Deutsche Telekom raises its guidance for 2023 after good start to the year

Successful start. In the first three months of the year, Deutsche Telekom saw continued strong growth in customer numbers and achieved good financial KPIs. Group revenue increased by 0.3 percent to 27.8 billion euros, with service revenue, which is essential for business development, increasing by 3.5 percent to 22.8 billion euros. Adjusted EBITDA AL rose by 0.9 percent to 10.0 billion euros. On an organic basis, i.e., excluding exchange rate fluctuations and changes in the composition of the Group, revenue declined by 0.5 percent, service revenue increased by 2.6 percent, and adjusted EBITDA AL increased by 1.0 percent. Adjusted core EBITDA AL, i.e., excluding the effect of the withdrawal from the terminal equipment lease business in the United States, increased by 4.4 percent in organic terms.

The closing of the tower transaction effective February 1 had a significant impact in the reporting quarter. As announced in July 2022, the Group sold 51 percent of its tower business in Germany and Austria to DigitalBridge and Brookfield. The achieved valuation was the main factor behind the near quadrupling of reported net profit compared with the first quarter of the prior year to 15.4 billion euros.

“We have reached a milestone in the implementation of our strategy,” said CEO Tim Höttges. “We now see in the figures how the tower transaction has created value for Deutsche Telekom.”

Adjusted net profit amounted to 2.0 billion euros. This was a decline of 12.5 percent compared with the prior-year quarter, mainly due to the interest effect in the measurement of liabilities and provisions. Adjusted earnings per share declined accordingly. Recurring earnings per share, the performance indicator on which the dividend is based, increased by 19.4 percent compared with the prior-year period to 37 cents. At 4.8 billion euros, the Group invested 2.2 percent more in terms of cash capex, excluding expenses for mobile spectrum, than in the first three months of 2022. Free cash flow AL declined by 5.3 percent year-on-year in the first quarter to 3.6 billion euros, but remains on track on a full-year basis.

The proceeds from the tower transaction made a substantial contribution to the reduction in the Group’s net debt (excluding leases) by more than 10 billion euros compared with the end of 2022 to 93.0 billion euros. The ratio of net debt to adjusted EBITDA AL improved to 2.31, compared to 2.58 at the end of 2022.
For the full year, Deutsche Telekom now expects adjusted EBITDA AL of around 40.9 billion euros, up from the previous guidance of 40.8 billion euros, driven by the raised guidance at T-Mobile US. The Group’s guidance for free cash flow AL remains unchanged at more than 16 billion euros.

Germany: Strong customer growth
In its home market, Deutsche Telekom is enjoying rapid customer growth in all areas. In the fixed network, 74,000 households opted for a broadband line from the market leader. Just under 42 percent of consumers are now subscribed to a rate plan offering bandwidths of up to 100 Mbit/s or higher. MagentaTV is enjoying strong growth. It recorded 50,000 net customer additions in the first three months of 2023, almost three times as many as a year earlier. The number of customers using an FTTH line increased by 37 percent year-on-year to 769,000.

With 274,000 new branded customers, Telekom Deutschland also had an exceptionally successful start to the new year in mobile communications, thanks in part to the new portfolio of rate plans. At the same time, mobile service revenues increased by 1.7 percent compared with the prior-year period.

Revenue in the Germany operating segment increased by 2.3 percent year-on-year on an organic basis in the first three months of the year to 6.1 billion euros. Broadband revenues were a key driver here. At the same time, adjusted EBITDA AL increased by 3.1 percent in organic terms to 2.5 billion euros.

United States: Growth continues unabated
T-Mobile US recorded 1.3 million postpaid net customer additions on a par with the prior-year growth, and thus more than its two national competitors, Verizon and AT&T, combined. Postpaid phone churn fell from 0.93 percent to 0.89 percent within a year. This is also attributable to the largely completed integration of the former Sprint. High-speed internet, which provides wireless internet access at home, continued to be highly successful. 523,000 customers were added in the reporting quarter, taking the high-speed internet customer base to 3.2 million.

The company’s financial KPIs also developed positively. Service revenues rose 2.8 percent year-on-year in the period between January and March to reach 15.5 billion U.S. dollars. Adjusted core EBITDA AL increased by 6.6 percent to 6.9 billion U.S. dollars. T-Mobile US raised its guidance for 2023 in a number of performance indicators. Postpaid net customer additions are expected to be between 5.3 million and 5.7 million in the full year. The previous guidance had been 5.0 to 5.5 million.

Europe: Remains resilient
As in the previous year, the European national companies managed to increase their financial KPIs again in the first quarter of 2023 despite difficult conditions. Revenue increased by 4.9 percent year-on-year in organic terms to 2.8 billion euros. Adjusted EBITDA AL in the Europe operating segment rose by 1.2 percent in organic terms to 1.0 billion euros, marking 21 consecutive quarters of earnings growth, although rising energy prices and the supplementary telecommunications tax in Hungary had a negative impact on earnings.

The strong growth in customer numbers also continued unabated. Between January and March of this year, the number of broadband lines increased by 83,000, the number of customers using fixed-mobile convergence products by 169,000, and the number of TV customers by 29,000. The mobile contract customer base grew by 104,000.

System Solutions: Solid start to the year
The year began well for business with corporate customers. T-Systems increased revenue in the first quarter by 4.5 percent in organic terms to 946 million euros. Digital Solutions performed particularly well. Adjusted EBITDA AL increased by 4.6 percent in organic terms to 75 million euros.

At 754 million euros, order entry was down by 24 percent in organic terms compared with the first quarter of 2022, which had been influenced by major deals. Nevertheless, it remains on track for the full-year target.

CT Bureau