Good start to 2012 financial year for Deutsche Telekom

May 10, 2012

  • Adjusted EBITDA of EUR 4.5 billion at prior-year level
  • 1.1 percent decrease in revenue in first quarter to EUR 14.4 billion
  • Free cash flow almost 6 percent higher than prior-year figure at EUR 1.1 billion
  • 17 percent decrease in adjusted net profit
  • Net debt reduced by more than EUR 3 billion in 12 months
  • Strong customer growth for Entertain
  • Stabilization in Europe, slight growth in U.S.
  • Guidance for the year confirmed

For Deutsche Telekom, the 2012 financial year began with a positive trend in its most important KPIs. At EUR 4.5 billion, adjusted EBITDA in the first quarter remained stable at the prior-year level. Net revenue decreased by just 1.1 percent in the same period to EUR 14.4 billion. This results in an adjusted EDITDA margin of 31.0 percent, 0.4 percentage points higher than one year before.

"This was a very satisfying quarter for us," said René Obermann, Chief Executive Officer of Deutsche Telekom. "We have made significant progress in many areas and can now confirm our guidance for the year."

At EUR 2.2 billion, the Group invested a considerable amount in cash capex once again in the first quarter. It also significantly reduced its debt at the same time. At March 31, 2012, net debt stood at EUR 38.6 billion, a year-on-year decrease of EUR 3.2 billion.

Compared with 2011, free cash flow increased by 5.7 percent in the first quarter to EUR 1.1 billion. Adjusted net profit declined 17.1 percent to EUR 581 million. Reported net profit was impacted in the first quarter by special factors affecting EBITDA of EUR 525 million compared with EUR 182 million in the same period of 2011. EUR 464 million of this was attributable to the continuation of the early retirement scheme as part of the Group's socially responsible restructuring measures. Corresponding exceptional expenses in the prior year were only incurred from the second quarter. This change in seasonal influences resulted in reported net profit of EUR 238 million in the first quarter of 2012.

Germany - accelerated customer growth for Entertain
The Germany operating segment saw a clear year-on-year improvement in its revenue. Total revenue decreased by only 2.3 percent compared with the prior-year period to EUR 5.7 billion in the first quarter of 2012. Adjusted EBITDA decreased to a lesser extent by 2.0 percent to EUR 2.3 billion. This results in an adjusted EBITDA margin of 40.7 percent, which represents a further improvement of 0.2 percentage points compared with the same period in 2011.

The decline in revenue was primarily slowed by greater stability in fixed-network business, particularly in the wholesale unit, which saw a decrease of just 3.9 percent compared with a two-digit decline at times during the prior year. In addition, the number of line losses fell further and revenue generated with broadband lines and television services increased. Service revenues in mobile communications, on the other hand, did not perform satisfactorily, decreasing by 1.8 percent. Mobile data revenues increased by 20 percent to EUR 462 million.

Over 1.7 million customers now have Entertain, the television experience of the future. This represents year-on-year growth of 37.2 percent. There were 173,000 new customers in the first quarter of 2012, 71 percent more than from January to March 2011, with 81,000 of them receiving Entertain via satellite. There was also a significant increase of more than 100,000 new customers in the fiercely competitive broadband business. Deutsche Telekom kept its share of existing customers at over 45 percent. At 259,000, the number of line losses resulting from competition and regulation was 24 percent lower than the prior-year level. By contrast, 107,000 mobile contract customers were lost in the first quarter, resulting from the migration of a larger number of customers from one service provider to another network provider. Excluding this effect, the number of mobile contract customers also increased.

U.S. - customer growth with strong profitability
T-Mobile USA performed well, particularly in terms of its profitability. Revenue increased by 2.0 percent to EUR 3.8 billion in the past quarter, with adjusted EBITDA rising by 12.9 percent to EUR 1.0 billion. Nonetheless, the positive trend is due in part to exchange rate gains made by the U.S. dollar. In local currency, revenue decreased by 2.3 percent, while adjusted EBITDA increased by a full 8 percent.

The U.S. subsidiary recorded a strong adjusted EBITDA margin of 25.6 percent, a year-on-year increase of 2.5 percentage points, and gained new customers. Growth in prepay business saw the total number of customers up by 187,000 in the first quarter. The number of branded contract customers (excluding machine-to-machine), on the other hand, was down by 510,000.

T-Mobile USA is well on schedule for implementing the new LTE mobile standard and the comprehensive modernization of its network thanks to the completed transfer of spectrum from AT&T and preparations for refarming existing spectrum. Relaunching the T-Mobile brand on the U.S. market and significantly enlarging the sales network in the country are important steps in implementing the strategy. In addition, initiatives for cutting costs and reducing churn are having a positive impact. There was a 0.1 percentage point improvement year-on-year in branded contract customer churn, representing a 0.5 percentage point improvement on the fourth quarter.

