Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's second quarter 2025 conference call. As you can see, with me today is our CEO, Tim Oetkes, and our CFO, Christian Illig. As usual, Tim will first go through his mid-year 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, Johannes, and welcome to our first half 2025 results call. We continue to deliver consistent, reliable growth. Amidst the competition and the global tariff turmoil, we remain on course and we even slightly raise our guidance for 2025. As usual, I will start with the year to date view for the group before Christian will dive into the details of our second quarter results. Our growth momentum has remained strong and steady. Our flywheel strategy keeps working. In the first six months of 2025, we delivered 3.7% organic service revenue growth, 5.2% organic EBITDA growth, 17.8% growth in free cash flow, and 6.4% growth in adjusted earnings per share. With these results, we are on track for the mid-term targets of the last capital markets day. And while there are some incremental headwinds, there are many incremental positives, including upside from M&A, T-Mobile spectrum disposals, and from fiscal relief on both sides of the Atlantic. I'm especially happy with our progress on the M&A front. In Europe, we got clearance for the sale of our Romanian mobile business, This win-win transaction brings much needed in-market consolidation while improving the growth profile for our European segment. In the US, we closed the Metronet and the US Cellular transaction. This comes after the Lumus Fiber joint venture and the two out-of-home advertising companies Vista and Bliss. We are now looking forward to the incremental growth that these transactions will bring. T-Mobile also sold part of their 3.45 GHz spectrum for 2 billion and agreed to sell our 800 MHz spectrum in exchange for cash and some valuable 600 MHz spectrum. As you can see on the next page, all our segments are contributing to our EVTR growth. The T-XUS grew by 3.6% year over year. Moving to our networks, where we continue to extend our leadership. In the last 12 months, we passed 3.4 million additional European homes with FTTH. We now reach nearly 22 million homes, of which 11 million here in Germany. In the US, we launched T-fiber, enabled by our two new fiber joint ventures. Our mobile network remains leading across the footprint. Our German network has ranked top European large country network. And UCLA confirmed T-Mobile's network as the best network in the U.S. Two weeks ago, T-Mobile also launched T-Satellite after a successful beta test. As last year's Capital Markets Day, we talked a lot about how AI is accelerating our digital transformation. And last quarter, I showed you various ongoing initiatives. On page 7, you can see the additional progress we have made as this remains a top priority. Let me pick out a few highlights. Our AI-based employee knowledge tool, AskT, is already used by 30% of all German employees. The tool has now been rolled out in Greece and in other markets. In the network, our AI-based remote monitoring agent is now moving towards implementation. AI-created lines of code increased to 10% of the total. And Frag Magenta, our chat and voice bot, is now reflecting 1.6 million calls already in the first half year. To make this tangible, 1.6 million deflected calls correspond to about 133,000 call agent hours. At the Capital Markets Day for DTXUS, we estimated the financial benefits at around 800 million in cost savings by 2027, and we see ourselves well on track for that. Finally, on the product side, the active base in Magenta Moments has grown to 4.8 million. So our rewards program is highly accepted. We are launching an AI phone across our European footprint, We have partnered with NVIDIA to build Europe's first industrial AI factory, by the way, starting in the first quarter next year already. Over in the US, T-Mobile is making very impressive progress with their ambitious digitization plans too. As T-Mobile highlighted during their results call, the share of upgrades done digitally has increased to about two-thirds. from about half last quarter and virtually zero one year ago. T-Mobile's market leading team live app has more than 75 millions installed already. Our customer growth continues on both sides of the Atlantic. In the US, we had the strongest second quarter and first half for post bed customers net additions ever. and we substantially raised the full year guidance. The second quarter was also a record quarter for postpaid phone customer net additions. And outside of the US, our intake remains strong, but we had fewer mobile net ads in Germany, caused by a low-margin enterprise contract loss. Growth in the German consumer market remains strong also this quarter. Mobile in Germany is good. Moving on to fixed KPI. Our DTXUS broadband customer growth