Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's second quarter 2024 and first half 2024 conference call. With me today are our CEO, Tim Höttges, and our CFO, Christian Illig. As usual, Tim will first go through his year-to-date highlights before Christian will go deeper into the quarterly performance in the group financials. After this, we have time for Q&A, and before I hand over to Tim, Please pay attention to our usual 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 our second quarter and first half 2024 results call. We had another good quarter that puts us well on track today. for our stated targets. And I have to say, it makes a lot of fun to present a flawless quarter like this. Great, great performance from all operations. Beyond the operations, this quarter was quite eventful. We announced three exciting transactions in the United States, Lumos, Metronet, and US Cellular. We closed the Cayena acquisition, In Germany, we finalized our wage agreement with the trade unions. We absorbed the German government stake sale, and we entered into a binding agreement with the German government on the utilization of Chinese equipment in the mobile network here in Germany. Our strong operational momentum continues. In the first half, we delivered 4% organic service revenue growth. 6% organic EBITDA growth, 26% growth in operating free cash flow and 23% growth in adjusted earnings per share. T-Mobile was able to raise its 24 free cash flow guidance and we are reflecting this in our group guidance today. We paid out 70 cents Per dividend and year-to-date, we bought back 43 million DT shares. Our shares are trading near their 23-year highs, and we delivered almost 100% total share-to-return in the last five years alone. As usual, let's take a closer look at our organic financials on page five. All segments contributed to our growth. Organic Group service revenues grew 4.1% in the first and the second quarter. This is even better than last year's growth of 3.6%. Organic X U.S. service revenues grew by 3.7% in the first half, again marking an acceleration. And as mentioned, Organic Group EBITDA increased by 6.2% in the first half, excluding U.S. handset leases. This would have been... 7% growth. Ex-US EBITDA is up 4%. This puts us well on track for our guidance here as well. The foundation of our growth remains our network leadership, but as well our service proposition. But on the network, in the last 12 months, we passed 3.6 million additional European homes with Fiverr to the home. and now reaches 18.3 million homes. In Germany, we now pass 8.8 million homes. In Europe, 9.5 million. In the U.S., as mentioned, we set up two fiber joint ventures with a combined target to pass 10 million homes by the end of the decade. Our mobile networks remain leading across the whole telecom footprint. Our strong customer growth was even accelerating, both in the US and in Europe. T-Mobile added nearly as many postpaid customers as last year and raised their subscriber guidance for the year. Postpaid phone net additions at 1.3 million were even a touch higher than in the first half of 2023. Over in our European footprint, we managed an acceleration in mobile net ads. TV net ads also accelerated, driven by Germany. Broadband net ads were a little bit slower than last year, but we continue to grow here as well. Moving on to ESG. Despite strong growth in data usage, we were able to reduce our energy consumption for the group in absolute terms. we launched multiple initiatives to drive our societal and governance agenda, some mentioned here on the chart. At the Capital Markets Day, we will provide you with a more detailed update on where we stand with our sustainability ambitions. With that, let's move to our guidance update. With their Q2 results, T-Mobile had increased its 24 free cash flow guidance by 150 million at the midpoint. Today, we are reflecting this in our group guidance. We now target around 19 billion for the group in 2024. Outside of the U.S., we remain comfortable with our full-year guidance for EBITDA and free cash flow guidance. despite our recent wage agreement. And with that, I hand it over to Christian for a deeper dive into the quarter.

