Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's Q3 2024 conference call. As you can see with me today is our CFO Christian Illig. After our grand recent CMD, we keep it short and sweet today. Christian will first go through a few highlights, and afterwards, he will talk about the quarterly performance in our group financials. After this, we have time for Q&A. And before I hand over to Christian, please pay attention to our usual disclaimer, which you'll find in the presentation. And please also note that this conference will be recorded and uploaded to the Internet. And with this, it's my pleasure to hand over to Christian.

Thanks, Anders. from my side to our third quarter and first nine months results call. So we had another good quarter that was very consistent with the growth targets which we have outlined throughout the CMD and also which allows us to upgrade our full year guidance on both sides of the Atlantic. I will not repeat what we have presented at the Capital Markets Day. You see the extended flywheel, which we have shown roughly months ago. You surely remember our 4% to 6% EBITDA growth ambition or our 11% EPS growth ambition every year by 2027. You still will also remember our shareholder remuneration proposal, which is a $0.90 dividend, but also a $2 billion share buyback program. So my focus today is actually focused on the year-to-date results and then obviously also look into the third quarter. So if we're taking a look at what you see on this chart, on the performance, we had 4% service revenue growth, 7% core EBITDA growth, 28% free cash flow growth, and a 16% adjusted earnings growth over the course of the last nine months. So that's a pretty good performance also relative to what we basically have presented at the CMD. We move to the next chart. What's actually pretty good is every segment contributed to the growth. You also see that the European segment is still contending with the U.S. segment, who's going to be number one on EBITDA growth. I like that one. And what you see is also that not only did we have good results on the group level with a 4% service revenue and 7% EBITDA growth, but also on ex-U.S., right? On service revenue, we grew at 3.5%, and on EBITDA, we grew at 4.1%. So that gets me to the very short section on networks. And we have discussed this at length at the CMD, so I'll keep it really short. What you see over the past 12 months, we have passed another 3.5 million European homes with FTTH, now reaching over 19 billion homes. Germany is well on track to receive its target of beyond 10 million homes by the end of the year. And good news is also that the two joint ventures in the U.S. have been improved by the DOJ. So this is all good. If it comes to mobile, I think we're leading across the board, being at the U.S., being at Germany, or the variety of European countries where we're operating in. So very, very strong performance here. Next page. Customers, what you see is there's strong growth on both sides of the Atlantic. We're going to post-pick growth. It's actually slightly higher on a year-on-year basis, both in the U.S. but also in the ex-U.S. business with 4.1%. and 1.5 million customers. TV net ads are up, obviously supported by the retirement of the rental privilege in Germany. And broadband is coming down, but still growing on a constant basis. Let's go to ESG. On ESG, I think the main takeaways from the current performance over the past 12 months is that despite that data growth is actually increasing, we're able to reduce both CO2 emissions but also energy consumption by 5% and 3% respectively. And what we said also in previous calls, but also at the CMD, we want to be as rigid in fulfilling those ambitions relative as we are rigid with our financial commitments. So that gets me to the guidance and the guidance update. What you see is The U.S. has already increased its guidance for EBITDA and free cash flow by 50 million at the midpoint during their call. We will also increase our guidance in the European business from 14.4 to 40.5 billion, so by 100 million, which leads us to a group result of 43 billion by the end of the year, coming from 42.9 billion in the previous quarter. What we'll also see is that we keep the free cash flow basically at the same level as we set it in Q2, and same holds true for the adjusted EPS. We still expect beyond 175, and I think we're pretty good on track in order to get there. So that gets me actually to the operational performance review. And let me start with the US and the financials here. So what you see is service revenue growth has accelerated on a Q by Q basis to 5.1%. The core EBITDA is very strong at a robust 9% growth. And this is all driven by the customer performance, which the U.S. team is actually driving. So we had 1.6 million postpaid phone customers coming from a 1.2 in the previous year, in the third quarter, a stunning phone net edge here of 865. And that led actually to the guidance upgrade when it comes to phone customers. So postpaid has now been increased to 5.6 to 5.8 million customers expected by the end of the year, which is an increase of roughly 150K at the midpoint. So what you also see is a very strong performance on high-speed Internet. Again, another 400K net ads. So that gets us to a total of 6 million customers, which we are currently servicing, or an increase of 1.8 million over the course of the last 12 months. Brings me to Germany, and let me start with the financials. So what you see is Again, another quarter, the 32nd consecutive quarter of EBITDA growth. You see that the organic revenue is at 2.5%, while the organic EBITDA is actually at 3.5%. The sequential acceleration, especially on EBITDA, is obviously due to the phasing of the wage agreement, which we had last year, which we had in the last quarter, where we had to pay the one-off payment in Q2, and that basically brought down the EBITDA performance. Overall, we're feeling actually fine with the guidance which we have given, which is 10.5 billion. So let's move on to total service revenue. I think on total service revenue, the number you have to remember is 2.1. 