Deutsche Telekom Ag S/Adr

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

Welcome, everybody. Thank you, Hannes, and welcome to our second quarter 2023 call. Maybe my highlights of today, it's strong customer growth, a solid year, and don't worry too much. about the circumstance in our industries. Our flywheel remains quite successful. We continue to deliver constant, consistent growth as we have promised. And let me highlight that here on that slide. We saw in the US the highest second quarter postpaid phone net ads in eight years, and we were able to raise our outlook again. In Germany, with record customer growth, we added 600,000 branded postpaid phone customers in the first half alone. That shows the strong reception on our new tariffs. And we have undisputed network leadership on both sides of the Atlantic, which is very encouraging as well from our external sources. We are now passing 15 million European homes with fiber, of which 6.2 million are in Germany, and we keep the pace on building infrastructure. We agreed on important blueprint for deploying fiber with our partner GDRW, the umbrella organization for most German housing associations. And now we have a new entry to this field as well. And our adjusted core EBTR grew 6% organically. while our service revenues grew 3% so far this year, everything ahead of our capital market guidance targets, which we have laid out. We understand investors' concerns about the recent developments in the German mobile wholesale market, and we will probably discuss that later on. But please remember the German market has had various ups and downs in recent years, and we are just posting the 27th quarter of EBITDA growth in this market. Based on our good year-to-date results, we are raising our guidance slightly once more, and this time on both sides of the Atlantic. I will go through the details later on. Our TMUS stake now exceeds 51% and we were well on track also for our capital allocation targets. Our net debt is down by 9 billion in the last 12 months. And after the rating upgrade from Standard & Poor's, our credit rating from all three major agencies is now in the middle of our comfort zone. As usual, I will go through some year-to-date highlights before Christian will dive into the quarter in greater detail. On page five, you see that our growth continued in the second quarters. All segments, all segments contributed to this growth. Organic group service grew by 2.9%. Ex-US, we grew by 2.4%. Organic Core EBITDA ex-HandSense leases are increasing as well with 5.8% in the first half. This represents a sequential acceleration from 4.4% in the first quarter to 7.1% in the second quarter. XUS EBITDA grew at 1.1%. This was impacted by different cost phasing in GHS compared to last year. This will largely reverse in the second half year when we expect an acceleration. Germany has now delivered 27 consecutive quarters of organic EBITDA growth, the European segment 22 quarters. The foundation of our growth remains our network leadership. We now pass almost 15 million European homes with FTTH, 3.4 million households more than one year ago. We pass 6.2 million German homes with FTTH. Our Ultra Capacity 5G network now reaches 285 million US POPs. This remains a long way ahead of the others and within striking distance of our 300 million target for the year end. Very proud we are about customer growth. Our customer growth continues as you can see on the following page. All markets are going full steam and we won't stop. Moving on to ESG, at our AGM in April, we had sharpened our climate ambitions. And I'm happy to say, despite the strong growth in data usage, we reduced our energy consumption on both sides of the Atlantic so far this year by minus 8%. Next, let's move to our guidance for 2023. A couple of weeks ago, T-Mobile US etched up its guidance for customers and EBITDA. Today, we also increase our ex-US EBITDA guidance by 100 million to 14 billion. We continue to expect 7% core adjusted EBITDA growth. and over 40% in free cash flow growth at group level. Note that our guidance remains based on a US dollar exchange rate of 1.5 cents and continues to exclude any contribution from GD Towers. Please refer to the appendix for a like-for-like comparison of our guidance with the latest consensus. And with that, I already hand over to Christian for a deeper dive into the quarter.

