Board Member for Europe, Deutsche Telekom AG
Dominique Leroy on Europe - Deutsche Telekom's Capital Market Day 2024 #DTCMD24
Dominique Leroy, DT's Board member for Europe and Melinda Szabó (CEO Slovak Telekom + T-Mobile Czech Rep.) will present ...
Transcript (16 segments)
H
Host0:00
Melinda, as I said earlier, our head of the Natco in Czech and Slovak, and Dominique, our head of the European business and well known to you. Please, the two of you, come on the stage and tell us about the European business.
D
Dominique Leroy0:27
Good afternoon. Very happy to speak to you. With current Europe results, it's a pleasure to stand here. Let me start with key messages. We are one of the fastest growing telcos in Europe, with 3.8% revenue growth and 4.5% EBITDA growth in 2024. We commit to 4-5% EBITDA growth and improving ROSI from 9.5% to double digits. We will grow B2C and B2B, with service revenue growth of 2.5-3%. New elements: using data and AI to transform customer experience and efficiency, targeting 30% chat share; cloudifying network and IT from 44% to over 70%; and scaling across our footprint. Over the last four years, we invested in fiber (1 million new homes passed per year, now 10.3 million, 40% coverage) and 5G (78% coverage, retired 3G). Despite high inflation, we balanced volume and value growth, increased prices smartly, and grew subscribers to 28 million mobile contract, 7.3 million broadband, 4.4 million TV. Digital solutions improved: chat share at 22%, contacts per agent down to 0.4, truck rolls reduced from 34 to 23. Employee satisfaction at 82%, 67% motivated by career opportunities. Financially, we delivered 3.8% total revenue growth, 4.2% B2C, 3.3% B2B, and reduced opex ratio by 2 percentage points. ROCE nearly doubled to 9.5%. Looking forward, our European segment has 11.8 billion revenue, 4.1 billion EBITDA, 2.3 billion cash contribution. We operate in 10 countries, selling Romania. We target 2.5-3% service revenue growth, 4-5% EBITDA and cash contribution growth. Growth potential: our countries have 2.7% GDP growth, 2.1% telco spend growth, 107.5 million population. Market structure is good with three players on average. We have incumbent positions in most countries and mobile-only in Poland, Czech, Austria with broadband and B2B opportunities. Digitization is still growing, with 32 billion EU funds available. Execution pillars: customer focus, growth mindset, strong international team, transformation skills, financial discipline. Governance: country accountability, small EU HQ (150 people) that allocates resources and builds communities and centers of excellence. Group support from T brand, financial strength, ecosystem, and technology. Fiber investment continues at 1 million homes per year, targeting 50% coverage by 2027. Utilization to exceed 35%. In mobile-only countries, we use reciprocal agreements (Czech with CETIN and Vodafone, Austria with joint venture, Poland wholesale). 5G coverage to 95%, retiring 2G. Customer-driven network using data and AI. B2C growth of 2.5-3% through mobile growth, home experience, fixed-mobile convergence, data and AI, and engagement platform Magenta Moments. I'll hand over to Melinda.
M
Melinda25:37
Thank you, Dominique. The B2C Europe segment ambition is clear: grow service revenue 2.5-3% and win customers' hearts. We have done it in the past, growing faster than competition by bringing the right products: unlimited data (40% of postpaid base), fiber penetration (35% utilization), and fixed-mobile convergence (55% of fixed customers). We developed digital capabilities: end-to-end digital journeys, Magenta app penetration to 70%, one shop, reduced time to market, and daily customer feedback via Medallia. For the future, we have four strategic building blocks. First, monetize mobile network superiority through more-for-more, adapting to customer segments like influencers and mobile gaming, and fixed wireless access. Second, unlock digital capabilities with flawless activation, enabling traveler market, household subsidies, and youth propositions. Third, leverage our strong FMC position through home experience. Fourth, differentiate with data and AI and the Magenta Moments platform. We will continue to win the hearts of our customers.
We will push further our utilization of fiber connection with a comprehensive device portfolio, bringing next-generation routers and mesh devices so customers can enjoy the speed we offer. We also want to monetize those hardwares. Over the next two years, we need to bring home experience capabilities to families, enabling them to manage their homes digitally and enjoy peace of mind: checking network quality, device connectivity, guest access, screen time, and embedded filtering. The real growth will come from fixed mobile convergent (FMC). We have 55% penetration on fixed broadband, households using more than four services, and double-digit revenue growth. Three drivers: we moved from discount logic to value (double data, top-ups); we shifted the organization to an FMC-first mindset; and we supported front-line staff with data, next best offers, and propensity models based on real usage. In the future, we will combine core services with digital services and IoT, such as local content (Voyo in Slovakia), group deals (Netflix), device warranties, insurance, and security. Some countries are experimenting with payment solutions and telemedicine. The third pillar is data and AI: we decreased non-sales contacts by 35% and improved churn share by 22 percentage points. We collect data from regular systems and will increase from gateways, routers, and TV with consent. Broader data and computing generate actionable insights, tailor propositions, and improve conversion, revenue, and satisfaction. Contextualization gives front-line staff 360-degree customer views. AI will digitize simple transactions (e.g., 40% of contract prolongations via app in Slovakia). Our last pillar is Magenta Moment, live in eight countries with 4 million engaged customers and 24 million transactions. NPS is 10% higher and churn 40% lower among users. Next, we will move from selecting propositions to a digital lifestyle platform, supporting customers from booking to payment, unlocking revenues via subscriptions, revenue share, and campaign fees. Innovation areas include instant payment (PISY in Greece), insurance (aggregator in Greece, white label in Hungary), and Wi-Fi sensing for home security and elderly care. We are proud of the results; B2C Europe will grow through digital capabilities, contextualization, data and AI. Enjoy the short film.
