Deutsche Telekom has forecast organic revenue growth of 1-2 percent per year for the period 2015-2018, led by continued growth at T-Mobile US. Its German operations are expected to halt the fall in revenue in 2016 and the rest of its European operations by 2016-17, while T-Systems will grow at an estimated 3 percent per year over the period.
The group's adjusted EBITDA is expected to show a faster 2-4 percent CAGR in the next three years, driven by continued cost reduction efforts and the transition to an all-IP network. At its Capital Markets Day, the German operator also pledged to grow free cash flow 10 percent per year and increase its dividend at a similar rate. The dividend is expected to remain at at least the level of 2014, EUR 0.50 per share, through the forecast period. Capital expenditure will rise only 1-2 percent per year during the period.
For 2015, DT forecast a jump in EBITDA to EUR 18.3 billion from EUR 17.6 billion last year, largely due to the strong performance in the US, where T-Mobile's adjusted EBITDA is expected to increase by around 25 percent. The forecast is based on an exchage rate of USD 1.33 to the euro; at the current rate of around USD 1.14, the figure would be closer to EUR 19.3 billion. Free cash flow is forecast at EUR 4.3 billion in 2015, up from EUR 4.1 billion last year.
DT said it expects the growth to be supported by its recent investments in 4G and broadband networks, as well as the continued expansion of bundled fixed and mobile services. It will also use the proceeds from divestments such as the sale of Scout and pending disposal of its stake in UK operator EE. This is expected to lead to a higher return on capital employed in 2018 than the cost of capital.
The new targets were presented alongside annual results for 2014 that showed revenues up 4.2 percent to EUR 62.66 billion and adjusted EBITDA increasing 0.8 percent to EUR 17.57 billion. Net profit more than doubled to EUR 2.92 billion from EUR 930 million in 2013 after the sale of the stake in Scout. Free cash flow was down 10.1 percent to EUR 4.14 billion, and capex, excluding spectrum fees, rose 7.6 percent to EUR 9.53 billion.
In the fourth quarter, Germany returned to revenue growth of 1.6 percent, and the US grew by 28.1 percent, while revenue in Europe fell 3.4 percent, and the System Solutions division posted sales down 7.1 percent. Overall, the DT group improved revenues 8.5 percent year-on-year to EUR 17.00 billion, and adjusted EBITDA rose 9.45 percent to EUR 4.44 billion. On an organic basis, DT said revenues were up 5.6 percent in Q4.