2.1 in total, 2.1 in mobile service revenue, and 2.1 in fixed line service revenues. The 2.1 is obviously significantly lower than what we have seen in Q2, but we indicated that we expect a slower growth because the comp relative to last year's performance is actually much tougher for Q3 and also for Q4. So we are still absolutely fine with our guidance, which we have given, which is 2% and 2.5% as an average mobile service revenue growth. So what you also see on fixed revenues, the fixed revenues have further improved to 2.1% as we anticipated in the Q2 call. And let's take a closer look to those numbers. So what you see is both on retail but also on excess revenue, we see growth. There's a sequential slowdown in the broadband revenues, and this is basically through a release of an accrual in the last quarter three in 23, which actually makes it difficult. If we would basically adjust for this, that growth number would be about 0.3% higher. So And we also expect for the fourth quarter a sequential rebound relative to what we've seen in Q3. So as you can see, we have guided three to 4% in broadband revenues. This is absolutely in line with our expectation and we continue to follow this guidance. The wholesale excess revenue, the 2.6%, which you see in here, is not volume driven, it's output driven, why this number is continuously improving. So let's move on to the fixed KPIs. And what you see is obviously the broadband customer performance is pretty stable over the past three quarters, roughly 40K. The TV customer growth is still elevated, but it's below the peak quarter in the second quarter due to the retirement of the rental privilege. But it's still 50% higher than it was in Q3 at 23. What we also added is the number of OTT, non-access related TV customers, which have been increased over the past nine months by 300K. So, and what you also see on the fiber performance, and we're really happy with this, we have given you an indication that we're targeting a number of net adds of 450K. The recent quarter was 131K, and if you basically add the first three quarters up, you're close to 340K, so we're well on track meeting that target. So let's get to the commercials in mobile. See a very stable performance with 327, consistent with the prior quarters, despite a quite promotional activity in the German market. And you also see there is no impact on churn with the 0.9%, pretty much flat. Why do we believe we're continuing with that performance? Because we have a strong brand, we have the best network, we have an effective segmentation, and the family plans are simply working well. Let's get to the European financials. Strong organic revenue growth of 4.2%, still below the previous quarter, and this is driven by IT revenues, but also by wholesale revenues, margin empty wholesale revenues, I must say, from the Greek business. And also the effect of the price increases is kind of narrowing out a bit. So this is what we're seeing in the third quarter. But you don't see this in the EBITDA performance with another 8% increase year over year. We had a slight benefit from lower energy prices, which accounts for roughly half a percent. And we expect there's going to be a headwind in the fourth quarter, but still a very stunning performance. So we will see who's going to be coming in as number one on the EBITDA performance across the different segments. So commercials, very strong, very robust across all categories. So let me move to T-Systems. T-Systems posted another solid quarter. So on a 12-month basis, order entry has increased by 18%. Revenue has increased by 3.3%. And this is also driven by a very high level of customer satisfaction. Actually, T-Systems scored a record high in trim. basically as a feedback from its customers. So quality pays out. If we're also taking a look at the organic EBITDA, obviously on a Q3 over Q3 performance comparison, you see that 19% on a year-to-date performance, EBITDA was up 7%. So that brings me to the end of the operational review. And let's take a look to the financials. I think not a lot to explain here. You're seeing growth across the board. EPS is up 4% in this quarter, but 16% in the first nine months. We have now an adjusted EPS per share of 143, of which $0.03 are non-recurring effects, which are related to the pension fund. and oops some derivatives all good all good free cash flow is up by 32 and also what you see is we have an absolute reduction of of net debt with or without leases but i'm getting to this in more detail So on page 20, on the next page, you see basically the free cash flow performance. So it's an increase of roughly $1.5 billion, very much driven by EBITDA increases, but also by lower cash special factors, and obviously the planned reduction of CapEx in the U.S., which brings us to the strong growth figure. On adjusted net profit, we're up 3%. The positive effect is obviously the strong EBITDA performance, which we're showing. But this is partly offset by two factors. One is the financial result. This is negative effects on the pensions, but also higher interest costs. And obviously, given the strong performance of the U.S. segment, there's also, let's say, a higher leakage to minorities, which gets us to the 3% overall. So let's move on to the next shot on net debt. And what you're seeing is net debt is actually down, including leases by $8.4 billion, excluding leases, which you see on that chart, by $4.6 billion. And this is very much driven by the free cash flow development of the business, but also supported by a weaker dollar. We have to be fair on this one. And a lower than expected share buyback volume in the third quarter. So that gets us now to a leverage ratio of 2.18 or 2.64. So this is within the range. But be aware, there's quite a bit of sensitivity. Whatever is happening to the dollar and the dollar right now is around 1.1%. 106 and not 112, where it has been at the end of Q3. So pretty much that brings me to the end of my presentation, and I hand it over to Hannes.

Excellent. Thank you very much. Here we go. Thank you very much, Christian. Now we can start with the Q&A part. If you'd like to ask a question via WebEx, please press your raise hand function. If you're required to cancel your question, press the raise hand again. If you're calling with your telephone, please press star three. And if you want to cancel your question, please press star three again. And I'll announce your name when it's your turn. And as usually, we would be grateful if you restrict yourself to two questions. And don't forget to mute and unmute yourself. And so let's start. And I can see a bunch of questions already. So we start with Polo at UBS, please.