Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's first quarter 2023 conference call. As you can see, with me today are our CEO, Tim Höttges, and our CFO, Christian Illig. Tim will first go through a few highlights, followed by Christian, who will talk about the segments and our group financials. After this, we have time for Q&A. Before I hand over to Tim, As usual, please pay attention to our disclaimer, which you find in the presentation. And please also note that the conference will be recorded and uploaded to the Internet. And now it's my pleasure to hand over to Tim.

Thank you, Hannes, and welcome to the first quarter 2023 results call here. We had a good start to the year. Customer growth and financials were in line, or even better than we expected. We are stepping up our 2023 guidance, and our leverage has taken a big step down. We are now at 2.9 times including leases and at 2.3 times excluding leases, and we achieved the majority in T-Mobile US, which you have noticed already. We continue to deliver consistent growth, by the way, in all our businesses, as promised. Let me go through some highlights before Christian will then deeper dive into the quarter. Our growth continued in the first quarter. All segments contributed here. Organic group service revenue grew by 2.6%. Ex-US, it grew by 2.2%. And the organic core EBITDA ex-henset lease revenues increased by 4.4%. Ex-US by 0.6%. The ex-US EBITDA growth was impacted by cost phasing in GHS and we expect it to re-accelerate in the coming quarters. Germany has now delivered 26 consecutive quarters of organic EBITDA growth. The European segment, 21 quarters. I've asked for the US, but Hannes couldn't deliver it because I think it's something in the vicinity of 40 quarters. So you see all areas on growth and as well the system were growing. Total organic revenue were down year on year, and that is something we're going to explain later. The main driver of it is explained by 20% lower U.S. equipment revenues, which we don't have after the Sprint merger has been accomplished. The decline mainly reflects two temporary effects. The first, our planned unwind of handset leases. This constitutes a headwind of more than 1%. And the second is the anniversary of particularly strong handset sales last year, when we seeded the sprint base with handsets that functioned on our network. Both of that are not recurring in the future, and therefore, we see the decline in our Group revenues. Moving to the networks. The foundation of our growth remains our network leadership and all the investments we have taken here. We now pass almost 14 million European homes with FTTH, up by 3.1 million households year on year. We pass 5.7 million German homes with FTTH now, and our ultra... capacity 5G network reaches 275 million US POPs. We are way ahead of our competition and we will reach 300 million POPs by end of the year. In Germany, we cover 95% of the population with 5G, and 92% was the number last year, so another increase of 3% points. In the European segment, we stand at 51%, up 20 percentage points in the last 12 months. Our strong customer growth continued. In fact, in most categories, it even accelerated. In Germany, we benefited from our new mobile tariff plans and from the end of last year's headwind from the telecom law. Moving on to ESG, at our AGM in April, we sharpened our climate ambitions. We now want to reduce more than half of scope 1 to 3 emissions already by 2030. And we keep our climate neutrality goal for 2040. And in addition, we now strive to reduce our scope one to three emissions by at least 90% under 24. You should know that a reminder of the 10% under 24 is going to be carbon capture. Despite strong growth in data usage, we managed to reduce our energy consumption once more, despite the fact that our data consumption cloud build-out is increasing. But we were able to reduce it by another more than 7% in the first quarter, and this on both sides of the Atlantic. Now let's move to our guidance quickly. As expected, a couple of weeks ago, T-Mobile US raised its guidance for customers, EBITDA and free cash flow. And today we reflect this by raising our group EBITDA guidance by 100 million euros, as you can see on chart nine. We expect 7% core adjusted EBITDA growth in 2023 and more than 40% growth in free cash flow. Note that our guidance remains based on a US dollar exchange rate of $1.05 and continues to exclude any contributions from GD Towers. Please refer to the appendix for a like-for-like comparison of our guidance with the latest consensus. With that, very quick, after five minutes, I hand it over for a deeper dive to Christian for further details.

Thanks, Tim. And welcome, everyone. And I'm going to slow down. Well, let me start with the U.S. I don't comment there. revenues were down year on year and i think it has been mentioned by tim already this is due to lower equipment revenues you know that we have a planned reduction in the handset leases but also we had an unusual high amount of revenues coming from handsets in the last quarter and the first quarter 2022 and since the customer migration has come to an end obviously that number is coming down service revenues were up by 2.8 percent And that is driven by two different factors. We kind of have a reduction in our wholesale revenues in the vicinity of $200 million on a year-on-year basis, whereas our retail post-bid revenues remain strong with a growth rate of more than 6%. Core EBITDA based on US GAAP was up 9%, obviously driven by the top-line growth, by increased synergies. but also by the increase of the contract asset. As you know, we have given you a breakdown between core EBITDA into IFRS adjusted EBITDA. This is being reported on page 29. And what you see there first from core EBITDA, we have obviously a planned reduction in handset leases, which is the roughly 115 million less revenues. coming from almost 500 last year. And the second one is from the bridge from US GAAP into IFRS. We had a fairly regular, I would say, quarter in 23 when it comes to the 200 million. But we had a very, very favorable quarter in last year, which was giving us a hard comp on a year-on-year basis. Look, T-Mobile continues to deliver strong customer growth numbers, 540,000 post-bank phone ads, more than half a million high-speed internet ads. We have now a total of more than 3.1 million customers into our installed base, which uh gives us a good direction towards the seven to eight million by end of 2025 and this is the reason why t-mobile has increased its customer guidance by a quarter of a million we're now expecting a range from 5.3 to 5.7 net ads and obviously about 50 of that is going to be phone net ads that would be my report out on on the us let's move over to germany so Already mentioned 26 consecutive quarters of EBITDA growth. Organic revenue growth was 2.3%. Organic EBITDA