Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's full year 2025 conference call. As you can see, with me today is our CEO, Tim Höttges, and our CFO, Christian Illegg, as usual. And they will be accompanied today by our board member for Europe, Dominique Leroy, our board member for Germany, Rodrigo Diehl, and our board member and CEO of TS Systems, Feria Abolhassan, As usual, Tim will first go through some highlights. He will be followed by Rodrigo, who will dive deeper into the strategy and financials for Germany. After that, Dominic will dive deeper into the European segment before Ferry will update on the outlook for T-Systems. Christian will then complete the picture before some closing remarks from Tim. And then 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.

Yeah, thank you, Hannes, and welcome everybody to our call today. And you find us in great mood here today because we had a great fourth quarter and we have great 2025 results and a good outlook for 26. So it's going to be an optimistic call. 2025 was a successful year and we concluded it with a strong quarter. And we want to give you as a team jointly today an insight into the operations, but even with regard to our capital markets day targets, because it's half term and it's time to even, you know, assess how we are looking with regard to the capital markets targets forward. Srini, he has already given you an update two weeks ago, and the team confirmed the Capital Markets Day's ambitions. They even raised some of the targets, and I'm highly appreciating the reaction from the market on this one. Despite the competition and all this kind of poli-crisis which are around us, we are delivering strong results as promised. We are on track for our CMD targets, not only in the US, but also in DTX-US and for the group as a whole. In the last quarter, and I like to reiterate that, our most important financial and commercial KPIs did not only grow year on year, but they even accelerated quarter on quarter. So in every regard, the fourth quarter, and I'm very happy we're going to talk about that, Germany was accelerating as well. We had great developments in the fourth quarter. I like the memento. So going forward, I think the overview shows the highlights. We delivered 3.8% organic service revenue growth, 4.7% EBITDA growth, 19.5 billion free cash flow, and we grew our adjusted earnings to 2 euro per share. We had market-leading customer growth in all segments. Our networks remain leading, and we are investing to extend our lead. By the way, in some markets, we have achieved the highest service revenue market share ever, and even in Germany, very close to 40%. We are aggressively driving AI throughout the value chain. We launched Europe's first industrial AI cloud. We are the first DAX company and the first multinational telco to reach zero CO2 emissions, and I'm very proud of that. We increased our stake in T-Mobile to now 52.8% and we returned 6.4 billion to shareholders last year. We announced a record dividend of one euro and another 2 billion share buyback. And last but not least, I'm happy to say that the supervisory board yesterday decided to extend the contracts of our board members, Birgit Bohle, HR, Feria Abulhassan, TIS Systems, and Thorsten Langheim, Group Development, and the US within the board. I should say I'm happy that they extended their commitment to our company and not the other way around, because these are great fellows, and now our team is complete. We have the young kids on the block and we have experienced people around us. In this kind of instability of the world, the management of Deutsche Telekom is stable. As you can see on the next page, all our segments contributed to our 2025 EBT-R growth. After another strong quarter, the system leads. the 22.5 league table. Congratulations, Ferry. It was Dominique last year, this time it's you, with a growth of 14.4 organic EBITDA growth. With another strong performance from our Europe segment, our ex-US EBITDA grew by 3.4% in 2025. On networks, we keep our market-leading position, which is our foundation of success. In the last 12 months, we passed 3.7 million additional European homes with FTTH. We now reach nearly 24 million homes, of which 12.6 million in Germany alone. And in Germany, and Rodrigo will talk about that, we had a record quarter for fiber homes passed and homes connected. And by the way, utilization went up as well. In the U.S., we now have almost 1 million fiber customers. At their Capital Markets Day, T-Mobile outlined a target of 3 to 4 million fiber customers by 2030. Our mobile networks remain leading across the footprint, and we will not stop. In Germany, we decisively won all network tests, and our European networks are also leading. And I can tell you our competition is very sensitive on that one. But this is very funny to see how they're trying to legally fight against us when we are claiming that we have the best networks. seems to be nervous