Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's third quarter 2023 conference call. As you can see, with me today are our CEO Tim Hortges and our CFO Christian Illich. As usual, Tim will first go through his highlights for the year to date and then Christian will deep dive into the quarter. And then we have time for Q&A. Before I hand over to Tim, as always, I would like you to pay attention to the disclaimer that we have included in the presentation. And please note the conference will be recorded and uploaded to the Internet. And now it's my great pleasure to hand over to Tim.

Thank you, Johannes, and welcome to the third quarter 2023 results. We continue to deliver consistent growth as promised. on both sides of the Atlantic. All businesses are growing. You know that I'm rarely satisfied, but honestly, even I have to find little to criticize in these results, and I'm a quite happy camper today. Let me mention a few highlights today. In the U.S., We added an industry-leading 850,000 postpaid phone customers, and we raised our outlook for the year. In Germany, we added over 900,000 branded postpaid phone customers in the first nine months. We added 237 broadband customers, and we had the first quarter without any line losses since that last millennium. Our adjusted core EVTR grew by 6.8% organically in the first nine months, with 8.9% in the third quarter. What a number. We pass on T-Mobile's guidance, increase and raise our guidance for the third consecutive time this year. I will go through the details later on. Our TMUS stake now exceeds 52%. Our net debt is down around 10% in the last 12 months. In September, T-Mobile US announced a 19 billion shareholders return program, which includes for the first time a dividend payment. And we are happy to receive the dividend. And starting next year, we also sell into the T-Mobile share buyback. Last week, we also announced our planned shareholder returns for next year. We plan to raise the dividend by 10% to $0.70 for 2023, and we also announced a DT share buyback of up to $2 billion in 2024. With our planned share buyback, we deliver against our promise to reverse the September 2021 capital increase Our flywheel remains very successful and let me now dive into the operations a bit. The foundation is our network. We are network leaders in all our markets now. In the US, our 5G leadership is underpinned by spectrum leadership and confirmed by all the tests. This quarter, we got a clean sweep in every category of network performance for the first quarter in a row from Ucla. There is also no doubt who has the best network in Germany. According to Ucla, our mobile speed is almost twice the competitor average. We are the network leader in most of our European markets. most recently with wins in Austria, Croatia, Greece, Czech Republic and Slovakia. We as well lead in customer service. In Germany our first time resolution rate has doubled in recent years. Now almost two-thirds of faults get solved the first time round. This is ahead of our capital markets guidance Our complaints are down by 90% in the last four years and in the last three months alone we won the chip and the connect shop test, the focus magazine service quality test, the connect hotline test and so on and so on. We had 14 tests from external sources in Germany And from the 14 tests, we all won that. So you see that we are taking customers at the center of our organization, and this looks and seems to pay off with very high customer satisfaction. And by the way, today we as well announced that in all European markets, for the first time in history, we have the highest net promoter score of the competition. So even there, we are fulfilling our promise to make customers to fans. In Germany, our customer net promoter score neared the 20% in October. Our B2B trim is at an all-time high. And in the U.S., we have the lowest third quarter post-patch churn ever with 0.87%. The sum is up. It's great to see a strategy which is working. Moving on to page five and the development of organic financials. All segments, all segments are contributing to our growth. Organic group service revenue is up by 3.3%. XUS grew by 2.6%. Overall revenues were only flat due to lower equipment revenues. And as mentioned, organic core EBITDA increased by 6.8%. In Germany, we posted our 28th consecutive quarter with EBITDA growth. And in Europe, our 23rd consecutive quarter. The foundation of everything we are doing is our network leadership. We now pass 15.6 million European homes with FTTH, up 3.4 million households year over year. We pass 6.9 million German homes with FTTH, and we reached our year-end goal of covering 300 million US POPs with ultra-capacity 5G three months ahead of time. Our strong customer growth continues, both in US and in Europe. Our broadband and TV net ads accelerated strongly this year, driven by Germany. Let's move on to ESG. At our AGM in April, we had sharpened our climate ambitions. And despite strong growth in data usage, we further reduced our energy consumption on both sides of the Atlantic so far this year by minus 9%. Let's move to our guidance update. A couple of weeks ago, T-Mobile US raised its guidance for customers, ADBTR, and for free cash flow. Today, we are passing this on on a group level and raised our EBITDA and free cash flow guidance by €0.1 billion each. Our ex-US guidance, which we upgraded at the half-year stage, remains unchanged this time. Our adjusted EPS guidance for at least €1.60 is also unchanged. And we continue to expect 7% core adjusted EBITDA growth this year. Over 40% in free cash flow at group level. Note that our guidance remains based on a US dollar exchange rate of $1.05. And continues to exclude any contribution from group development towers. Please refer to the appendix for a like-for-like comparison of our guidance with the latest consensus. With it, I hand over to Christian for a deeper dive into the quarter.

