DEUTSCHE TELEKOM: Commerzbank German Investment Seminar January 2015
Thomas Dannenfeldt, CFO Rukma Raybardhan, VP IR US DISCLAIMER
This presentation 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. You should consider them 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 our ability to achieve our objectives are the progress of our workforce reduction initiative and other cost-saving measures, and the impact of other significant strategic, labor or business initiatives, including acquisitions, dispositions and business combinations, and our network upgrade and expansion initiatives. In addition, stronger than expected competition, technological change, legal proceedings and regulatory developments, among other factors, may have a material adverse effect on our costs and revenue development. Further, the economic downturn in our markets, and changes in interest and currency exchange rates, may also have an impact on our business development and the availability of financing on favorable conditions. Changes to our expectations concerning future cash flows may lead to impairment write downs of assets carried at historical cost, which may materially affect our 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, our actual performance may materially differ from the performance expressed or implied by forward-looking statements. We can offer no assurance that our estimates or expectations will be achieved. Without prejudice to existing obligations under capital market law, we do 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 non-GAAP financial performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net income, free cash flow, gross debt and net debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.
2 Deutsche Telekom: Overview Value contribution by DT‘s operating segments1
58% of EV Germany (€ bn) 2013 15% of EV . Revenue 22.5 Europe (w/o Germany) (€ bn) 2013 . Adj. EBITDA 8.9 . Revenue 13.7 . Adj. Cash Contribution 5.5 . Adj. EBITDA 4.6 . Adj. EBITDA margin (%) 39.7 . Adj. Cash Contribution 2.8 . Adj. EBITDA margin (%) 33.2 23% of EV USA (€ bn) 2013 . Revenue 18.6 . Adj. EBITDA 3.9 4% of EV . Adj. Cash Contribution 0.9 Systems Solutions (€ bn) 2013 . Adj. EBITDA margin (%) 20.9 . Revenue 9.0 . Adj. EBITDA 0.8 . Adj. Cash Contribution (0.3) . Adj. EBITDA margin (%) 8.6
Source: EV figures as of 31/09/2014 1: Excluding negative GHS(-6%) and positive EE (+6%)
4 GENERAL OVERVIEW
Overview Total Shareholder Return Development 01 Jan 2010 – 03 Nov 2014
350 224.4% BT . Fixed and/or mobile operations in more than 12 countries 300 . Four operating segments: Germany, Europe, the United States and 250 85.1% VOD 200 62.9% DT Systems Solutions 55.3% DAX 150 47.9% DJ . 195mn mobile subscribers, 30mn fixed network lines and 17mn 21.7% Stoxx 100 0.9% TI broadband subscribers as of Q3/2014 (21.4%) TEF 50 9.0% FT . (53.9%) KPN Ca. 230,000 employees globally 0 . No. 99 in 2014 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Nov 14
Shareholder structure (Q3/2014) Public market overview Valuation (€bn) 14% Share Price (€) as of Nov. 03rd 2014 11.90 Free float Market Cap 54.0 Net debt ¹ 41.8 17% KfW Other FV adjustments² 14.0 Firm Value 109.8 Federal Republic of Germany 69% Trading Multiples3 2014E 2015E EV/EBITDA 6.3x 6.1x EV/AFCF 13.5x 12.9x P/E 19.6x 18.2x
1) DT Q3 reported net debt figure. 2) Other FV adjustments include associates (-€5.4bn), pensions (€8.1bn) and minorities (€11.3bn). 3) Source: Deutsche Telekom; Factset. Data as per 03 Nov 2014 (based on 3Q14 figures)
5 Segment view: Germany
Facts1 Revenue development (€bn) 30 . 21mn fixed-network lines 25,1 24,1 22,7 22,5 . >12mn broadband lines 20 16,5 . >39mn mobile customers . Market share broadband: 42% 10 . 2.4mn triple-play customers (Entertain) . 2.2m VDSL customers – growing 58% y.o.y. 0 2010 2011 2012* 2013* 2014 (YTD)