about. T-Mobile talked about this network leadership in the US as well two weeks ago, and we were particularly pleased that T-Mobile for the first time topped the J.D. Power Wireless Network Quality Survey with wins in five out of six regions. This is the core DNA of Deutsche Telekom, always the best mobile network. AI and digital. On page seven, you can see our update on AI and digitization. By the way, this chart's getting busy and busy every day. Today, we have 500 projects running the company. And to be honest, we cannot put that on on one slide. So we're going to have an AI Investors Day coming soon, where we give you the opportunity to really understand not only the projects, but all details and the impact this AI project is going to have. More to come. Two weeks ago, you already heard about the remarkable progress at T-Mobile. Over 100 million downloads of their T-Live app and already three quarters of customer upgrades done digitally. We continue to make excellent progress on this side of the Atlantic as well. And what you can see on this pitch is really only the dip of the iceberg. Overall, we feel very comfortable. And to be honest, I believe we have to increase the target on this one. But more to come with regard to our CMD24 cost savings target of 800 million from AI and digital for DTXUS by 2027. I will not go through this slide because Dominique, Rodrigo, and Ferry will cover some of the topics later on as well. Let me just say that we will be hosting on EI an event. And by the way, for me, the most important thing is that we decided that recently that all employees of Deutsche Telekom are going to be enabled to use OpenAI, ChatGPP, Enterprise very soon. So there are no excuses anymore for our employees. Everybody is now involved into the AI endeavor within the company. Customer growth. Our market leading customer growth continued on both sides of the Atlantic. Our mobile customer growth remained very strong with another record quarter in the US. And in broadband, the European segment delivered strong and steady growth. While full year broadband subs were negative in Germany, we were able to stabilize our customer base in the fourth quarter. And I know that most of you have not expected this for the fourth quarter. Moving on to the capital allocation. We are delivering steady growth in shareholder returns, including a proposed dividend increase to a record of €1 for 2025 and a third consecutive €2 billion share-by-back programme. At the Capital Markets Day, we outlined 50 billion of expected surplus by 2027. This surplus is fundamentally intact, but it has been partially allocated already. Christian, I will take the money. Is that okay? Good. Our 2026 surplus is effectively committed to be ongoing DT share buybacks and further TMUS share increases – sorry, stake increases. after our decision not to sell TMUS shares alongside their ongoing buyback. Next, let's review our 2025 guidance achievement. Bottom line is that we delivered on our guidance for 2025 on both sides of the Atlantic. In fact, we are slightly outperforming our last guidance update that we provided at the Q3 stage. Let me now move to 2026 and the new guidance. Another strong year ahead. As always, our group guidance is based on last year's average dollar exchange ratio. It's a dollar exchange of 1%. 13 are in 2025 and is the sum of the guidance for DTX-US and for T-Mobile-US, adjusted by the expected US GAAP IFRS bridge. T-Mobile-US provided its 2026 guidance on February 11. Outside of the US, we guide for an EBITDA of around $15.4 billion or about 2.5 to 3% growth and a free cash flow of around 3.7 billion or about 3% growth. For the grope, we guide an EBITDA of around 47.4 billion or about 6% growth and acceleration compared to 2026. Free cash flow of around 19.8 billion or about 3 billion for an exchange-adjusted growth. and an adjusted EPS of around €2.20 or about 10% foreign exchange adjusted growth. As usual, we have a patron appendix in which we compare our guidance with the consensus using a foreign exchange rate of $1.17. On the next page, we provide a mid-term assessment of where we stand against the key ambitions of 2023 through 2027 that we stated at the 2024 Capital Markets Day. Our guidance, as shown here, is organic. And as you can see, we are on good track for almost all targets. There are two targets where we are lagging. DTXUS service revenues due to a slower growth in Germany. And we are also currently behind on our KPI indirect cost as a percentage of service revenues. But this is largely due to the mentioned shortfall in service revenues. We are doubling down on efficiencies to mitigate this. Despite these shortfalls, we remain confident to deliver our capital markets day 24 guidance for DTXUS adjusted EBITDA and the growth and the free cash flow which we have laid out. So with this positive perspective into the future, let me now hand it over to Rodrigo for a deeper dive into our exciting Germany segment.

