T. Höttges, C. P. Illek and T. Langheim on Q&A- Deutsche Telekom's Capital Market Day 2024 #DTCMD24

So yeah, we're staying here or down you stay here straight away. And then we'll be joined by Tim and Thorsten and the other members of the management team are available for, you know, any question that might concern their areas as well. And so now the question is focused, of course, on finance and capital allocation. I mean, Tim, you're actually meant to sit here but I'll do it. Okay, and let's start with Robert.

Yeah, hi there. Yeah, it's working. Yeah, good. Yeah, Robert from Deutsche Bank. I'd like to go back to the towers question, please. I think Thorsten said you need a significant stake in the future to look after your interests on a consolidation of towers. Assuming you don't put new money in, your stake would fall. So if you're happy with a lot less than 50%, why not 0%? T-Mobile doesn't have any towers. What is it about having that stake for the long term that sort of protects your interests, given you got a cheap stub?

Thank you. And I forgot to say, please restrict yourself to one question. Now we can go around again, but so we make sure everybody gets the opportunity. Next.

Hi, it's K.Y. from JP Morgan. I've got a question related to the group as a whole, and Thorsten is linked to the comments you made around the US. If we look at the last three, four years, we've seen the weight of the US in the group continue to scale. We've gone from 62% of EBITDA three, four years ago to 68% today. You've slightly scaled down your European assets and doubled down on the US. And if I guess if we look at the next three years in terms of what you articulated at the CMD, it's sort of much the same. We've got growth in the US faster, we've got M&A in the US, not M&A in Europe. And so we're likely to see the US weight of EBITDA grow above 70% and beyond. And I guess what I'm trying to understand is three very quick things around that. I mean, one is to what extent should we think about this? I guess these questions come up from time to time. You know, how do you think about it as a management team, this ongoing weight increase of the US? The second bit is how does that tie into, Tim, the comments you made yesterday about T-Mobile buybacks and increasing your stake versus your own buyback? You know, does this feature? Is this relevant? And thirdly, obviously you've talked about the valuation, the sub valuation being cheap. Do you think this plays a role that you've got a growing US piece where the minorities are growing? So it's quite a broad question, but just to understand how Tim and you both think about that.

Go ahead, sorry. It was just on the T-Mob. I just wondered how you think about how we should try and rationalize the T-Mobile stake increase versus buyback. Just how should we think about that? But I thought Christian or Thorsten should say something as well, because, you know, I'm not the only worker here.

Look, this is why we want to keep flexibility. It's now the second time in a row that this management actually is conducting a share buyback, clearly stating that we feel that the stock valuation is absolutely too low. And if this continues to be the way, obviously there's a rationale for DT share buyback. But if it disappears, obviously then the other alternative, which is also a great alternative, becomes more attractive. And I think this is why I want to keep the flexibility on both sides. As a little fact, of course, the consolidated view that you have cited impacts the EBITDA, but when you look at the earnings, which is a key KPI for us, it's about 60-40, so it's not quite as imbalanced. And that's by the way 2027. The other point is both share buybacks of Deutsche Telekom and not increasing our T-Mobile stake are both creative uses of our capital.

David, hey guys. It's David from Bank of America again. I've got two, so I've got to choose one of them here. Ahead. So my understanding, Christian, is your two and a half EUR 2027 EPS, two and a half euro cents, includes the benefits of the allocation of 15 billion. And the single most important driver of your share price historically is not the stub trade, it's the dividend yield, right? I think that's been proven, we broadly agree. So the dividend, the most important thing in 2027, that dividend paid on this EPS number which has 15 billion of benefits which you won't explain. So it's quite hard for us to understand how to get that two and a half euro cents when you're saying there's 15 billion but you won't tell us what you're going to do with it. So can you give us how do we think about that?

The simple answer: this is why we said around 2.5, because there is a difference between the share buyback in the US and the investment in the US, and it's after the dividend payouts, right. I said so. Obviously we assume there is an accretion in dividend payouts given our policy, so that has all been deducted and the leftover is the 15 billion. Okay. So but it won't become more precise. Obviously we have the scenarios in place: if we're going 100% US or 100% share buyback, and that leads to a deviation, right. It's not a significant deviation but there is a deviation. But we want to keep the flexibility to decide whatever is the best value to follow. And the decision between the two, assuming there's no industrial opportunity, and obviously T-Mobile US has ring fenced its own cash for that.

