increases in share value. In 2004, your common shares increased by 40 per cent and non-voting shares by 44 per cent, compared to a 12 per cent average increase on the Canadian stock market. The market value of TELUS increased from $8.8 billion a year ago to $12.7 billion at year-end. Indeed, the success of our strategy over the last five years is highlighted by the increase in TELUS' enterprise value from $10.5 billion at the start of 2000 to $18.2 billion at the conclusion of 2004.