Thank you, Tim, and I got the message. Welcome, everybody. I will start with an overview of how we have executed against our strategic targets before I go deeper into the financials. And I will round up later with an overview of our strategic priorities for 2026. We made good progress along our strategic targets. 2025 was an important year for our fiber build. We now reach 12.6 million from past in Germany and added twice as much, I repeat, twice as much many Fiverr customers as in 2023. We achieved substantial efficiencies in our Fiverr build held by AI. And as I mentioned already at the end of last year, we reconfigured our Fiverr strategy, more on this later. When it comes to our digital and AI-driven transformation, we see very encouraging early results. You can see a few examples on this page. Our customer chatbot, now fully LLM based, achieves a 55% solution rate. 3.4 million contacts were solved by chat or voice bots. We have reached 40% zero touch automatic call identification. This saves around 30 seconds per call for our agents. And we have rolled out AI-based automatic call documentation, which saves another 30 to 60 seconds at the end of the call for our agents. And all this goes to the bottom line with a 10% reduction in call volumes. Each call has a cost that we achieved in 2025. We also made progress with our differentiation and market leadership, a key element of our strategy. We won all, I want to repeat, all service center, shop, and mobile network tests. We established Magenta Moments in the market with 5 million active users. Magenta Moments also goes to the bottom line because these users have 3.5 times higher NPS and 20% less churn. Our first-time resolution rate reached 77%. These two drives higher customer satisfaction. Complaints, a number I personally look at every day, were down by 50% in the last two years alone. And our brand recognition has reached the highest ever level. Moving now on this page to our financials, I'm pleased to say that after a weaker third quarter, our headline financials are back on track. Organic revenues were up a strong 2.8% in the fourth quarter. Two factors contributed to it in roughly equal parts. First, service revenue growth, both in fixed and in mobile. Total service revenues grew by 1.5% year on year. And second, strong revenues with our fiber joint ventures, mainly due to different facing in both years. These are near zero margin. Year-on-year growth in EBITDA at 2.5 was back at a normal run rate after an unusually weak third quarter. As mentioned, both fixed and mobile service revenues improved sequentially this quarter. In fixed, this quarter the improvement was mainly the result of easier comps after a third quarter with very challenging comps. Headlines last year were generally impacted by weaker than expected broadband and B2B fixed line revenues. In mobile, the 2.5% year on year service growth is a continuation of our ongoing strong performance that we have seen consistently throughout the years. And here we can go a little bit deeper into mobile. You can see consistent strength in our mobile subscriber growth. I'm particularly happy that the 282,000 net ads we achieved in Q4 2025 are higher than the 261 that we had achieved a year earlier. Our propositions continue to resonate well with our customers, both business and residential. Our network leadership remains undisputed, and we are extending it with our ongoing network modernization program, our NEMO program, as we call it internally. We have successfully addressed growing data demand with well-designed unlimited propositions and investments, and our unlimited propositions we have recently updated in a more-for-more move that we did in February 2026. Our customer segmentation is effective. We're growing in B2B, we're growing in B2C with our main brand, and also Kongstar is contributing at a steady pace. We remain comfortable with our CMD guidance of 2.5% mobile service revenue growth in the 2023-2027 period, having delivered growth at the top end of this range in the first two years. If we go now into fixed-line, we are pleased that our broadband net-adds stabilized last quarter. As Tim already mentioned, we are back to a slightly positive number there. This stabilization is the result of multiple measures taken during last year, including an improved market segmentation, a relentless focus on operations, both on acquisition and customer retention, plus a steady acceleration in fiber connections, and it was achieved despite a front book price increase that we did in October and the reduction of promotional months from six to three that we did earlier in the year in April. Before I go into Fiverr, let's look at our good progress on TV. We added over 100,000 new Triple Play TV customers in 2025. This comes after a little over 300,000 in 2024, the year when we had the rights for the European Championship. With that, we added almost 400,000 new Triple Play TV customers since 2023. In addition to this, we added around 200,000 new OTT, TV customers in 2025, almost half of it 80,000 in the fourth quarter. With that, we added around half a million OTT TV customers since 2023 on top of the 400,000 triple play TV customers I mentioned earlier. So this is nearly one million new TV customers in two years. Here we are the attacker. We are already the fastest growing pay TV provider in the market, and our TV attach rate to broadband shows that there's additional potential for growth. If we move to the next page, and we talk about broadband, this quarter we added 164, but I stay on the previous one. Doesn't move, so it's okay. This quarter we added 164,000 fiber customers, our best ever quarter, I wanna repeat it, our best ever quarter, and our fiber penetration reached 16.4%, so that's an increase of 11% on our fiber penetration. I can assure you this remains a key area of focus, maybe even our number one area of focus, as shown on the following page. For all of us, it is all hands on deck when it comes to scaling our fiber customers and monetizing the fiber network. In 2025, as mentioned, we increased the fiber footprint by 2.5 million. We had promised that. We remain well on track for our