Deutsche Telekom AG · XETR:DTE

Deutsche Telekom — Q3 2006 Earnings Presentation

52 slides from Deutsche Telekom's earnings presentation, Nov 9, 2006

  1. Slide 1: Q1-Q3 2006 Investor Meeting

    Q1-Q3 2006 Investor Meeting. Deutsche Telekom. November 9, 2006. ===!"§ Deutsche Telekom

  2. Slide 2: Disclaimer

    Disclaimer. This presentation contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. They include statements as to market potential, the “Targets 2006 and 2007” statements as well as our dividend outlook. They are generally id

  3. Slide 3: Q3/2006 Highlights

    Q3/2006. Highlights. Kai-Uwe Ricke CEO ===!"§ Deutsche Telekom

  4. Slide 4: Q3/2006 Highlights: Improved performance

    Q3/2006 Highlights. Improved performance. „ Revenue up 2.8% in Q3 after 2.6% in Q2 „ Adj. EBITDA at €5.1 billion in Q3 – on track to achieve full-year EBITDA target „ Net income of €4.0 billion in first nine months „ Free Cash Flow after nine months at €3.3 billion – supports target of €5 billion „

  5. Slide 5: Q1-Q3 2006 Financials

    Q1-Q3 2006. Financials. Dr. Karl-Gerhard Eick CFO ===!"§ Deutsche Telekom

  6. Slide 6: Domestic revenue stabilization in Q3 – International growth

    Q3 2006 Highlights. Domestic revenue stabilization in Q3 – International growth. Domestic revenue1 (€ billion) International revenue (€ billion) 8.2 6.99 7.09 8.1 +0.8% +1.5% Q2 2006 Q3 2006 Q2 2006 Q3 2006 Domestic revenue1 (€ billion) International revenue (€ billion) 25.4 24.6 20.7 18.7 -3.4% +11

  7. Slide 7: Broadband/Fixed Network: Trends from previous quarters continue

    Broadband/Fixed Network. Trends from previous quarters continue. Domestic revenue (€ billion) International revenue (€ billion) 17.4 2.06 2.10 16.4 -5.9% +1.6% Domestic adj. EBITDA (€ billion) International adj. EBITDA (€ billion) 6.6 6.1 0.7 0.6 -7.2% -11.1% Q1-Q3 2005 Q1-Q3 2006 ===!"§ Deutsche Te

  8. Slide 8: Broadband/Fixed Network – domestic: Challenging market environment

    Broadband/Fixed Network – domestic. Challenging market environment. Revenues in € million Q1–Q3 2006 Q1-Q3 2005 Delta Total 16,402 17,429 - 5.9% Network communications 8,524 9,312 - 8.5% thereof narrowband access 5,880 5,906 - 0.4% thereof calling revenues 2,636 3,404 - 22.6% Value added services 68

  9. Slide 9: T-Mobile: Ongoing strong international growth

    T-Mobile. Ongoing strong international growth. Service revenues (€ billion) „ Revenue growth driven by international performance 20.6 „ Adj. EBITDA margin: 32.8% in Q3/06 18.6 (from 30.1% in H1/06) +10.8% „ US business reaccelerating „ Eastern European units (incl. Czech Republic) grow service reven

  10. Slide 10: T-Mobile Germany: Tackling fierce competition

    T-Mobile. Germany: Tackling fierce competition – excellent margin. Service revenues (€ billion) „ Price declines continue to have an impact 2.0 1.9 „ Margin at 42.1% in Q3/06 -2.6% „ Contract ARPU up sequentially to €37 „ Contract data ARPU at €5.40 in Q3/06, up 8% y-o-y Contract ARPU (€) „ Adj. cas

  11. Slide 11: T-Mobile USA: Consistently strong metrics

    T-Mobile. USA: Consistently strong metrics – reaccelerating growth. Service revenues (US$ billion) „ Total revenue (US$) growth +15.1% 3.6 „ EBITDA: $1.2 billion, up 7.0% 3.0 +19.8% „ Contract ARPU: $56 (up from $55 in Q3/05) „ Non-voice ARPU: 12%, up 3 pp from Q3/05 Contract net adds (thousands) „

