Further forecast increase
The splendor of the US subsidiary also allows Telekom to shine
November 9, 2023, 4:18 p.m
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For Telekom it runs in the USA. As a result, the people of Bonn can repeatedly increase their annual figures. Shareholders should also benefit from this – through a higher dividend and share buybacks.
Deutsche Telekom is raising its goals for the third time this year in the wake of the US subsidiary T-Mobile, which continues to shine. At the same time, Telekom boss Tim Höttges confirmed his announcement of a dividend increase and a share buyback worth billions. In this way, Telekom wanted to involve its owners in the positive business development, said Höttges when presenting the quarterly figures.
In the third quarter, the operating result grew by 6.2 percent to 10.5 billion euros and the cash inflow (free cash flow) grew by more than 60 percent to 4.7 billion euros. The latter is a consequence of the planned reduction in investments in the USA. The expansion of the mobile network there according to the modern 5G standard is already well advanced. Sales adjusted for exchange rate and other effects only increased by 0.7 percent from July to September. However, like the other two key figures, this was within the forecast range. The bottom line is that Telekom earned 1.9 billion euros, a good fifth more than the year before. The group has around 204,000 full-time positions, 60,000 of which are in Germany.
“The fact that the numbers didn’t offer much that was surprising can be seen as a success these days,” commented financial market expert Konstantin Oldenburger from the online broker CMC Markets. On the stock exchange, Telekom shares, which are included in the leading index DAX, rose slightly.
Höttges defends expansion strategy
In Germany, Telekom said it gained 96,000 customers in its fast Internet connection business. “For the first time since market liberalization began, we no longer have any connection losses in Germany,” said Höttges. He also remains committed to the goal of connecting an additional 2.5 million households to the fiber optic network by the end of the year.
At the end of September, “Fiber to the Home” (FTTH) was available to 6.9 million households, the company said. That was 2.4 million more than a year earlier. By the end of 2024, fiber optics are expected to be in reach of more than 10 million households. Competitors are also expanding, but Telekom is far ahead. Fiber optics is considered the best technology for meeting the increasing data needs in the Internet age. However, fiber optic contracts are generally more expensive than connections via telephone lines (VDSL) or television cables. That’s why many consumers are still hesitant – not everyone will take advantage when fiber optics are finally on their street. Telekom says it has 910,000 fiber optic customers in Germany so far, 263,000 more than a year ago.
However, there is also criticism of the expansion behavior of the industry leader: smaller competitors and the industry association Breko accuse it of strategic “superstructure” – that is, of announcing expansion projects where other companies are already present, which causes their calculations to falter due to the threatening presence of the market giant device. The fact that two companies are laying fiber optics in one area and therefore lacking the already scarce construction capacity in other areas is also raising eyebrows in politics. For CEO Höttges, however, this is normal competition. Overbuilding is only happening in two percent of the development areas, he said. In other areas, Telekom is being overbuilt. He warned against regulatory interventions that would create local monopolies.
Shareholder program confirmed
For the full year 2023, Höttges is now targeting adjusted operating profit of 41.1 billion instead of around 41 billion euros. The inflow of funds will probably be more than 16.1 billion instead of more than 16 billion euros. “This was generally expected since T-Mobile had also raised its targets,” said a stock exchange investor.
Höttges also confirmed the plans presented a week ago for a ten percent increase in the dividend to 0.77 euros per share and a two billion euro share buyback. The latter is intended to partially offset the dilutive effect of the 2021 capital increase with which Telekom financed the increase in shares in the US subsidiary T-Mobile. “The company is sending a strong signal that, thanks to its business success, it has enough strength and resources to pamper its shareholders in this way,” said CMC analyst Oldenburger. This should also please the federal government, which, according to the company, still holds a good 13.8 percent of Telekom. A further 16.6 percent of the shares are held by the federally owned KfW Bank. If the general meeting approves the dividend proposal, the federal government would receive a good 591 million euros in dividends and KfW would receive almost 638.5 million euros in distributions.
The mobile communications subsidiary won a surprising number of new customers in the highly competitive US business in the last quarter thanks to new package offers for Apple’s new iPhone 15. T-Mobile then raised its full-year targets for the number of new fixed-term contract customers and cash inflow. “Telekom continues to grow in uncertain times on both sides of the Atlantic,” said CEO Höttges.