Highlights1 Adj. EBITDA development (€bn) % margin 15 50 41,2% . Benefiting from premium position: mobile service revenue is stable yoy, outperforming 38,3% 39,9% 40,3% 39,7% 40 all competitors 10 9,6 9,6 9,2 8,9 . VDSL wholesale model successfully initiated (Kontingentmodell): all major resellers on 30 6,7 board 20 . Constantly shrinking line loss number (FY09: 2.1mn; FY10: 1.6mn; FY11: 1.3mn; 5 FY12: 1.0mn; FY13: 967mn; Q1-Q3/14: 575m) 10 . Mobile data revenue = 43% of Service Revenues 0 0 2010 2011 2012 2013 2014 (YTD)
1) Figures as of Q3/2014 *After restatement
6 Segment view: USA
Facts1 Revenue development ($bn) 24,7 25 21,3 21,5 . New management pushes successful Un-carrier strategy: Turn-around after more than 20,6 19,8 4 years with +688k branded contract net-adds in Q2-2013, +648k in Q3-2013, +869k 20 in Q4-2013, +1,323k in Q1-2014, and +1379k in Q3-14 15 . Acquisition of MetroPCS completed. Integration ahead of plan. Well on track to beat 10 synergies 5 . Now around 53mn mobile customers, thereof around 26mn branded contract customers 0 . LTE network rollout completed ahead of time! Over 205mn covered pops 2010 2011 2012 2013 2014 (YTD)
Highlights Adj. EBITDA development ($bn) % margin 15 25,8% 25,9% 25,0% 30 . Brandnew management team 20,9% . Improved network 10 18,5% 20 . Significant spectrum position improvement via AT&T breakup, VZ spectrum swap . Metro PCS deal with USD 6-7bn synergies 5,5 5,3 5,1 5 4,9 4,0 10 . Handset parity in comparison to other carriers . Launch of new differentiating Un-Carrier strategy . Self funding platform approach 0 0 2010 2011 2012 2013 2014 (YTD)
1) Figures as of Q3/2014
7 Segment view: Europe
Facts1 Revenue development (€bn) 20 . Operations in 121 European countries (ex. Germany, UK) 16,8 15,2 . 56mn mobile customers, including almost 26mn contract subscribers 15 14,4 13,7 . Almost 5mn broadband lines 10 9,6 . >3.6mn TV customers . 53k FTEs (employees) 5 0 2010 2011 2012* 2013* 2014 (YTD)
Highlights Adj. EBITDA development (€bn) % margin 15 34,1% 34,6% 34,2% 33,2% 34,5% 40 . In most markets No. 1 or No. 2 player 30 . Network cooperation in Poland, Czech Rep., Netherlands, Austria 10 . Successful restructuring of OTE 20 . Acquisition of GTS Central Europe, a top infrastructure based B2B ICT provider in 5,7 5,2 5,0 5 4,6 Poland, Czech Rep., Hungary, Romania approved. Operational integration in PL & CZ 3,2 10 completed in Oct 2014. . Revenue cost transformation ongoing 0 0 2010 2011 2012* 2013* 2014 (YTD)
1) Figures as of Q3/2014 *After restatement
8 STRATEGY UPDATE: DEUTSCHE TELEKOM – LEADING TELCO DT STrATEGY LEADING EUROPEAN TELecommunications Provider
LEADING TELCO
BEST INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS EXPERIENCE
10 Key Messages DEUTSCHE TELEKOM – LEADING TELCO
Integrated IP networks . DT with clear game plan to finish All-IP migration YE2018 . Clear Advantages: Market agility, efficiency, costs ACROSS European footprint . DT as strong integrated player in >70% of its European assets
. DT with the best network Best customer Experience . DT with an integrated product portfolio . DT with the best customer service
. Concentrate in house innovation on areas of strength WIN WITH PARNTERS . Set up of a partner system for innovative services – “Steckerleiste” . DT as a platform for third-party providers
. TSI 2015+: Restructuring/refocusing on scalable, platform based IT products Lead in Business . Target to be No.1 or 2 in B2C and B2B in each market . Strengthening B2B in Europe/German SME initiative Generation of . DT as frontrunner and think tank in integrated network strategy and All-IP . Superior business model, leading to better margins and returns stakeholder value . Thereby generating value for our stakeholders!
