Expectations for the group

Expectations up to 2018. We expect to continue achieving profitable growth in the coming years. Revenue and adjusted EBITDA should increase at Group level in 2017. That will provide us with 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 2017 and 2018:

  • Revenue should rise year-on-year in both 2017 and 2018. This growth will be attributable in particular to systematic implementation of the Un-carrier strategy in our United States operating segment and the associated ongoing increase in customer numbers over the next two years.
  • Adjusted EBITDA is expected to come in at around EUR 22.2 billion in 2017 and to rise in 2018 due to the expected upward revenue trend over the same two-year period.
  • EBITDA is expected to decline year-on-year in 2017, as is EBIT. This is due to a special factor: The proceeds from the sale of our stake in the UK mobile joint venture EE had enhanced the corresponding 2016 figure. We expect EBITDA to edge up in the course of 2018, primarily a result of the expected positive trend in adjusted EBITDA. A stable development in EBIT is expected in 2018 compared with the prior year.
  • Return on capital employed (ROCE) is expected to decrease strongly in 2017 because ROCE in 2016 had benefited from the sale of our stake in the UK mobile joint venture EE and because new spectrum in the United States will increase the asset base in 2017. ROCE is unlikely to change in 2018 and is expected to be on a par with our predicted weighted average cost of capital (WACC).
  • Our investments – in terms of cash capex (before spectrum investments) – are expected to amount to around EUR 12.0 billion in 2017. 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. In 2018, capital expenditure is expected to decrease slightly.
  • Free cash flow (before dividend payments and spectrum investment) is expected to reach around EUR 5.5 billion in 2017 and rise sharply again in 2018. It will 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 2.5 in 2017 and 2018.
  • At the end of 2016, 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.

The purpose of our Debt Issuance Program is to put us in a position to place issues on the international capital markets at any time and at short notice. In addition, our Commercial Paper Program enables the issue of 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 3.3 billion and EUR 2.6 billion will fall due in 2017 and 2018, respectively. In order to refinance our maturities and maintain the liquidity reserve, we plan to issue new bonds in various currencies. A large part of the refinancing necessary for 2017 has already been executed in January 2017. The exact manner of these potential 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, to make major acquisitions or expand into 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 and ambitions for 2018 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 pro-forma figures for 2016 and the expectations for the Group and/or the operating segments for 2017 and 2018 are based on the Group structure applicable as of January 1, 2017. The expectations expressed here may change if the economic situation deteriorates or there is any unforeseen government or regulatory intervention. All trends denote year-on-year changes. To indicate the intensity and trends of our forecasts, we refer to the following assessment matrix: strong decrease, decrease, slight decrease, stable trend, slight increase, increase, strong increase.

Financial performance indicators            
    Resultsin 2016 Pro forma for
2016 a
Expectations for
2017 b, c
Expectations for
2018 b, c, d, e
Ambition up to
2018 b, d
Net revenue            
Group billions of € 73.1 73.2 increase increase CAGR 1-2 % i
Germany billions of € 22.0 21.8 stable trend slight increase  
United States (in local currency) billions of USD 37.3 37.3 strong increase increase  
Europe billions of € 12.7 11.5 slight decrease stable trend  
Systems Solutions billions of € 7.9 7.0 stable trend increase  
Group Development billions of € 2.4 stable trend stable trend  
Profit (loss) from operations (EBIT) billions of € 9.2 9.2 decrease stable trend  
EBITDA billions of € 22.5 22.5 decrease slight increase  
EBITDA (adjusted for special factors)            
Group billions of € 21.4 21.4 22.2 increase CAGR 2-4 % i
Germany billions of € 8.8 8.2 8.4 slight increase  
United States (in local currency) billions of USD 9.5 9.5 10.2 increase  
Europe billions of € 4.1 3.8 3.7 slight increase  
Systems Solutions billions of € 0.6 0.5 0.5 increase  
Group Development billions of € 0.9 0.9 stable trend  
ROCE % 5.7   strong decrease stable trend ROCE > WACC j
Cash Capex f billions of €          
Group billions of € 11.0 11.0 12.0 slight decrease CAGR 1-2 % i
Germany billions of € 4.2 4.0 increase slight decrease  
United States (in local currency) billions of USD 4.7 4.7 increase stable trend  
Europe billions of € 1.7 1.6 stable trend stable trend  
Systems Solutions billions of € 1.1 0.4 increase increase  
Group Development billions of € 0.3 increase decrease  
Free cash flow (before dividend payments and spectrum investment) billions of € 4.9 4.9 5.5 strong increase CAGR ≈ 10 % i
Rating            
Standard & Poor's, Fitch   BBB+   from A- to BBB from A- to BBB from A- to BBB
Moody's   Baa1   from A3 to Baa2 from A3 to Baa2 from A3 to Baa2
Other            
Dividend per share g, h 0.60   Dividend based on free cash flow growth Minimum € 0.50 Dividend based on free cash flow growth Minimum € 0.50 Dividend based on free cash flow growth Minimum € 0.50
EPS (adjusted for special factors) 0.89   decrease strong increase ≈ 1
Equity ratio % 26.2   25 to 35 25 to 35 25 to 35
Relative debt   2.3 x   2 to 2.5 x 2 to 2.5 x 2 to 2.5 x
 