  12. Slide 12: T-Mobile UK: Significant service revenue growth

    T-Mobile. UK: Significant service revenue growth and improved margin. Service revenues (€ billion) „ Total revenue growth +10.1% in Q3/06 „ Margin recovery: 28.0% in Q3/06 1.1 0.9 +15.6% „ Contract ARPU at €68 (from restated €69 in Q3/05) „ SAC per gross add significantly down from prior quarter: Ad

  13. Slide 13: Business Customers: International business growing

    Business Customers. International business growing - results still driven by Germany. Total revenue (€ billion) „ Total revenue flat in Q3/06 „ Net revenues up 1.9% in Q3/06 3.14 3.13 „ International revenues up 25.7% in -0.6% Q3/06 „ Adj. EBITDA at €311 million in Q3/06 „ IT Push for SME customers

  14. Slide 14: Capex, FCF, and net debt

    Capex, FCF, and net debt. €550 million sequential reduction in net debt. Cash Capex (€ billion) Free cash flow adj. (€ billion) Net debt (€ billion) 5.61 5.9 38.8 38.3 4.51 3.3 Q1-Q3 2005 Q1-Q3 2006 Q1-Q3 2005 Q1-Q3 2006 Jun-06 Sep-06 1 Before € 2.1 billion for network assets and licenses in the US.

  15. Slide 15: Q1-Q3 2006 – Free Cash Flow

    Q1-Q3 2006 – Free Cash Flow. FCF of € 3.3 billion in first nine months. € billion Q1-Q3 Q1-Q3 2006 2005 Cash Flow 14.0 15.2 Change in working capital and accruals - 1.6 - 1.8 Taxes and dividends - 1.0 - 0.9 Cash generated from operations 11.4 12.5 Net interest payment - 2.2 - 2.4 Net cash provided b

  16. Slide 16: Q1-Q3 2006 – Net income

    Q1-Q3 2006 – Net income. EBITDA trends impact bottom line. € billion Q1-Q3 Q1-Q3 Q1-Q3 adj. Q1-Q3 adj. 2006 2005 2006 2005 EBITDA 14.4 15.4 14.9 15.5 Depreciation and amortization - 8.0 - 7.7 - 8.0 - 7.7 Net financial expense - 2.1 - 0.8 - 2.3 - 1.8 - of which net interest expense - 1.9 - 1.8 - 1.9

  17. Slide 17: Balance sheet

    Balance sheet. Ratios further improved – equity ratio at 41.1%. € billion 30.09.2006 31.12.2005 Balance sheet total 124.4 127.9 Shareholders‘ equity 51.1 49.6 Net debt 38.3 38.6 Net debt/adj. EBITDA n/a 1.9x Gearing 0.7x 0.8x Equity ratio 41.1% 38.8% ===!"§ Deutsche Telekom Q1-Q3 2006 Analysts Meeti

  18. Slide 18: Deutsche Telekom Key Initiatives

    Deutsche Telekom. Key Initiatives. Kai-Uwe Ricke CEO ===!"§ Deutsche Telekom

  19. Slide 19: Strategy – Telekom 2010: H2 Actions and Results

    Strategy – Telekom 2010. H2 Actions and Results. Telekom 2010 1 2 3 4 5 6 7 Business Germany Europe USA Innovation Service Efficiency Customers „ Integration „ tele.ring „ AWS „ Integration „ IP TV „ “T-Service” „ Next T-Online „ PTC spectrum gedas „ Web 2.0 Generation „ Product Network and price „