Thanks, Tim. And let me start with T-Mobile US. So, core EBITDA, according to US GAAP, grew by 12% on a year-on-year basis. If you're interested in how this reconciles into IFRS reporting, I defer you to page 29 in the appendix. The drag from the planned handset leases is coming to an end. It will be around 300 million this year. Let me remind you, in 2020 it was 4.2 billion euros, and next year I think it will be almost negligible. The U.S. GAAP IFRS bridge in this given quarter is $216 million, and we expect it to be $800 to $250 million over the course of the full year. Overall revenues in the U.S. declined because of lower equipment revenues. Service revenues increased by 3.6%. That was very much driven by postpaid service revenue growth of 6.4%. And you know that we have closed and shut down the wireline business earlier than expected. Without that closure, that service revenue growth would have been 4.6%. What you see in T-Mobile is that our differentiated growth is still continuing to grow. We see a massive expansion opportunity in Smyrna, so that means more markets in rural areas. This quarter, for the first time ever, we captured the highest shares of switchers in these markets. In business, we have seen the highest net ads in the enterprise space, combined with the lowest churn in history of this business segment. And as you know, we have a very good success in high-speed Internet with almost 560,000 net ads in the given quarter, which brings us now to 4.2 million subs. Post-paid phone net ads, not new to you, is 850K in Q3, and it was associated with the lowest churn in Q3 ever. Based on the strong customer results, T-Mobile was able to raise its guidance. We now expect 5.7 to 5.9 million post-paid net ads, of which around three will be post-paid phone net ads. And I think that brings me to the end of the U.S. section. Let's move over to the very successful German business in the third quarter. You see that the organic EBITDA growth was around 3%, 3.1% this quarter. Organic revenue growth improved to 2.1%, driven by service revenue growth, which was 2.4%. And if we move to the next slide, you also see that the mobile service revenue accelerated to 2.9% growth. And that was coming from both customer growth, so volume growth, and upselling. You'll recall that previous quarters we have been impacted by the Levara wholesale deal, which we lost. But this is now rolling over. Organic fixed revenues growing by an accelerated 2.1%. And what you see in our growth in the fixed service revenue remains very much driven by the retail revenues. These reaccelerate to 2.4%. It was mainly driven by the broadband revenue growth of 5% in the given quarter relative to the 4% which we have in the previous quarter. The wholesale access revenues grew at 1.6%, remain in positive territory, and despite the fact that we're losing some lines, we're able to offset this by upselling. We currently expect that the fixed service revenues to be weaker in the next quarter for two reasons. One is it's related to content cost accounting. We expect there's going to be a slight drag relative to the fourth quarter of the last year. And there's a rollover of the single-player price increase, which we implemented back in October 2022. Let me get to the German fixed KPIs. As you can see, 96,000 broadband net ads. I think we're benefiting temporarily from the competitor churn, but we are still confident that we have a very strong intake of broadband revenues, broadband net ads, but not exactly at the number you're seeing here. We're also pleased with the acceleration of our TV net ads, which continue to be in the vicinity of 50K. So it was 51K in the third quarter. And this is before the rental privilege is getting to an end. We're also making good progress on upselling. You see that now 45% of our broadband customers have speeds of at least 100 megabits per second. And we have around 910K customers, FTTH customers, paying customers in our base, which is up 77K from the previous quarter. And we also have a pre-marketed contract of around 700 in our books. So our mobile contract customer intake remains strong, as you can see on the next page. So 350K relative to the 320 of the previous quarter. And it's coming both from consumer, from the business segment, as well as from Kongster. So year-to-date, we have grown our mobile customer post-paid base by 940,000K. What also is encouraging is the strong increase in data usage growth because that supports our more for more strategy. Moving over to Europe. Europe is actually performing better than we anticipated it to be in the beginning of the year. they're coming in with a strong