Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's full year 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 for the year as a whole, followed by Christian, who will talk about the quarterly performance and the group financials in greater detail. 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. And now it's my pleasure to hand over to Tim.

Welcome, everybody. So, where do we stand at the end of 2023? I think, obviously, our strategy is working. Our flywheel, as we always stated, is working pretty nice. Over the last 10 years, you know, I've invested 170 billion. So, that's quite an amount. And we now have 300 million customers on this infrastructure. We have leading networks. I think all networks are stating this on both sides of the Atlantic and a result of a focused and far-sighted capital allocation strategy, which worked pretty well for us. We continue to invest into future growth, for sure, with our fiber investments. Our new 2 billion euro tech fund with open RAN technologies with January Eye, all of this becoming stronger in regard to the leading digital telco. Magenta has become the most valuable brand in Europe and it has become the most valuable global telco brand. I think a very nice achievement. Our customer satisfaction scores are moving up as well. In all areas, and by the way, there's not a single market except Romania where we are not leading from a net promoter score, I think as well, a good outcome. Customer growth continues at a high level. I think that's the stunning part of the fourth quarter here, the great customer growth on both sides of the Atlantic. We're seeing as well good customer growth in the B2B area and mobile contract growth in Germany. I think a great number, despite the fact that we had strong competition here in this overall situation. Our customer service made huge progress as well. First-time resolution rate in Germany has now achieved 70%. Our complaint rate, by the way, came down since 2016 by 90%, from 5.4 million down to 300,000 last year. T-Mobile in the US has launched a dividend program on top of its buyback. And DT itself has launched a 2 billion euro share buyback program on top of the dividend. Our total share return was 20% in 2023. For the last 10 years, it was 174%. That brings me to our financials for 2023. And you know the numbers. I'm quickly going over them. Our service revenue grew by 3.6% organically. EBITDA almost 7%. By the way, if you look hindsight, we are growing now since a couple of years with something in the vicinity of 4% on the service revenues and 7% on EBITDA. and the guidance going forward is in the same magnitude. So, this is a good indication, you know, four and seven, I like that number, especially when you know where the industry is coming from and where are we. Our free cash flow grew by 41% to over 16 billion, well in line with what we laid out. Europe is now on six, Germany on more than seven years of consecutive quarterly organic EBITDA growth, I think this investment in our infrastructure and in leading services is paying off. We delivered again against our 23 guidance, which we have raised throughout the year. Our 24 guidance means that strong growth will continue this year and that we are looking good for our 21 capital markets targets. And we will discuss that later on in more detail. Capital allocation remained focused. We regained our majority in T-Mobile last year, despite the dilution from the true up, well prepared. We completed our tower joint venture, and we reduced our net debt by 10 billion euros in the last 12 months. And T-Mobile launched a new shareholder remuneration program up to $19 billion. And for the first time, this includes a dividend as well. At the DT level, we propose to increase our dividend by 10% to 77 cents. And on top of that, we have launched the 2 billion euro share-by-back program, which was mentioned to you already. Moving to the organic numbers on page six here, you can find that all segments are contributing to our growth. By the way, it's not only true for EBITDA, it's as well true for revenues on service customers as well. So it is in all categories. But here you see the EBITDA growth, organic group service revenues grew up by 3.6%. Look, we have to consider some foreign exchange changes, but Christian will talk about that in a second. U.S. service revenue grew by 2.8 percent and in the last quarter by 3.5 percent. Overall revenues were impacted by lower equipment revenues. And as mentioned, our organic EBITDA 6.9% growth and 7.2% growth in the last quarter. The foundation of all this success is our network leadership. In the last 12 months, we passed 3.5 million additional European homes with FTTH and now reach 17 million fiber homes. We passed 2.6 million additional German homes with FTTH and reached 8 million last month. In the US, 5G leadership is underpinned by spectrum leadership and confirmed by all the tests. T-Mobile got a clean sweep in every category of network performance from Okla, now for the fifth quarter in a row. In Europe, our 5G coverage increased 20 percentage points last year. And there is clearly no doubt who has the best mobile network in Germany or even in the European entities. Please have a look to all the different network tests. Deutsche is always leading. Our customer growth continues, both in the US and in Europe. We totally added nearly 8 million post-paid customers last year. And on broadband and TV nets, we accelerated as well, driven especially by strength in Germany. And by