Expectations for the Group

Expectations up to 2020. For the next two years, we expect profitable growth to continue. Revenue and adjusted EBITDA after leases (EBITDA AL) are expected to rise at Group level in 2019: a good basis to achieve our financial ambitions by 2021 as communicated at our Capital Markets Day in May 2018.

We expect our financial performance indicators to develop as follows in 2019 and 2020:

  • Revenue should increase slightly year-on-year in 2019 and continue to rise in 2020. This forecast is based on a slight increase in revenue in the Germany operating segment and the rigorous implementation of the Un- strategy in our United States operating segment, which is expected to bring with it sustained customer growth over the next two years. For 2020, we expect all operating segments to make a positive contribution to the revenue growth of our Group.
  • Adjusted EBITDA AL is expected to come in at around EUR 23.9 billion in 2019 and to rise further in 2020 due to the expected upward revenue trend and planned cost savings over the same two-year period. All operating segments will contribute to the Group’s growth in both forecast years.
  • EBITDA AL is expected to increase in 2019 compared with the prior year, and to rise further in 2020. EBIT is also expected to increase in 2019 and 2020 on account of the aforementioned expected upward revenue trend and planned cost savings.
  • Return on capital employed (ROCE) is expected to increase in 2019 and 2020. This confirms that we are well on track for ROCE to be higher than the expected weighted average cost of capital (WACC) and hence to fulfill our promise made at the 2018 Capital Markets Day.
  • Our investments – in terms of cash capex (before spectrum investments) – are expected to amount to around EUR 12.7 billion in 2019. Over the next two years, too, we want to continue investing heavily in building out our network infrastructure in Germany, the United States, and Europe in order to safeguard our technology leadership in the long term. A year-on-year increase in 2019 is expected to be driven by the United States operating segment. Excluding the United States operating segment, investments for the Group reached a record high in 2018, and we therefore expect them to decline slightly. Capital expenditure for the Group in 2020 is likely to remain on a par with the prior year.
  • Free cash flow after leases (free cash flow AL) (before dividend payments and spectrum investment) is expected to reach around EUR 6.7 billion in 2019 and grow strongly in operational terms in 2020. Free cash flow is to make a contribution toward keeping our relative debt – measured as the ratio of net debt to adjusted EBITDA – within the target corridor of 2.25 to 2.75x in 2019 and 2020. The target corridor has shifted from 2.00 to 2.50x to 2.25 to 2.75x on account of the application of the IFRS 16 accounting standard.
  • At the end of 2018, the rating agency Standard & Poor’s (S&P) gave us a rating of BBB+, CreditWatch negative, Fitch of BBB+ with a stable outlook, and Moody’s of Baa1 with a negative outlook. We are therefore still a solid investment-grade company. S&P also announced that it would likely lower Deutsche Telekom AG’s rating to BBB in the event of a successful business combination between T-Mobile US and Sprint. Maintaining an investment grade rating within the A– to BBB range will enable us to retain unrestricted access to the international financial markets and is thus a key component of our finance strategy.

Our debt issuance program puts us in a position to place issues on the international capital markets at short notice, while our commercial paper program enables us to issue short-term papers on the money market. Our finance strategy continues to include a liquidity reserve that, at any given time, covers at least our capital market maturities over the next 24 months.

Repayment of bonds and loans in the amount of EUR 4.8 billion and EUR 4.6 billion will fall due in 2019 and 2020, respectively. In order to refinance our maturities and maintain the liquidity reserve, we plan to issue new bonds in various currencies. A successful business combination between T-Mobile US and Sprint would result in the early repayment of intragroup loans of USD 8 billion by T-Mobile US to Deutsche Telekom AG, which would significantly influence the refinancing requirements. The precise nature of implementation of these financing transactions is thus dependent firstly on the approval of the business combination of T-Mobile US and Sprint, and secondly on trends in the international financial markets. We will also cover part of our liquidity requirements by issuing commercial paper.

We intend to continue leveraging economies of scale and synergies through suitable partnerships or appropriate acquisitions in our footprint markets. There are no plans, however, for expansion into emerging markets. We will continue to subject our existing partnerships and equity investments to regular strategic reassessments with a view to maximizing the value of our Company.

Our expectations for the period until 2020 for the Group and the operating segments as regards our financial and non-financial performance indicators are shown in the following tables. They assume a comparable consolidated group and constant exchange rates. The forecast statements made already take into account the accounting standard IFRS 16, which has been applied since January 1, 2019, and, for EBITDA, adjusted EBITDA and free cash flow, we forecast the new “after leases” indicators. The pro-forma figures for 2018 provide an approximate reconciliation to the “after leases” indicators for EBITDA, adjusted EBITDA, and free cash flow, so as to enable approximate comparability with the forecasts. If the economic situation should deteriorate or any unforeseen state or regulatory interventions arise, the expectations expressed here may change accordingly. All trends denote year-on-year changes. To indicate the intensity and trends of our forecasts, we apply the following assessment matrix: strong decrease, decrease, slight decrease, stable trend, slight increase, increase, strong increase.