Europe - stabilization continues
European business also continued to stabilize in the first three months of this year. Revenue declined 2.6 percent year-on-year to EUR 3.6 billion. Adjusted EBITDA decreased by 4.3 percent to EUR 1.2 billion. When adjusted for exchange rate effects, however, particularly in Hungary and Poland, and the impact of regulation on mobile communications, revenue actually increased slightly.

As a result, business in Europe showed new strength, although a difficult economic environment continued to prevail in many countries. Once again, virtually all national companies maintained their strong profitability. Positive trends were recorded in the revenues of the mobile communications companies in Greece and Romania.

The number of mobile contract customers and broadband customers also increased by 3 percent each. The number of IPTV customers even grew by 18 percent. The trend toward increased smartphone use also continued unabated at the European national companies. Smartphones still accounted for 40 percent of devices sold one year ago, but this figure increased to 57 percent in the first three months of the current year. This boom was a major factor in the 11 percent increase in mobile data rates in Europe, a 14 percent increase when adjusted for exchange rate effects. More than half of this growth originated in the Netherlands and Austria. Croatia performed best, with growth of over 30 percent when adjusted for exchange rate effects.

Systems Solutions - margin improved, revenue under pressure
Systems Solutions began the first quarter of 2012 with its revenue from international business increasing by 3.5 percent to EUR 758 million. Externally generated revenues also increased year-on-year, albeit only slightly by 0.6 percent, due to sustained price and competitive pressure.

Revenue generated within the Group decreased as planned. This contribution to reducing costs at Deutsche Telekom outweighed the growth in revenue with external customers. Total revenue therefore decreased by 0.7 percent year-on-year in the first three months to EUR 2.2 billion.

The adjusted EBIT margin, the most important indicator of Systems Solutions' profitability, saw a slight improvement of 1.3 percent to 2.0 percent compared with the prior-year period. Adjusted EBITDA amounted to EUR 192 million.

This represents a 1.6-percent year-on-year increase.

T-Systems secured big deals from Old Mutual Group (OMG) and British American Tobacco (BAT) in the first quarter. Overall, there was a 33-percent decrease in orders compared with the first quarter of 2011. It should be noted that the high prior-year figure resulted from the big deal with Everything Everywhere.

T-Systems is offering a new telematics solution in the field of connected cars. Since February 2012, forwarding companies can use cloud-based services to plan their routes more efficiently, thereby cutting maintenance costs and saving up to 20 percent on fuel. With TelematicOne, T-Systems delivers a central control unit for all logistics activities, including accessing the position details of trucks, controlling the temperature of goods, and recording transportation routes, containers, and trailers in real time.

The Deutsche Telekom Group at a glance*:

 

 

Q1 2012

millions of EUR

Q1 2011

millions of EUR

Change

%

FY 2011

millions of EUR

Net revenue14,43214,597(1.1)58,653
Of which: domestic6,4086,576(2.6)26,361
Of which: international8,0248,0210.032,292
Profit1,2181,644(25.9)5,586
Adjusted EBIT1,7431,827(4.6)7,606
EBITDA3,9524,298(8.1)20,022
Adjusted EBITDA4,4774,480(0.1)18,685
Adjusted EBITDA margin31.0%30.6%0.4p31.8%
Net profit238480(50.4)557
Adjusted net profit581701(17.1)2,851
Free cash flowa1,1221,0615.76,421
Cash capexb(2,169)(2,120)(2.3)(8,406)
Net debt38,62741,800(7.6)40,121
Number of employees at the reporting date234,067244,011(4.1)235,132

Comments on the table:
a   Before dividend payments and investments in spectrum, and before the effects of the PTC and AT&T transactions.

b   Cash outflows for investments in property, plant, and equipment, and intangible assets (excluding goodwill).

Germanyoperating segment*:

 Q1 2012
millions of EUR
Q1 2011
millions of EUR
Change
%
FY 2011
millions of EUR
Total revenue5,6585,794(2.3)23,201
Net revenue5,3205,454(2.5)21,783
Profit (loss) from operations (EBIT)8871,225(27.6)4,359
Adjusted EBIT1,1831,294(8.6)5,066
EBITDA2,0062,281(12.1)8,767
Adjusted EBITDA2,3022,350(2.0)9,474
Adjusted EBITDA margin40.7%40.5%0.2p40.8%
Number of employees  
(average)
73,04374,285(1.7)73,709

Comments on the table:

The activities and functions of the Digital Services growth area and of the Internet service provider STRATO (Consumers) that were previously reported under the Germany operating segment have been consolidated under Group Headquarters & Shared Services from January 1, 2012, and reported as part of the DBU (Digital Business Unit). The prior-year figures have been adjusted for better comparability.