  20. Slide 20: Efficiency: Cost cutting program initiated

    Efficiency. Cost cutting program initiated – savings of €4.7 billion targeted. € billion 2007 2010 Common production 0.6 1.5 – 1.7 Common IT architecture 0.1 0.5 Distribution 0.5 1.0 – 1.3 Marketing Effectiveness 0.5 0.6 Shared Services 0.3 0.6 Total 2.0 4.2 – 4.7 ===!"§ Deutsche Telekom Q1-Q3 2006

  21. Slide 21: Efficiency: Common Production and IT

    Efficiency. Common Production and IT. Next generation factory and common IT architecture will enable „ Improved production efficiency „ Improved product performance „ Improved customer service „ Enable introduction of new services Full benefit of optimized IP based production „ 30% less opex „ 15% l

  22. Slide 22: Efficiency – Distribution and Marketing

    Efficiency – Distribution and Marketing. Up to €1.9 billion targeted costs savings by 2010. Selected measures distribution and marketing Contribution in 2007: Channel mix ƒ Increase share of e-channel „ Marketing effectiveness BBFN: €0.22 billion ƒ Shift to direct distribution Mobile: €0.25 billion

  23. Slide 23: Efficiency: Asset reallocation program

    Efficiency: Asset reallocation program. €3 billion over 3 years. „ Sale of non-core assets and „ Deconsolidation of assets will result in „ Improved EVA „ Improved FCF „ Improved EPS „ Additional investments We expect proceeds of €3 billion over three years ===!"§ Deutsche Telekom Q1-Q3 2006 Analyst

  24. Slide 24: Efficiency: Headcount reduction achievements

    Efficiency. Headcount reduction: Achievements. Personnel restructuring well underway: „ About 1/3 of the 32,000 Program will be achieved at the End of 2006 with approx. 8,700 committed exits as of September 30: „ gross headcount reduction in Germany at 5,100 as of September 30 „ additional approx. 2

  25. Slide 25: Efficiency: Domestic headcount development

    Efficiency: Domestic headcount development. Program going forward. „ Continuing headcount reduction program (32,000 FTEs by 2008) „ “T-Service” next step to increase efficiency levels in domestic business „ Approximately 35,000 employees will form “T-Service” - focusing on technical services „ Appro

  26. Slide 26: Europe: PTC – Milestone in European mobile footprint expansion

    Europe. PTC - Milestone in European mobile footprint expansion. „ No. 1 mobile operator in Poland, market penetration at 90% „ Customer base at 11.9 million, market share at 34%. „ Consolidation of PTC starting as of November 1 (2 months) „ 2006 estimated impact on revenue approx. €0.3 billion, on a

  27. Slide 27: 2006 and 2007 Targets: Guidance unchanged

    2006 and 2007 Targets. Guidance unchanged. „ 2006 adj. EBITDA expected between €19.2 and 19.7 billion „ Moderate rate of revenue growth expected in 2007 „ 2007 adj. EBITDA expected to be between €19.7 and 20.2 billion (incl. PTC) „ FCF unchanged: at least €5 billion in 2006 (excl. spectrum) and €6 b

  28. Slide 28: T-Systems Key Initiatives

    T-Systems. Key Initiatives. Lothar Pauly T-Systems ===!"§ Deutsche Telekom

  29. Slide 29: Efficiency – cost cutting program

    Efficiency – cost cutting program. Common production & procurement and common IT architecture contribute €2.2 billion of savings. € billion 2007 2010 Common production & procurement 0.6 1.5 – 1.7 Common IT architecture 0.1 0.5 Distribution 0.5 1.0 – 1.3 Marketing effectiveness 0.5 0.6 Shared service

  30. Slide 30: Common production & procurement: Opex savings in all segments

    Common production & procurement. Opex savings in all segments. Opex - savings measures 2007 2007 2010 ƒ Efficiency measures in In million € T-Com production OPEX ƒ Cost savings in maintenance ƒ Real estate consolidation -470 effect 0.6 1.5-1.7 ƒ Reduced 2G/3G roll-out T-Mobile ƒ Further consolidatio