If we think about today's share prices, this is maybe a question as well for the rest of your management team: which side of the fence are you tipping over? Right, more DT share buyback or more T-Mobile shares? Yeah, and it's not only a financial question, right? So look, David.

Look at what we are doing right now: 2 billion share buyback this year, 2 billion share buyback next year. We're not currently selling into the T-Mobile share buyback either. So we are doing both right now. So maybe you just work with an assumption related to this, but we will not be deterministic on this one. Thank you.

Next is.

Thanks. It's Josh Mills here from BMP Power & Gas. So the T-Mobile team yesterday made the point that whilst their financial targets are ambitious, they don't include all of the upside from the even more ambitious operational targets. And I think Claude, you're earlier, was also mentioning that there could be additional upsides in areas like AI. So my question is: how conservative is the guidance that you've been presenting over the last few days on the ex-US business? And what would be the two or three big swing factors to think about over that period which will determine whether you end up at the low or the high end of those ranges?

Thanks. Who wants to?

Mat from Barclays. So, team, in your presentation yesterday with Beicht, you highlighted the need to have a strong succession pipeline in terms of the management. So I guess, you know where I'm going, and hopefully you find it a legitimate question. Since your guidance today is until 2027, I think your mandate ends 2026. So maybe can you tell us: should there be a succession plan at Deutsche? Is there one? And that's a question we get asked a lot.

Look, my contract runs until 2026, and I hope that you know I'm coming across that I'm fully committed for the team and for the company. I've been working for 25 years. So maybe it's more difficult to get me out of the company than keeping me in the company, because, you know, I am the company to a certain extent. Now, that said, look, there is an end to everything, yeah. And therefore, everybody is well advised to have a proper succession. There's a proper succession plan in the supervisory board with regard to my role and a discussion on this one. And by the way, there's a discussion as well for every single member, not only for this team here but as well for all the BEs and for all the T3s which you saw yesterday. And I hope that we were able to give you a little bit of an impression about how talented our slate is with the ones you have seen during the days, because that was exactly the purpose of not showing always the same faces but showing as well our young leaders here in this team. So, look, Napoleon was once asked, what is this trick, what is this strategy to win so many battles? And how he's looking into the future, and he said: 'We engage, and then we will see.' And by the way, that sounds very banal, but there's a lot in it. The first is the word 'we' — it is not 'me', it is the team. This team is outstanding, and by the way, this team is making the difference from Seattle to Greece, from Budapest to Vienna. The second is 'engage'. You know, if I'm engaged and passionate like always, it doesn't move the needle; it needs 200,000 people to win the battle in these games. And then 'we will see' is the next thing. You know, without engagement you should not go anywhere, but then you should not become too dependent on what's happening in the future. Look, if something is happening in this company big style, big things where the company needs me, I'm always around. And if there's a time when the organization comes to the end that it is time to have a new leader in this organization, I'm ready to go as well. So I think this is good and healthy succession for this organization. And today I see myself here for the next years until 2026, fully motivated with a great team, and then we will see.

Going over to the side. Polo first. And then, yeah, just have a question in terms of your change in terms of leverage. So why have you decided to maintain leverage at the current level of 2.75 times versus previously you were guiding towards 2.25 to 2.75 times? So do you think this leverage level is high compared to your peers?

Look, several reasons. One is obviously as we gave the new leverage corridor, we underestimated the lease impact. As you know, we only said it's a quarter of a turn, it's more 0.4 to 0.5. And therefore compare it against without leases. And the second one is we have creative opportunities to invest into the business, and they are more created than deleveraging. So why should I stop the momentum of the business if we have great opportunities ahead? Great.

Thank you. It's Usman from Berenberg. Just on your return on capital for this year which is around 6 and a half. Now, I mean, you know the German unit is generating around 8, Europe is at 9, the US if I calculate it is going to be around 6 and a half but going up to 10 over the next couple of years. So, are there some costs that are not being accounted for within the units or is something really negatively returning capital?

