Morningstar DBRS Confirms TELUS Corporation's Issuer Rating at BBB With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Notes rating of TELUS Corporation (TELUS or the Company) at BBB. Morningstar DBRS also confirmed the Company's Commercial Paper rating at R-2 (middle) and Subordinated Debt rating of BB (high). The Senior Debentures of TELUS Communications Inc. were confirmed at BBB. The trend on all credit ratings remains Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations reflect the Company's solid EBITDA growth in the core Canadian telecommunication business and strong growth in the TELUS Health segment, which is now reported separately as it has become a larger contributor to consolidated results. The confirmations also acknowledge the soft operating performance of the TELUS Digital segment. While Morningstar DBRS expects TELUS Digital EBITDA performance to remain under pressure in 2025, a recovery is expected in 2026, and Morningstar DBRS notes that Q1 2025 mid-single-digit revenue growth year over year (YOY) in the segment is encouraging.

The Stable trends reflect Morningstar DBRS' expectation of low single-digit EBITDA growth through the forecast horizon as TELUS continues to leverage its advanced 5G network in order to drive demand for bundled services and maintain industry-leading mobile churn rates. The trend also considers capital intensity in the low teens, average dividend growth in the mid-single-digit range, modest acquisition activity, and the Company's net leverage target of 3.0 times (x) by 2027, which includes removing the discounted dividend reinvestment plan by the end of 2027.

CREDIT RATING DRIVERS
A positive credit rating action may occur if TELUS is able to de-lever as a result of EBITDA growth and/or liquidity events in which the proceeds are directed toward debt reduction such that leverage declines sustainably toward 3.0x, while balancing capital allocation between growth, investment, spectrum, and shareholder returns.

Conversely, a negative credit rating action may occur if TELUS experiences soft operating performance that falls materially below current expectations and pursues a more aggressive financial management strategy, such as increasing shareholder returns beyond current expectations, material debt-financed acquisition activity, or a combination of these factors such that leverage is expected to be sustained above 3.75x over a multi-year period without materially showing movement toward the Company's leverage target.

EARNINGS OUTLOOK
Morningstar DBRS forecasts 2025 revenue will increase in the low-to-mid single-digit range YOY, primarily reflecting growth in high-speed broadband services, mobile equipment, and TELUS Health, and modest growth in TELUS Digital, offset by continued softness in mobile network services revenue. In the 2026-27 time frame, Morningstar DBRS forecasts revenue will increase to the mid-single-digit range, primarily driven by high-speed broadband services, a stabilization in wireless service revenue, continued growth in TELUS Health, and a strengthening in TELUS Digital operating performance. Morningstar DBRS expects EBITDA margins to remain relatively stable in the 36%-37% range from 2025 through 2027 as the Company benefits from a continued focus on driving cost efficiencies, acquiring high-value subscribers, maintaining industry-leading churn rates, while anticipating a greater contribution from TELUS Health and TELUS Digital. In 2025 Morningstar DBRS forecasts EBITDA will increase to over $7.5 billion and grow from $8.4 billion to $8.5 billion by 2027.

FINANCIAL OUTLOOK
Morningstar DBRS forecasts free cash flow (after dividends but before changes in working capital and principal lease payments) in 2025 of $800 million to $900 million, compared with a deficit of $820 million in 2024, reflecting an increase in net income and a material reduction in capex, which is partially offset by a higher dividend payment. In 2025 capital intensity is expected to be in the double-digit to low teens range and remain in this range through 2027. Dividends are expected to increase on average to the mid-to-high single-digit range YOY in 2025 to 2027. Morningstar DBRS anticipates that TELUS will direct the majority of available free cash flow, after consideration for modest acquisition activity and spectrum costs in addition to capital generated from noncore asset divestitures to debt reduction in 2025 to 2027, such that Morningstar DBRS anticipates gross debt-to-EBITDA to improve to approximately 3.7x in 2025 and move toward 3.2x by 2027.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBB/BBB (high)
TELUS' business risk assessment reflects its position as a national wireline and wireless network provider. Its wireless networks cover more than 99% of Canada's population, allowing the Company to service more than 10.1 million mobile phone subscribers and 20.3 million telecommunications subscribers across all devices and services. TELUS is also the incumbent communications service provider in Alberta and British Columbia with a strong market share in both wireless and wireline services. Wireless average billing per user rates in Western Canada are supported by some of the highest smartphone penetration rates in the country as well as higher household incomes and income growth rates. Further, the Company continues to diversify its revenue base through its ownership of TELUS Digital, TELUS Health segment, and TELUS Agriculture & Consumer Goods. Morningstar DBRS notes that telecommunications operations are subject to a high degree of regulation by the Canadian Radio-television and Telecommunications Commission; Innovation, Science and Economic Development Canada (formerly Industry Canada); and the Competition Bureau Canada, all of which are focused on keeping the Canadian communications landscape competitive. The CBRA rating also incorporates a half notch negative overlay related to aggressive diversification of business operations through acquisition activity that heighten integration, execution and/or de-levering risks.

Comprehensive Financial Risk Assessment (CFRA): BB (high)/BBB (low)
TELUS has historically been able to generate solid operating cash flows; however, this has been largely offset by considerable network investment, a material dividend commitment and significant acquisition activity. Looking ahead, after a period of accelerated investment in both its fibre optic backhaul and 5G mobile network, Morningstar DBRS notes that TELUS' capital investment is expected to moderate considerably in 2025 and through the forecast horizon. Dividends are expected to continue to grow in the mid-to-high single-digit range; however, no share repurchase activity is currently forecast. Morningstar DBRS anticipates gross debt-to-EBITDA to improve to approximately 3.7x in 2025 and move toward 3.2x by 2027. TELUS had approximately $1.0 billion in cash and approximately $1.9 billion in total liquidity as of March 31, 2025.

Intrinsic Assessment: BBB
The Intrinsic Assessment is based on forward-looking assessment of the CBRA and CFRA, while also taking into consideration industry peers, among other factors.

Other Considerations
TELUS Communications Inc. Senior Debentures are guaranteed by TELUS Corporation.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/455738.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in Services Industries (February 3, 2025)
https://dbrs.morningstar.com/research/447184

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025) https://dbrs.morningstar.com/research/447186 which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

-- Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186
-- Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (May 16, 2025)
https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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