Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's first quarter 2025 conference call. As you can see with me today are our CEO, Tim Hüttges, and our CFO, Christian Illig. As usual, Tim will first go through a few highlights, followed by Christian, who will talk about the quarterly performance and our 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 will 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.

Thank you, Hannes, and welcome everybody to our first quarter 2025 results call here. And if you have seen already the numbers, we are off to a solid start into the year, both strategically and financially. Overall, we are on track for our 2025 target and for the midterm targets as well, as we have presented them on our Capital Markets Day in 2024. We are confirming our guidance for DT ex-US business and pass on T-Mobile's first quarter upgrade to an overall upgrade for our year end targets. Let me kick off with my group perspective and then Christian will go into the details. Look, the growth momentum is very well intact and remained strong. We have 3.5% organic service revenue growth. We have 5.3% organic EBITDA growth. We have 50% growth. in free cash flow, and we have 11% growth in adjusted earnings per share. So all KPIs are on a positive note with regard to the financials. Our business outside of the US posted a 2.5% growth in service revenues and a 3.8% EBITDA growth. During the quarter, we completed three transactions, Lumos, our fiber joint venture with EQT, Vista and Bliss, both activities in the out-of-home media advertising area. In mid-April, our stake in T-Mobile US was back to 51.8%. As usual, let's take a closer look to our financials and the organic developments here. All segments contributed to growth. T-Mobile grew its adjusted core EBITDA by 8.4%, which translates into organic IFRS growth of 6.1%. Europe grew by a stunning 7.2%, Germany by 2.2%, and T-Systems by 1.3%. Moving to the networks. In the last 12 months, we passed 3.2 million additional European homes with fiber to the home. We now reach nearly 21 million households. We continue to deliver near to two-thirds of the whole German fiber build-out here in our home market. We have now reached agreements with the MDUs covering almost 6 million households to provide their in-house wiring. Our mobile network remains leading across the footprint. In Germany, our market leader network modernization program is well underway. This provides the foundation for our new unlimited tariff portfolio. And by the way, we will extend our bandwidth from 500 megabit per second to one gig in the mobile network very soon with the NEMO projects. Our U.S. network was recently named the world's best in the large land category, and one month ago, T-Mobile announced the nationwide launch of 5G Advanced. This further strengthens our network leadership in the United States. And during the quarter, we also announced the beta launch of the T-Satellite project, where we are seeing strong customer interest. At last year's Capital Markets Day, we talked a lot about AI and digitization. And we leverage AI to accelerate our digital transformation. And what I lead and see globally, we are one of the leading companies with regard to the AI implementation already. We outlined a comprehensive approach across the full value chain at Capital Markets Day and to drive better customer experience, but as well, you know, to drive tangible efficiencies within the organization, where we estimate the financial benefit of around 800 million euros in cost savings by 2027. By the way, in the future, we will provide you, because of its relevance, always with an overview about the IA and the digital transformation of our company. So it's good to see that we make strong progress in this area here. And you can see on page seven, you know, the relevant areas. Let me pick up a few highlights. Across Europe, we have implemented AskT. AskT is an AI-based employee knowledge tool, which, for instance, helps field service employees to access all relevant information much more efficiently. There are many AI-related initiatives in the network. For instance, the AI supports the efficiency of our fiber rollout in multiple ways, like 75% of all routers are remotely managed. On the mobile side, we achieved increased network autonomy through AI-based RAN monitoring and remediation. And when it comes to IT, we are seeing significant speed and efficiency gains with our coding assistant. There are also multiple initiatives in sales and service where we are already seeing tangible benefits. For instance, our AI-based chatbot can solve 50% of customer issues without human interventions. And there are plenty of other use cases in implementation as well. And finally, on the product side, almost 12 million European customers have already signed up for our Magenta Moment Rewards program. We are productizing AI for both our B2C and our B2B customers in multiple ways, some mentioned on this page. This chart shows our progress in Europe. Over in the U.S., T-Mobile is making as well progress with their ambition with regard to the digitization. And as T-Mobile highlighted during their results call, the share of upgrades done digitally has doubled this quarter versus last. It has already reached over 50 percent of all upgrades in this quarter. I find this very impressive. Our customer growth continues, both in the U.S. and in Europe. Starting with mobile, in the U.S., we had the strongest first quarter for postpaid customer net ads ever, and we reiterated our full-year guidance. Outside of the U.S., we had a slower quarter in some of our European operations. Our German mobile net ads were steady year over year. On the fixed line, the KPIs look different. Our broadband customer growth slowed, driven by Germany, and our TV customer growth was also slower. That said, near half of the year-on-year slowdown was due to the planned decommissioning of our satellite TV platform in Hungary. Let me pause here for some reflection. It is no secret that the competition in our largest markets has stepped up in recent months, and it remains elevated. This shows in some of our numbers, but not all. How do we look at these developments? What is our strategy here? The answer is