was positive, but slowed due to Germany. Our TV customer growth was also slower, mainly due to the rollover of the tailwind from the Euro24 championships in the prior year. This is not a headache. Let me put these trends in perspective. As you all know, the German broadband market has slowed and competitive intensity has stepped up in recent quarters. But as before, we remain committed to our strategy, to our successful flywheel of differentiation. We have built the best networks and create a superior customer experience. In Germany, our mobile network is leading and we are leading the fiber build-out as well. We are not happy with our German broadband customer losses this quarter, but ALPA growth developed positively and we do understand fiber monetization is a long game and we will continue to play the long game here. As you know, we deployed 2.5 million additional fiber homes passed per annum and we are committed, increased to do the same number again this year. We are connecting increasing numbers of customers with FIBA. As stated at the Capital Markets Day, we intend to double our annual run rate to 1 million by 2027. In this context, we welcome the recent proposal of the new Digital Ministry to accelerate FIBA deployments, to remove bureaucratic hurdles, and to facilitate in-house connections in the multi-dwelling units. To stabilize our performance nearer term, we are stepping up as well. What are we doing? Regional and commercial segmentation. We are doing an MDU push. We are doing target retention activity, especially in overbuilt areas, and last week We also announced a hybrid broadband access product that can deliver up to 500 megabits per second. Moving on to ESG. We continue our efforts to contain our energy consumption and emissions in line with our stated targets. Despite rising data consumption, we were able to slightly lower our DTX-US energy consumption in the first half. In Germany, we conducted various campaigns, including campaigns against hate speech and loneliness, and to empower Gen Z in data protection. Let's now move on to our guidance update on the next page. Our guidance remains based on the last year's average forecast for the foreign exchange of 1.08. And as always, it's the sum of the guidance for DTXUS and for T-Mobile US adjusted by the US GAAP IFRS bridge. T-Mobile raised its guidance for customers and financial growth on 23rd of July. T-Mobile raised both its 2025 EBITDA and free cash flow guidance by 50 million at the midpoint. The new guidance includes the contribution from the recently completed acquisition of Metronet, but not that of US Cellular yet. We are passing this on in the group guidance today. As a result, we now project Group EBITDA of more than 45 billion euros and free cash flow of more than 20 billion for the whole of 2025. All other guidance remains unchanged. Our DT-XUS EBITDA guidance remains 15 billion But this is now after an unexpected around 50 million. One of that went in Germany that Christian will talk about in a moment. So let me now hand it over to Christian for a deeper dive into the second quarter.

Yeah, thanks, Tim, and welcome from my side. As you know, let me start with the quarterly segment review and then discuss selected group financials. And as usual, let's start with the U.S., who have reported excellent results on the 23rd of July. If we're taking a look at the T-Mobile US performance in local currency according to US GAAP, you see that the service revenue has increased and accelerated to 6.1% growth, and that was largely driven by very strong performance in post-bed service revenues, which accelerate to 9.1% on a year-on-year basis. It was driven, obviously, by the strong customer intake, but also due to increases both in ARPA and ARPU. The core EBITDA has grown by 6.4%, and as Tim already mentioned, that was one of the drivers why T-Mobile US has raised its guidance both on EBITDA as well as on free cash flow. Moving to page 13, you see... The customer intake of T-Mobile in the second quarter, you see it was, as Tim already said, record-breaking. The post-paid net additions were about $1.7 billion. This is an increase of $400K relative to last year and the best-ever quarter in Q2 they faced in their history. Same was true for the post-paid phone net ads. They increased by $53K relative to last year's performance to $830K. Again, the best-ever quarter for T-Mobile U.S., T-Mobile has added 318,000 new postpaid accounts. This is an increase of 6%, and they've added 454 new broadband, 5G broadband customers, an increase of 12%. So the churn was up by 10 basis point, as you can see, relative to the previous year, and that reflects the rate plan optimizations, but it was clearly overcompensated by the strong customer intake on gross additions. Following these results, T-Mobile raised its customer growth guidance. So for 2025, they expect