organic revenue growth of 3.7% and an EBITDA growth of 3.3%. And this is despite a very high inflationary cost inflation, which we're seeing in Europe, especially when it comes to salary and energy costs. You can see on the next page the strong commercial performance when it comes to mobile net ads or to broadband net ads. I think it's across all categories. And we're really confident to continue this journey also in the upcoming quarters. What you also should know is that we are now number one in customer satisfaction measure in trim, except for Romania. And this is the first time ever that I've seen that number. Moving over to T-Systems, organic revenues grew by 7% despite a lower order book. The order book is mainly impacted by two factors. One is obviously the transfer of MMS into the German business, and there's also a lot of phasing, and we will see how this plays out in the fourth quarter. Organic EBITDA grew by 1.2%, and I think we're fully in line with our guidance, which we have given for the year. I think that is the end of my operational review. Let's get to the group financials. So let me start with the free cash flow. The free cash flow grew by 60% in the third quarter on a year-on-year basis, which is largely driven by the significant lower CapEx, which is coming from the U.S., and this is obviously related to the Sprint integration. It brings us to an overall 25% free cash flow growth year-to-date, and we continue to expect that we are seeing at the end of the year free cash flow growth of larger than 40%. On the adjusted net profit, we actually lost 6% or year-to-date 14% relative to the previous year, and that is very much related to the what we call non-recurring, non-operational effects which is related to the provisions for the civil servants, for the U.S. forward, which we had last year, and the fixed price options. They basically gave us a tailwind of almost $0.30 on the share last year, and right now they basically equal out to almost zero, and therefore you see a drag if you compare the third quarter in 2022 to the third quarter in 2023. Next chart is... Overall financials, what you can see is financials are impacted by basically three effects. One is obviously the transaction of our tower business. The second one is the foreign exchange rate. We were budgeting at basically $1 equals €1. Obviously, the dollar is weaker, and that puts a burden on the reported numbers. And the third one, especially in the U.S., is a reduction in the handset sales, which basically gives you a negative impact on the revenue figures. Let's move over to net debt. Net debt, actually, what you can see is stable if you exclude the leases. It's $97 billion. And you see how basically the bridge works out with the free cash flow, which is almost reducing net debt by $5 billion. But we have contra effects like the share bar back in the U.S. of $2.5 million. And there's a forex exchange rate effect, which is putting burden on the net debt. Nevertheless, X leases, we had 2.4 relatively to year end 2022, which was 2.58. And same holds true for including leases. We have now a ratio of 2.94 relative to 3.07 in the end of 2022. So we added another chart on the next page, which basically is also taking up some of the discussions which we're seeing right now with you guys and the capital markets, which is related to the financing structure of our group. So what you see is basically... that we're pretty much having a solid structure. We have a net debt of $137 billion, of which $40 billion is leases, so the interest-bearing debt is $97 billion, of which 75% is coming from the U.S. As you know, T-Mobile U.S. and DT have separate debt towers, so let's put them apart in the two sections. So what you see is 100% of the refinancing in the U.S. is fixed. It costs us roughly $2.1 billion on a nine-month basis this year. And we have an average tenor of 11 years. In the ex-U.S. business, our maturities are limited to $6.4 billion until end of 2026. And our net debt ex-leases is down to $23.7 billion. And what you can also see is that we, over the course of the year, have reduced our variable exposure from 41% to basically 8%. So there's limited exposure when it comes to future interest rate increases. So we're pretty happy with the financing structure, as you can see right now. The average interest rate is around 4%, slightly lower in the ex-U.S. business relative to the U.S. business. So I think we're fully funded over the next years. I think we have a very good maturity and a very good interest tenor. And I think this is also reflected by the assessment of the rating agencies. And with that, I hand it over to Tim.