Deutsche Telekom Bond Investor Information November 2017 Not for general release, publication or distribution in the United States, Australia, Canada or Japan
DISCLAIMER This presentation contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. These forwardlooking 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 alternative 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 alternative 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. 2
OUR strategy LEADING EUROPEAN TELCO INTEGRATED IP NETWORKS BEST CUSTOMER EXPERIENCE WIN WITH PARTNERS LEAD IN BUSINESS TRANSFORM PORTFOLIO EVOLVE FINANCIAL TARGETS & EFFICIENCY ENCOURAGE LEADERSHIP & PERFORMANCE DEVELOPMENT 3
Financials and GUIDANCE 2017: Growth Again Ahead of Mid- Term Targets bn Revenue Adj. EBITDA FCF 2014 2018 CAGR 1 +1 2% +2 4% +10% Initial 2017 Guidance ($/ : 1.11) Increase Around 22.2 bn 2 Around 5.5 bn Revised Guidance per H1/17 ($/ : 1.11) Increase Around 22.3 bn 2 Around 5.5 bn NEW 2017 Guidance ($/ : 1.11) Increase Around 22.4-22.5 bn 2 Around 5.5 bn 9M/2017 performance +4.2% +6.6% +8.8% 1) 14-18 CAGRs as per CMD 2015 guidance 2) Handset lease and data stash $0.8 to 0.9 billion as per old guidance. $0.85 0.95 billion as per new guidance 4
Q2/2017: Financial Highlights mn Q3 9M 2016 2017 Change 2016 2017 Change Revenue 18,105 18,251 +0.8% 53,552 55,787 +4.2% Adj. EBITDA 5,535 5,720 +3.3% 16,155 17,215 +6.6% Adj. Net profit 1,040 1,244 +19.6% 3,141 3,382 +7.7% Net profit 1,053 507-51.9% 4,799 2,129-55.6% Adj. EPS (in ) 0.23 0.26 +13.0% 0.68 0.72 +5.9% Free cash flow 1 1,904 1,873-1,6% 4,046 4,403 +8.8% Cash capex 2 2,739 3,002 +9,6% 8,234 9,241 +12.2% Net debt 48,484 52,635 +8,6% 48,484 52,635 +8.6% 1) Free cash flow before dividend payments and spectrum investment 2) Excl. Spectrum: Q3/16: 1,146 million; Q3/17: 19 million; 9M/16: 2,250 million; 9M/17: 7,300 million 5
Financial Policy: A balanced approach between equity and bond investors FINANCE STRATEGY IS OUR BALANCED TRAINING PLAN... II EQUITY STRATEGY LEADING EUROPEAN TELCO III DEBT RELIABLE SHAREHOLDER REMUNERATION POLICY INTEGRATED IP NETWORKS BEST CUSTOMER EXPERIENCE WIN WITH PARTNERS LEAD IN BUSINESS UNDISPUTED ACCESS TO DEBT CAPITAL MARKETS DIVIDEND 1 Following free cash flow growth Floor at EUR 0.50 per share and year Attractive option: choice of converting dividend entitlements into shares (dividend in kind) I 1 2 3 VALUE CREATION: ROCE > WACC INFRASTRUCTURE TRANSFORMATION Support fast IP migration and transform network infrastructure COST TRANSFORMATION Reduce indirect cost PORTFOLIO MANAGEMENT Deliver on preferred business model (integrated + B2C/B2B) and value generation RATING A-/BBB NET DEBT/ADJ. EBITDA 2 2.5x EQUITY RATIO 25 35% LIQUIDITY RESERVE covers maturities of coming 24 months 4 RISK MANAGEMENT Maintain low-risk country portfolio 1 Subject to approval by the relevant bodies and the fulfillment of other legal requirements. 6
FINANCIALS: balance sheet ratios in target corridor bn 30/09/2016 31/12/2016 31/03/2017 30/06/2017 30/09/2017 Balance sheet total 143.1 148.5 148.6 141.5 139.8 Shareholders equity 37.6 38.8 39.8 38.6 39.1 Net debt 48.5 50.0 50.0 55.2 52.6 Net debt/adj. EBITDA 1 2.3 2.3 2.3 2.5 2.3 Equity ratio 26.3% 26.2% 26.8% 27.3% 27.9% Comfort zone ratios Rating: A-/BBB 2 2.5x net debt/adj. EBITDA 25 35% equity ratio Current rating Fitch: BBB+ stable outlook Moody s: Baa1 stable outlook 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 7
