DEUTSCHE TELEKOM CAPITAL MARKETS DAY 2018
Group Development Thorsten Langheim
Key Messages 01 05 OVERVIEW CREATING VALUE FROM TOWERS GD actively manages the DT asset portfolio. This includes Group M&A, Across Europe DT owns > 53 thousand towers. We have begun to portfolio management, investment controlling BT/TMUS and active carve out, professionalize and improve our German tower operations. management of selected assets, as well as our successful venture & These will see substantial asset and EBITDA growth going forward, as special situation capital arm we prepare for 5G 02 06 OPTIMIZING PORTFOLIO AND CAPITAL UNIQUE APPROACH TO INNOVATION ALLOCATION INVESTING We have increased the value of the portfolio in recent years, realizing DT Capital Partners has > $1 bn under management and established a latent value from non-core activities, while systematically strengthening successful track record our in-footprint assets, on both sides of the Atlantic 03 07 HUGE VALUE CREATION IN THE US FINANCIAL OUTLOOK TMUS is a great example of active portfolio management through We expect our operating assets to deliver +3 – 4% annual growth in EBITDA and +3% in adjusted underlying 1 Cash Contribution, from combining organic investments and M&A moves …and we were right in waiting to agree the deal with Sprint 2017 – 2021e. Above all, we strive to increase the value of our assets 04 SUCCESSFUL TMNL TURNAROUND We have stabilized TMNL and established it as challenger in a highly converged market. Our proposed Tele2 transaction will supercharge our competitive challenge 1 Excl. DFMG roll-out Cash Contribution impact (Capex and EBITDA) 3 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
Review and strategy GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
Our mission: protect and Grow DT shareholder value Investment management M&A + Portfolio management DT Capital partners Investment controlling of our public Overarching capital allocation strategy Venture Capital, Growth Equity and Special investments… Situations investments Group-wide M&A strategy 1 Generate value and give DT access to Portfolio reviews and optimization US innovation Unique governance & incentive schemes as …Active management of dedicated DT assets a harbour for selected assets NL >$1bn 28k €0.5 bn 3.9 mn €0.4 bn AT NL Mobile subs EBITDA adj. Sites EBITDA adj. AuM 2 €2.3 bn €11 bn GD Key Financials 1 , €0.9 bn € bn €0.6 bn Revenue EBITDA Adj. Adj. cash GD SOTP contribution 3 (excl. US) 4 Note: all figures refer to 2017 Actual 1 TMUS Financials not reported under Group Development 2 Assets under Management incl. Advisory 3 EBITDA Adj – SF cash – Cash Capex 4 SOTP based on broker consensus (Q4/17); BT market cap as of May, 15 th 5 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
Strong track record in portfolio management TMUS share price since Metro PCS merger Value creation elsewhere DONE WORK IN PROGRESS TMUS Market Cap 450% Scout 24 DFMG x2.2 +281% 400% €2.6 bn €6.0 bn €1.2 bn 350% 300% $51 bn 1 Part of TDG DT value 2012 Proceeds Stand-alone 250% Strato TMNL x2.5 €0.7 bn €2 bn+ 200% ≈ €0.3 bn 150% DT value 2014 Proceeds 2016 Today 100% $13 bn +$38 bn 50% DTCP (AuM) BT x0.6 £ 4.0 bn £2.5 bn 0% May-2013 May 2013 Feb-2014 Nov-2014 Aug-2015 May-2016 Feb-2017 Nov-2017 Apr. 2018 2015 Today 50% of EE 12% of BT 1 DT share of 63%= $32 bn 6 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
TMUS: a story of significant value creation Sprint transaction meets our key objectives Plan A: Sprint Acquisition Today Plan B: Attractive capital allocation policy: Supercharge the Uncarrier & transform TMUS to a 5G $9 bn SBB approved leader Significant investment program Retain significant exposure to attractive US market Uncarrier strategy 2013 – 2017 Create value via tremendous synergy potential $15 bn Spectrum acquisitions Network investments Effective governance Self-supported scale “No cash leaving the system” Break Fee ($3 bn cash; Spectrum) 2011 – 2013 Tower Sale $2.5 bn Compelling capital allocation policy in place as Plan B MetroPCS reverse merger Improved strategic position for future M&A (buyer or seller) Shrinking business 2009 – 2010 Worst mobile network in US/loosing customers TMUS as biggest overhang on DT stock 7 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
