Andreas Fuchs


Deutsche Telekom targets uninterrupted growth over the next few years

  • 2017-2021 growth guidance for revenue, adjusted EBITDA, and free cash flow at an unchanged high level
  • All units to contribute to revenue and earnings growth from 2019 on
  • Dividend to track development of adjusted earnings per share from 2019 on
  • Convergent products and customer service in the spotlight
  • Investments to stay at a high level; focus on building out broadband networks and 5G
  • FTTH targets for Germany firmed up
  • Internet of Things, cloud computing, and security solutions to put T-Systems back on course for growth

The growth story continues: Deutsche Telekom plans to further improve its key financial indicators over the next few years, as the Group announced at its Capital Markets Day in Bonn. On average, revenue is expected to increase by 1 to 2 percent per year in the period from 2017 through 2021, adjusted EBITDA by 2 to 4 percent, and free cash flow by 10 percent. These are the same growth rates that were forecasted by the Group at its Capital Markets Day in 2015 for the period 2014 through 2018 and which were subsequently met or even exceeded by a substantial margin.

As promised, the dividend for the current financial year, payable in 2019, will track the development in free cash flow. The plan is to pay a dividend of 70 eurocents per share, subject to approval by the relevant bodies. Starting in 2019, the dividend will track the development in adjusted earnings per share, which is expected to grow from around 1.0 euro in 2018 to around 1.2 euros in 2021. A minimum dividend of 50 eurocents per share will continue to apply. The option to buy back Deutsche Telekom shares is also being considered as an element of shareholder remuneration.

“Over the next few years, we will continue to exhibit a growth profile that is unparalleled in our industry,” said Deutsche Telekom CEO, Tim Höttges. “We want all Group units to contribute to this growth. We are a German company. We are the leading telco in Europe and occupy a strong position on both sides of the Atlantic.”

Deutsche Telekom plans to consolidate its leading position in networks by continuing to invest heavily in infrastructure. Outside of the United States, capital expenditure will remain virtually on a par with the high level seen in 2017.

The planning figures do not include the announced transaction in the United States, i.e., the anticipated merger of T-Mobile US with its competitor Sprint. In the first three years following the closing of the transaction, the integration costs are likely to outweigh the cost and investment synergies tapped by the merger. Assuming the merger takes effect at the beginning of 2019, this would have a negative effect on adjusted earnings per share and Group free cash flow through 2021. However, in the first year after this period, the costs and investment synergies alone are expected to generate a net present value of 43 billion U.S. dollars, which will have an accretive impact to free cash flow and adjusted earnings per share.

Deutsche Telekom plans to cut costs significantly over the next few years. In particular, the Group is deploying automation and digitalization to reduce indirect costs outside of the United States by 1.5 billion euros by 2021. Around a half of these cuts will come from non-staff-related savings in areas such as real estate and legacy IT platforms, some of which will result from the migration to IP, due to be concluded for consumers in Germany by 2019. The majority of the planned staff-reduction measures have already been implemented by way of agreements – such as the one for phased retirement – that will take effect at the end of the current year.

The broadband build-out will remain a key focus of activities in the coming years. As Höttges explained: “We are committed network investors, spending billions for millions. We are redoubling our efforts to build out broadband infrastructure with optical fiber.” By the end of next year, Deutsche Telekom’s high-speed fiber-optic infrastructure is expected to cover 80 percent of households in Germany. As a result of the vectoring rollout, around 70 percent of households should have access to bandwidths of at least 100 Mbit/s by the end of 2019. Deutsche Telekom will also begin rolling out super vectoring in the second half of 2018, and expects to be able to offer some 15 million households surfing speeds of up to 250 Mbit/s, but at least 105 Mbit/s, by the year end.

In parallel, fiber-to-the-home (FTTH) is also being rolled out this year, for example, to business parks, schools, and new housing estates. Given the right regulatory conditions, from 2021 onwards FTTH is to be deployed to up to 2 million households a year. In addition, wireless-to-the-home technologies will provide gigabit bandwidth to around one quarter of German homes. At the Group's European subsidiaries, the share of capital expenditure allocated to FTTH is to be tripled while investments will remain stable overall.

In mobile communications, coverage gaps, or “white spots,” in the network are to be closed, bandwidths increased, and the foundation for the next-generation 5G network laid. Therefore, Deutsche Telekom will increase the number of mobile base stations in Germany from 27,000 in 2017 to 36,000 in 2021. It will also deploy small cells to increase capacities in urban areas with heavy network traffic. By accelerating its rollout activities, Deutsche Telekom aims to increase its LTE network coverage in Germany from 94 percent of the population in 2017 to 98 percent in 2019. 

In the European subsidiaries, the plan is to raise the number of base stations and small cells to 47,000 by 2021, from 41,000 in 2017. 

T-Mobile US intends to close existing white spots in rural areas and increase network capacities and coverage inside buildings primarily by deploying the low-frequency spectrum it acquired in 2017.

In Europe, convergent fixed-network and mobile products from the MagentaONE portfolio will continue to drive the customer experience. To give an example, the churn rate among MagentaONE customers is around half that of other customers. Additionally, the monthly revenues – generated by add-on options, for example – are substantially higher. The share of households in Europe using convergent offerings is to grow further, from 21 percent in 2017 to around 40 percent in 2021.

The Group is also committed to making ongoing enhancements to its customer service. After making substantial progress over the last few years, it plans to continue improving key performance indicators, such as the complaint rate and customer satisfaction levels. “Our service will never live up to our exacting standards, which is why we are continually working to enhance it. We want our service to be flawless. It is the key factor shaping our image. That is why, in Germany, we want to improve the number of issues we resolve for our customers within 24 hours from currently 66 percent to over 80 percent in 2021,” said Tim Höttges.

To boost business productivity, Deutsche Telekom is focusing on growth areas at T-Systems that include the Internet of Things, cloud computing, and security solutions. These are areas in which T-Systems expects to see substantial growth in the period through 2021. This should more than compensate for the stagnation or slight decline in traditional telecommunications and IT business at T-Systems and put the unit back on course for growth.

This media information contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. These forward-looking statements include statements with regard to the expected development of revenue, earnings, profits from operations, depreciation and amortization, cash flows, and personnel-related measures. They should therefore be considered with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom's control. Among the factors that might influence Deutsche Telekom's ability to achieve its objectives are the progress of its staff restructuring initiatives and other cost-saving measures, and the impact of other significant strategic, labor, or business initiatives, including acquisitions, dispositions, business combinations, and network upgrade and build-out initiatives. In addition, stronger than expected competition, technological change, legal proceedings, and regulatory developments, among other factors, may have a material adverse effect on cost and revenue development. Further, an economic downturn in the markets, and changes in interest and currency exchange rates, may also have an impact on Deutsche Telekom's business development and the availability of financing on favorable conditions. Changes to Deutsche Telekom's expectations concerning future cash flows may lead to impairment write downs of assets carried at historical cost, which may materially affect the results at the Group and operating segment levels. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, the actual performance may materially differ from the performance expressed or implied by forward-looking statements. There is no assurance that the estimates or expectations will be achieved. Without prejudice to existing obligations under capital market law, Deutsche Telekom does not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise.
In addition to figures prepared in accordance with IFRS, Deutsche Telekom also presents alternative performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net profit, free cash flow, gross debt, and net debt. These performance measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Alternative performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.

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