DEUTSCHE TELEKOM CAPITAL MARKETS DAY 2018 FInAnCE THOMAS - PowerPoint PPT Presentation

DEUTSCHE TELEKOM CAPITAL MARKETS DAY 2018

FInAnCE THOMAS DAnnEnFELDT, CFO

KEY MESSAGES 01 04 leading growth in Key financial debt policy unchanged metrics We maintain undisputed access to credit markets We expect growth for all our businesses driven by both better revenue momentum, and increased cost reductions. Ex US EBITDA growth to average 2–3% through 2021 05 02 shareholders returns deliver cost targets For 2018 we propose a dividend of €0.70. From 2018 the dividend will Our cost targets are based on All-IP, automation, and greater agility. Headcount reductions in the German footprint are largely secured reflect growth in adjusted EPS. We will consider buybacks of DT and through active measures and demographics TMUS stock if excess cash is available 03 06 stable high ex us invest execute us transaction We invest to make our growth sustainable in the longer term. Ex US Huge value creation opportunity. We supercharge DT’s growth profile. capex to peak in 2018 Expected accretive after 3 years 3 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

REvIEw 2014 – 2018 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

FInAnCE STRATEGY ACHIEvEMEnTS 2014 – 2018 FINANCE STRATEGY IS OUR BALANCED TRAINING PLAN... Equity Strategy leading European telco Debt II III Reliable shareholder Undisputed access to debt BEST remuneration policy capital markets INTEGRATED WIN WITH LEAD IN CUSTOMER IP NETWORKS PARTNERS BUSINESS EXPERIENCE  dividend 1  rating a - /bbb  Following FCF growth ROCE > WACC I  net debt/adj. ebitda  Floor at €0.50 per share 2–2.5x 1 INFRASTRUCTURE TRANSFORMATION   Attractive option:  equity ratio Support fast IP migration and transform network infrastructure Dividend in kind 25–35% COST TRANSFORMATION 2  Reduce indirect cost  liquidity reserve 3 PORTFOLIO MANAGEMENT covers maturities  Deliver on preferred business model of coming 24 months (integrated + B2C/B2B) and value generation RISK MANAGEMENT 4  Maintain low risk country portfolio 1 Subject to necessary AGM approval and board resolution 5 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

DELIvERInG vALUE… Revenue ROCE > WACC ROCE > WACC Cash Capex € bn € bn +6% +6% +4% 12.5 12.1 74.9 67.1 10.1 +1–2% +1–2% 5.8% 5.5% CAGR 2014–2018 CAGR 2014–2018 WACC 2014 2017 2018e 2014 2017 2018e 5.3% 2 Adj. EBITDA Special factors (EBITDA) 4.0% 1 € bn € bn €1.3 bn 1.8 +6% in 2018 23.3 22.2 18.9 2014 2017 2018e 0.9 +2–4% CAGR 2014–2018 2014 2017 2018e 2014 1 2017 3 2018e 1 Excl. effects from 70% Scout disposal and Verizon 4.0 spectrum 2 Excl. effects from reversal of US spectrum impairment, Strato disposal, 9% Scout disposal, BT compensation payment, Impairment T-Systems and Impairment Poland/Romania 3 Excl. effects from reversal of US spectrum impairment, Strato disposal, 9% Scout disposal and BT compensation payment. All figures based on a constant exchange rate of €1 = US$1.13 (except ROCE); Revenue and EBITDA adj. figures are corrected for handset-lease 6 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

…wHILE InvESTInG InTO FUTURE GROwTH Cash Capex Spectrum Further investments… € bn 2015–2017 cumulative spend, …in customer growth € bn 12.5  Growth leader in US mobile 11.1 10.1 and ex US mobile 4.6 US  Low-band roll-out of 3.8 ≈ €0.3 bn in 2018 7.9 Ex US 2.7 …in transformation 6.3  ≈ €0.4 bn IP migration opex in 2018 2014 1 2018e US 1 Ex US  US & Europe: Investments in mobile  TMUS now has 40 MHz low-band …in innovation, e.g. network leadership  US spectrum is a lifetime asset  IoT €0.1 bn  Ex US: Investments in fiber deployments  Layer 3 TV €0.1 bn and IP migration 1 Based on a constant exchange rate of €1 = US$1.13 7 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

DELIvERInG FREE CASH FLOw AnD DIvIDEnD GROwTH Free Cash Flow DT group 1 Dividends following FCF growth Relative TSR since last CMD € bn € % +11% CAGR 6.2 +14% 0.70 3 5.5 0.65 4.9 0.60 4.5 0.55 4.1 0.50 Minimum €0.50 Telco Sector Feb ’15 May ’18 2014 2015 2016 2017 2018e 2 2014 2015 2016 2017 2018e 1 Before spectrum investment 2 Based on a constant exchange rate of €1 = US$1.13 3 Subject to necessary AGM approval and board resolution 8 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

