Deutsche Telekom achieves financial targets for 2012 and drives forward investments in the future

Feb 28, 2013

  • Adjusted EBITDA of EUR 18.0 billion and free cash flow of EUR 6.2 billion
  • Stable dividend proposed of 70 euro cents per share
  • Growth in optical fiber and smartphones in Germany
  • European business convincing in a peer comparison
  • Customer numbers up at T-Mobile USA for the first time since 2009
  • Order entry and margin up at T-Systems
  • Outlook for 2013 confirmed
  • Net debt down EUR 3.3 billion to EUR 36.9 billion

Deutsche Telekom achieved its financial targets in the financial year 2012, and confirmed its dividend planning of 70 euro cents per share. Adjusted EBITDA totaled EUR 18.0 billion, down EUR 0.7 billion or 3.8 percent compared with 2011. At EUR 6.2 billion, free cash flow exceeded the expected level of around EUR 6 billion.

On this basis, the Board of Management and Supervisory Board will propose an unchanged dividend of 70 euro cents per share to the shareholders' meeting on May 16. That equates to a dividend payout ratio of 48 percent of free cash flow.

"We are going on the offensive - with extensive investments in networks and in the market," said René Obermann, CEO of Deutsche Telekom. "In doing so, we retain our general cost discipline as a source of strength. For 2012, we are delivering sound balance sheet figures, we plan to pay a stable dividend, and we have reduced net debt by more than EUR 3 billion to EUR 36.9 billion."

Unlike many of its European competitors, Deutsche Telekom held its net revenue more or less steady, at EUR 58.2 billion. The organic decline in revenue - i.e., adjusted for exchange rate effects and changes in the composition of the Group - was reduced from from 3.6 percent in 2011 to 2.7 percent. The adjusted EBITDA margin for the full year stood at 30.9 percent, a decline of around 0.9 percentage points year-on-year, largely due to the increase in market investments in the German mobile communications market, especially in the fourth quarter of around 27 percent compared with the fourth quarter of 2011. With success: In these three months alone, sales of smartphones increased to a record high of around 1.5 million, and the number of new contract customers under the Deutsche Telekom and Congstar brands increased by 226,000. Ongoing competitive and price pressure and regulatory decisions also had a negative impact on the reduced EBITDA margin.

Adjusted net profit totaled EUR 2.5 billion, 11.3 percent less than in the prior year. As of year-end, the reported net loss stood at EUR 5.3 billion, EUR 0.8 billion down from the end of the third quarter of 2012. The loss is almost entirely attributable to the impairment loss recognized in the United States in the third quarter of 2012 of EUR 7.4 billion net. As already explained when the figures for the first nine months of 2012 were announced, this non-cash, purely accounting effect is a consequence of the planned business combination of T-Mobile USA and the competitor MetroPCS. The applicable accounting standards require this impairment loss to be recognized.

"This loss of billions is not what it appears to be: We are not lacking in funds to drive forward the development of the Group," emphasized René Obermann. "As we said in December, we want to massively step up investments in the future again, to almost EUR 30 billion for 2013 to 2015."

In light of these substantial increases in investments, Deutsche Telekom expects free cash flow of approximately EUR 5 billion for the current financial year, as already announced at its Capital Markets Day in December. In 2013, adjusted EBITDA is expected to amount to around EUR 17.4 billion. Assuming successful completion of the transaction with MetroPCS, the expected adjusted EBITDA would be around EUR 18.4 billion, extrapolated to include MetroPCS for the full year.

Germany - Customer growth continues

In our German business, a number of positive trends continued in 2012. The number of customers with the Internet-based television service Entertain went up by 27 percent year-on-year to 2.0 million. The number of high-speed optical fiber lines increased by as much as 49 percent year-on-year to 0.9 million. Some 300,000 customers opted for fiber optic products in the past financial year. At the same time, line losses in Deutsche Telekom's traditional fixed network decreased by almost 20 percent compared with the prior year.

In mobile communications, the focus was on attracting and winning back customers, particularly with new rate plans for contract and prepay customers. The mobile contract customer base grew by 1.3 million in the past year. 569,000 of these were new customers of the Deutsche Telekom and Congstar brands, while the rest of the additions were in the fast growing, but much lower revenue reseller segment (service providers).

The number of cell phones sold in the full year increased to 5.6 million. The percentage of smartphones, including primarily Android-based devices and the Apple iPhone, increased by 11 percentage points against 2011 to 73 percent. Around 1.5 million smartphones were sold in the fourth quarter of 2012 alone, making it the strongest sales quarter to date.