  31. Slide 31: Common production & procurement – clear and defined targets

    Common production & procurement–clear and defined targets. Full implementation of NG factory. „ DSL for everyone Roll-out of VDSL1. 100% xDSL availability. Phase out of PSTN2 „ „3G and more“ for mobile customers NGMN3 starting 2010. Phase out of GSM4 network starting 2011 „ IP for all business custo

  32. Slide 32: Common IT: €1 billion IT savings in 2010

    Common IT. €1 billion IT savings in 2010. Internal IT spending (€ billion) Measures 4.8 Integrated end user infrastructure (APS) Innovation/ 0.6 4.6 0,6 4.4 IT production cost efficiency Projects --1.0 1,0 4.0 3.8* T-Com billing cost reduction Maintenance 1.2 1,0 1.0 Harmonized IT for F functions Re

  33. Slide 33: Common IT: Internal IT savings result in external savings

    Common IT. Internal IT savings of € 1 billion result in external savings of €500 million. Internal IT savings Opex Effect Consolidation global IT delivery network with specific points of production Consolidation of locations data centers, service desks, BPO €1 €500 Standardization hardware, software

  34. Slide 34: T-Systems – Strategy on track

    T-Systems – Strategy on track. Market conditions remain challenging but addressed growth drivers show encouraging trends. E.g. DAK, Dutch brewery, HVB/Unicredit, Post- Deals won „ bank, T-Mobile, UK census pilot, Vontobel International growth „ +26% Q3 2006 international revenue gedas integration „

  35. Slide 35: Consistent cost management

    Consistent cost management. Efficiency measures in IT Operations, Systems Integration and Business Services. „ Global IT-delivery network with points of production in Kosice, Budapest & Prague „ Consolidation data centers: IT „ in Germany: from 19 to 13 (2008), rest of Europe: from 24 to 17 (2008) O

  36. Slide 36: Broadband/Fixed Network Key Initiatives

    Broadband/Fixed Network. Key Initiatives. Walter Raizner ===!"§ Deutsche Telekom

  37. Slide 37: T-Com Germany: Positioning as full service provider

    T-Com Germany. Positioning as full service provider to secure market leadership. Positioning T-Com Goals ƒ Defend market position − Reduce line losses significantly T-Com − Defend market leadership in service orientation and broadband full service provider − Strengthen leading position in IP-Play St

  38. Slide 38: Broadband market development

    Broadband market development. T-COM and TOI Merger is starting to pay off - fight back with bundled products and competitive tariffs. „ BBFN group: 2.8 million DSL net adds Domestic DSL Net adds1 to 10.6 million1 y-o-y „ 346,000 broadband rate net adds in Q3/06 compared to 235,000 in Q2/06 439,000 4

  39. Slide 39: New product portfolio

    New product portfolio. 1.8 million customers within 7 weeks with new complete offerings. T-Home Classic1 T-Home Complete B.1 T-Home Complete P.1 (Voice/T-Net, DSL (Voice/T-Net, V-DSL (Voice/T-Net, V-DSL Portfolio advantages 6000, VOD) 25000, 60 free chan.) 25000, free/ pay TV) ƒ Competitive price le

  40. Slide 40: Broadband/Fixed Network – Outlook

    Broadband/Fixed Network – Outlook. Further measures to defend market position. ƒ Further development of complete offers to gain substantial broadband market share Bundled offers/ ƒ From one source: voice, high speed Internet and entertainment − Attractive entry offers for new DSL customers attractiv

  41. Slide 41: Defend market position – Innovation T-Home

    Defend market position – Innovation T-Home. Mass market launch of Triple Play completed – world-class infrastructure leads to high level of quality. Successful Launch Customer Benefits ƒ More than 21,000 cabinets in 12 cities All major features are available/ unique offering in installed Germany: ƒ