11 BEST INTEGRATED IP NETWORKS INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS EXPERIENCE
All-IP transformation Pan-European network INTEGRATED NETWORK STRATEGY . Future-proof IP platform with focus on . DT as technology front runner in . LTE roll-out: customer and faster installation of Europe: design of a common 85% Pop Coverage YE16 services European production model 50-85% Pop Coverage YE17 . More cost-effective production . Based on a transformed IP network . Fixed Broadband Rollout: (Example Macedonia: OPEX savings: . Advancing virtualization of individual >24 million households covered EUR 10/customer/year) network components YE16 with FTTC/Vectoring >2 million customers migrated YE13 >9 million households covered >2.7 million IP accesses YE13 YE16 with FTTX (partly comb. with Vectoring) TARGET: TARGET: TECHNOLOGY FRONT Runner TARGET: Transformation start PAN-NET SET Up BY €6.5 BN NETWORK INVEST COMPLETED by 2018 2015 in D/EU 2014-2017
12 BEST BEST CUSTOMER EXPERIENCE INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS EXPERIENCE
BEST network Integrated products BEST CUSTOMER SERVICE
. Best network quality . Integrated products/services for . Easy and fast service at home or on the move fixed/mobile communications for the best customer experience . Top speed in all networks from a single source . Consistent customer experience . LTE: Speed up to 300 Mbit/s . Hybrid routers for the combination of across all channels (LTE advanced) optical fiber/LTE (up to 250 Mbit/s) . Strengthening online channels . FTTC & vectoring: up to 100 Mbit/s . Converged package rates for fixed . Customers can carry out service download, upload 40 Mbit/s network/mobile/TV/partner services processes flexibly themselves . Hybrid network (fiber + LTE): . Customers benefit from simplicity . Integrated view of our customer data and increased performance up to 250 Mbit/s download, upload . Best Telco in TRIM-Score up to 90 Mbit/s TARGET: TARGET: TARGET: No.1 in Network Coverage, Market Launch No. 1/2 in Customer Stability & Bandwidth Integrated Products 2014 Perception
13 BEST WIN WITH PARTNERS INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS EXPERIENCE
“Steckerleiste” NEW GENERATION TV PLATFORM-BASED BUSINESS
. Set up partner system for innovative . Best HD-offering&Premium-Contents DT as a platform for third-party services (“power strip”): state-of-the- . Live (multi-cast) and on-demand- providers art services for customers by working Contents on all screens Current examples: with partners (e.g. Spotify) . delivered via IPTV/DVB, . Qivicon/smart home . EU-wide connection of services in the in addition OTT-partner contents . Publishing platform/Tolino DT product portfolio . Social media integration and . Intelligent networks (connected car, . DT “preferred telco” for OTT partners interactivity on all devices e-health, smart energy) (security, technical integration, . Personalized recommendations onboarding process, marketing, etc) . M2M/Industry4.0-solutions . Payment/MyWallet
TARGET: TARGET: TARGET: PARTNER Integration 10 M TV-Customers Build Out Platforms for WITHin 3 Months 2017 (GERMANY/EU) innovative solutions
14 BEST LEAD IN BUSINESS INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS EXPERIENCE
