Morningstar DBRS Confirms Thomson Reuters Corporation's Credit Ratings at BBB (high), Stable

DBRS Limited (Morningstar DBRS) confirmed Thomson Reuters Corporation's (Thomson Reuters or the Company) Issuer Rating, Unsecured Medium-Term Notes rating, and Unsecured Debentures rating at BBB (high). Morningstar DBRS also confirmed the Company's Commercial Paper rating at R-2 (high) and its Preferred Shares rating at Pfd-3 (high). All trends remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations reflect Thomson Reuters continued strong operating performance through Q1 2024, on the back of strong organic growth within the Company's Big 3 segments (i.e., Legal Professionals, Corporates, and Tax & Accounting Professionals). The Stable trends reflect Morningstar DBRS' expectations that the Company will continue to experience solid organic growth supported by investment in product innovation while also maintaining credit metrics at a level considered at least appropriate for the current credit rating category.

CREDIT RATING DRIVERS
While Morningstar DBRS views the current ratings as soundly placed within the current rating category, should the Company experience stronger-than-anticipated organic earnings growth on a sustainable basis while formally reducing its long-term leverage target, a positive rating action may occur. Conversely, if the Company were to experience a significant deterioration in its operating income and/or financial leverage that is meaningfully above the Company's stated net leverage target of 2.5 times for an extended period, a negative rating action could result.

EARNINGS OUTLOOK
Morningstar DBRS anticipates Thomson Reuters' earnings to continue to grow at a steady pace, with revenue growth in the mid-to-high single digits. Revenue growth is expected to be primarily driven by strong industry trends and innovative product launches and enhancements in the Company's core segments, supported by recent acquisitions. Morningstar DBRS forecasts Thomson Reuters EBITDA margins to decline modestly in 2024, as a result of the inclusion of lower margin acquired businesses, as well as acquisition related integration and investment costs. That being said, Morningstar DBRS anticipates the Company's margins to improve over the medium term as acquisitions are integrated and efficiencies are achieved. Furthermore, Morningstar DBRS expects revenue growth to more than offset any near-term margin headwinds, such that Thomson Reuters EBITDA grows towards $2.8 billion in 2024, and continues to experience solid growth through 2025.

FINANCIAL OUTLOOK
Morningstar DBRS anticipates Thomson Reuters financial profile to remain strong for the current rating category, on the back of continued earnings growth and supportive financial flexibility. Morningstar DBRS forecasts cash flow from operations to increase in line with operating income increasing to over $2.0 billion in 2024. Morningstar DBRS forecasts capital expenditures to increase into the $600 to $650 million range, and be primarily allocated towards investment into the development and implementation of new product launches and improvements, including further integration of artificial intelligence into the Company's product offerings. Morningstar DBRS notes that Thomson Reuters completed the monetization of its remaining stake in the London Stock Exchange Group, and has received total proceeds of $1.9 billion in 2024, the majority of which is expected to be returned to shareholders through dividends and share buybacks. Morningstar DBRS believes that Thomson Reuters is likely to continue allocate free cash flow towards opportunistic acquisition activity and returns to shareholders, while maintaining debt-to-EBITDA within the target range, on a sustainable basis, through 2024 and 2025.

CREDIT RATING RATIONALE
The credit ratings remain supported by Thomson Reuters well-entrenched market positions, customer and product diversification, and strong free cash flow generation. The credit ratings also take into consideration the intense competition within industries the Company operates in, the need for constant client-focused product innovation, and risks associated with dispositions and growth through acquisitions.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) 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 Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors
In the analysis of Thomson Reuters Corporation, the relative weighting of the BRA factors was approximately equal.

(B) Weighting of FRA Factors
In the analysis of Thomson Reuters Corporation, the relative weighting of the FRA factors was approximately equal.

(C) Weighting of the BRA and the FRA
In the analysis of Thomson Reuters Corporation, the BRA carries greater weight than the FRA.

Notes:
All figures are in U.S. dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in the Services Industry (15 April 2024)
https://dbrs.morningstar.com/research/431185

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024) - https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:

-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024)
https://dbrs.morningstar.com/research/427030

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.

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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577