now in between 6.1 to 6.4 million net additions relative to the old guidance of 5.5 to 6 million. The guidance for phone net ads were close to 3 million to 3.1 million, and they also predict a customer intake of roughly 100K on fiber net ads. Let's move over to Germany. As you can see, the headline revenues declined in the quarter, and there are two major drivers. The first one, the biggest one, is one-off revenue, which we got from the sub-licensing of the European Championship TV rights. And the second one is we have to, according to a court ruling, we have to change the way how we account for handset revenues if we early prolong contracts, and that is a headwind which impacts both revenues and EBITDA. The total amount of the impact is around 50 million in the first half. It's non-cash and it will reverse over the course of the next 24 months. The total service revenue grew at 1.1% and EBITDA grew at 2%. So let me dwell a little bit on the EBITDA performance. So on the positive side in the second quarter, you see that we obviously last year we had to face the one-off wage payment on the what we called energy support. This obviously is a tailwind in the second quarter of 2025. On the flip side, we have to absorb the 6% wage increase, which we agreed upon last year starting in October 24, and also we have to absorb the negative impact on the IFRS customer accounting. So if I'm taking a look to the outlook of the EBITDA due to various phasing effects, but especially due to the wage increase which we have to embrace in the third quarter, which we didn't have in the third quarter of last year, and an additional increase of 190 euro salary increase starting from August 1st onwards, we expect that the EBITDA performance in the third quarter is below the current run rate. On the flip side, we expect that the fourth quarter is actually above the current run rate. The reason is the wage impact will largely roll over the 6% wage increase. On top, and we said I think in the first quarter as well, we're facing some meaningful energy cost headwinds due to some increased grid fees, but also hedging effects from the year 2022. This will also roll over in next year's financials. Moving over to service revenue, the total service revenue has slowed down to 1.1%, as I said earlier on. The slowdown in mobile service revenues comes after a stronger-than-usual quarter in Q1, and we mentioned this in the last call. It should be not surprising to anybody. This quarter's growth is very similar to the second half of 24, but we remain absolutely comfortable with our guidance of 2% to 2.5% in the time frame of 23 to 27. The growth in fixed service revenues improved slightly sequentially, but is still subdued. Fixed service revenue trends remain impacted by lower IT service revenues, which decrease on a year-on-year basis and lagging government demand for especially telco services. In addition, while positive, broadband and wholesale revenues were sequentially weaker. Looking at the outlook for the remainder of the year, what you see on the chart is we had a very strong Q3 in last year's performance, and that was followed by weak performance in the fourth quarter, and that was the first quarter where we faced this IT revenue drag, which we're having over the course of the full year. So if you compare those comp effects, we expect that the fixed service revenues will be, from a gross perspective, being sequentially lower in Q3, but again higher in Q4, same way as we described the EBITDA. As you can see on page 16, while overall service revenues remain subdued, broadband and wholesale access revenues remain in solid growth territory. We said that the main driver for the broadband revenue growth will be value growth, and you see that the ARPA of our retail customer base has increased on a year-on-year basis by 3.5%, and that's mainly driven by upselling into higher speeds. And that continues to be the key driver of broadband revenue growth. Moving over to the fixed-line KPIs. So our monetization remains positively. Our customer growth remained in negative territory. In the second quarter, we didn't perceive any changes in the competitive environment compared to the first quarter. We're still facing very slow overall market growth. We have ongoing pressure from the altnets or the overbuilders, and we saw a very promotional cable competitor in the second quarter. We, on our side, had to reduce the promotional value beginning of the second quarter by cutting the discount period from six to three months, and we believe that explains the sequential slowdown in the broadband net ads. As you heard from Tim earlier, we're playing the long game here, and we remain focused on upselling and on fiber. So we're on track with our Homes Pass strategy to add another 2.5 million of fiber Homes Pass onto the network this year, And we are increasingly connecting