Thank you, Tim. And hello also from my side. And let me start with T-Mobile US, our largest operation. According to US GAAP, the core EBITDA has grown by almost 11% on a year-on-year basis. And what you can see in the numbers is that the drag from the planned reduction of handset leases is really coming to an end. and that we also had a bigger US GAAP IFRS bridge in the second quarter that accounted for $260 million. But we're persuaded and confident that the full-year impact will be around $800 to $850 million. The revenues on a top line declined due to the lower equipment revenues. I think this is A, due to handset revenues, but also the replacement cycles in the U.S. becoming longer and longer, and that impacts the revenue equipment business. But the more important KPI is obviously service revenue, which came in 2.8% higher than the year before. And if you break it down into the categories, the postpaid service revenues, they grew significantly. by 5.5%, prepaid was flat, and wholesale was declining by roughly 200 million. Also, if you adjust for the exit of the wireline business during this quarter, the service revenue would have been 3.3%. What's really supporting our growth is that our differentiated growth vectors, the three which I will mention, continue to perform really strongly. So the small markets, rural areas, we're having now a market share of about 16.5% and see a continuously share gain The share of switchers is in the upper range of the 30% range. So this is really a performing business. And you heard Mike, who said that we would stop at 20%. I continue to believe that we will increase our share beyond the 20%. Same was true for B2B. B2B obviously is a continuous growth business. And we also saw on high-speed Internet a very strong net addition of another half million customers. So in total, our base is now 3.7 million subs or an increase of 2.1 million on year-on-year basis. What you also have seen in the second quarter is the 760,000 postpaid phone net ads, which is the best second quarter in eight years. And that led, obviously, to the customer guidance upgrade in the U.S. once more by 250,000. So T-Mobile expects now 5.6 to 5.9 postpaid net ads, of which roughly half is coming from phones. Moving over to Germany. Tim said it already, 27 quarters of consecutive EBITDA growth. So it's another quarter to go that we basically get to seven years in a row. The organic EBITDA was again up by 3%. The organic revenue growth was only 1.1%. This is also an impact coming from lower equipment revenues. The overall service revenue increased by 1.6 percent this quarter, and mobile was performing slightly better and accelerated to 2.1 percent. By the way, we expect this for the upcoming quarters. And if you reflect on the Q2 numbers, you see there was a drag coming from Lebara and MTR cuts. But on the other hand, we had visitor revenues and roaming as a tailwind. So if you adjust for all these four factors, the underlying growth is close to 3 percent. Fixed revenues came in a bit slower, and I will explain this to you in a minute. So, obviously, our fixed revenue growth is driven by very strong retail revenues, and thus, in turn, by broadband revenues. But if you compare the growth of the Q2 number relative to the previous quarters, you see that there was a decline from 4.7 percent to 4.0 percent. And this sequential slowdown has nothing to do with the broadband customer growth, nor with our speed monetization, which I will get into later on. It is driven basically by the adoption of principal agent reporting starting in Q2 2022. And that has a negative impact compared to the Q2 number in 2020. If you compare Q2 this year versus Q2 last year, where we didn't have that agent reporting but still principal, that drags down your broadband revenues. I think what you've seen also is that the one-off, which we have seen in the first quarter in wholesale, is now gone, and you see a slight increase of revenues, and we're confident that we're going to provide you with a stable revenue figure by the end of the year. Our broadband retail customer base is performing really strong. You see the 67,000 net ads in the German market, as well as 36,000 TV net ads. We assume that our net ad share is well above the intended 40 percent target, which we're having. What you also see is the constant and almost linear growth in upselling higher bandwidth. Now, 43% of all our broadband customers have speeds of at least 100 megabits. And also, we increased our FTTH customer number by 64,000 to 833, and we have also increased basically in the backlog, 650 pre-marketed customers, where we don't have the technical solution ready yet. So that leads us to the assumption that the FTTA growth will accelerate in the upcoming quarters. On mobile, you see the customer intake is really strong with almost 320,000. The churn has come down significantly. This is a normalization post the TKG effect. And also, you see a significant increase of data consumption, which is obviously also driven by our rollout of the 5G network. Gets us to the next segment, which is Europe. And, to be honest, Europe is performing better than we anticipated it to be in the beginning of the year. The reported revenue is growing by 6 percent and the organic revenue by 5 percent. Interestingly enough, the local currencies like Zloty and Forent and Czech Krona perform stronger relative to the euro, and that actually explains the difference. Despite that we had to manage meaningful inflationary headwinds, and you know them, it's salary costs, it's also energy costs, the segment was able to deliver a 2.6% growth on a year-on-year basis. And that is very much also driven by the very solid customer numbers, which you can see on page number 19. Moving to T-Systems. So the organic revenue of T-Systems grew by 4.8% and the EBITDA by 2%. So we're well on track meeting our full year guidance. And the organic number is important because we have moved MMS from T-Systems into Germany. Therefore, you see that the reported and the organic number are different from another. What we're also seeing is a decline on the order entry. And this is mainly to be explained by phasing or slip deals. So that gets me to my overview on the financials, on the group financials on page 21. So you see that the overall P&L is obviously impacted by the tower transaction, which we have closed in February 1. You see that the headline revenue growth is being impacted by the lower equipment revenues from handsets, and that's very much driven by the U.S. The headline EBITDA is obviously... impacted by the unwind of the handset leases but this will come to an end by the end of this year and our capex to be honest is a bit front load in the first half so despite the fact that capex has come down it's still relatively we consumed relatively more capex than we anticipated it to be in the beginning of the year but this will phase out in the second half of the year And the trial transaction, I think that's worth mentioning, obviously has a massive impact on the net impact, net profit, which now is at $17 billion and also helps us a lot on deleveraging. It gets me to the free cash flow. The free cash flow grew at 28% this quarter, but we expect that on a year-on-year basis by the end of the year, it will be north of 40% growth. So I expect acceleration in the second half. Obviously, the cash flow is supported by cash from operations. You see the decline in CapEx, and we had a benefit in 22 on leasing payments due to the prepayment of ATC in the U.S., which obviously has a negative impact in this year's numbers. The adjusted income has declined by almost 23 percent, or let me put it this way, 560 million euros. And that can be completely explained by the financial result. The financial result is down by close to a billion, and there are three drivers behind this. First driver is, obviously, in this interest environment, we have to pay higher interest rates that account for roughly 200 million. Then we had to increase the provisions for pensions by half a billion. That's Postbankenkrankenkasse. And the value movement of the options and the forward was negative by $300 million. So these are all what we call non-recurring items, as you know, except for the interest costs. And if you adjust for the non-recurring items, our EPS would have grown by $0.06 per share. Moving over to leverage. Leverage is at 2.4x leases and 2.94 including leases. By the way, the 2.94 including leases compares to a 3.28 in the previous first half in 22. We indicated this in the Q1 call that we expect that the leverage ratio is increasing again, and the main reason for this is the dividend payment here on the DTAG side, as well as the share buyback program in the U.S. Tim has mentioned that we received an upgrade from Standard & Poor's. So we are now with all three rating agencies in the middle of the quarter of our comfort zone. We always have, for all of them, a stable outlook. So I'm confident that we're tracking well against our CMD targets also when it comes to leverage. And with that, I hand it over to you, Tim.