I was expecting that question. Actually your US number is too high in our calculation. It's below 6% and obviously they will increase, and that makes the six and a half.

Great. Otavia here. Actually I probably follow up from this one. On the presentation, Thorsten, you said that in 2010 the emphasis of DT on RoIC would have been quite significantly different from the others, and then you show the market cap of the company that's tripled. But when someone looks at the RoIC of Deutsche Telekom in 2010 and RoIC now, not in three years' time, it's only going up by 150 basis points. But the market cap has done terribly better. The business with, like Christian said, the lowest RoIC is actually the one most valuable to you and the one that has actually created more value. So it looks like it's probably RoIC that the market is looking at? No, it's growth. So therefore, to Christian, the question is: your 15 billion headroom, you put buyback of T-Mobile, buyback of DT, everybody is trying to get a bit of a grasp, but it's good for EPS, not really does anything to the structure of the company. Which, if you look at the company over the last 12, 13 years, you've been brave enough to buy Sprint even if RoIC was very dilutive. So my question is: in those 15 billion, is there only emergency if there is something else happened? Or any other things you can do? Will it be done on the gearing, or will you still use this 15 billion as an investment that could be physical investment like fiber, could be M&A? If you can just clarify this 15 billion as the umbrella.

I will talk about the operational business. This guy is going to talk about M&A, which he doesn't comment on. So, no. I think everything which is built in right now is seen as necessary from the segments. And this is why, for example, in the ex-US business we have increased the capex envelope to 8 billion in '27. So this is what is a result of an extensive discussion with the whole operational leaders. And we have nothing on the plate with regard to M&A right now. And as Thorsten said earlier on in his presentation, we talk about M&A if there would be one. But I think my biggest M&A is actually share buybacks and investment in the US, so also an M&A. I think the other point to make is, of course, the hypothesis is unproven whether our 50% planned increase in RoIC over the next 3 years will make a difference, so let's see. To that, we also have 4% revenue growth, and it excludes a lot, right. You know the 30 billion that T-Mobile for instance hasn't committed. And I should also say that we do have retained some strategic flexibility, and therefore if we see opportunities that are more interesting than our share buyback or buying more T-Mobile, then we also have flexibility for that. So maybe that's how I see that. And maybe, you know, I understand the question is: look, this is a little bit the price of radical transparency. We could have hidden that somewhere, you know, and saying, 'And by the way, suddenly we do M&A or suddenly we do something on the ratio,' and, miracle-wise, we put 15 billion or whatever on the table. We want to be very transparent that we have this reserve. The second one, it is a signal of the conservatism of our plan. We want to give confidence to investors that we are able to achieve the numbers which we have laid out, which are by the way more ambitious than most of the players in our industry. So it shows the conservatism of the plan. The third thing is it is as well asking for some trust that the way we look on the possibilities of doing things should follow the logic of where do we get the best bang for the buck, the best internal rate of return. This is the question which we have. And we don't say it's all going into share buybacks, and we don't say it's going all in dividends, and we don't say it's going all in M&A. It's going that this company has the strategic flexibility to do the right things for its shareholders to be creative. That's the way, and we will do this as we do it with the 15 billion now in a transparent way. It's a very mathematical and transparent process to say: look, the share buyback in the US were very creative percentage-wise if you look back, and was the right thing to do. Even if some of you have thought maybe the share buyback in Germany would have been the better way, I think it wasn't. It was the right decision we took. Now the same is true for M&A. We haven't done any big M&A. I cannot recall when the last big M&A was: UPC in Austria or maybe in the US now some activities there. But this is the new thing, you know. In Europe we haven't done any kind of big things yet. So we have a lot of company money in the capex envelope on fiber, and we are very clear about what we want to do in fiber. So I do not see that we are hugely extending it, except we see that the business case is improving there. But this requires a lot of, let's say, elements. So therefore, keep it as a transparent open issue. Trust us that we are not making bad deals. We haven't made a bad deal in the last 10 years or 15 years. I cannot even recall when you made the last bad deal. Oh, there is one, but okay, I don't remind us on this one. But this is long time ago. And therefore, it is a matter of trust which we need here. Good. Okay. James, and then I come back over here.