CMD 2015 COMMITMEnTS: wELL ACHIEvED Ambition level 2018 Achievements 2017 Delivered/on track  Group Revenue CAGR +1–2% (2014–2018)  +4% CAGR (2014–2017) KEY FInAnCIALS  Group Adj. EBITDA CAGR +2–4% (2014–2018)  +6% CAGR (2014–2017)  Group FCF CAGR ≈ +10% (2014 –2018)  +11% CAGR (2014–2017)  Group ROCE > WACC in 2018  ROCE > WACC in 2017  Group Cash CAPEX CAGR +1–2% (2014–2018)  +6% CAGR (2014–2017) 1  Group Adj. OPEX decrease (2014–2018)  €0.7 bn indirect cost decrease vs. 2014  Following FCF growth; min. DPS of €0.50 p.a.  €0.65 SHAREHOLDER REMUnERATIOn (2015 – 2018) 1 Compared to target of €1.8 bn 9 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

STRATEGY 2018 – 2021 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

10% FCF GROwTH TO COnTInUE, DRIvEn bY bOTH US AnD Ex US DT FCF in non US deal scenario € bn >8.0 +10% CAGR  Adj. EBITDA growth 6.2 2014–2021  Improving balance sheet 5.5  Ongoing tax benefits FCF CAGR US of 10%  Adj. EBITDA growth  Stable Cash Capex ≈ 4.0 Ex US 3.3 ≈ 3.0 (2021 vs. 2017)  Declining Special factors 2017 2018e 2021e 11 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

Ex US EbITDA HAS TURnED AROUnD AnD IS GROwInG Guidance 2017 2018 2019 2020 2021 Ex US EBITDA 2 € bn Germany 2–2.5% 2–3% CAGR -1.3% CAGR Europe 1–2% 13.2 13.2 12.9 GD ≈ 3 –4% ( ) 1 12.8 TSI ≈ 5 % DT ex US ≈ 2 –3% 2014 2016 2017 2018e 2021 Service EBITDA growth revenues 1 Pre-accounting effects 2 Pro forma figures, adjusted for M&A 12 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

OUR Ex US CAPEx PEAKS In 2018 Cash Capex ex US Drivers € bn  Invest in fiber/IP migration Stable outlook  TSI with ca. 0.2 bn one-off spends in 2018 7.9 ≈ 7.6 7.5  2018 vs. 2017 increase also reflects greater tower spend (€0.1 bn) 6.3 2014 2017 2018e 2021e 13 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

TARGETInG €1.5 bn OF nET InDIRECT COST REDUCTIOnS Ex US Net indirect cost reduction & composition of savings Across all segments € bn (ex US) -€0.8 bn Internal Workforce Costs by automation & 18.5 operational excellence: gross reduction of DEUTSCHLAnD 0.5 ≈ 13 k FTEs already secured by YE 2018 -€0.4 bn -1.5 External Workforce Costs by automation & 0.3 operational excellence: high flexibility due to EUROPE total base of 10k FTEs German labour force 17.0 Non-Headcount OPEX, e.g. 1 -€0.1 bn  ≈ €0.2–0.3 bn real estate 0.7  ≈ €0.3 bn platform retirements  ≈ €0.1–0.2 bn shared services savings -€0.2 bn GHS  ≈ €0.2 bn procurement improvements 2017 2021e (incl. GROUP DEVELOPMENT) 1 Gross savings 14 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE

GHS TO SUPPORT SEGMEnT COST SAvInGS Lower real estate cost 1 Efficient shared services 1 Reducing purchasing costs 1 € bn 0.2–0.3 € bn € bn 0.2 0.1–0.2 Savings Savings Savings 2017–2021e 2017–2021e 2017–2021e Savings enabled by desk sharing, €0.1 bn savings already delivered since CMD Innovative sourcing approaches will reduce standardization & modularization: 2015, further measures planned, e.g.: external spend supported by BuyIn:  Reduce vacancies by 50%  Near Shoring and reducing locations (95 to 5)  Optimize technology maintenance costs by 10% through stronger harmonization  20% less office & technical space  Further reduce demand & OPEX by > €0.1 bn through simplification & automation  Apply new commercial model to reduce  Reduced facility management costs media spend by > 10%  Standardization level of one.ERP > 85%  Up to 20% reduction of rates for Data Center facilities 1 Gross savings 15 GROUP STRATEGY GERMAnY SYSTEMS SOLUTIOnS TECHnOLOGY & InnOvATIOn T - MObILE US EUROPE GROUP DEvELOPMEnT FInAnCE