Expectations for the Group

Expectations up to 2019. For the next two years, we expect profitable growth to continue. Revenue and adjusted EBITDA are expected to rise at Group level in 2018: a good basis to achieve our financial ambitions by 2018 as communicated at our Capital Markets Day in February 2015.

We expect our financial performance indicators to develop as follows in 2018 and 2019:

  • Revenue should increase slightly year-on-year in 2018 and continue to rise in 2019. This forecast is based on the rigorous implementation of the Un-carrier strategy in our United States operating segment, which will bring with it sustained customer growth over the next two years. For 2019, we expect all operating segments to make a positive contribution to the revenue growth of our Group.
  • Adjusted EBITDA is expected to come in at around EUR 23.2 billion in 2018 and to rise in 2019 due to the expected upward revenue trend over the same two-year period.
  • EBITDA is expected to decline in 2018 compared with the prior year. EBIT is also expected to decrease in 2018 on account of multiple positive special factors recorded in 2017, such as the partial reversal of impairment losses on spectrum licenses previously acquired by T-Mobile US and to the sale of Strato and Scout24 AG. We expect to see slight growth in EBIT in 2019 and growth in EBITDA. This is in line with the expected positive trend for adjusted EBITDA.
  • Return on capital employed (ROCE) is expected to decrease in 2018, since ROCE in 2017 was positively impacted by the aforementioned special factors. Despite this anticipated decline, we are well on track to achieve the expected weighted average cost of capital (WACC) and hence fulfill our promise made at the 2015 Capital Markets Day. In 2019, return on capital employed should remain stable year-on-year.
  • Our investments – in terms of cash capex (before spectrum investments) – are expected to amount to around EUR 12.5 billion in 2018. Over the next two years, too, we want to continue investing heavily in building out our network infrastructure in Germany, the United States, and Europe in order to safeguard our technology leadership in the long term. Capital expenditure is expected to fall slightly year-on-year in 2019.
  • Free cash flow (before dividend payments and spectrum investment) is expected to reach around EUR 6.2 billion in 2018 and rise sharply again in 2019. It is to thus make a crucial contribution toward keeping our relative debt – measured as the ratio of net debt to adjusted EBITDA – within the target corridor of 2 to 2.5x in 2018 and 2019.
  • At the end of 2017, the rating agencies Standard & Poor’s, Fitch, and Moody’s gave us ratings of BBB+, BBB+, and Baa1 respectively, thus placing us in the group of solid investment grade companies. The outlook from all three rating agencies was “stable.” Maintaining a solid investment grade rating within the A– to BBB range will enable us to retain unrestricted access to the international financial markets and is thus a key component of our finance strategy.

Our debt issuance program puts us in a position to place issues on the international capital markets at short notice, while our commercial paper program enables us to issue short-term papers on the money market. Our finance strategy continues to include a liquidity reserve that, at any given time, covers at least our capital market maturities over the next 24 months.

Repayments of bonds and loans in the amount of EUR 2.9 billion and EUR 4.8 billion will fall due in 2018 and 2019, respectively. In order to refinance our maturities and maintain the liquidity reserve, we plan to issue new bonds in various currencies. The bond issue in November 2017 already covers part of the refinancing needs for 2018. In January 2018, T-Mobile US also placed bonds with a total volume of USD 2.5 billion on the market. The exact execution of further transactions depends on developments in the international finance markets. We will also cover part of our liquidity requirements by issuing commercial paper.

We intend to continue leveraging economies of scale and synergies through suitable partnerships or appropriate acquisitions in our footprint markets. There are no plans, however, for major acquisitions or expansion in emerging markets. We will continue to subject our existing partnerships and equity investments to regular strategic reassessments with a view to maximizing the value of our Company.

Our expectations for the period until 2019 for the Group and the operating segments as regards our financial and non-financial performance indicators are shown in the following tables. They assume a comparable consolidated group and constant exchange rates. The forecast statements made already take into account the new accounting standards IFRS 9 and IFRS 15, which took effect as of January 1, 2018. If the economic situation should deteriorate or any unforeseen state or regulatory interventions arise, the expectations expressed here may change accordingly. All trends denote year-on-year changes. To indicate the intensity and trends of our forecasts, we apply the following assessment matrix: strong decrease, decrease, slight decrease, stable trend, slight increase, increase, strong increase.