James, and then I come back over here.

Yes, thank you. So, Christian, I think you said the most important slide in your presentation was the one where you showed the billion surplus. I think one assumption you didn't show there was what you're assuming for your kind of baseline participation in the T-Mobile share buyback. So is it to assume that you would just be participating pro rata in the kind of baseline assumption? Because if that's the case, I think you also said yesterday you wanted to get to a stake of T-Mobile in the high 50s.

Let me clarify. This is said: if we would only go for an increase in T-Mobile shareholding, then we would end up being in the high 50s. So that's one extreme scenario. The other extreme would be staying at the 50-point whatever we have right now, 50.5%. That was the other extreme. And I said we want to keep the flexibility to basically figure out what's the right balance between share buybacks on the DTAG side and T-Mobile US shareholdings. So there is no clear target shareholding declared by us where we want to end up.

Got it. OK, so that partly answers my question. Thank you for that. But then is the baseline assumption in the to get to the 15 billion surplus that you just participate pro rata to your stake? No? What is the assumption then, please?

We don't declare the assumption, but that makes it, I think, a huge swing factor on how much incremental surplus you would have to then participate in, as you say on the right hand side of the slide, either increasing your stake or share buybacks. Or, you know, I mean, could you legally be allowed as the larger shareholder to buy directly off-market from SoftBank some of their T-Mobile shares? I think you're — this is not the right question. I think participation or non-participation in US share buyback is a function of how we want to increase our stake or not. But there are other ways of doing it. We can buy in the market, in fact we can sell in the market, not participate in the market. We can do all of those things. We can buy from SoftBank. There's no limitations in terms of how we can execute the plan uses of surplus that we have outlined today. Correct.

Okay, next.

Thank you. It's Adam from HSBC. I'm interested in whether there was a discussion about increasing the dividend payout policy in your preparation for today. And related to that, what kind of circumstances do you think would take you back down to paying out in the low end of the range, given you're in the middle of the range?

Look, the decision is as we've said many times: we decide any other year. Our track record is 50% right in that. So we have no indication to deviate in one or the other direction. I think we declared a 51% based on the 1.75 just yesterday. And we will let you know if we come to a different conclusion in the next year. But right now there's no indication whatsoever to basically deviate from this. Correct.

Okay.

Yes, it's EMT from Morgan Stanley. Just a quick question, please, on the kind of geopolitical environment that we see in Europe. So we've had a new European Commission appointed very recently, still headed up by Miss von der Leyen, but we've seen Miss Vestager leave the stage and she's been replaced by Miss Ribera of Spain. It looks like there's going to be a much bigger emphasis as well on the environment, and even a tie between the environment and potential competition law. We've also seen a big paper published by Mario Draghi as well. So do you think we're now entering a new era, and what would the potential impacts be on your business in Europe?

Okay.

Stefan? Oh, Andre, sorry. Andre from Kepler. Just going on on regulation a bit more and decline that into Germany moving forward, especially in the process of extending the spectrum rights, but also regarding the surface coverage in Germany for that to be put in place. There is a requirement for sharing spectrum with 1&1, etc. How do you see like maybe the EU winds declining also into the German environment? And how do you see it maybe moving forward? Could there be some consolidation or something around there that could happen in Germany? Thank you.

Christian said I didn't answer the question probably 100%, so let me clarify again. If the US is executing on their 80 billion capacity and they would end up having a 50 billion share buyback up to 50 billion, and they execute on that one, that would give us an extra 15 billion if we wouldn't sell into the share buyback of the US. Obviously that would mean we would completely utilize the 15 billion in order to increase our shareholding. So you can assume that if we balance this out between share buybacks and a higher shareholding, that we will sell partly into the share buyback in order to fund share buybacks on the DT side. So there's no extra one which is coming. Is that clear now? I hope that answers the question at least. You're nodding.

Okay, I think we are at the end of the Q&A and also at the end of the Capital Markets Day. So before Tim has some final remarks, I wanted to do a few logistics notes. Sorry. And first, thank you all for coming here and asking.