CFO's letter

A passion for growth

Dear investor,

Through 2010, TELUS generated improving financial and operational performance that has propelled us forward and positions us well for the coming year. It is gratifying to see our investors being rewarded for believing in our Company's ability to deliver on our proven strategy and benefit from our consistent financial policies.

Financial performance - past and future

TELUS' financial performance in 2010 and targets for 2011 reflect the many positive trends in both wireless and wireline, which are being made possible by our major strategic investments in recent years in broadband networks and operating efficiency.

Growth resumed in 2010, with revenue increasing from 2009 by two per cent to $9.8 billion and EBITDA up over four per cent to $3.6 billion. These results are made possible by past investments and are being driven by increases in business volumes, including more wireless subscribers, record Optik TV additions and improved growth in high-speed Internet service. Particularly important was the trend in wireless average revenue per unit (ARPU), which, due to the growing popularity of high- revenue smartphones, improved from a 6.8 per cent decline in 2009 to a modest 1.4 per cent decline in 2010. Ongoing efficiency savings, combined with lower restructuring costs, also contributed to the improvement in EBITDA.

Underlying earnings per share (EPS) growth was 15 per cent, after adjusting for non-operational items. This primarily reflected increased EBITDA, as well as reductions in financing costs that resulted from the lower costs of borrowing on $2 billion of debt refinancing completed in the past two years and a lower overall level of debt.

Free cash flow increased by 95 per cent to $947 million in 2010, reflecting both growth in earnings and a significant $380 million decline in capital expenditures. Notably, our strong cash flow position enabled us to make a voluntary $200 million contribution in January 2011 to our defined benefit pension plans, with positive impacts to our expected earnings and our already strong pension funding position. The benefits from the contribution include reductions in our pension expense in 2011 and our cash taxes in 2010 and 2011.