stated 2027 target of around 17.5 million homes passed. But as I said, more important, our fiber customer numbers increased by almost 600,000 as we work towards the run rate of 1 million in 2027. As we announced with our third quarter results to support this goal, we will further step up our fiber investments funded by efficiencies. AI is helping us there. Budget reallocations and the federal tax relief. We are increasing our focus on single dwelling units, on SDUs. We are going more into less dense areas, into rural areas. That's where the action is. That's where we're going. Within MDUs, we are increasing our focus on connections. And therefore, as the name of the game is, buildings prepared. but not only preparing the building, connecting the entire building. We call it in German or full build out. In English, doing the homes connect and doing the homes activated. Homes activated paying broadband customers is the KPI in Germany. On top of these infra measures, we are also stepping up our fiber distribution in our channels, and we are seeing positive early results. Finally, on fixed line, let's look at our access revenues. While broadband net ads improved last quarter, our access revenue trends remain impacted by last year volume losses. Retail broadband revenue growth slowed to 1.6 last quarter. This was driven by volume losses, while ARPA momentum remained positive, especially in B2C. We see last quarter's growth rate as the low point. B2C ARPA was up 3.4% year-on-year, driven by speed upselling and disciplined pricing. We reduced, as I said before, the promotional period from six to three months in April. In October, we raised our broadband front book prices by one euro a month. And now, a few weeks ago, we started to raise the back book prices for some of our older cohorts in broadband for two euros a month. In my view, these price increases are long due, as broadband was one of the few consumer categories in Germany to see prices stable or even go down over the past few years of very high inflation. More pricing discipline is needed to fund the massive investments required to build the German digital infrastructure of the future. While our price increases may impact volumes overall, we expect various measures to stabilize and improve broadband revenue trends again this year. In sum, we remain committed to our CMV guidance growth of 3% to 4%. But of course, from today's perspective, this looks challenging. Wholesale revenues improve sequentially. Here, ARPA momentum continues to offset the ongoing volume losses. ARPA momentum will continue to benefit from speed up selling in our growing fiber footprint. However, and please keep in mind that from the second quarter, 2026, the annual price increases for lower-end DSL tariffs we agreed with our partners in 2021 will roll over. Overall, the 2023-2027 guidance period, we expect to deliver the stable wholesale access revenues that we promised at the 2024 CMD. Before we get to the financial outlook, let's spend a little bit more time on our priorities for 2026. I already spoke about our industry-leading fiber build, where we are stepping up further. Clearly, here the priority is to keep accelerating our fiber customer growth towards the 1 million target in 2027. I am confident we will deliver this. This will help us both, of course, on the volume and on the value side. Another key focus is to take our digital and AI transformation to the next level. When it comes to leveraging AI for transformation, I believe that there is more potential for efficiency gains than previously thought. I gave some examples, but 10% compounded call reduction per year has a massive efficiency impact, for example. Especially in the current competitive German market and environment, I see cost and efficiencies as an absolute must and as a hedge against top-line headwinds. As a management team, we are committed to capture them. In 2026, we are working on the full implementation of the message introduced last year while we have a strong pipeline of further use cases. Finally, on the topic of differentiation and market leadership, which is the core of our strength in Germany, we are constantly extending our mobile network leadership through our market-leading network modernization program. We are translating this through our best network campaign into an even stronger brand leadership. Another priority is to evolve our Magenta app into the central operating system for customer interactions along the lines of what you are seeing from T-Mobile US. Here we copy with pride from our colleagues in the US. And as part of this, we aim for 70% of mobile prolongations and additional seams to be done through the app. In B2B, we want to extend our differentiation with secure networks, market-leading cloud, IoT, cyber, and AI propositions, the big five, as my friend Ferri calls them. And talking about Ferri, I'm deeply impressed about the resources and capabilities of the systems here in Germany. And I think there is significant potential to capture even more value from increasing our collaboration, and that is exactly what we will do with FERRI. Now, coming to the last page and our financial outlook, on the service revenue side, we are currently tracking below our ambitious CMD target. While mobile is tracking in line, weaker fixed service revenues are waking. are waiting, sorry. The weaker-than-expected fixed-service revenues result from 2025 broadband customer losses, as I said, and a weaker-than-expected B2B performance. In 2026, we are expecting overall similar total service revenue growth as in 2025. On the EVDA side, we expect a better trend in 2026 than in 2025 and a return to a more normal year-on-year increase. This improvement will be supported by the rollover of elevated 2025 energy and wage cost headwinds and by the AI-enabled digitization and efficiencies that I mentioned earlier. We continue to strive for our CMD 2024 EBITDA CAGR of 2.5% to 3%. But given the weaker growth in 2025, we now expect to be at the lower end of that range. With that, I hand over to someone with whom I've worked closely in Europe over the last couple of years, Dominique, to talk about the European segment.