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 On a comparable basis.
c Strato and tolino are included in the expected figures.
d Forecasts for 2018 were made on the basis of the International Financial Reporting Standards (IFRSs) currently applicable, i. e., without taking account of the changes in IFRS 9, IFRS 15, and IFRS 16, in particular. For more detailed explanations, please refer to Note 29 “Dividend per share” in the notes to the consolidated financial statements.
e Based on an unchanged business model.
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 Average annual growth rates in the period between 2014 and 2018.
j Weighted average cost of capital.
Non-financial performance indicators          
    Results in 2016  Pro forma for
2016 a
Expectations for 2017 Expectations for 2018
Group          
Customer satisfaction (TRI*M index)   70.2   slight increase slight increase
Employment satisfaction (commitment index) b   4.1   stable trend stable trend
Fixed-network and mobile customers          
Germany          
Mobile customers millions 41.8 41.8 increase strong increase
Fixed-network lines millions 19.8 19.8 slight decrease slight decrease
Of which: retail IP-based millions 9.0 9.0 strong increase strong increase
Broadband lines millions 12.9 12.9 increase increase
Television (IPTV, satellite) millions 2.9 2.9 strong increase strong increase
United States          
Branded postpaid millions 34.4 34.4 strong increase increase
Branded prepay millions 19.8 19.8 increase increase
Europe          
Mobile customers millions 51.7 48.0 slight decrease increase
Fixed-network lines millions 8.7 8.5 stable trend decrease
Of which: IP-based millions 5.2 5.0 strong increase strong increase
Retail broadband lines millions 5.6 5.4 increase increase
Television (IPTV, satellite, cable) millions 4.0 4.0 increase increase
Systems Solutions          
Order entry billions of € 6.6 7.1 increase increase
ESG KPIS          
CO2 Emissions ESG KPI thousands of metric tons 3,684   slight decrease slight decrease
Energy Consumption ESG KPI c, d MPEI 98   decrease slight decrease
Sustainable Procurement ESG KPI % 83   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 2015 employee survey.
c Calculated using fact-based estimates and/or extrapolations.
d MPEI describes electricity consumption in thousands of MWh/revenue in billions of euros.

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 2017 and 2018, 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 2015 employee survey, and in view of the results of the pulse surveys conducted in 2016, we expect the positive response of our employees regarding our Company to remain stable in the next employee survey, which is scheduled for 2017. For detailed information on our ESG KPIs and our expectations, please refer to the section “Corporate responsibility”.

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

Exchange rates    
     
Pound sterling GBP 0.82/€
Croatian kuna HRK 7.53/€
Polish zloty PLN 4.36/€
Czech koruna CZK 27.03/€
Hungarian forint HUF 311.39/€
U. S. dollar USD 1.11/€

The following table contains a summary of our model calculations and analyses of the key potential external factors.

Factors that may affect results    
Premises   Current trend
Economy:    
Macroeconomic trends in Europe (incl. Germany) steady
Macroeconomic trends in the United States improving
Inflation in Europe (incl. Germany) improving
Inflation in the United States improving
Development of USD exchange rate improving
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
Additional taxes (in Europe/the United States) steady
     
MARKET DEVELOPMENT:    
Intensity of competition in telecommunications sector in Europe (incl. Germany) and the United States steady
Intensity of competition in telecommunications sector in the United States steady
ICT market improving
Data traffic improving
 
 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 financial years 2017 to 2018, subject to approval by the relevant bodies and the fulfillment of other legal requirements. Relative growth of free cash flow is also to be taken into account when measuring the amount of the dividend for the specified financial years.

In relation to the dividend for the 2016 financial year, we are considering once again offering our shareholders the choice of converting their dividend into Deutsche Telekom AG shares instead of having it paid out in cash.