Thanks, Tim, and hello from my side. As usual, let me start with Tmobile US. And you've seen that the service revenue growth has accelerated relative to the previous quarter to 4.4%. And the recent Caina acquisition contributed about one-third to this acceleration. The core EBITDA, as Tim mentioned, has grown by 9.4%. And finally, we're getting to an end when it comes to handset leases. So that will result in less complexity in our financial reporting. We're moving over to the commercials. You've seen that T-Mobile has shown another quarter of strong customer growth. The post-paid growth was slightly lower than last year, and this is due to some final deactivations of lower ARPU mobile Internet services in the educational sector. Nevertheless, T-Mobile has raised its customer net-ed guidance to 5.4 to 5.7 million this year, so this is an increase of 150K at the midpoint. High-speed Internet customer growth continues to grow above 400,000. We have now a customer base of 5.6 million by the end of the last quarter. Let's move over to the financials in Germany. And what you see is another quarter of consecutive EBITDA growth, now at 31 quarters. The organic revenue growth has grown by 3.6%. EBITDA grew only at 1%, and that was due to a one-off payment, which was coming out of our wage agreement with the social partners, and that is basically what we call the inflation premium. Without that one-off payment, the underlying EBITDA growth would have been around 3%, as we have reported it in the past quarters. So we're feeling very confident to meet our EBITDA guidance of $10.5 billion by the end of the year. And as we have grown only 2% in the first half, that means that you should expect next-generation EBITDA growth beyond 3% in the second half of this year. But please note there will be phasing effects, and therefore the Q3 will be lower in EBITDA growth relative to the Q4. Let's move on to the service revenues. Again, the service revenues have accelerated again. On mobile, we've seen a growth of 3.7%. On average, that's a 3.5% in the first half. And this growth has been benefiting from some favorable comps in the first half of 24. So do me a favor and don't extrapolate the first half results into the second half. We will see a slower but still significant growth. Meanwhile, fixed service revenues have improved again, as we have indicated in the last quarter, and we expect a further acceleration in the second half of this year. As you can see on page number 15, both retail and wholesale excess revenues have contributed to this improvement. On the retail side, we're seeing a growth of 4% driven by ARPA increases, but also by volume increases. And you're seeing the increase in wholesale to 1.8%. This is primarily driven by ARPU. Let's move to the commercials and fixed. Our broadband customer performance has been pretty steady, queue over queue. And this is very much also driven by the fact that we're focused on on selling FTTH connections, and you know that those FTTH connections have a longer lead time as the copper connections do have. But on the other hand, you see a significant increase in customer connections in FTTH. We have seen a growth of 113,000. year-over-year in Q2, and that's an increase relative to the previous year of more than 75%. So we are well on track with our ambition to reach around 450K new customers or new net ads on FDTH. TV, also a positive story. You see that the triple play has actually tripled relative to the previous year. So we're seeing an increase of more than 80,000 customers year over year. We have now a base of 4.5 million customers. On top, we have added or we have attracted several hundred thousand customers on our OTT service. But we have to see how sticky they are as the European Championships has come to an end. Moving over to the commercials in mobile, you see very strong performance in mobile, almost on the same level like last year with 311K net ads. This is basically being driven by four factors, a strong brand, our network leadership, our effective segmentation, and obviously our next Magenta family plans. Churn remains pretty much on the same level as it was last year. Moving over to the segment Europe, an excellent quarter, second quarter, the highest EBITDA growth ever since we record this. Our organic revenue growth was up almost 7% year over year, and that was very much driven by the service revenue side. We see a healthy performance between financial performance and commercial performance. Organic EBITDA grew by close to 9%, but there was a tailwind of close to 2% coming from energy costs, and we don't expect this to continue in the second half. Moving over to the commercials on the next page, you see that we have a consistent performance on all categories. And I think what you see in the European segment, which holds true for the other segment as well, we have a very stable and balanced commercial and financial growth. And I think this is an important thing to mention. Coming to T-Systems, I would say T-Systems' steady performance, organic revenue grew a little bit slower than last quarter at 2.1%. Our order book grew by 10% on a 12-month basis. But it's noteworthy to mention that in Q2, the year-over-year comparison is actually a growth of 28%. So there seems to be a little bit of an acceleration, at least in the first half. Organic EBITDA is down year-on-year slightly, but we're fully on track to meet our guidance. So that basically brings me to the end of the operational review, and let's take a look at the financials. So you're seeing very good growth across almost every P&L and cash flow statement. Adjusted EBITDA is up 32% this quarter, on average 23% in the first half. I think we have these non-occurring items. I will get to this later on. It was $0.03 in the second quarter, and the first half it was $0.04. Free cash flow growth has accelerated significantly, 49% in the second quarter, on average 26% in the first half. And on net debt, I think it's stable X leases, as you can see, and it's slightly decreasing, including leases. Moving over to free cash flow and net income. That's the usual bridge which we're always providing to you. On a year-on-year basis, our free cash flow was driven by two major factors. One is the operational performance by growing EBITDA, but also the reduction of CapEx, very much driven by the U.S., And what you see is that on the overall picture, you see a decrease in CapEx. But if you take a look at the ex-U.S. figures, and this is being displayed on page 29, you see that we have a bit of a front-loading on CapEx in the first half. But we're also super confident to meet our guidance of $3.5 billion. So the adjusted net profit was, as I said earlier on, 30%, 31% up year over year, very much driven by EBITDA. And we were benefited on the financial result from a pension rate, interest rate increase, which basically released some provisions for the civil servant pensions. And that was roughly about $240 million in that year-on-year comparison. And as I said already on, this is what we consider non-recurring. On net debt, I think let's keep it brief. We're seeing moving parts in net debt, especially when it comes to free cash flow, shareholder re-enumeration at T-Mobile, but also on the DT level. Obviously, there's M&A. This is attributed to the K-Net transaction, but also to exercising the fixed price options. And there's a bit of currency effects. Net-net. I think that that ex-leases a stable year-over-year. The EBITDA is growing. That obviously leads to a better leverage ratio for 24 relative to the first half of 23. So that completes my review, and I hand it over to Tim.