TELUS Corporation

An a lysis

March 16, 2021 TELUS Corporation

T-CA CAD 26.22 Peer Group Industry Group: Integrated Telecommunications BCE Inc (BCE-CA) Services Rogers Communications Inc. (RCI.B-CA) 52 Week Range: CAD 18.55 - CAD 27.54 Verizon Communications Inc. (VZ-US) Market Cap: CAD 33850.02 Mil. AT&T Inc. (T-US) TeraGo Inc. (TGO-CA) Data as of Last Available Filing Shaw Communications Inc (SJR.B-CA) Annual: 2020-12-31 Orange SA (ADR) (ORAN-US) Quebecor, Inc. (QBR.B-CA) Semi Annual: N/A Cogeco Communications Inc (CCA-CA) Quarterly: 2020-12-31 CGI Inc (GIB.A-CA) TELUS Corporation (T-CA)

TELUS Corporation :T-CA: Earnings Analysis: Q4, 2020 By the Numbers

TELUS Corporation reports financial results for the quarter ended December 31, 2020.

We analyze the earnings along side the following peers of TELUS Corporation - BCE Inc, Rogers Communications Inc., Verizon Communications Inc., AT&T Inc., TeraGo Inc., Shaw Communications Inc, Orange SA (ADR), Quebecor, Inc., Cogeco Communications Inc and CGI Inc (BCE-CA, RCI.B-CA, VZ-US, T-US, TGO-CA, SJR.B-CA, ORAN-US, QBR.B-CA, CCA-CA and GIB.A-CA) that have also reported for this period.

Highlights

• Summary numbers: Revenues of CAD 4061 million, Net Earnings of CAD 271 million. • Gross margins widened from 56.64% to 57.97% compared to the same period last year, operating (EBITDA) margins now 32.90% from 35.76%. • Year-on-year change in operating cash flow of 24.61% is about the same as the change in earnings, likely no significant movement in accruals or reserves. • Narrowing of operating margins contributed to decline in earnings. The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

CapitalCube 2021. All Rights Reserved TELUS Corporation | Analysis | March 16, 2021 1 2020-12-31 2020-09-30 2020-06-30 2020-03-31 2019-12-31 Relevant Numbers (Quarterly) Revenues (mil) 4061 3961 3656 3663 3826 Revenue Growth (%YOY) 6.14 7.43 1.92 4.99 3.04 Earnings (mil) 271 321 315 353 379 Earnings Growth (%YOY) -28.5 -27.05 -39.42 -19.22 2.99 Net Margin (%) 6.67 8.1 8.62 9.64 9.91 EPS 0.2 0.24 0.23 0.28 0.3 Return on Equity (%) 2.24 2.65 2.54 3.03 3.56 Return on Assets (%) 2.56 3.15 3.1 3.57 4.06

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Market Share Versus Profits

Revenues History Earnings History

5k 400 4 0 6 1 3 2 1 3 8 2 6 3 9 6 1 3 7 9 3 1 5 3 6 6 3 3 6 5 6 3 5 3 2 6 0 .9 1 2 5 1 .9 1 2 7 1

2.5k 200 1 6 9 .1

0 0

2019-12-31 2020-03-31 2020-06-30 2020-09-30 2020-12-31 2019-12-31 2020-03-31 2020-06-30 2020-09-30 2020-12-31

T-CA Peer Median T-CA Peer Median

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T-CA's change in revenue this period compared to the same period last year of 6.14% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that T-CA is holding onto its market share. Also, for comparison purposes, revenues changed by 2.52% and earnings by -15.58% compared to the immediate last period.

400

Earnings Focus Leader 200

CCA-CA QBR.B-CA TGO-CA RCI.B-CA BCE-CA VZ-US ORAN-US 0 T-CA

-200 Earnings Grow t h (%) h t Grow Earnings -400

T-US -600

Laggard Revenues Focus

-800 -10 -7.5 -5 -2.5 0 2.5 5 7.5 Revenue Growth (%)

Sym bol Peer Median Peer Median

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Earnings Growth Analysis

The company's earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 35.76% to 32.90%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 56.64% to 57.97%. For comparison, gross margins were 59.76% and EBITDA margins 35.09% in the immediate last period.