Financial performance indicators
 

 

 

Results in 2018

Pro forma for 2018a

Expectations for 2019b,c

Expectations for 2020b,c,f

The “Pro forma for 2018” figures provide an approximate reconciliation to the “after leases” indicators used for management purposes from 2019 onwards to enable approximate comparability for EBITDA, adjusted EBITDA, and free cash flow. The “Expectations for 2019” and “Expectations for 2020” are based on the currently applicable International Financial Reporting Standards (IFRSs), i.e., taking into account IFRS 16 “Leases.” For more information on the standards, please refer to the section “Summary of accounting policies” in the notes to the consolidated financial statements.

a

Changes in the organizational structure and major changes in the composition of the consolidated group included up to the date of preparation of the consolidated financial statements and the combined management report (e.g., the acquisition of UPC Austria in Austria or the acquisition of Tele2 Netherlands in the Netherlands).

b

On a comparable basis.

c

Possible implications from the planned transaction with Sprint in the United States are not included in the expectations.

d

The indicated expectation regarding the dividend per share refers to the respective financial year indicated.

e

Subject to approval by the relevant bodies and the fulfillment of other legal requirements.

f

Free cash flow AL for 2020 does not take into account the zero bond repayment.

g

Relative debt for 2019 and 2020 already includes the implications of IFRS 16 (previous relative debt: 2.00 to 2.50x).

NET REVENUE

 

 

 

 

 

Group

billions of €

75.7

76.4

slight increase

increase

Germany

billions of €

21.7

21.7

slight increase

slight increase

United States (in local currency)

billions of USD

43.1

43.1

increase

increase

Europe

billions of €

11.9

12.1

slight increase

slight increase

Systems Solutions

billions of €

6.9

6.9

stable trend

slight increase

Group Development

billions of €

2.2

2.7

increase

increase

PROFIT (LOSS) FROM OPERATIONS (EBIT)

billions of €

8.0

8.0

increase

increase

EBITDA AL

billions of €

21.8

21.7

increase

increase

EBITDA AL (ADJUSTED FOR SPECIAL FACTORS)

 

 

 

 

 

Group

billions of €

23.3

23.2

23.9

increase

Germany

billions of €

8.6

8.5

8.7

increase

United States (in local currency)

billions of USD

11.9

11.9

12.4

increase

Europe

billions of €

3.9

3.9

4.0

slight increase

Systems Solutions

billions of €

0.4

0.4

0.5

increase

Group Development

billions of €

0.9

0.9

1.0

increase

ROCE

%

4.7

 

increase

increase

CASH CAPEX (BEFORE SPECTRUM INVESTMENT)

billions of €

 

 

 

 

Group

billions of €

12.2

12.4

12.7

stable trend

Germany

billions of €

4.2

4.2

stable trend

slight decrease

United States (in local currency)

billions of USD

5.2

5.2

increase

stable trend

Europe

billions of €

1.9

1.9

decrease

stable trend

Systems Solutions

billions of €

0.5

0.5

strong decrease

stable trend

Group Development

billions of €

0.3

0.4

strong increase

strong increase

FREE CASHFLOW AL
(BEFORE DIVIDEND PAYMENTS AND SPECTRUM INVESTMENT)

billions of €

6.2

6.0

6.7

strong increase

Rating

 

 

 

 

 

Standard & Poor’s, Fitch

 

BBB+

 

from A– to BBB

from A– to BBB

Moody’s

 

Baa1

 

from A3 to Baa2

from A3 to Baa2

OTHER

 

 

 

 

 

Dividend per shared,e

0.70

 

Dividend follows EPS (adjusted for special factors) growth, minimum of € 0.50

Dividend follows EPS (adjusted for special factors) growth, minimum of € 0.50

EPS (adjusted for special factors)

0.96

 

increase

increase

Equity ratio

%

29.9

 

25 to 35

25 to 35

Relative debtg

 

2.4x

 

2.25 – 2.75x

2.25 – 2.75x

Non-financial performance indicators
 

 

 

Results in 2018

Pro forma for 2018a

Expec­tations for 2019

Expec­tations for 2020

a

Significant changes in the organizational structure and in the composition of the consolidated Group included up to the date of preparation of the consolidated financial statements and the combined management report.

b

Commitment index as per the 2017 employee survey.