T-SYStems 2015+ Strengthening B2B IN GERMAN SME INITIATIVE EUROPE . Restructuring of IT business to focus . Focussed expansion of mobile- . Focus on SME growth market: on scalable, platform-based centric countries to include fixed Expansion of IT market share IT products (standardized IT) network products . Extended product portfolio . Focus on digital innovation areas: . Europe: Strengthening of market (also through partners) with focus on scalable solutions from the areas of position in B2B segment cloud, security, convergent products, cloud, security, big data, M2M, etc. Initial implementation successes: collaboration . New “go-to-market” initiatives: . GTS1 strengthening B2B in Eastern Europe central order center and partner networks for sales . TSI CZ integrated in T-Mobile CZ
TARGET: ≈50% TSI REVENUE TARGET: TARGET: Through Standardized IT ICT REVENUE GROWTH +€600 m IT-REVENUE in SME Products (from 2017) ≈20% IN EU (2012-2015 CAGR) (UNTIL 2018 in GERMANY)
1) GTS acquisition pending EC clearance
15 BEST LEAD IN BUSINESS – TSI 2015+ INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS FASTER STRATEGY EXECUTION EXPERIENCE
Ch anging Environment Transform our Business model . Increased competitive intensity especially in classical ICT and commoditized cloud services leads to massively increasing STOP price pressure in the market – e. g. Indian operators are gaining UNPROFITABLE OFFERINGS ground in Europe with aggressive pricing models
. Standardized solutions & products from the SMB sector are TRANSFORMATION & ACCELERATED quickly penetrating the enterprise market – pushing for lower PERSONNEL RESTRUCTURING prices and more automation
. Our customers expect more innovative solutions for their EXPAND & SCALE OUR business – so the focus is not only on our customers, but BUSINESS MODEL AND GROW increasingly also on our customers’ customers
16 BEST LEAD IN BUSINESS – TSI 2015+ INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS REVENUE PROFILE AND PROFITABILITY EXPERIENCE
Re venue distribution TSI Market Unit
2013 2014 2017 7.3 €bn1 6.7 €bn ~7.7 €bn 7% 10% 17% 35% 13% Revenue share generated by 12% 0% 37% 44% 45% growth areas increases from one third to nearly half of the 34%45% 35% 46% total revenue
Scalable IT and TC services; Transformation & integration Classical ICT services (MAKE) EBIT Margin 3% EBIT Margin 3% EBIT Margin on Peer Classical ICT services (BUY) Level >6% Stop offering
1) restated for ICSS/GNF/CZ
17 OUR FINANCE STRATEGY – PROVEN AND STILL VALID
EQUITY STRATEGY LEADING TELCO DEBT
BEST INTEGRATED WIN WITH LEAD IN Undisputed access to Reliable Shareholder CUSTOMER IP NETWORKS PARTNERS BUSINESS Remuneration policy EXPERIENCE debt capital markets
Dividend1 . Rating: A-/BBB VALUE CREATION: ROCE > WACC . FY 2013: €0.50 . Net debt/adj. EBITDA: . FY 2014: €0.50 1 EFFICIENCY MANAGEMENT – Reduce costs by “target costing” 2 – 2.5x and increase ROCE above cost of capital . FY 2015: re-visit . Equity ratio: 25 – 35% 2 PORTFOLIO MANAGEMENT – Deliver on preferred business model Attractive option: . Liquidity reserve: (integrated + B2C/B2B) and value generation dividend in kind covers maturities 3 RISK MANAGEMENT – Maintain low risk country portfolio of coming 24 months 4 FAST TRANSFORMATION – Support fast IP migration and transform network infrastructure
1) Subject to resolutions of the relevant bodies and the fullfillment of other legal requirements
18 GUIDANCE1
2013 RESULTS GUIDANCE 2014 AMBITION 2015
€ bn Reported Pro forma2