the way, the customer growth of today is the service revenue growth of this year and tomorrow. So therefore, this number means a lot to me. Moving on to ESG, despite strong growth in data usage, we further reduced our energy consumption on both sides of the Atlantic. We also reduced our CO2 emissions by 7%. By the way, this is more than what we have originally foreseen. And with this, our climate targets are well on track and our targets are SPTI approved. Our customer satisfaction improved further, while our employee satisfaction returned to, no, that's not true, to pre-pandemic levels. It's still higher than pre-pandemic, but they came down a little bit. So, I'm sorry for this statement. So, it is in the high 70s now, and it was a little bit about 80 in our survey in spring. Our campaigns against hate speech shave Absolutely great recognition. By the way, for the first time in history, we got the Black Effie, which is the highest recognition for any kind of advertising you can do on this. We were official partner of the last year's Special Olympics, and T-Mobile has by now connected 6 million students through its education initiative. Before we get to our 24 guidance on the next chart, let's review how we performed. in the markets. Do you remember that we raised our guidance intra-year? And on this chart, we compare with our last guidance as of Q3. To make it comparable, we adjust our actual 23 results for our guidance parameters, mainly foreign exchange and one month of GD Towers. You can see that we delivered what we have promised with a slight like for like beat. in Core Adjusted EBITDA and on Free Cash Flow. With that, let's move to our guidance. As usual, our guidance is based on last year's average exchange rate, which was $1.08 per euro. Again, as usual, we are taking the midpoint of T-Mobile's guidance, subtract the GAP and IFRS bridge and add our expected results for DTX US. As you can see here, XUS, we are guiding EBITDA of 14.4 billion euros in 2024 and free cash flow of 3.5 billion euros. So, this is the European situation. Of course, as in 2023, our 2024 XUS free cash flow contains a regular annual return from our 49% stake in GD Tower. For the group, we expect 42.9 billion EBITDA, 18.9 billion free cash flow, adjusted EPS of at least €1.75, and this is driven by the expected EBITDA growth, partially offset by higher year-on-year depreciation expenses in the US. And in the appendix, we compare our guidance with the consensus that uses a foreign exchange of €1.09. And you can see that our guidance is close, very close to the consensus on a like-for-like basis. And with this, I hand it over to Christian to give you a deeper dive into the quarter.

Thanks, Tim. And welcome from my side. And let me start with T-Mobile US. So core EBITDA growth in the fourth quarter was at 9% on the full year. As you can see, it was at 10%. We have put a reconciliation between the core EBITDA to the IFRS adjusted EBITDA bridge into the appendix. And what you see in there is that the drag from the handset leases is clearly coming to an end. Secondly, you see that the U.S. GAAP IFRS bridge in Q4 was roughly 200 million and totalled at 860 for the full year of 23. What we've also seen in the U.S. numbers is that the total revenues are impacted by lower handset or equipment revenues. The U.S. GAAP service revenue grew on a year-on-year basis by 3.4 percent, largely driven by the postpaid service revenue growth, which grew at 6.4 percent, but we had negative drags from the wireline business as well as from the wholesale business. Look, our differentiated growth strategy on the three vectors continues to work. Let me start with small markets and rural areas. We now reach a market share of 17.5% by the end of the year. And let me remind you, we started roughly at 13% in the year 2020. Same old is true for the business segment. Obviously, the fourth quarter showed the highest net ads in 2023, the highest net ads on an annual basis ever. And the high-speed Internet segment continues to deliver really strong growth with more than 500,000 customers in the previous quarter, a net number of 2.1 million in the year 23, or a total install base of close to 5 million. So the postpaid phone net ads totaled at 934, which was industry-leading. On an annual basis, it was more than 3 million. Compare this against AT&T and Verizon. T-Mobile's initial guidance for 24 is, when it comes to postpaid net ads, in between 5 to 5.5, after we've reached close to 5.7 in the year 2023. Moving over to Germany. Our organic growth improved to 3%. There was a sequential acceleration driven by handset revenues in the fourth quarter. The organic EBITDA growth remained steady at 3%. I think this is now the 14th consecutive quarter where we have the 3% number. And for the 2024 segment outlook, we expect 10.5 billion in the German segment compared to the 10.2 billion, which Germany has achieved in the year 2023. In the fourth quarter, I think I want to highlight some numbers here. Mobile service revenue is really strong at 3.2%, driven by a stunning customer growth, but also through upselling activities. Fixed service revenue slowed down to 1.3% after a very strong Q3. And I think we indicated this also throughout the call in the last quarter. As you also can see on page 17, the broadband revenue has slowed down this quarter. This is not directly related through the broadband performance, but there were positive one-offs in the fourth quarter of 2017. 