Telus 2011 Annual Report Download - page 49

TELUS 2011 ANNUAL REPORT . 45
MANAGEMENT’S DISCUSSION & ANALYSIS: 1
Assumptions for 2011 original targets Results or expectations
A preliminary pension accounting discount rate
was estimated at 5.35% and subsequently set
at 5.25% (60 basis points lower than 2010) and
the preliminary expected long-term return estimated
at 7.25% was subsequently set at 7% (25 basis
points lower than 2010). The defined benefit
pension plans net recovery was set at $34 million
Confirmed. The defined benefit pension plan recovery was $34 million in 2011. Defined benefit
pension plan expenses (recoveries) are set at the beginning of the year.
Defined benefit pension plan contributions,
including a $200 million discretionary contribution,
were estimated to be $298 million in 2011,
up from $137 million in 2010
Confirmed. Contributions to defined benefit plans were $298 million in 2011, including the
$200 million discretionary contribution made in January 2011.
Efficiency initiatives expected to result in
approximately $50 million in restructuring costs
in 2011 ($80 million in 2010 (IFRS)). Incremental
EBITDA savings for 2011, initially estimated at
approximately $75 million, were subsequently
revised to approximately $50 million (incremental
savings of $134 million in 2010)
In 2011, restructuring costs were $35 million, comprised of people-related initiatives and
other initiatives, including the consolidation of real estate. Incremental EBITDA savings were
approximately $69 million.
A reduction in financing costs of approximately
$135 million due to lower debt levels and
interest rates
Confirmed. Financing costs decreased by $145 million in 2011 due to a lower effective interest
rate, lack of an early redemption charge as recorded in 2010 and, to a lesser extent, lower
average debt.
Statutory income tax rate of approximately
26.5 to 27.5% (29% in 2010)
Confirmed. In 2011, the blended statutory income tax rate was 27.2%, while the effective tax rate
was 23.6%.
Cash income taxes of approximately
$130 to $180 million ($311 million in 2010)
Confirmed. The Company revised its full-year expectation to the top half of the original target
range on May 5, 2011, and subsequently, to $150 to $190 million on August 5, 2011. Cash income
taxes paid net of refunds received were $150 million, comprised of instalments for 2011 and final
payments for the 2010 tax year made early in 2011.
1.5 Financial and operating targets for 2012
The following discussion and assumptions apply to TELUS’ 2012
targets presented in the Scorecard in Section 1.4. The 2012 targets and
assumptions were originally announced on December 16, 2011, in the
Company’s annual financial targets news release and accompanying
investor conference call and webcast.
For 2012, consolidated revenue and EBITDA are expected to benefit
from TELUS’ continued strong execution in wireless and data. Basic
earnings per share is targeted to be 0 to 10% higher due to operating
earnings growth and lower financing costs.
TELUS wireless revenue is forecast to increase principally due to
subscriber growth, and possible ARPU growth. Subscriber loading is
expected to benefit from a Canadian wireless industry penetration gain
similar to 2011 of approximately four to 4.5 percentage points. TELUS
expects to continue to benefit from the Company’s HSPA+ and LTE
network investments, resulting in continued growth, in data and roaming
revenues that will help offset continued declines in voice ARPU. Wireless
EBITDA is expected to increase due to revenue growth, accompanied
by continued large investments in smartphone customer acquisition and
retention costs.
Wireline revenue is expected to reflect continued data revenue
growth from Optik TV and high-speed Internet services, as well as from
business services, offset by continued decreases in local and long dis-
tance service legacy revenues. Wireline EBITDA is expected to decrease,
or post a slight increase, as growth in lower margin data services
including Optik TV is not expected to fully offset declines in higher
margin legacy services.
Consolidated capital expenditures are expected to be at about
the same level as in 2011, or approximately $1.85 billion, driven by
wireless capacity upgrades and ongoing deployment of a new LTE
wireless network in urban markets. While wireline capital investments
are expected to decline, TELUS intends to continue its broadband
infrastructure expansion and upgrades to support strong ongoing growth
in Optik TV and high-speed Internet services. This includes completing
the overlay of VDSL2 technology in Western Canada and VDSL2 bonding
in Eastern Quebec, as well as investing in new state-of-the-art Internet
data centres to support market demand and internal requirements for
cloud computing services. Due to revenue growth, consolidated capital
intensity is expected to be approximately 17% of revenue in 2012,
down from 18% in 2011.
TELUS made a $100 million discretionary special contribution
to its defined benefit pension plans in January 2012. After including this
contri bution, TELUS’ aggregate funded position for its defined benefit
pension plans is expected to be approximately 90% on a solvency basis.
The accelerated discretionary contribution will benefit the 2012 pension
recovery for accounting purposes and, since pension contributions are
tax deductible, reduce cash taxes by approximately $25 million. The
Company’s 2012 pension recovery was initially estimated to be $6 million
and has been revised to an estimated $12 million, or $22 million lower
than in 2011.