Revenue 60.1 60.9 Slight growth3 Growing Adj. EBITDA 17.4 17.6 flat around 17.64 Growing FCF 4.6 4.6 around 4.2 Slight growth
SHAREHOLDER REMUNERATION POLICY5 Unchanged . 2013/2014: 0.5 € per share . 2015: re-visit
1) Guidance based on constant exchange rates and no further changes in the scope of consolidation 2) Adjusted for changes in the scope of consolidation 3) Versus 2013 pro forma 4) Excl. Scout, which contributed 0.1 bn of EBITDA in 2013 5) Subject to resolutions of the relevant bodies and the fullfillment of other legal requirements
19 REVIEW Q3/14 LEADING European TELCO: KEY ACHIEVEMENTS in Q3
KEY achievements . LTE (79% POP coverage) and fiber roll out (40% Household coverage) continuing in Germany. Europe: 1.9k LTE-sites (+19%) added in Q3. . All-IP migration: Europe achieves IP-Share of 35%. IP lines in Germany doubled versus year ago to 3.7 million. . Germany: Mobile market with improved service revenue trends (-1.0%)1. Deutsche Telekom continues to outperform mobile market (-0.1%). Broadband net adds (-20k) and line losses (-193k) seasonally impacted by higher churn but trend improvement vs. prior year continues. Fiber net adds (+225k) almost doubled vs. last year. TV: +59k. Ongoing strong adj. EBITDA margin of 41.6%. . US: Record branded postpaid customer additions (1,379), postpaid phone ARPU stabilized, US$ revenue with 8.8% growth . Europe: Improved revenue trends and ongoing focus on profitability: adj. EBITDA +1.3%, margin of 35.7%
Q3 Financial Highlights . Group revenue growth of 0.8% to €15.6 billion . Adj. EBITDA of €4.6 billion (-1.8%) – on track to deliver on guidance . FCF of €1.1 billion in line with FY guidance . Financial guidance for FY 2014 confirmed
1) Based on management estimates
21 9M/14: KEY FIGURES
Q3 9M € mn 2013 2014 Change 2013 2014 Change Revenue 15,525 15,648 0.8% 44,467 45,656 2.7% Adj. EBITDA 4,659 4,575 -1.8% 13,364 13,125 -1.8% Adj. net profit 823 800 -2.8% 2,400 2,023 -15.7% Net profit 588 506 -13.9% 1,682 3,034 80.4% Adj. EPS (in €) 0.18 0.17 -5.6% 0.55 0.45 -18.2% EPS (in €) 0.14 0.11 -21.4% 0.39 0.68 74.4% Free cash flow1 1,427 1,125 -21.2% 3,574 3,157 -11.7% Cash capex2 2,260 2,493 10.3% 6,415 6,755 5.3% Net debt (in € bn) 39.7 41.8 5.2% 39.7 41.8 5.2%
1) Free cash flow before dividend payments and spectrum investment and before effects in connection with the AT&T transaction and compensation payments for MetroPCS employees 2) Before spectrum payments. Q3/13: €118 million; Q3/14: 91 million; 9M/13: €1,185 million ; 9M/14: €1,972 million
22 GERMANY: continued solid margin and revenue trends
Revenue Adj. EBITDA and margin (in %) 41.9 40.7 41.3 41.6 € mn Mobile Core fixed Wholesale services Others € mn 35.9 -1.5% -2.1% 5,670 5,634 5,483 5,464 5,587 2,375 2,027 2,230 2,256 2,324
2,006 1,957 1,871 1,881 2,006 0.0% Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Adj. OPEX € mn 2,542 2,535 2,483 2,487 2,481 -2.4% -0.9% 3,389 3,690 3,338 3,286 3,360 863 873 856 845 840 -2.7% 259 269 273 251 260 +0.4%
Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
23 GERMANY Fixed: LINE losses -24%yoy for the 2nd consecutive quarter. fiber net adds almost doubled
German broadband market1 Entertain customers
mn -47k -22k -7k +7k -20k Cable 000 +12.1% 28.5 28.7 29.0 29.2 29.4 DSL Competitors 4.9 5.1 5.3 5.5 5.7 2,121 2,177 2,255 2,318 2,377 11.2 11.2 11.3 11.4 11.4 DT +59 12.383 12.360 12.354 12.361 12.340 DT net adds +43 +56 +78 +63
Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
Line Losses Fiber customers2 000 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Telekom LTE 000 +58.2% Retail Broadband +119 +133 +222 +227 +225 1,969 2,194 Wholesale 233 189 197 154 181 1,387 1,520 1,742 14 12 1,494 1,608 21 20 17 168 1,165 1,246 1,375 254 209 214 193 222 274 367 475 586 -24.0% Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 1) Based on management estimates 2) Sum of all FTTx accesses (e.g. FTTC/VDSL, Vectoring and FTTH)
24 GERMANY fixed: continued solid Revenue trend in CORE fixed network
Fixed network revenue (core fixed) fixed revenues (fixed line)
€ mn -2.4% € mn -2.5% TV 1,835 1,821 1,809 1,802 1,790 BB 2,542 2,535 2,483 2,487 2,481 241 244 251 259 263 Voice 1,065 1,057 1,046 1,042 1,034 -2.5% 529 520 512 501 493 1,835 1,821 1,809 1,802 1,790 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
-10.1% RETAIL Upsell strategy access % calculated on exact numbers 318 302 280 278 286 41 43 40 41 38 -7.3% +38% 348 369 354 366 367 mn DSL +5.5% +12% -0.3% Entertain Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 12.4 12.3 Fiber 2.4 Fixed Revenues Revenues from add-on options 2.1 1.2 1.6 Variable Revenues Other revenues Q3/13 Q3/14
25 GERMANY mobile: DT continues to outperform market
German mobile market service revenue1 Contract Net adds
€ mn E-Plus O2 Vodafone Telekom 000 638 Business 551 470 129 107 432 Consumer -1.0% 72 275 97 4,843 4,717 4,701 397 509 443 72 4,618 204 336 752 759 731 760 780 +3.7% Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 765 743 707 728 Smartphone penetration2 LTE customers3 1,626 1,565 1,549 1,546 % +13.8% 000 +122.2%
74% 4,733 1,700 1,699 -0.1% 65% 1,650 1,631 1,668 2,130
Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q3/13 Q3/14 Q3/13 Q3/14
1) Based on management estimates 2) Of own branded retail customers 3) Customers using a LTE-device and tariff plan including LTE
26 germany: Integrated Network Rollout and All-IP Migration on track
INS– STATUS LTE ROLLOUT INS– STATUS FIBEr ROLLOUT2 69.4 POP 64.5 Coverage in mn 26.6 Coverage 49.0 households 14.5 16.5 65% in mn and %1 79% 85% and % 60% 35% 40%
Q3/13 Q3/14 Target 2016 Q3/13 Q3/14 Target 2016 STATUS IP accesses (retail) % calculated on exact numbers STATUS IP accesses (Retail) mn +111% 30 30 % of BB lines +136% 3.7 20 14 % of lines 1.8 10 18 0.8 Target: 0 8 100% of lines Q3/12 Q3/13 Q3/14 Q3/12 Q3/13 Q3/14 by 2018! 1) outdoor coverage 2) in % of households within fixed network coverage in Germany
27 TMUS: Record Branded Postpaid customer growth quarter
Revenue and service revenue Net additions +10.2% US-$ mn in 000 2,391 2,345 Total revenue 1,023 1,645 1,470 +8.8% Service revenue Total net adds 6,919 6,959 7,228 7,358 Branded: Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 6,764 5,013 5,018 5,193 5,331 5,523 . Postpaid 648 869 1,323 908 1,379 . Prepay 24 112 465 102 411 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Wholesale1 351 664 603 460 555
Adj. EBITDA and margin (in %) Branded customers: POSTPAID PHONE and Prepay ARPU 21.2 19.2 20.5 US-$ mn 16.6 18.3 US-$ (US GAAP) Phone -6.1% 52.6 51.1 50.5 49.3 49.8 Prepay 35.7 35.8 36.1 37.2 37.6 1,432 1,325 1,158 1,485 1,345
Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
1) Wholesale includes MVNO and machine-to-machine (M2M). Amounts may not add up due to rounding.