70 Commodity; Low Cost Differentiated; Low Cost

CCA-CA 50 QBR.B-CA RCI.B-CA 40 BCE-CA T-CA

30 TGO-CA GIB.A-CA 20

EBITDA M argin (%) argin M EBITDA ORAN-US

T-US -10

Commodity; High Cost Differentiated; High Cost -20

-30 0 10 20 30 40 50 60 70 80 90 Gross Margin (%)

Sym bol Peer Median Peer Median

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Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company's performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History Working Capital Days History

75 0 6 2 .7 6 6 1 .6 2 5 6 .6 4 5 9 .7 6 5 7 .9 7 -9 .5 7 -1 3 .1 1 -1 2 .6 7 50 -1 7 .5 8 -1 1 .9 6 -2 1 .8 1 -20 -1 8 .7 1 25 -2 1 .7 6 -2 6 .6 6 -2 7 .1 7

0 -40

2019-12-31 2020-03-31 2020-06-30 2020-09-30 2020-12-31 2019-12-31 2020-03-31 2020-06-30 2020-09-30 2020-12-31

T-CA Peer Median T-CA Peer Median

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CapitalCube 2021. All Rights Reserved TELUS Corporation | Analysis | March 16, 2021 4 T-CA's improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now -27.17 days compared to -26.66 days for the same period last year.

Gross Margin Versus Working Capital Days

60 Cash Starved Customer Financed

40 GIB.A-CA

VZ-US CCA-CA 20 RCI.B-CA

0 QBR.B-CA SJR.B-CA

T-US -20 T-CA BCE-CA W orking Capit al Days al Capit orking W

-40 TGO-CA

-60 Supplier Financed Cash Rich

-80 10 20 30 40 50 60 70 80 90 Gross Margin (%)

Sym bol Peer Median Peer Median

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Cash Versus Earnings - Sustainable Performance?

It is important to examine a company's cash versus earnings numbers to gauge whether its performance is sustainable.

T-CA's change in operating cash flow of 24.61% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

400

Likely Non-cash Earnings Cash Flow based Earnings 200

GIB.A-CA CCA-CA TGO-CA BCE-CA SJR.B-CA VZ-US 0 T-CA

-200 Earnings Grow t h (%) h t Grow Earnings -400

T-US -600

Low Cash Flow Base Likely Undeclared Earnings

-800 -40 -20 0 20 40 60 Operating Cash Flow Growth (%)

Sym bol Peer Median Peer Median

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Margins

The company's decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 18.03% to 13.47% and (2) one-time items that contributed to a decrease in pretax margins from 13.46% to 8.79%

One-time Favorables Operation driven Earnings 40

30 CCA-CA QBR.B-CA 20 BCE-CA

T-CA 10

ORAN-US 0

-10 PreTax M argin (%) argin M PreTax

TGO-CA -20

-30 T-US

-40 Low Earnings Base One-time Unfavorables

-50 -20 -10 0 10 20 30 EBIT Margin (%)

Sym bol Peer Median Peer Median

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EBIT Margin History PreTax Margin History

30 20 1 5 .7 2 1 5 .3 6 2 0 .8 8 2 0 .0 4 1 3 .4 6 1 3 .4 3 1 8 .6 7 20 1 8 .0 3 1 7 .3 4 1 1 .8 2 1 5 .5 8 1 0 .8 6 1 3 .4 7 10 8 .7 9 10

0 0

2019-12-31 2020-03-31 2020-06-30 2020-09-30 2020-12-31 2019-12-31 2020-03-31 2020-06-30 2020-09-30 2020-12-31