Europeoperating segment*:

 Q1 2012
millions of EUR
Q1 2011
millions of EUR
Change
%
FY 2011
millions of EUR
Total revenue3,5753,672(2.6)15,124
Greece819863(5.1)3,546
Romania2642620.81,072
Hungary335352(4.8)1,438
Poland413440(6.1)1,740
CzechRepublic255268(4.9)1,092
Croatia239256(6.6)1,084
Netherlands4214180.71,747
Slovakia2062022.0886
Austria227229(0.9)924
Othera4484353.01,827
Net revenue3,4003,504(3.0)14,431
Profit (loss) from operations (EBIT) 45036523.3780
Adjusted EBIT4564267.02,066
EBITDA1,1671,1660.14,995
Adjusted EBITDA1,1731,226(4.3)5,241
Greece309327(5.5)1,300
Romania696113.1274
Hungary122145(15.9)542
Poland127144(11.8)629
CzechRepublic123136(9.6)509
Croatia101104(2.9)508
Netherlands1158240.2505
Slovakia8695(9.5)388
Austria60600.0253
Othera6369(8.7)339
Adjusted EBITDA margin32.8%33.3%(0.5)p34.6%
Number of employees  
(average)
57,47262,366(7.8)60,105

Comments on the table:
The contributions of the national companies generally correspond to their respective unconsolidated financial statements and do not take consolidation effects at operating segment level into consideration.

a Other: National companies of Bulgaria, Albania, the F.Y.R.O. Macedonia, and Montenegro, as well as ICSS and Europe Headquarters.

United Statesoperating segment*:

 Q1 2012
millions of EUR
Q1 2011
millions of EUR
Change
%
FY 2011
millions of EUR
Total revenue3,8473,7702.014,811
Net revenue3,8453,7672.114,801
Profit (loss) from operations (EBIT)344401(14.2)(710)
Adjusted EBIT4224083.41,721
EBITDA9058644.73,697
Adjusted EBITDA98387112.93,831
Adjusted EBITDA margin25.6%23.1%2.5p25.9%
Number of employees  
(average)
32,02936,237(11.6)34,518

Systems Solutions operating segment*:

 

Q1 2012

millions of EUR

Q1 2011

millions of EUR

Change

%

FY 2011

millions of EUR

Total revenue2,2452,260(0.7)9,249
Of which: Computing Services760799(4.9)3,136
Of which: Desktop Services333335(0.6)1,373
Of which: Systems Integration416466(10.7)1,871
Of which: Telecommunications8097714.93,197
Of which: Othera(72)(111)35.1(328)
Net revenue1,6251,6160.66,567
Order entry1,7422,593(32.8)8,826
Profit (loss) from operations (EBIT)(35)(11)n.a.(43)
Adjusted EBIT442951.7252
EBITDA113149(24.2)597
Adjusted EBITDA1921891.6872
Adjusted EBITDA margin8.6%8.4%0.2p9.4%
Number of employees  
(average)
48,50548,1910.748,224

Comments on the table:
a   Non-core activities and consolidation.

Group Headquarters & Shared Services*:

 Q1 2012
millions of EUR
Q1 2011
millions of EUR
Change
%
FY 2011
millions of EUR
Total revenue717735(2.4)2,977
Net revenue242256(5.5)1,071
Profit (loss) from operations (EBIT)(414)(324)(27.8)1,242
Adjusted EBIT(348)(318)(9.4)(1,456)
EBITDA(203)(135)(50.4)2,081
Adjusted EBITDA(137)(129)(6.2)(617)
Number of employees  
(average)
23,49223,887(1.7)23,813

Comments on the table:
The activities and functions of the Digital Services growth area and of the Internet service provider STRATO (Consumers) that were previously reported under the Germany operating segment have been consolidated under Group Headquarters & Shared Services from January 1, 2012, and reported as part of the DBU (Digital Business Unit). The prior-year figures have been adjusted for better comparability.

*   Deutsche Telekom defines EBITDA as profit/loss from operations before depreciation, amortization, and impairment losses.