Financial performance indicators
    Results in
2017
Pro forma for
2017 a, b
Expectations for
2018 c, d, e
Expectations for
2019 c, d, e
Net revenue          
Group billions of € 74.9 74.9 slight increase increase
Germany billions of € 21.9 21.9 stable trend slight increase
United States (in local currency) billions of $ 40.3 40.3 increase increase
Europe billions of € 11.6 11.6 stable trend slight increase
Systems Solutions billions of € 6.9 6.9 decrease increase
Group Development billions of € 2.3 2.2 slight decrease increase
Profit (loss) from operations (EBIT) billions of € 9.4 9.4 decrease slight increase
EBITDA billions of € 24.0 23.9 decrease increase
EBITDA (adjusted for special factors)          
Group billions of € 22.2 22.2 23.2 increase
Germany billions of € 8.5 8.4 8.6 increase
United States (in local currency) billions of $ 10.5 10.5 11.3 increase
Europe billions of € 3.7 3.7 3.8 slight increase
Systems Solutions billions of € 0.5 0.5 0.4 slight increase
Group Development billions of € 0.9 0.9 0.9 increase
ROCE % 5.8   decrease stable trend
Cash Capex f billions of €        
Group billions of € 12.1 12.1 12.5 slight decrease
Germany billions of € 4.2 4.2 stable trend stable trend
United States (in local currency) billions of $ 5.2 5.2 stable trend stable trend
Europe billions of € 1.8 1.8 stable trend slight decrease
Systems Solutions billions of € 0.4 0.4 strong increase decrease
Group Development billions of € 0.3 0.3 increase increase
Free cash flow (before dividend payments and spectrum investment) billions of € 5.5   6.2 strong increase
Rating          
Standard & Poor’s, Fitch   BBB+   from A- to BBB from A- to BBB
Moody’s   Baa1   from A3 to Baa2 from A3 to Baa2
Other          
Dividend per share g, h 0.65   Dividend follows free cash flow growth Minimum € 0.50 Dependent on the finance strategy for the years following 2018 i
EPS (adjusted for special factors) 1.28   decrease slight increase
Equity ratio % 30.0   25 to 35 25 to 35
Relative debt   2.3x   2 to 2.5x 2 to 2.5x
 
a Significant changes in the organizational structure and in the composition of the consolidated Group included up to the date of preparation of the consolidated financial statements and the combined management report (e.g., the integration of Vivento Customer Services GmbH into our Germany operating segment; Vivento was previously assigned to our Group Headquarters & Group Services segment).
b Based on the International Financial Reporting Standards (IFRSs) applicable in 2017, i.e., without taking account of the changes in IFRS 9 and IFRS 15, in particular.
c On a comparable basis.
d Tele2 Netherlands and UPC Austria are not included in the expectations.
e The expectations are based on the currently applicable International Financial Reporting Standards (IFRSs), i.e., taking into account IFRS 9 and IFRS 15 (see also footnote i), but not taking into account the changes resulting primarily from IFRS 16, which has not yet been applied.
f Before spectrum investment.
g The indicated expectation regarding the dividend per share refers to the respective financial year indicated.
h Subject to approval by the relevant bodies and the fulfillment of other legal requirements.
i We will provide information about the further development of our finance strategy for the years following 2018 at our Capital Markets Day, which is planned for the end of May 2018.