T-CA Peer Median T-CA Peer Median

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ESG Performance

CapitalCube 2021. All Rights Reserved TELUS Corporation | Analysis | March 16, 2021 7 Investors are more conscientious about investing in companies with good Environmental, Social and Governance (ESG) practices. We give companies that self-report annually on these metrics a score that is calculated as a sum of the 3 individual pillar scores. ESG scores are calculated out of 100 and are also presented as a letter grade. • As of 2020, T-CA has an ESG score of 80.15 (A-). It continues to trend upward and is above (but within one standard deviation of) its four-year average ESG score of 78.29 (A-). • The increase in its ESG score to 80.15 (A-) from 78.93 (A-) in 2019 was also accompanied by an increase in its peer median during this period to 71.19 (B+) from 69.62 (B+). • As of 2020, the ESG score of T-CA has outperformed its peers by 12.58% (and is now also higher than its peer median). In 2019, T-CA outperformed its peers by 13.38%. • Of the three pillars that make up the overall ESG score, the Social pillar performed best with a score of 83.95 (A) • T-CA's Environmental pillar score of 80.92 (A-) has declined by 0.75 % from last year's high but remains above its four-year average Environmental pillar score of 79.74 (A-). • T-CA's Social pillar score of 83.95 (A) is its lowest relative to the last four years and compares to a high of 89.79 (A) in 2016. • T-CA's Governance pillar score of 71.93 (B+ ) is its highest relative to the last four years and compares to a low of 47.61 (C+) in 2017.

Beyond the ESG score, we also analyze the Controversies score of the company. This is calculated based on controversies related to the company in the media - bad press can be costly to companies. A Controversies score of 100 is good - meaning no controversies whereas a Controversies score of 0 is bad and adversely affects the ESG Score. • In 2020, T-CA's Controversies score has remained relatively stable at 100 (A+) compared to 2019. Its peer median has decreased to 92.59 (A+) from 100 (A+) in the same period. • Factoring in the Controversies score of 100 (A+) with the ESG Score of 80.15 (A-), gives T-CA a Combined ESG (ESGC) score of 80.15 (A-).

Fading Leading

12.5

GIB.A-CA VZ-US 10

QBR.B-CA CCA-CA 7.5

SJR.B-CA RCI.B-CA 5 T-CA

2.5 e r nIvs dCptal Capit ed Invest On urn Ret

0 T-US

-2.5 Lagging Rising

-5 30 40 50 60 70 80 90 100 110 ESG Score

ESG Performance Peer Median ESG Score Peer Median Return on Invested Capital

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Total ESGEnvironmental Governance Company Symbol Social Score Score Score Score BCE Inc BCE-CA A- A B+ A Rogers Communications Inc. RCI.B-CA B B B B+ Verizon Communications Inc. VZ-US B+ B- A- B+ AT&T Inc. T-US B+ A- A- C+ TeraGo Inc. TGO-CA N/A N/A N/A N/A Shaw Communications Inc SJR.B-CA B- C+ C+ B+ Orange SA (ADR) ORAN-US N/A N/A N/A N/A Quebecor, Inc. QBR.B-CA C D+ C- B+ Cogeco Communications Inc CCA-CA A- B+ A B+ CGI Inc GIB.A-CA C+ B B+ C- TELUS Corporation T-CA A- A- A B+ Peer Median B+ B B+ B+

TELUS Corp provides a range of telecommunications products and services. The Company operates through two segments: wireless and wireline. The wireless segment includes network revenues and equipment sales arising from mobile technologies. The wireline segment includes data revenues, voice and other telecommunications services revenues and equipment sales. It provides wireless products and services for consumers and businesses across Canada. Its products and services include data and voice, devices and Internet of things (IoT) solutions. It offers wireline products and services, such as residential services in British Columbia, Alberta and Eastern Quebec; healthcare solutions; automation and security solutions; business services across Canada; and customer care and business services (CCBS) solutions offered internationally.

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