28 EUROPE: strong margin as a result of radical focus on cost transformation
Revenue as reported Organic Revenue development € mn € mn -3.6% -3.6% 3,440 3,440 28 -28 -93 84 3,317 3,440 3,486 3,125 3,163 3,317 -114 Q3/13 Cons./ FX Trad. Mobile Growth Q3/14 Decons Telco & Regulation areas1 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 . Other Adj. EBITDA and margin (in %) as reported Organic Adj. EBITDA development 34.7 35.7 34.0 33.5 +1.8% € mn 32.9 € mn +1.3% 1,169 1,163 -18 -3 1,184 5 -11 42 1,169 1,167 1,027 1,098 1,184 Q3/13 Cons./ FX Contri- Indirect Taxes Q3/14 Decons bution Cost HU & RO . margin2 savings Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 & Other 1) Mobile Data, Pay TV & fixed broadband, B2B/ICT, adjacent industries (online consumer services, energy and other) 2) Total Revenues - Direct Cost
29 EUROPE: continued Momentum IN MOBILE AND FIXED KEY Growth AREAS
Pockets of growth – broadband and TV1 Net adds – broadband and TV1 mn broadband accesses TV customers in 000 broadband net adds TV net adds
102 105 4.94 5.01 5.07 5.14 5.18 3.50 3.56 3.62 3.67 70 70 58 61 3.40 55 54 38 51
Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
Pockets of growth – mob. contract and smartphones1 Net adds – mobile contract1 mn Contract customer base Smartphone share in 000 26.1 25.9 26.0 26.0 25.8 178 132 68% 68% 74% 73% 75% 38 55 12
Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
1) incl. business customers shifted to T-Systems in Hungary as of 1.1.2011. Smartphone share w/o AL and Bulgaria based on purchased devices. TV figures include DiGi Slovakia as of 1. September 2013 (not counted as net adds). The customers of our companies in Bulgaria and Online in the Netherlands are no longer included in the Europe operating segment since August 1, 2013 and January 2, 2014 respectively following the sale of the shares held in the companies. They have been eliminated from the historical customer figures to improve comparability. Total contract customer count in Q3 negatively impacted by sale of Simpel (NL) and the bankruptcy of a service provider in A (-282k). Net adds adjusted for these effects. GTS included in BB base as of May 30, 2014.
30 EUROPE: SUCCESSFUL REVENUE AND COST TRANSFORMATION
Revenue transformation Technology and Cost transformation
Growth Areas1 Connected Home share IP share of EU fixed FTEs in 000 share of total revenues of fixed revenues network access lines (end of period) +4pp +1pp +11pp -6% 26% 21% 22% 35% 56 53 22% 24%
Q3/13 Q3/14 Q3/13 Q3/14 Q3/13 Q3/14 Q3/13 Q3/14
Mobile Data share B2B/ICT share of total revenues LTE sites in service FTTH homes connected of mobile revenues +3pp +0.9pp +326% +43% 11.9k 0.23mn 17% 20% 3.1% 4.0% 0.16mn 2.8k
Q3/13 Q3/14 Q3/13 Q3/14 Q3/13 Q3/14 Q3/13 Q3/14
1) Mobile Data, Pay TV & fixed broadband, B2B/ICT, adjacent industries (online consumer services, energy and other)
31 SYSTEMS SOLUTIONS: cost reduction measures bear first fruit
