CFO letter to investors

Growing value

In 2011, TELUS produced strong financial growth leading to continued value creation. Our positive financial performance was driven by accelerated data revenue growth in both the wireline and wireless segments of our business. Our robust cash flow allowed us to fund ongoing strategic capital investments and healthy dividend increases, which provided increased value for investors.

Growing financial performance

TELUS' long-term strategy of investing in our core network assets to drive data growth in both wireline and wireless has generated significant momentum and positions the Company for continued success. In 2011, we surpassed $10 billion of revenue with higher than expected revenue growth of six per cent and generated earnings per share (EPS) growth of 15 per cent due to significantly lower financing costs and higher operating income.

We are delivering on a consistent strategy that, in 2011, led to industry-best results in many important wireless metrics, including subscriber churn and postpaid net additions, as well as revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) growth. In addition, our continued deployment of broadband technology has led to outstanding Optik TV subscriber growth, which, through our strategy of offering integrated solutions, is contributing to our best Internet subscriber growth in many years.

We are experiencing particularly strong double-digit data revenue growth in both the wireless (47 per cent) and wireline (14 per cent) segments of our business. Wireless growth is being generated by continued industry-leading additions of smartphones and resulting increases in data usage, as well as higher international roaming revenues. Wireline data growth reflects higher revenues from growing Optik TV and High Speed Internet service subscriptions and several small price increases, as well as the acquisition of control of an international contact centre operation.

Our 2012 targets, shown in the table, build on the momentum we delivered in 2011. TELUS expects to generate strong doubledigit free cash flow growth in 2012 based on targeted earnings growth, along with stable capital expenditures and cash taxes, and reduced employer pension contributions. Free cash flow is calculated before dividends and potential wireless spectrum purchase costs. These targets should be read in conjunction with the important assumptions and caution regarding forward-looking statements contained in Management's discussion and analysis.

Discover how TELUS continued to realize the benefits of its strategic investments and generated positive financial performance in 2011.

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Of note are the upcoming wireless spectrum auctions, which may entail cash outlays in the hundreds of millions of dollars toward the end of 2012 or early 2013. By way of example, the spectrum we won in the 2008 auction cost $882 million. New 700 MHz spectrum is critical to the ongoing growth of our wireless business and plans to extend 4G long-term evolution (LTE) coverage to rural Canada. We have maintained a strong financial position to bid on 700 MHz and potentially 2.5 GHz spectrum with more than $1 billion of available financial liquidity, strong investment grade credit ratings and ready access to capital markets.

Consolidated and segmented 2012 targets and expected growth

Revenues

$10.7 to $11.0 billion

3 to 6%

EBITDA

$3.8 to $4.0 billion

1 to 6%

Basic earnings per share (EPS)

$3.75 to $4.15

0 to 10%

Capital expenditures

Approx. $1.85 billion

no
change

Wireless revenues

$5.75 to $5.9 billion

5 to 8%

Wireless EBITDA

$2.3 to $2.4 billion

5 to 10%

Wireline revenues

$4.95 to $5.1 billion

0 to 3%

Wireline EBITDA

$1.5 to $1.6 billion

(6) to 1%