2022, and that basically brought down the growth. One is related to contact one-offs, and the second one, you should bear in mind that the single price increase, which we introduced in October 2022, has now rolled over in the fourth quarter. Wholesale revenues in total grew this quarter and were stable for the year exactly along the lines as we indicated this beginning of last year. So next page on the broadband customer performance, you see a very solid performance. We had a stunning quarter in Q3 with 96. And I think we benefited from an elevated customer competitor, not customer, sorry. But basically, you're on the same level as we have been in the previous quarters. The sequential acceleration of T-Mobile NetAds is mainly through the promotional success of the MegaStream bundle offer. Now coming to Fiber. Look, we had almost 1 million customers by the end of the year. We added 300,000 customers to our base. and of which roughly 50% are new customers, which is a really, really good sign. Our mobile contrast customer intake remains to be strong. You see the 290,000 net ads in the Q4, and it totaled to larger than 1.2 million of net ad growths for the year. Let's get to Europe. And Europe is actually performing really well. And it's performing better than we initially expected it. You see the organic revenue growth is at 5.6%. EBITDA grow at 4.1%. For 2024, we basically expect EBITDA after leases of 4.3 billion versus the 4.1 billion in the previous year. The customer growth is truly strong and it's continuing to contribute to the service revenue growth. You saw that the European segment has added almost 750,000 contract customers and more than 300,000 broadband customers in the year 2023. Next segment, T-Systems. So on T-Systems, pretty good revenue growth organically at 5%. Bear in mind that we moved MMS from T-Systems into the German segment. A weaker order book, and we're working on this one, but you have to bear in mind that half of the decline was due to inorganic changes. And the organic EBITDA growth was really strong in the fourth quarter. The most important message on T-systems is they had a positive cash contribution, which they also expect to have in this given year here. So let me get to the financials. Our full reported year financials were impacted by basically two main effects. One is obviously foreign exchange, and the second one is the tower transaction. And the headline revenue was also impacted by lower equipment revenues. As mentioned earlier on by Tim, the organic service revenue grew at 3.6% in the year 2023. Adjusted net profit amounted almost to $8 billion for the year. And obviously, the GD Tower transaction was the main reason for the big net profit on an unadjusted basis. And what you saw that the $18 billion are slightly behind what people expected. This is due to the fact that we have a regular review on impairment tests in the fourth quarter. And we had to basically impair $2.6 billion on the GD Tower business along our stake. But this is completely driven. It's actually more than 100% driven by the WAC increase, which we basically put into the model according to the interest rate increases. Let's move over to free cash flow. You see on the bridge, the free cash flow bridge and also the net profit bridge, very strong free cash flow growth year over year, 115% in the last quarter, largely or almost completely driven by the reduction of T-Mobile US CapEx. On the adjusted net profit, we see a decline of 8% due to the effect that we have very positive effects in the previous year in 2022, which we call non-occurring. If you exclude all these non-occurring effects, our EPS grew by 6% on a year-on-year basis. So moving to our leverage, I think this is a very positive view. What you see here is this is the ex-leases view, and you see the leverage ratios on the right-hand side, including and excluding leases. We reduced the net debt by $10 billion on an absolute basis, obviously very much supported by the GD Towers the GD Towers transaction. And we also absorbed, let's say, a net debt increase of $16 billion coming from dividends and the share buyback to MobileUS due to a very strong free cash flow performance. So as it is a good tradition for our full-year call, we're also taking a look at our five-year trends. And let me start with the ex-US business. What you see is in the ex-US business, we have now roughly a 2% revenue growth over the past three years. and roughly a 4% EBITDA growth and a continuous EBITDA growth over the past five years. And I think what you see is the guidance number below. I think this is broadly in line with the historic performance. Also on free cash flow, bear in mind that the free cash flow in 2023 was impacted by the deconsolidation of T-Mobile Netherlands. We have a higher operating free cash flow, but we also had to bear higher interest costs and taxes, and on the interest costs we talked about in the previous quarter. On the next chart, you see the total numbers for the group, so including T-Mobile US. Our service revenue grew fairly consistent over the last five years, so did the EBITDA, and so does the guidance going forward. And with our US merger essentially completed, our free cash flow continues to grow at a double-digit rate, which is 16% expected for the next year. And you see that this is also contributing quite a bit or this is solely driven basically by the US. So this is kind of our midterm perspective also ex post and what we expect for the prognosis or for the outlook for 2024. And with that, I hand it over to Tim.