T-systems financials as reported Revenue Market Unit € mn total revenue Adj. opex Adj. ebitda € mn -4.7% 1,902 -4.9% -6.7% 0.0% 1,761 1,679 1,674 1,678 2,174 2,021 197 197 2,068 1,885 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Adj. EBIT and Margin Market Unit 3.9 4.2 3.3 % -0.4 -0.2 € mn -18.8% 69 79 56
Q3/13 Q3/14 Q3/13 Q3/14 Q3/13 Q3/14 -6 -4 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
32 FINANCIALS: FCF in line with FY Target
Adj. net income ROCE development2 -2.8% € mn % +1.2pp 823 800 -84 64 -78 2 73 5.1 6.3
Q3/13 adj. Financial D&A Taxes Minorities Q3/14 9M/13 NOPAT NOA 9M/14 EBITDA result
Free cash flow1 Net debt development € mn -21.2% € bn 1,427 41.8 188 -233 1,125 41.4 0.3 -257 -1.1 1.1 0.1
Q3/13 Cash gen. from Capex (excl. Interest Q3/14 Q2/14 Free cash Spectrum F/X Other Q3/14 operations spectrum) & Other flow2
1) Free cash flow before dividend payments, spectrum investment 2) includes book gain on sale of Scout24
33 FINANCIALS: BALANCE SHEET ratios within target ranges
€ bn 30/09/2013 31/12/2013 31/03/2014 30/06/2014 30/09/2014 Balance sheet total 115.3 118.1 117.3 118.0 125.0 Shareholders’ equity 32.0 32.1 32.8 32.5 34.0 Net debt 39.7 39.1 38.0 41.4 41.8 Net debt/Adj. EBITDA1 2.3 2.2 2.2 2.4 2.4 Equity ratio 27.8% 27.1% 27.9% 27.5% 27.2% Comfort zone ratios Current rating Rating: A-/BBB Fitch: BBB+ stable outlook 2 – 2.5x net debt/Adj. EBITDA Moody’s: Baa1 stable outlook 25 – 35% equity ratio S&P: BBB+ stable outlook Liquidity reserve covers redemption of the next 24 months
1) Ratios for the interim quarters calculated on the basis of previous 4 quarters.
34 Backup GERMANY: INTEGRATED NETWORK STRATEGY – OBJECTIVE: TO STABILIZE REVENUES FROM 2014!
1 LTE rollout + . LTE: 85% coverage in 2016 2 Fiber rollout . Fiber: around 65% coverage in 2016 with an option towards 80% + (subject to public co-funding)
3 Vectoring
+ Hybrid LTE Devices DSL 4 Hybrid access
36 GERMANY: CAPEX EFFICIENT AND RAPID ROLLOUT OF BEST-IN-CLASS LTE NETWORK
LTE rollout plan Peak performance Higher capex efficiency Outdoor pop coverage Mbit/s Capex per Mbit/s % ≈ +260% ≈ 100 ≈ -70% 150
≈ 85
75
42
Q3/2012 2016 long term 3G LTE800 LTE1800 3G (HSPA LTE 800 LTE 1800 (HSPA42) (Cat 4 Handset) 2x5 MHz) (10 MHz) (20 MHz) HSPA LTE
37 GERMANY: FIBER UPGRADE OF FIXED NETWORK IN COVERAGE & SPEED IS A SMART MOVE TO FTTH
Fiber rollout plan Vectoring performance upgrade1 Higher coverage with lower capex Coverage Mbit/s Capex per connected home % +100% ≈ -70% >80 100
≈ 65
36 +300% 50 40
10
Q3/2012 2016 further Download Upload option FTTH Vectoring FTTC Vectoring
1) with short distribution cable length
38 GERMANY: HYBRID REVOLUTION THROUGH COMBINATION OF FIXED AND MOBILE FOR SUPERIOR SPEED EXPERIENCE
Superior offering for customers... Cable footprint (24MN HH) Copper only (16MN HH)
1 1 Speed up your access @ home Mbit/s ≈250 Mbit/s 150+ 150 ≈116 50 16 100 ≈50 100 16 FTTC Hybrid Cable ADSL Hybrid Mobile only3 (Fiber + LTE2) (ADSL+ LTE2) max. download
Mbit/s1 Mbit/s1
Fixed Mobile ≈90 50 ≈51 Capacity 10 6+ ≈10 Speed 40 1 50 1 + Hybrid Cable ADSL Hybrid Mobile only3 FTTC (Fiber + LTE2) (ADSL+ LTE2) max. upload
1) broadband speed communication for consumer 2) LTE 1800Mhz 3) Vodafone LTE Zuhause
39 THANK YOU!