dt FINANCE gets credit STRATEGY for its IS prudent OUR BALANCED financial TRAINING policy PLAN... Operational strength Strong market position in Germany and Europe Strong growth in the US Financial Discipline Balanced financial policy: alignment of dividend to FCF growth benefits both equity and debt holders Commitment to a reported net leverage ratio of 2.0x-2.5x Several de-leveraging options available Strong, sustainable FCF generation and expected FCF growth (EUR 5.5bn 2017E) underpins organic deleveraging potential Conservative liquidity policy, strong liquidity position & balanced maturity profile Proven ability to access capital markets in size Disciplined M&A strategy No share-buy-back program in place Since 2013 dividend in kind saved more than EUR 5.4bn in cash 180 130 80 CDS Levels Deutsche Telekom Telefonica Vodafone BT Orange Verizon AT&T 30 2014 2015 2016 2017 8
well-balanced maturity Profile as of SEPT. 30, 2017 EUR bn 13 12 11 10 9 8 7 6 5 4 3 2 1 0 12.8 9.4 3.3 2017 paid remaining 2017 2.0 0.7 0.7 0.6 2018 4.9 0.7 1.5 2.5 OTE TMUS 0.3 5.1 4.3 0.8 0.7 1.1 2.5 2019 2020 DT maturities in GBP DT maturities in USD DT maturities in EUR DT other currencies 4.2 2021 4.8 1.3 0.8 0.8 1.9 2022 6.3 3.1 0.3 1.7 0.6 2.4 2.2 2023 4.1 2.4 2024 1.9 0.5 2025 2.4 1.7 0.8 2026 3.1 0.4 1.1 1.3 2027 0.2 8.7 0.2 0.9 4.3 3.3 >2027 9
Strong liquidity Position as of SEPTEMBER 30, 2017 EUR bn 13,9 14 12 10 8 11,0 credit facilities liquid assets bonds and term loans EUR 12.9 bn firm bilateral lines available unconditionally committed no MAC clauses diversified: 22 banks 3 year tenor, staggered maturities 6 CPs outstanding EUR 1.9 bn 4 2 0 2,9 liquidity reserve as of Q3 2017 maturities Q4 2017 2,0 maturities 2018 1,9 maturities Q1-Q3 2019 3,9 Total maturities next 24 months Residual undrawn amount EUR 11.0 bn Maturities of next 24 months several times covered 10
DT/TMUS funding credit positive for dt DT s funding support as of September 30 th 2017 USD 10.6bn unsecured HY bonds (disbursed) USD 2.5bn Revolving Credit Facility, thereof 1.5bn secured (undrawn) USD 4.0bn secured term loan (disbursed) USD 17.1bn total inter-company financing, thereof 5.5bn secured In addition, TMUS has issued USD 11.9bn High Yield bonds to external investors Positive credit implications Results in significant interest costs savings DT in preferential creditor position due to large portion of secured financing Eliminates structural subordination issues with rating agencies 11
DTAG/DTIF s recent FInAncInGs AnD background January: April: May: June: July: 2017 USD 3.5bn bond EUR 3.5bn bond GBP 250mn bond HKD 1.3bn (ca. EUR 160mn) bond EUR 750mn EUR 700mn (EIB loan) EUR 1.4bn dividend in kind NOK 1.0bn (ca. EUR 105mn) bond Background EUR 3.3bn bond maturities in 2017 Intra-group financing to allow TMUS to refinance existing external debt 12
RATING: DT, a stable credit in the Telecom sector Moody s S&P Fitch DT EU Peers Non- European Peers Long-term rating Baa1 BBB+ BBB+ Outlook Stable Stable Stable Short-term rating P-2 A-2 F2 Rating trends (S&P) 2004 Change Sep. 2017 Deutsche Telekom BBB+ BBB+ BT Group A- BBB+ KPN A- BBB- Orange BBB+ BBB+ Telecom Italia BBB+ BB+ Telefonica A BBB Telekom Austria BBB BBB Vodafone A BBB+ Average A- BBB Verizon A+ BBB+ AT&T A+ BBB+ Average A+ BBB+ Deutsche Telekom's rating has been stable over the last few years, whereas most of our competitors were downgraded 13
Deutsche Telekom debt Investor Relations team FINANCE STRATEGY IS OUR BALANCED TRAINING PLAN... Stephan Wiemann Senior Vice President Group Treasury stephan.wiemann@telekom.de +49 228 181-80102 Andreas Puy Vice President Investor Relations andreas.puy@telekom.de +49 228 181-88131 Markus Schaefer Vice President Debt Capital Markets markus.schaefer01@telekom.de +49 228 181-84255 Christian Kuhlen Debt Capital Markets christian.kuhlen@telekom.de +49 228 181-87842 14