Telus 2010 Annual Report Download - page 45

TELUS 2010 annual report . 41
MANAGEMENT’S DISCUSSION & ANALYSIS: 1
Analysis of Net income
Years ended December 31
($ millions) 2010 2009 Change
Net income 1,038 1,002 36
Add back after-tax loss
on redemption of debt 37 69 (32)
Deduct net favourable income
tax-related adjustments,
including related interest
income (see Section 5.2) (30) (165) 135
Net income before above
items (approximate) 1,045 906 139
.Basic earnings per share (EPS) was $3.23 in 2010, or an increase
of nine cents per share from 2009. When adjusted to exclude losses
on redemption of debt of approximately 12 cents per share in 2010
and 22 cents per share in 2009, and favourable income tax-related
adjustments in both years (see Section 5.2), underlying earnings per
share increased by approximately 42 cents in 2010.
.Quarterly cash dividends declared in 2010 were $0.475 in the first
quarter, $0.50 in both the second and third quarters, and $0.525 in
the fourth quarter for a total of $2.00 in 2010, or an increase of 5.3%
from 2009. On February 8, 2011, the Board of Directors declared
a quarterly dividend of $0.525 (52.5 cents per share) on the issued
and outstanding Common Shares and Non-Voting Shares of the
Company, payable on April 1, 2011, to shareholders of record at the
close of business on March 11, 2011.
.Average shares outstanding – basic increased primarily from the
issue of TELUS Non-Voting Shares under the dividend reinvestment
and share purchase (DRISP) program, beginning with the January 4,
2010, dividend payment. The DRISP participation rate increased
to approximately 32% in January 2011 as compared to approximately
14% in January 2010. Effective March 1, 2011, the Company will
no longer issue shares from treasury at a 3% discount for reinvested
dividends under the DRISP, and will switch to purchasing shares
from the open market with no discount.
Liquidity and capital resources highlights, including results for 2010,
or measures as at December 31, 2010, compared to the same periods
in 2009:
.TELUS had unutilized liquidity of more than $1.9 billion at December 31,
2010, consistent with its objective of generally maintaining more than
$1 billion of unutilized liquidity.
.Net debt to EBITDA (excluding restructuring costs) at December 31,
2010, was 1.8 times, an improvement from 2.0 times at December 31,
2009, and within the Company’s long-term target policy range of
1.5 to 2.0 times. Contributing to the improvement was the $443 million
or 6% decrease in net debt as detailed in Section 7.4.
.Cash provided by operating activities decreased by $358 million in
2010 when compared to 2009. The decrease reflects a comparative
reduction in securitized proceeds from accounts receivable, lower
interest received and higher income taxes paid, partly offset by lower
interest payments.
.Cash used by investing activities decreased by $421 million in 2010
when compared to 2009. The decrease was primarily due to higher
capital investment levels in 2009 to build out the Company’s wireless
HSPA+ network and service capability for the November 2009 launch.
Highlights from operations, including results for 2010, or measures
as at December 31, 2010, compared to the same periods in 2009:
.Consolidated Operating revenues increased by $173 million in 2010
when compared to 2009. In 2010, TELUS’ wireless revenues were
greater than wireline revenues for the first time. In addition, TELUS’
wireline data revenue exceeded the total of its legacy wireline voice
local and long distance revenues for the first time. Consolidated
revenues in 2010 were the highest ever recorded by TELUS.
Blended wireless average revenue per subscriber unit per month
(ARPU) for 2010 was $57.64, reflecting a more moderate annual
decrease of 1.4% in 2010 as compared to the 6.8% decrease in 2009.
Notably, wireless ARPU was $58.48 in the fourth quarter of 2010,
reflecting the first year-over-year increase in quarterly ARPU since
the second quarter of 2007.
.Subscriber connections increased by 378,000 in 2010. This includes
6.9% growth in wireless subscribers, 85% growth in TELUS TV
subscribers and a 1.2% increase in total Internet subscribers, partly
offset by a 5.7% decrease in total network access lines.
Smartphones represented 46% of postpaid gross additions
in the fourth quarter of 2010, compared to 25% in the fourth quarter
of 2009, as the Company continued to experience strong smart-
phone growth driven by iPhone, BlackBerry and Android devices.
At December 31, 2010, wireless subscribers with smartphones
represented 33% of the postpaid subscriber base as compared to
20% one year earlier. Wireless monthly subscriber churn increased
to 1.72% in the fourth quarter of 2010, as compared to 1.60% in
the same period in 2009, as a result of increased competitive intensity
from incumbents and new entrants. For the full year, monthly sub-
scriber churn was 1.57% as compared to 1.58% in 2009.
Newly branded Optik TV service and Optik High Speed Internet
service were launched in June 2010, which, combined with improved
bundle offers, contributed to the record 144,000 TELUS TV sub-
scriber additions in 2010. It also contributed to improved high-speed
Internet subscriber additions and reduced losses in residential
access lines in the second half of 2010.
.Operating income increased by $139 million in 2010 when compared
to 2009, mainly due to higher EBITDA, slightly offset by increased
amortization expenses.
.EBITDA increased by $152 million primarily from wireless growth
and lower restructuring costs. Increased TELUS TV costs associated
with the growing subscriber base were largely offset by realization
of wireline operating efficiencies.
.Income before income taxes increased by $161 million in 2010
when compared to 2009. The increase resulted from higher Operating
income and lower net financing costs, including lower charges
associated with the early partial redemption of long-term debt, partly
offset by lower interest income from the settlement of prior years’
tax matters.
.Net income increased by $36 million in 2010 when compared to
2009. Higher income before income taxes and lower blended statutory
income tax rates were partly offset by other income tax items (see
Section 5.3). Excluding favourable income tax-related adjustments
and charges for the early partial redemption of U.S. dollar Notes
and termination of related cross currency interest rate swaps, under-
lying Net income increased by $139 million, or 15%, in 2010 when
compared to 2009, as shown.