H
Host42:18
Thank you Melinda for this compelling B2C story. You will get more on B2B tomorrow, but I will quickly cover B2B in Europe. We aim to grow B2B service revenue above 3%, with the biggest growth from IT and mobile, and also fixed. We adapt propositions: one-stop shop for SBs, industry-specific for enterprises, and use EU funds to digitize the public sector. We are expanding from traditional core to next-gen connectivity (SDx, SD-WAN), security, cloud (IaaS), 5G slicing, and campus networks. We have B2B Centers of Excellence and united our German B2B under T business for multinational customers. For transformation, we focus on simplification: simplify portfolio and network via cloudification and automation, retire legacy. Over 70% of network and IT workloads are cloudified. For digitization, we push channel strategy in call centers, shops, and digital, keeping IT spend at 4% of revenue and shifting to new-gen IT. We aim to reduce IDC on service revenue by 2–3 percentage points. On AI, we use data and AI for next best offer and customer service bots in B2C; in B2B, for customer value management and to bring 'more for more' strategy. New AI products include IDAS in Hungary and an AI platform for the Greek government. In network, AI enables predictive maintenance, reduced faults, and energy reduction. For synergies, we are building a common operating network across EU: design centrally, implement locally with a common platform, reducing gross cost by 8–12%, speeding time to market, and attracting talent. On ESG, we reduce energy, CO2, and increase circularity, support during crises, and protect youth against hate speech. We have strong foundations, proven execution, and new levers from synergies and data and AI. We are confident to deliver 2–2.5–3% revenue growth, reduce IDC by 2–3 percentage points, EBITDA growth of 4–5%, double-digit ROCE, number one in TRIM, and top employer. I leave time for questions.
Thank you guys, thank you Melinda, thank you Dominic. It's interesting to see how much innovation in Deutsche Telekom is driven by the European segment because you can test things without putting the whole group at risk. So do we have questions from the audience? We have about 10 minutes for Q&A. I had both of you before, so anyone who hasn't had yet, okay see you.
A
Audience Member53:38
Hello, hi. Thank you very much for the presentation. I have two questions. The first is on operations: you gave a good example of balancing centrally designed networks with local implementation. Can you talk about product design and go-to-market strategy, and whether you see opportunity to strike a different balance? The second is on your financial target: your top-line growth seems similar but with lower inflation, what is the mix in your current guidance? Thank you.
D
Dominique Leroy54:41
Let me start with the second one. Going forward, we haven't foreseen much CPI because inflation has come down. For this year, growth is 60% from volume and the more-for-more strategy, and 40% from CPI, so the balance is healthy. On products, you will hear more from Ela tomorrow on B2B European partnerships with key suppliers to scale solutions and negotiate better tariffs. Our centers of competence allow us to design products that can be rolled out in all countries even where suppliers are not present. Melinda, anything on the B2C side?
M
Melinda55:56
Two examples of co-creation. First, Magenta Moment was co-created with local and central teams. The platform and go-to-market are the same everywhere, but vendors and third-party solutions are partially local, and we use global solutions like Booking.com. Second, from Czech and Slovak, our FMC convergent proposition is designed as a blueprint for the region, then each country tailors it to their specificity for success.
H
Host57:18
Great, okay. So next question, I take Steve.
A
Audience Member57:21
Thanks a lot and thanks for the presentation. Yes, Steve Malcolm from Red Antic. I'm curious about a more granular country outlook. Over the last four years, Hungary has had a freakish contribution: service revenue grew 6–7% compounded, EBITDA 9–10% compounded. Without that, the numbers would be at the low end of guidance. Going forward, I assume you expect a less freakish contribution from Hungary, so other countries need to do better. Which countries do you think can pick up the slack?
D
Dominique Leroy58:12
That's a very correct observation. Hungary had high inflation and some taxes, but now those are being retrieved, and we've had very good results there. But every country except Romania has substantial service revenue and EBITDA growth. Going forward, Poland is a significant country that should contribute more proportionately. We turned around the business there, and now we are growing substantially, with opportunities in B2B, broadband, TV, FMC, and security services recognized by the government. All countries are forecast to grow substantially over the next four years.
H
Host59:34
Thank you, excellent. You still have a question? No? Okay. Any more questions on the European segment? No, I think okay.
A
Audience Member59:46
Hi, thank you. Man from Barenburg. The fiber paybacks you highlighted, 10 to 15 years, imply a post-tax return on capital of maybe 5–7%. But your group ROCE target goes from 9.5% to double digit. As fiber becomes a bigger portion of capital employed, generating low single-digit returns, is mobile the real contributor? Any color?
D
Dominique Leroy1:00:26
It's true. In Europe, two-thirds of the portfolio is mobile and one-third fixed, so the longer fiber payback has less impact than in Germany where the ratio is reversed. We manage different paybacks by country based on ROI. The 10% ROCE is based on EBITDA growth and NIBD reductions, and fiber is a small part of our footprint. EBITDA CAGR is 4–5%, capex grows with revenues, driving ROCE improvement. Capex to sales will stay around 18–19% for Europe.
H
Host1:01:54
So next up is T-Mobile, but before that we have another short break. We will reconvene at about 20 past, so we are almost on track. Thanks all very much and see you in a moment.