Group organization, strategy, and management
With regard to our Group organization, strategy, and management, please refer to the explanations in the 2017 combined management report (2017 Annual Report). From the Group’s perspective, the following changes and/or additions were made to the Group structure and the finance strategy:
We assigned Vivento Customer Services GmbH, a provider of call center services, to our Germany operating segment as of January 1, 2018; previously it was part of our Group Headquarters & Group Services segment. Comparative figures have been adjusted retrospectively. For more information, please refer to the disclosures under segment reporting in the interim consolidated financial statements.
We presented our updated finance strategy for the years 2018 through 2021 at the Capital Markets Day in late May 2018.
Part of our finance strategy is to achieve our target financial ratios – relative debt (ratio of net debt to adjusted EBITDA) and equity ratio – along with a liquidity reserve that covers our maturities of the coming 24 months at least. With these clear statements we intend to maintain our rating in a corridor from A‒ to BBB and safeguard undisputed access to the capital market.
Through 2021 we expect growth to remain at the same consistently high level as forecast at our Capital Markets Day in 2015: Revenue is set to continue growing at a rate of 1 to 2 percent a year, adjusted EBITDA at a rate of 2 to 4 percent, and free cash flow at a rate of around 10 percent.
There is a reliable dividend policy for shareholders, which is subject to approval by the relevant bodies and the fulfillment of other legal requirements. For the 2018 financial year, we will propose a dividend of EUR 0.70 for each dividend-bearing share. A dividend of at least EUR 0.50 per dividend-bearing share is to be paid for each of the financial years from 2019 through 2021. Relative growth in adjusted earnings per share is to serve as a basis for measuring the amount of the dividend for the financial years starting 2019. For 2018, we continue to expect a figure of around EUR 1.00 per share as announced at the Capital Markets Day in 2015 and expect this to rise to around EUR 1.20 per share through 2021. We thus offer our shareholders both an attractive return and planning reliability.
We will also take share buy-backs into consideration, both of Deutsche Telekom AG shares and shares in T-Mobile US. However, no shares will be bought back in the first three years after the successful closing of the business combination of T-Mobile US and Sprint.
Total capital expenditure is also to remain high in the next few years. The scope for investment is to be used to further roll out our broadband infrastructure and to accelerate the transformation of the Company to an IP-based production model. In mobile communications, the infrastructure build-out will focus on the LTE and 5G standards, and in the fixed network, on optical fiber and vectoring. The finance strategy supports the transformation of our Group into the Leading European Telco. In order to generate a sustainable increase in value, we intend to earn our cost of capital in the medium term. We aim to achieve this goal in part by optimizing the utilization of our non-current assets. We also intend to achieve our target of earning our cost of capital through strict cost discipline and improved cross-functional collaboration. Additionally, we focus our performance management on unadjusted EBIT. Taking capital expenditure into consideration brings EBIT closer to the ROCE concept and supports our rigorous focus on the efficient allocation of capital at the Deutsche Telekom Group.
a Subject to approval by the relevant bodies and the fulfillment of other legal requirements.
b Adjusted earnings per share (EPS) in 2018 as starting point.
c Not relevant for the first 3 years after the successful closing of the business combination of T-Mobile US and Sprint.
d Deviation from the target range for a short period after the successful closing of the business combination of T-Mobile US and Sprint.