For information on standards, interpretations, and amendments issued, but not yet to be applied, please refer to the section “Summary of accounting policies” in the notes to the consolidated financial statements.
Non-financial performance indicators
    Results in
 2017
Pro forma for
2017 a
Expectations for
2018
Expectations for
2019
Group          
Customer satisfaction (TRI*M index)   68.6   slight increase slight increase
Employment satisfaction (commitment index) b   4.1   stable trend stable trend
Fixed-network and mobile customers          
Germany          
Mobile customers millions 43.1 43.1 increase increase
Fixed-network lines millions 19.2 19.2 decrease decrease
Of which: retail IP-based millions 12.0 12.0 strong increase strong increase
Broadband lines millions 13.2 13.2 increase increase
Television (IPTV, satellite) millions 3.1 3.1 strong increase strong increase
United States          
Branded postpaid millions 38.0 38.0 increase increase
Branded prepay millions 20.7 20.7 increase increase
Europe          
Mobile customers millions 48.8 48.8 increase slight increase
Fixed-network lines millions 8.4 8.4 slight decrease slight decrease
Of which: IP-based millions 5.7 5.7 strong increase strong increase
Retail broadband lines millions 5.6 5.6 increase increase
Television (IPTV, satellite, cable) millions 4.2 4.2 increase increase
Systems Solutions          
Order entry  billions of € 5.2 5.2 increase increase
ESG KPIs          
Energy Intensity ESG KPI c kWh/terabyte 146   strong decrease strong decrease
Carbon Intensity ESG KPI c kg CO2/terabyte 61   strong decrease strong decrease
Sustainable Procurement ESG KPI % 81   stable trend stable trend
 
a Significant changes in the organizational structure and in the composition of the consolidated Group included up to the date of preparation of the consolidated financial statements and the combined management report.
b Commitment index as per the 2017 employee survey.
c Figures for the Deutsche Telekom Group in Germany for 2016.

For further information on the development of the non-financial performance indicators of our operating segments, please refer to “Expectations for the operating segments” in this section.

In both 2018 and 2019, we intend to achieve a moderate improvement in customer loyalty/satisfaction – which is measured using the TRI*M index performance indicator.

Having already achieved a high level of 4.1 – on a scale of 1.0 to 5.0 – on the commitment index in the 2017 employee survey, and in view of the results of the pulse surveys conducted in 2017, we expect the positive response of our employees regarding our Company to remain stable in the next employee survey, which is scheduled for 2019. For detailed information on our ESG KPIs and our expectations, please refer to the section “Corporate responsibility and non-financial statement.”

Our planning is based on the exchange rates in the following table.

Exchange rates
     
Croatian kuna HRK 7.46
Polish zloty PLN 4.26
Czech koruna CZK 26.33
Hungarian forint HUF 309.19
U.S. dollar USD 1.13

The following table contains a summary of our model calculations and analyses of the key external factors that may have an effect:

Factors that may affect results
Premises Current trend Impact on
results
Economy    
Macroeconomic trends in Europe (incl. Germany) steady
Macroeconomic trends in the United States increasing
Inflation in Europe (incl. Germany) increasing
Inflation in the United States increasing
Development of the USD exchange rate steady
Development of exchange rates of European currencies steady
     
Regulatory/state intervention    
Regulation of mobile communications in Europe (incl. Germany) steady
Regulation of the fixed network in Europe (incl. Germany) steady
Taxes (in Europe/the United States) increasing
     
Market development    
Intensity of competition in the telecommunications sector in Europe (incl. Germany) and the United States steady
Intensity of competition in the telecommunications sector in the United States steady
Price pressure in telecommunications markets steady
ICT market increasing
Data traffic increasing
 
☑ positive    
⚬ unchanged    
☒ negative    

Expectations for Deutsche Telekom AG. The development of business at Deutsche Telekom AG as the parent company of the Group is reflected particularly in its service relationships with our subsidiaries, the results from our subsidiaries’ domestic reporting units, and other income from subsidiaries, associated, and related companies. In other words, our subsidiaries’ results from operations and the opportunities and challenges they face are key factors shaping the future development of Deutsche Telekom AG’s figures. Accordingly, in addition to our expectations for the Group, the expectations described on the following pages concerning the operating segments’ revenue and earnings – such as strong competition, regulatory intervention, market and economic expectations, etc. – have an impact on our expectations concerning the development of Deutsche Telekom AG’s future income after taxes.

Based on the aforementioned expectations for our operating segments and the resulting effects, and taking existing retained earnings into account, Deutsche Telekom AG also expects to distribute a dividend of at least EUR 0.50 per dividend-bearing share for the 2018 financial year, subject to approval by the relevant bodies and the fulfillment of other legal requirements. Relative growth in free cash flow is also to be taken into account when measuring the amount of the dividend for the specified financial year.