that we keep playing to our strength. We remain focused on our flywheel. We will always build the best networks and create a superior customer experience. And we want to increasingly leveraging digital and AI and automation to reduce our costs. In the US, we work to extend our 5G network lead while we leverage our differentiated growth opportunities. As mentioned earlier, we are making strong progress on the digital side. Amidst elevated promotions, T-Mobile's postpaid phone churn has increased, but we also had record gross ads in all the segments. In German mobile, competition has progressively stepped up since the Vodafone 1&1 decision two years ago, in B2C and in B2B. Here again, we want to play to our strength. Our industry-leading network modernization gives us the capability to drive unlimited without sacrifice in the customer experience. This is what we are doing with our new tariff portfolio. The German broadband market is quite mature. Here we're seeing ongoing churn towards overbuilders, plus now a Vodafone that is commercially very aggressive. Here again, our answer is to build and monetize superior networks. Fiber is the endgame for the German broadband. Our fiber footprint is growing by 2.5 million households per year, and we are ramping up fiber connections. And finally, in all our markets, we supplement our core portfolio with targeted proposition for the more value-oriented segments. In the U.S., through our extended prepaid portfolio, and in Germany, through our sexual flanker brand Kongsta, which is now actively even selling fixed-line services. Moving on to ESG. We continue our efforts to contain our energy consumption and emissions in line with our stated targets. We conducted campaigns against hate speech and for increased awareness of climate change. Let's now move to our guidance update on the next page. Our guidance remains based on last year's average exchange ratio of 1.08 and it is the sum of the guidance for DTXUS and for T-Mobile US adjusted by the US GAAP IFRS bridge. T-Mobile updated its guidance on 24th of April. T-Mobile raised both its 2025 EBITDA and free cash flow guidance by 100 million at the midpoint. The new guidance includes the contribution from recently completed acquisition of Vista, Bliss and Lumos. We are passing this on in the Group Guidance today. As a consequence, we now project Group EBITDA of around 45 billion and Free Cash Flow of around 20 billion for the whole of 2025. All other Guidance remain unchanged. Let me now hand it over to Christian for a deeper dive into the quarter.

Thanks, Tim, and welcome also from my side. So as usual, I'm going to provide you with a quarterly segment overview and then move to selected financials. And also, we stick with the sequence. So we're going to start with this mobile U.S. business, and all numbers will reflect U.S. GAAP. So the service revenue growth remained very strong in the U.S. with 5.2% growth, and that was very much driven by the post-paid service revenue growth, which accounted for 7.6% growth. With those results, T-Mobile U.S. raised its guidance on Alpac growth to at least an increase of 3.5% in 2025. So the basis for the strong EBITDA growth, which accounted for 8.4%, is obviously the service revenue growth. Free cash flow was up in the U.S. by 31%, and the EPS was up by 29%. T-Mobile's customer growth is very solid despite some what they call target rate optimizations, and that obviously is a reflection of an increase in churn. We expect the churn, also driven by some price adjustments, to be temporary, and it will moderate out over the course of the year. I think it is important to mention, and Tim said it already, growth ads were up on all major categories. Postman phone nets were slightly below last year's numbers, while high-speed internet net ads were a bit higher. So overall, the 1.3 million net additions were the highest number they ever achieved in the first quarter in any given year. T-Mobile reiterated its full year guidance on net ads of 5.5 to 6 million postpaid net ads, and they remain confident to actually deliver those guidance numbers by the end of the year. So let's move over to Germany. So Germany showed now 34 quarters of consecutive EBITDA growths. But let's go through the P&L and start with the top line number, which is revenue. So headline revenues were down this quarter, and this is due to two effects. One is it's driven by lower handset revenues, and secondly, it's driven by lower revenues from the fiber constructions for our JVs. They're both not included in service revenues, and they're both very low margin. At the same time, service revenue accelerated from prior quarter to 1.4%. The 2.2% EBITDA growth, which we see in this quarter, is obviously impacted by the higher personnel costs, which are coming from last year's wage agreement, but also from higher energy costs, and this is very much related to increases in the energy grid. So while Q1 was a little slower, we're committed to basically deliver the full-year guidance and the mid-term guidance for the German business. So let's move over to page 15 to take a look at the service revenues. As I said earlier on, service revenues overall grew by 1.4%. We had a very strong growth in mobile service revenue with 3.1% year over year. That obviously is a reflection of the strong subscriber growth. We had no termination rate cuts, and we had some favorable phasing in the first quarter. So don't expect this to continue over the course of the year, but we remain committed to the 2% to 2.5% guidance number which we have given you. The fixed line service revenue is still negatively impacted by the federal spending. You know that our new government has just taken over the office. And we expect that going forward, we will see some increased spending on infrastructure, but also on sovereignty. And I think we should be well positioned here, given our strong position in the public sector, but it will take several quarters in order to see the reality basically being reflected in the P&L. So all considered, if I'm taking a look at the first quarter, I would say mobile service revenue was a bit higher than what we expect for the remainder of the year, whereas fixed line service revenues were a bit lower. So