more and more fiber customers. Last quarter was 137,000, which is an increase of more than 20%. As you recall, we intend to double our run rate to 1 million by the end of 2017. Finally, on TV, what you see is still gross but relatively smaller given some tailwinds last year. We added 23,000 IPTV customers and 40,000 over-the-top customers. Moving over to mobile. And we're seeing some elevated competition for quite some time, but still our commercials remain strong. Our B2C customer intake has actually increased Q over Q between Q1 and Q2, but we lost the sizable, and Tim mentioned it, low margin B2B contract, and that basically explains the sequential slowdown in the second quarter. You see that the data growth is still strong, and we are seeing an unchanged churn rate of 0.8% per month. Moving over to the European segment. The European segment delivered an excellent result in the second quarter. They're contributing now 30 quarters of consistent organic EBITDA growth. The organic revenue growth was 2.1%. The service revenue growth was actually higher at 2.6%, very comparable between mobile and broadband. The EBITDA growth was strong at 6.3%, and the slowdown is actually due to the rollover of inflation-driven price increases in some markets. Moving over to the customer growth in the European operations, you see that strong performance. The mobile customer base has grown by 209,000 in the second quarter. We see a very strong performance across the footprint, but especially in Poland and in Croatia. We also saw strong commercials in all the other categories, being it broadband, FMC, or TV. We made also further progress on the digitization. European segments, so the penetration is now at 72% and Magenta Moments members have reached 4.7 million, so we're well on track to meet our 27 targets of the CMD. Moving over to T-Systems, T-Systems continues to be on a positive track. You see that the order book has increased almost 12% on the last 12 months. This is driven by the same drivers as you have seen in the last quarters. It's cloud, it's digital solutions and road charging. We're also seeing increasing interest on digitalization projects and digital sovereignty offerings in the German market. and that leads to a strong organic revenue growth of almost 4% in the second quarter, and the organic EBITDA growth is slightly above 8% in the second quarter. So T-System is absolutely on track with its full-year guidance, but also with the CMD targets. So that's basically it for the operational review. Now let's have a look at some selected financials. So overall, what you see is obviously we had a negative impact relative to the last year when it comes to the dollar, and we've seen some phasing impacts which affect both free cash flow and earnings. So if you take a look at the page 23, you see that the free cash flow has decreased by 6.7%. This is largely explainable due to two factors. One is the weaker dollar, and the other one is negative working capital effects. We also see an increase relative to Q2 with 24 on CapEx. This is not surprising because it was especially low in the first quarter. And if you combine the two quarters, we're still on 18% growth on free cash flow. Taking a look at the net profit, it was impacted by a weaker dollar. That accounts roughly for $400 million coming from the U.S. And we had some positive impacts in the last year's second quarter results. There was a release of an accrual of the health insurance for public servants, and also we had a derivative impact, which both accounted for $0.04. So if you take a look at the reported figures on EPS, they grew at 6.4% on a year-on-year basis. If you basically exclude what we call the non-occurring effects, the growth is close to 10%. It's at 9.8%. So finally, net debt. You see that the net debt has decreased significantly. Relative to the previous quarter in Q1 by 2.7 billion. This is basically driven by three factors. One is the 4.9 million effect on free cash flow generation. Then we have Forex and derivatives effects, which account for more than $5 billion. And we have a net reduction on net debt because of the 3.45 sale of $2 billion, which was offset partially by 600 MHz and the one-off extension for the usage of spectrum fees in Germany. Obviously, that increasing the dividend payments both for DT and T-Mobile US and the ongoing share buybacks on both sides of the Atlantic. Gets me to my final statement here when it comes to the leverage ratio. The leverage ratio is extraordinarily good in the second quarter. with 2.51 including leases and 2.11 excluding leases but bear in mind that will change in the third quarter given that we have closed two deals which we are happy with, Metronet and US Cellular and obviously we see an increase in net debt happening in the third quarter. That completes my half year review and I hand it over to Tim.