Revenue in the Germany segment was 2 percent down year-on-year in 2012, halving the decline compared with 2011. At the same time, adjusted EBITDA declined 4.1 percent to EUR 9.2 billion due to increased market investments, especially in the fourth quarter. Despite these market investments, the adjusted EBITDA margin remained at over 40 percent in the full year.

Mobile service revenues were weaker in the fourth quarter of 2012 than in the prior-year quarter, declining by 2.8 percent. Adjusted for the cut in mobile termination rates, service revenues decreased by 2.2 percent. Mobile Internet revenue rose by almost 20 percent year-on-year to almost EUR 2.0 billion. Accordingly, Deutsche Telekom is also working flat out to roll out its broadband networks as part of its integrated network strategy: Investments in German mobile communications, for example, increased by 16 percent in 2012 compared with the prior year, the number of LTE base stations quadrupled compared with 2011 as of year-end.

Europe - More successful than key competitors

In the Europe operating segment, the decline in revenue slowed substantially in 2012. Despite the persistently strong headwind caused by regulation and despite the difficult economic environment, the decrease in 2012 was 4.7 percent, bringing revenues down to EUR 14.4 billion. Adjusted for exchange rate effects and changes in the composition of the Group, the decrease was 4.0 percent in 2012 compared with 5.5 percent in 2011. Around a half of this is a result of regulatory decisions relating to mobile communications. Looking at the fourth quarter of 2012, Deutsche Telekom's national companies recorded better revenue trends than seven of their nine local competitors. Adjusted EBITDA for the full year declined by 6.1 percent to EUR 4.9 billion compared with 2011. Adjusted for exchange rate effects, the decrease was 5.3 percent. This results in a margin that is still strong of more than 34 percent.

The most important growth areas remained stable despite the difficult economic conditions. The number of broadband customers increased by 3.9 percent to 4.8 million. At 18 percent, IP TV growth continued apace in almost all markets. The huge success of mobile data business also continued. Adjusted for currency translation effects, the Europe operating segment recorded growth of 16 percent in mobile data revenue in the full year. The number of mobile contract customers grew by more than 900,000. At the same time, smartphones as a proportion of all devices sold rose to 61 percent in the fourth quarter, 10 percentage points more than in the prior year.

The OTE group recorded numerous successes over the past few weeks and months to secure borrowing and reduce its debt, including extending a bank loan of EUR 500 million until February 2014, issuing a 5-year bond with a volume of EUR 700 million, and closing the sale of shares in HellasSat to ArabSat for around EUR 200 million, planned for the second quarter of 2013. Deutsche Telekom expects that the liquidity of the OTE group, in conjunction with projected free cash flow, will cover all repayments in 2013 once these transactions have been concluded.Together with the intended asset disposals, liabilities becoming due in 2014 and beyond are also deemed covered, given no major unforeseeable disruptions.

United States - Prepay drives up total number of customers

For T-Mobile USA, the 2012 financial year was marked by individual positive signs, while the challenges persisted unchanged. The company's customer base grew by around 200,000 new customers compared with the end of 2011 to 33.4 million. This was the first time since 2009 that the number of customers increased year-on-year, which was due to the high-growth prepay segment, where the number of branded customers rose by more than 1 million. At the same time, monthly revenue in this customer group increased by 11.2 percent year-on-year in the fourth quarter to USD 27.7, which is half the revenue of a contract customer. The number of branded contract customers declined by around 2 million in the full year. The churn rate improved by 0.5 percentage points year-on-year in the fourth quarter to 2.5 percent. T-Mobile USA plans to make further progress in this area, thanks to the agreement with Apple concerning the joint marketing of products in 2013 as well as the extensive network modernization and LTE roll-out. For this reason, in the past year, T-Mobile USA increased its network investments by almost 7 percent; or in a comparison with the prior-year quarter, by as much as 63 percent.

Total revenue declined 4.1 percent in 2012 to USD 19.8 billion. Thanks to positive exchange rate effects, revenues increased by 3.8 percent in euro terms to EUR 15.4 billion. Adjusted EBITDA declined by 7.5 percent to USD 4.9 billion. In euros, it increased slightly over the year by 0.2 percent to EUR 3.8 billion.

T-Mobile USA is enjoying great success with a new rate model that does not include subsidized cell phones: the Value plans. Rather than getting a subsidized device, customers pay for it in installments over a 20-month term. In return, they benefit from extremely attractive rates. Some 30 percent of branded contract customers are currently on Value plans. At the same time, around 61 percent of this customer group uses 3G and 4G smartphones.