GROUP

 

 

 

 

 

Customer satisfaction (TRI*M index)

 

67.7

 

slight increase

slight increase

Employee satisfaction (commitment index)b

 

4.1

 

stable trend

stable trend

FIXED-NETWORK AND MOBILE CUSTOMERS

 

 

 

 

 

GERMANY

 

 

 

 

 

Mobile customers

millions

44.2

44.2

increase

increase

Fixed-network lines

millions

18.6

18.6

decrease

slight decrease

Of which: retail IP-based

millions

15.4

15.4

strong increase

stable trend

Retail broadband lines

millions

13.6

13.6

slight increase

increase

Television (IPTV, satellite)

millions

3.4

3.4

strong increase

strong increase

UNITED STATES

 

 

 

 

 

Branded postpaid

millions

42.5

42.5

increase

increase

Branded prepay

millions

21.1

21.1

slight increase

stable trend

EUROPE

 

 

 

 

 

Mobile customers

millions

50.5

50.5

slight increase

increase

Fixed-network lines

millions

9.1

9.1

stable trend

stable trend

Of which: IP-based

millions

7.4

7.4

increase

stable trend

Broadband customers

millions

6.4

6.4

increase

increase

Television (IPTV, satellite, cable)

millions

4.8

4.8

increase

increase

SYSTEMS SOLUTIONS

 

 

 

 

 

Order entry

billions of €

6.8

6.8

increase

stable trend

ESG KPIs

 

 

 

 

 

Energy Intensity ESG KPI

MWh/terabyte

163

 

strong decrease

strong decrease

Carbon Intensity ESG KPI

t CO2/terabyte

41

 

strong decrease

strong decrease

Sustainable Procurement ESG KPI

%

81

 

stable trend

stable trend

For further information on the development of the non-financial performance indicators of our operating segments, please refer to “Expectations for the operating segments” in this section.

In both 2019 and 2020, we intend to achieve a moderate improvement in customer loyalty/satisfaction – which is measured using the TRI*M index performance indicator.

Having already achieved a high level of 4.1 – on a scale of 1.0 to 5.0 – on the commitment index in the 2017 employee survey, and in view of the results of the pulse surveys conducted in 2018, we expect the positive response of our employees regarding our Company to remain stable in the next employee survey, which is scheduled for 2019. For more detailed information on our ESG KPIs and our expectations, please refer to the section “Corporate responsibility and non-financial statement”.

Our planning is based on the exchange rates in the following table.

Exchange rates
 

 

 

 

Croatian kuna

HRK

7.42

Polish zloty

PLN

4.26

Czech koruna

CZK

25.64

Hungarian forint

HUF

318.84

U.S. dollar

USD

1.18

The following table contains a summary of our model calculations and analyses of the key external factors that may have an effect:

Factors that may affect results
 

Premises

Current trend

Impact on results

positive unchanged negative

ECONOMY

 

 

Macroeconomic trends in Europe (incl. Germany)

steady

Macroeconomic trends in the United States

steady

Inflation in Europe (incl. Germany)

steady

Inflation in the United States

steady

Development of the U.S. Dollar exchange rate

steady

Development of exchange rates of European currencies

steady

REGULATORY/STATE INTERVENTION

 

 

Regulation of mobile communications in Europe (incl. Germany)

steady

Regulation of the fixed network in Europe (incl. Germany)

steady

Taxes (in Europe/the United States)

steady

MARKET DEVELOPMENT

 

 

Intensity of competition in the telecommunications sector in Europe (incl. Germany)

steady

Intensity of competition in the telecommunications sector in the United States

steady

Price pressure in telecommunications markets

steady

ICT market

increasing

Data traffic

increasing

Expectations for Deutsche Telekom AG. The development of business at Deutsche Telekom AG as the parent company of the Group is reflected particularly in its service relationships with our subsidiaries, the results from our subsidiaries’ domestic reporting units, and other income from subsidiaries, associated, and related companies. In other words, our subsidiaries’ results from operations and the opportunities and challenges they face are key factors shaping the future development of Deutsche Telekom AG’s figures. Accordingly, in addition to our expectations for the Group, the expectations described on the following pages concerning the operating segments’ revenue and earnings – such as strong competition, regulatory intervention, market and economic expectations, etc. – have an impact on our expectations concerning the development of Deutsche Telekom AG’s future income after taxes.

For the 2018 financial year, we will propose a dividend of EUR 0.70 per dividend-bearing share, which will also serve as a baseline for the dividend going forward. The dividend for the financial years starting 2019 is to reflect relative growth in adjusted earnings per share. Based on the aforementioned expectations for our operating segments and the resulting effects, and taking existing retained earnings into account, Deutsche Telekom AG expects to distribute a dividend of at least EUR 0.50 per dividend-bearing share for the financial years 2019 through 2021, subject to approval by the relevant bodies and the fulfillment of other legal requirements.

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