go on to page 16. And taking a look to the overall fixed revenues, which you can see here, they were obviously a little bit negatively impacted, but you also see that the broadband growth still is in the corridor of our 3% to 4% guidance, and also access revenues are growing by 2.1%. The driver, the key driver, and we said this earlier on, for the broadband growth is upselling into higher speeds. And we've seen an ARPA increase of 3% on an annual basis. And we continue to focus on the upselling of higher speeds as we are trying to achieve, as we will achieve our guidance numbers. Moving to the fixed line KPIs, you see that we had monetization, which is actually pretty positive on selling higher speeds. You also see that we had a pretty good increase on uh... on the uh... f t t h net ads which group by thirty six percent but i'm brought by net as we have to uh... report that for many many quarters we see the first uh... reduction of seven thousand case obviously we're not standing still here uh... to mention this uh... we have a program running which is focusing on monetizing and use on a faster basis obviously addressing uh... the turn uh... management And also we included Kongster to basically become a go-to-market channel for broadband services. So this is one of the main activities, how we want to respond to that negative subscriber growth. We are on track with the 2.5 million homes passed for this year. As I mentioned earlier on, we're pretty satisfied with the continuation of the FTTH net ads, which grew by 36% in the given quarter. On TV, you see that our growth had moderated relative to the first quarter in 2024. to a solid 30,000, 70,000 triple-pay customers. And on top, we also had 50,000 over-the-top customers. But bear in mind, last year we had an extra, I would say, tailwind from the retirement of the rental privilege. Moving to mobile, and you see strong commercials. So on a year-on-year basis, I think we're on the same kind of level with 270,000 net ads. You also see that the churn rate is actually pretty stable despite elevated competition. And we're actually pretty happy with the result. But bear in mind, don't take the 3.1% and expect this for the upcoming quarters. Let's move over to the European segment. Another good quarter. Let me repeat again. Organic revenue growth, 3.7%. EBITDA grew organically by 7.2%. Remained very strong. But also keep in mind the inflationary effects, both on pricing but also on costs, will moderate as we progress into the year. Moving through the customer growth in the European segment, The mobile growth was a bit weaker. This is basically due to very aggressive promotional environments in Austria and Croatia, and we entered a campaign in Q1 in Poland, which impacted the NetAd numbers. Broadband was fairly stable, and the dip in the TV NetAds can be explained by the decommissioning, a planned decommissioning of the legacy satellite platform, which basically accounted for 28,000 customers. Let's move over to T-Systems. T-Systems is continuously on a positive track. It's now nine consecutive quarters with EBITDA growth. We're particularly pleased with the order entry, which grew 70% on a quarterly basis, but on a 12-month basis, 12.5%. This is really good news. We're seeing that some sectors, especially the automotive sectors, are under pressure, but we were able to mitigate this, especially through growth in the health segment and the road charging segment and the defense segment. So digital sovereignty is becoming increasingly important here in the German market, so is national security. We hope this is going to be a growth driver in the future. So let's take a look at the group financials on page 22. and it's the usual ones which we're addressing. So the EPS was up on a recurring basis by 11%. If you take the non-recurring items out of this, it's actually a 13% growth which we're seeing here. Free cash flow was up by 52%, and we're going to see the bridge later on. Let me point out three things. A low basis on Q1 24. We had kind of a lower spending capex, which will obviously reverse over the course of the year. And you know that we're spending more than last year. And we had some positive working capital effects in the first quarter, which led to this very strong growth number of 52%. So on page 23, you see the bridge on free cash flow, as I mentioned, very much driven the growth from cash flow from operations. But there's this tailwind of CapEx and also working capital, which led to this very strong growth figure. On the other hand, you see also the net profit bridge driven by the adjusted EBITDA. And we had some negative effects on depreciation, also driven by the dollar price. financial results, which is higher refinancing and stronger dollar, and obviously a higher distribution to minorities given the strong results in the U.S. Let's move to the next chart. Here you see basically our leverage. The leverage has declined by 4 billion, almost 4 billion on a quarterly basis from Q4 24 to Q1 25. This is obviously driven by two major drivers. One is the free cash flow which we generated. The second one is we had some favorable effects from the dollar. The dollar was end of Q4 by 104. Sorry, it was end of Q1 by 108 that obviously helped us in bringing the leverage down. And you see that the leverage ratios are pretty well in the comfort zone. So we're now at 263 including leases and 2.18 excluding leases. So we're happy with those results. So let me complete the review on the main takeaways. Obviously, what you see on the right-hand side, we're completely committed to deliver the 2.5 adjusted EPS by the end of the cycle of the current CMD. We had a solid start in the year. You heard about Tim talking about intense competition in several countries we're operating in. We're not standing still here. We have counter plans, especially in Germany, in the execution in those competitive markets. We will use networks and AI to drive down costs significantly. We're committed to deliver the 25 numbers, but also the midterm commitments. And as you heard, We're progressively increasing our stake in T-Mobile. Yes, now we're close to 52%. The buyback is ongoing. And with that, I end my operational review and hand it over to Hannes.