Systems Solutions - Strong order entry in the fourth quarter

In the 2012 financial year, T-Systems recorded order entry of EUR 8.7 billion, up some 18 percent year-on-year. This encouraging development was driven by major contracts in the fourth quarter with oil company Shell and the state of Lower Saxony. The extension of the contract with Shell for another five years in particular shows that T-Systems has further improved its position in the strategically important market for cloud services.

Despite persistent price pressure, external revenue was up 0.6 percent year-on-year at EUR 6.6 billion. Total revenue also increased by 0.6 percent to EUR 10 billion. This increase is due to strong international revenue, which rose by some 6 percent compared with 2011 to EUR 3.2 billion. The company is successfully counteracting the ongoing price pressure in the industry with cost-cutting and efficiency measures and improved its adjusted EBIT margin steadily over the course of the year to 2.4 percent in the fourth quarter of 2012.

T-Systems once again recorded significant successes in the area of intelligent networks in 2012, such as the major contract from Presbyterian, an operator of hospitals in the United States. In addition to IT services from the cloud, the contract covers the joint development of new e-health applications in the future. In the growth area of the connected car, automotive group Daimler is working with Deutsche Telekom to provide in-car online services. Deutsche Telekom developed the communications infrastructure for the multimedia system Command Online in Mercedes Benz vehicles. This will allow the driver and passengers to use applications via the Internet while in the vehicle, including real-time traffic information, mobility services, personal radio, and access to social networks.

The Deutsche Telekom Group at a glance*:

 

 

Q4 2012

millions of EUR

Q4 2011

millions of EUR

Change

%

FY 2012

millions of EUR

FY 2011

millions of EUR

Change

%

Net revenue

14,707

14,911

(1.4)

58,169

58,653

(0.8)

Of which: domestic

6,590

6,623

(0.5)

25,775

26,361

(2.2)

Of which: international

8,117

8,288

(2.1)

32,394

32,292

0.3

Profit (loss) from operations (EBIT)

1,943

(33)

n.a.

(3,810)

5,586

n.a.

Adjusted EBIT

1,374

660

n.a.

6,984

7,606

(8.2)

EBITDA

4,967

7,265

(31.6)

18,147

20,022

(9.4)

Adjusted EBITDA

4,027

4,611

(12.7)

17,978

18,685

(3.8)

Adjusted EBITDA margin

27.3%

30.9%

(3.6p)

30.9%

31.8%

(0.9p)

Net profit  
(loss)

793

(1,340)

n.a.

(5,255)

557

n.a.

Adjusted net  
profit (loss)

203

(92)

n.a.

2,529

2,851

(11.3)

Free cash flowa

1,105

1,887

(41.4)

6,239

6,421

(2.8)

Cash capexb

2,439

2,230

9.4

8,432

8,406

0.3

Net debt

 

 

 

36,860

40,121

(8.1)

Number of employees at the reporting date

 

 

 

229,686

235,132

(2.3)

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).


Germany operating segment*:

 

Q4 2012

millions of EUR

Q4 2011

millions of EUR

Change

%

FY 2012

millions of EUR

FY 2011

millions of EUR

Change

%

Total revenue

5,731

5,810

(1.4)

22,736

23,206

(2.0)

Net revenue

5,386

5,444

(1.1)

21,384

21,783

(1.8)

Profit (loss) from operations (EBIT)

891

1,026

(13.2)

4,345

4,520

(3.9)

Adjusted EBIT

966

1,158

(16.6)

4,772

5,209

(8.4)

EBITDA

1,998

2,162

(7.6)

8,738

8,864

(1.4)

Adjusted EBITDA

2,073

2,294

(9.6)

9,165

9,553

(4.1)

Adjusted EBITDA margin

36.1%

39.3%

(3.2p)

40.3%

41.1%

(0.8p)

Number of employees  
(average)

67,620

69,960

(3.3)

68,653

70,525

(2.7)

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).

As of July 1, 2012, Deutsche Telekom reorganized the Group's IT infrastructure and pooled the existing units from the Germany operating segment and Group Headquarters & Shared Services into the Systems Solution operating segment as the new Telekom IT unit. The prior-year figures have been adjusted for better comparability.