  42. Slide 42: Broadband/Fixed Network – Roadmap

    Broadband/Fixed Network – Roadmap. New products and improved processes to secure market success in 2007. 2006 2007 Q4 Q1 Q2 Q3 Q4 Launch Max06 complete offers update Max06 Launch complete offers for VSE T-Home Products Launch T-Home Next Generation T-Vorteil VDSL 50 MBit Set Top Box Launch T-One Lau

  43. Slide 43: Simplicity program right on track

    Simplicity program right on track. EBITDA improvement of EUR 627 m achieved until Q3/2006. Realized EBITDA effect (€ m) Contribution of T-Com to “T 2010” 1,500 Cost reduction (€ million) ƒ Marketing 240 - in execution 80 Forcast ƒ Distribution 510 - 710 Q4 2006 - in execution 320 800 ƒ Production 90

  44. Slide 44: T-Mobile Key Initiatives

    T-Mobile. Key Initiatives. René Obermann ===!"§ Deutsche Telekom

  45. Slide 45: Distribution Germany: Focus on four key areas

    Distribution Germany. Focus on four key areas. „ Build competitive footprint in metropolitan areas 1. T-Punkte „ Improve overall shop performance „ Push DSL sales „ Integrate account management of T-Mobile and T-Com 2. Indirect channels partners „ Implement loyalty program for premium partners „ T-P

  46. Slide 46: Distribution Germany: T-Punkte first results and goals

    Distribution Germany. T-Punkte: first results and goals for 2007/2008. „ Integrated year-end campaign „ Focusing on T-Com and T-Mobile key products „ Loyalty campaign: T-Vorteil from Nov. 6 onwards „ Improved footprint „ 150 new shops in 2006 (approx. 600 overall) „ 1,000 shops overall in 2008 (part

  47. Slide 47: Distribution Germany: Indirect sales results and goals

    Distribution Germany. Indirect sales: first results and goals for 2007/2008. „ Year-end campaign: „ 1,500 distributors will sign up to integrated distribution concept „ Sales 400% up in Oct. compared to Sept. 06 „ Integrated incentive scheme “Magenta Bonus” in place for holiday campaign „ Goals for

  48. Slide 48: T-Mobile - Consistent strategy and execution

    T-Mobile - Consistent strategy and execution. Mission: most highly regarded service company Superior network Customer centricity experience Brand: simply closer Operational excellence ===!"§ Deutsche Telekom Q1-Q3 2006 Analysts Meeting Investor Relations November 9, 2006, Page 48

  49. Slide 49: T-Mobile - Consistent strategy and execution

    T-Mobile - Consistent strategy and execution. ƒ Successful launch of segment-specific ƒ First with HSDPA in EU, leading propositions EDGE ƒ web’n’walk will overachieve 1million target ƒ TMD: winner of “connect” drive test (in addition to MNO of the year) and Mission: most highly regarded service com

  50. Slide 50: T-Mobile International: indications for mobile data uptake

    T-Mobile International: indications for mobile data uptake. Germany: Internet usage and revenue growth1 in 2006 „ HSDPA/EDGE make a difference „ HSDPA-“Click boom experience” fuels Usage/Revenues usage (Q3 vs. Q2: 40% traffic increase) „ EU: data cards almost doubled since Traffic: +350% Q3/05 „ Wel

  51. Slide 51: T-Mobile UK: Growth story continues

    T-Mobile UK. Growth story continues. „ Successful new tariffs: „ Flext: > 1 million customers since Feb. „ Pay as you go for everyone: 1 million customers since June, Mates Rates 1.2 million customers „ Contract churn has decreased from 3.0% to 2.2%. „ Balancing growth and results: „ Service revenue

  52. Slide 52: T-Mobile Germany: Defending market leadership

    T-Mobile Germany. Defending market leadership. „ Launch of new tariffs completed „ Good uptake, esp. for heavy user tariffs „ Only moderate reaction by competitors „ Service improvements „ No. 1 in customer care and shops „ Winner of best call center campaign „ Best dealer-support award „ Remote dev

Deutsche Telekom — Q3 2006 Earnings Presentation on 6ix