TMUS: SUPERCHARGING THE UNCARRIER Improved relative position From sub-scale to long-term sustainable competitor Market Caps 1 Mhz $51 bn Spectrum TMUS position 2 Sprint $34 bn Deal $24 bn $21 bn Q1/18 116 mn 101 mn 93 mn 31% Branded Apr. 2018 ( pre-leak ) Apr. 2014 subscribers DT ownership NewCo 69% pre-leak $216 bn $194 bn 28% DT + Proxy Market 55% 45% $72 bn 72% capitalization Apr. 2018 ( pre-leak ) Apr. 2014 Source: Capital IQ, Company Information, Market data as of Apr 9 th , 2018 (pre-leak) 1 Sprint Market Cap based on share price of $5.14 and basic shares outstanding (BSO) of 4,004 mn; TMUS Market Cap based on share price of $63.09 and basic shares outstanding (BSO) of 849 mn 2 Microwave spectrum not included 8 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
TMNL: Turnaround in motion but still long way to go Key measures and initial results Stabilization despite regulatory headwinds New management team, steering model and unique incentive scheme Quarterly Net Adds New market approach/ “Unlimited” Aggressive cost cutting : -30% overhead FTE 1 TMNL 5 excl regulation 2 0 Service De- risked “Unlimited” via network capacity expansion -5 TMNL Revenue YoY -10 Market Acquired fixed capabilities and initiated Towers carve-out First mass market Unlimited in European DT footprint Change -15 (%) -20 Won “Best Network” 2017 & 2018 -25 €630 mn Net Adds / Revenue improving / won last 6 quarters Net Adds/Revenue improving/won last 6 quarters €500 mn EBITDA 421 adj. €358 mn €35 Attacking the Duopoly with Unlimited / Family Plan Attacking the Duopoly with Unlimited/Family plan 1 Non-customer-facing staff 2 Adjusted for MTR (Mobile Termination Rate) and roam-like-home impact 2014 2015 2016 2017 9 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
TMNL: Dutch market needS long-term viable maverick Unique characteristics of Dutch telco market TMNL value creation plan Continue turnaround execution Two players with >90% fixed BB coverage “Unlimited” customer champion Low mobile-data consumption Mobile network leader Lowest structural cost in the market Toughest net neutrality rules in Europe + High fixed wholesale-access pricing Tele2 acquisition Fixed + mobile EBITDA market shares 1 2-to-3 FMC merger € 1 bn synergies 1% Cash “stays in the system” 9% Towers stay with DT = Long- term sustainable “unlimited maverick” 52% 38% 1 2017 Actual 10 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
DFMG: great asset base to start from Key strengths of DMFG Key facts 2017A Revenues EBITDA adj. #1 German tower operator €864 mn 59% Margin ≈ 60% €510 mn Structural growth opportunity in Germany TDG Best-in-class sites portfolio No. of sites Tenancy ratio FTEs 28 k 1 2.3x 670 Comprehensive & state-of-the-art IT 9 1.5x k € Significant optimization potential and growth upside Total Sites Masts & Towers Masts & Towers 1 Including c. 3k resell sites; partially (but not solely) rented by TDG 11 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
DFMG: operates in a very attractive market European TowerCo industry still fragmented DT/DFMG with high growth and value upside Number of sites EV/EBITDA ≈ 12x 18x 4 150 FY 1 ≈ 67k € 9 bn 53k compared to ≈ € 6 bn Growth drivers US market 25k 2 leader Small Cells 28k 1 27k 5G/IoT 16k 28k 1 White spots 11k 11k Tenancy ratio Today 2021e DFMG SOTP @market today 3 multiple Mobile Data traffic growth 5G Small cells No regulation Structural value drivers Source: Company reports, CapitalIQ; 1 Including c. 3k resell sites; partially (but not solely) rented by TDG 2 2017 Actuals owned sites only 3 Implied based on broker SOTP average 4 Based on average Cellnex + INWIT multiples 12 GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Europe Group Development Finance
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