Development of customer numbers in the first quarter of 2012
Germanyoperating segment:

 

March 31, 2012

thousands

March 31, 2011

thousands

Change

thousands

Change

%

Fixed network    
Fixed-network lines23,14024,312(1,172)(4.8)
Retail broadband lines12,36712,0692982.5
TV1,7251,25746837.2
Unbundled local loop lines (ULLs)9,6029,570320.3
Wholesale unbundled lines1,2531,10814513.1
Wholesale bundled lines657891(234)(26.3)
Mobile communications    
Mobile customersa35,10034,5745261.5

Comment on the table:
a Since April 1, 2010, Telekom Deutschland GmbH has automatically terminated prepaid cards that have not been topped up for two years and have been inactive for three months.

Europeoperating segment:

 

March 31, 2012

thousands

March 31, 2011

thousands

Change

thousands

Change

%

Europetotal

Fixed-network lines

Retail broadband lines

Unbundled local loop lines (ULLs)

Wholesale unbundled lines

Wholesale bundled lines

Mobile customers

 

10,339

4,614

1,870

 

54

153

60,208

 

11,101

4,482

1,591

 

46

166

59,264

 

(762)

132

279

 

8

(13)

944

 

(6.9)

2.9

17.5

 

17.4

(7.8)

1.6

Greece

Fixed-network lines

Broadband lines

Mobile customers

 

3,219

1,120

7,862

 

3,640

1,153

7,600

 

(421)

(33)

262

 

(11.6)

(2.9)

3.4

Romania

Fixed-network lines

Broadband lines

Mobile customers

 

2,428

1,100

6,407

 

2,578

1,044

6,641

 

(150)

56

(234)

 

(5.8)

5.4

(3.5)

Hungary

Fixed-network lines

Broadband lines

Mobile customers

 

1,462

855

4,815

 

1,546

814

4,777

 

(84)

41

38

 

(5.4)

5.0

0.8

Poland

Mobile customers

 

14,512

 

13,175

 

1,337

 

10.1

CzechRepublic

Fixed-network lines

Broadband lines

Mobile customers

 

103

103

5,354

 

82

82

5,446

 

21

21

(92)

 

25.6

25.6

(1.7)

Croatia

Fixed-network lines

Broadband lines

Mobile customers

 

1,367

654

2,350

 

1,418

642

3,006

 

(51)

12

(656)

 

(3.6)

1.9

(21.8)

Netherlands

Fixed-network lines

Broadband lines

Mobile customers

 

291

282

4,856

 

298

288

4,718

 

(7)

(6)

138

 

(2.3)

(2.1)

2.9

Slovakia

Fixed-network lines

Broadband lines

Mobile customers

 

1,009

468

2,312

 

1,051

449

2,363

 

(42)

19

(51)

 

(4.0)

4.2

(2.2)

Austria

Mobile customers

 

4,069

 

3,833

 

236

 

6.2

Bulgaria

Mobile customers

 

4,359

 

3,934

 

425

 

10.8

Othera

Fixed-network lines

Broadband lines

Mobile customers

 

461

239

3,311

 

488

223

3,771

 

(27)

16

(460)

 

(5.5)

7.2

(12.2)

Comments on the table:

a Other: National companies of Albania, the F.Y.R.O. Macedonia, and Montenegro.

United Statesoperating segment:

 March 31, 2012
thousands
March 31, 2011
thousands
Change
thousands
Change
%
Mobile customersa33,37333,635(262)(0.8)

Comment on the table:
a   One mobile communications card corresponds to one customer.

This media information contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. These forward-looking statements include statements with regard to the expected development of revenue, earnings, profits from operations, depreciation and amortization, cash flows, and personnel-related measures. You should consider them with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom's control. Among the factors that might influence our ability to achieve our objectives are the progress of our workforce reduction initiative and other cost-saving measures, and the impact of other significant strategic, labor, or business initiatives, including acquisitions, dispositions, and business combinations, and our network upgrade and expansion initiatives. In addition, stronger than expected competition, technological change, legal proceedings, and regulatory developments, among other factors, may have a material adverse effect on our costs and revenue development. Further, the economic downturn in our markets and changes in interest and currency exchange rates may also have an impact on our business development and the availability of financing on favorable conditions. Changes to our expectations concerning future cash flows may lead to impairment write downs of assets carried at historical cost, which may materially affect our results at the group and operating segment levels. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, our actual performance may materially differ from the performance expressed or implied by forward-looking statements. We can offer no assurance that ourestimates orexpectations will be achieved. Without prejudice to existing obligations under capital market law, we do not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise.

In addition to figures prepared in accordance with IFRS, Deutsche Telekom also presents non-GAAP financial performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net income, free cash flow, gross debt, and net debt.These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.

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