growth was 3.1%. And as you can see on page 14, service revenues grew at a total of 1.6% in the given quarter on a year-on-year basis. Mobile was coming in at 1.7%, and we expect a similar growth coming up in the upcoming quarter. I think in the last quarter in Q3, we flagged that we had some, I would say, tailwind coming from roaming and from visitor revenues, and also the Lebara loss was offset by some one-timers. So if you include everything in, so if you include Lebara and if you include the termination cuts, we would be in the vicinity of a 3% growth rate. Fixed service revenue strengthens to 1.6%, and as you can see, It's very much driven by a strong broadband revenue growth of almost 5% combined with strong IT revenues. And again, recall back what we said last year in Q1 2022, we had some supply bottlenecks, and obviously now on a comp basis, we're benefiting from this in the year 23. The wholesale revenues on the lower right-hand side were actually a bit weaker this quarter. and there's a big one-off being built in there. But let me rest assure you, we expect a strong development and a rebound, and we expect stable to slightly growing wholesale access revenues for the full year of 2023. So, coming to our customer numbers, you see the 74 broadband net ads, 50,000 TV net ads, strong result relative to what we've seen in previous years. I think we're making a very good progress in upselling customers. What you can see here now, in between Q1 2022 to Q1 2023, we increased our customers with at least 100 megabits bandwidth by more than 1 million. And we have now representation of 42% of our complete broadband install base having those tariffs. A new chart which we have added to our presentation is the disclosure on FTTH customers. So we have an increase, a Q over Q, of 65,000 FTTH customers. However, we're building and we're coming from a fairly low utilization. And let me give you a handful of arguments why the utilization is actually that low. First and foremost, it's the exceptional strengths and quality of our vectoring network. And customers don't see a necessity to upgrade to FTTH so far, but the demand will come. And if the demand is coming, we are ready. But I think vectoring is one of the biggest reasons. As we're accelerating our build, obviously that impacts the denominator on the utilization in a negative way. The third one is there is a meaningful time lag between homes passed and homes connected. And you see this on the chart 16 with the 550,000 customers. These are customers who have signed a contract but haven't been connected yet. And that time gap obviously is part of our operational review on how to shorten this. The fourth one is the build-out mix, and we have a more focused area on urban areas relative to the overbuilders. And obviously competition in urban areas is higher than in suburban or rural areas. And finally, we do not require pre-commitments from customers as some of our competitors do. We're building out if we believe the business case is in our favor. So what you should expect when it comes to FTTH monetization, expect a continuously rising tight as we're moving into the future. On mobile, very strong customer numbers on mobile, 274,000 net ads. It's basically distributed between Magenta 1s. Mobile on consumer, more than 100,000. Strong B2B results was close to 100,000. And Kongster is still contributing roughly 80,000 into that mix. That is a very good sign because that means that the new tariff scheme does not cannibalize against Kongster. It cannibalizes and it's taken share from competitors. So also what you see is that the churn rate has significantly come down. Obviously, this is driven by a phasing out of the TKG effect. Moving over to Europe. And again, Europe growth. On a reported basis, 3.8%. On an organic basis, 4.9%. I think it was the Slotty and the Forend which was hitting us in this quarter. And despite meaningful headwinds, as you can see on the lower right-hand side, we're still able to deliver growth. despite the fact that we have the Hungarian special tax and higher energy costs compared to what we've seen in the last year in the first quarter. Systems, order entry was down, but this is an effect due to a very strong order intake in Q1 2022. Revenues were up by 4.5%. EBITDA was growing by 4.6%. So I think we're well on track when it comes to T-Systems to meet our annual targets. So that would be the end of my operational review, and let's focus on some financials. So what you see is on the revenue, obviously, we're growing, but we're not growing at the same pace as we have grown in the past. And that is obviously because of the lower equipment sales, which I just mentioned. There's some phasing in there. And don't forget, there's a deconsolidation element of GD Towers, because GD Towers is only being reflected for one month in our Q1 numbers. As I mentioned GD Towers, GD Towers is obviously the biggest impact on the net profit number, which came in at $50.4 billion because the deconsolidation Result was 12.9 billion on day one for GD Towers, which drove up that number. And you can later on see it in the decline of our net debt. Okay, it brings me to the next charge, free cash flow. So free cash flow is slightly below the previous years, basically driven by two effects. One is we had higher lease payments. And you know that the US has basically did a $1 billion prepayment in 21, which obviously helped in 22, but it's not repeating in 23. Therefore, we have the higher lease payments. And we have some front-loading of the CapEx. But again, we're keeping our CapEx guidance and don't expect that there's something popping up in the upcoming months. So, and again, Tim said it before, we're expecting a greater than 40% free cash flow increase for this year. On adjusted net profit, roughly $2 billion. What you see here is there were some positive effects, especially in Q1 2022. This came down to the option value. That came down to the appreciation of the value of the forward. That came down to the release and provisions for some pensions. And that effect was, in that $2.2 billion number, roughly $700 million. In this given quarter, the one-off effect is only 100 million euros. So if you basically take it out, you see an underlying growth of 19% EPS growth on an annual basis. Last chart is the deleveraging chart. What you see is obviously we have delivered by, without leases, by close to 11 billion euros. You see the impacts by the free cash flow, but also from the tower transaction where we received a 10.7 billion cash in. And we had some favorable Forex movements, which helped us as well. That brings us now to a ratio, a net leverage ratio without leases to 2.31, coming from 2.58. And also we're meaningfully below 3 when it comes to the leverage ratio. including leases. I like this chart so much you can't believe it. And with that, I hand it over to Tim.