Europe operating segment*:

 

Q4 2012

millions of EUR

Q4 2011

millions of EUR

Change

%

FY 2012

millions of EUR

FY 2011

millions of EUR

Change

%

Total revenue

3,595

3,772

(4.7)

14,408

15,124

(4.7)

Greece

781

867

(9.9)

3,253

3,546

(8.3)

Romania

253

273

(7.3)

1,037

1,072

(3.3)

Hungary

398

350

13.7

1,429

1,438

(0.6)

Poland

425

409

3.9

1,678

1,740

(3.6)

CzechRepublic

257

270

(4.8)

1,044

1,092

(4.4)

Croatia

239

263

(9.1)

992

1,084

(8.5)

Netherlands

411

465

(11.6)

1,664

1,747

(4.8)

Slovakia

224

231

(3.0)

837

886

(5.5)

Austria

215

234

(8.1)

878

924

(5.0)

Bulgaria

93

107

(13.1)

378

413

(8.5)

Othera

351

357

(1.7)

1,433

1,414

1.3

Net revenue

3,438

3,595

(4.4)

13,733

14,431

(4.8)

Profit (loss) from
operations (EBIT)

(45)

(601)

92.5

1,484

780

90.3

Adjusted EBIT

477

517

(7.7)

2,051

2,066

(0.7)

EBITDA

1,058

1,233

(14.2)

4,717

4,995

(5.6)

Adjusted EBITDA

1,220

1,311

(6.9)

4,921

5,241

(6.1)

Greece

290

321

(9.7)

1,210

1,300

(6.9)

Romania

73

73

0.0

289

274

5.5

Hungary

106

110

(3.6)

474

542

(12.5)

Poland

160

153

4.6

586

629

(6.8)

Czech Republic

111

118

(5.9)

486

509

(4.5)

Croatia

122

131

(6.9)

469

508

(7.7)

Netherlands

134

174

(23.0)

525

505

4.0

Slovakia

93

91

2.2

352

388

(9.3)

Austria

56

56

0.0

234

253

(7.5)

Bulgaria

29

40

(27.5)

135

158

(14.6)

Othera

46

49

(6.1)

164

181

(9.4)

Adjusted EBITDA
margin

33.9%

34.7%

(0.8p)

34.2%

34.6%

(0.4p)

Number of employees
(average)

57,572

58,318

(1.3)

57,955

60,105

(3.6)

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


United States operating segment*:

 Q4 2012
millions of EUR
Q4 2011
millions of EUR
Change
%
FY 2012
millions of EUR
FY 2011
millions of EUR
Change
%
Total revenue

3,793

3,848

(1.4)

15,371

14,811

3.8

Net revenue

3,792

3,847

(1.4)

15,365

14,801

3.8

Profit (loss) from operations (EBIT)

1,821

(2,955)

n.a.

(7,547)

(710)

n.a.

Adjusted EBIT

381

(604)

n.a.

1,563

1,721

(9.2)

EBITDA

2,245

989

n.a.

5,319

3,697

43.9

Adjusted EBITDA

805

1,043

(22.8)

3,840

3,831

0.2

Adjusted EBITDA margin

21.2%

27.1%

(5.9p)

25.0%

25.9%

(0.9p)

Number of employees  
(average)

29,634

32,709

(9.4)

30,184

34,518

(12.6)



Systems Solutions operating segment*:

 

Q4 2012

millions of EUR

Q4 2011

millions of EUR

Change

%

FY 2012

millions of EUR

FY 2011

millions of EUR

Change

%

Total revenue

2,829

2,694

5.0

10,016

9,953

0.6

Net revenue

1,771

1,726

2.6

6,609

6,567

0.6

Order entry

3,622

1,928

87.9

8,737

7,396

18.1

EBIT

(60)

(62)

3.2

(299)

(290)

(3.1)

Adjusted EBIT

67

54

24.1

110

23

n.a.

Adjusted EBIT margin

2.4%

2.0%

0.4p

1.1%

0.2%

0.9p

EBITDA

125

114

9.6

350

379

(7.7)

Adjusted EBITDA

240

220

9.1

747

672

11.2

Adjusted EBITDA margin

8.5%

8.2%

(0.3p)

7.5%

6.8%

0.7p

Number of employees  
(average)

52,991

52,213

1.5

52,742

52,241

1.0

Comment on the table:
As of July 1, 2012, Deutsche Telekom reorganized the Group's IT infrastructure and pooled the existing units from the Germany operating segment and Group Headquarters & Shared Services into the Systems Solution operating segment as the new Telekom IT unit. The prior-year figures have been adjusted for better comparability.


Group Headquarters & Shared Services*:

 Q4 2012
millions of EUR
Q4 2011
millions of EUR
Change
%
FY 2012
millions of EUR
FY 2011
millions of EUR
Change
%
Total revenue

802

758

5.8

2,978

2,977

0.0

Net revenue

320

299

7.0

1,078

1,071

0.7

Profit (loss) from operations (EBIT)

(666)

2,543

n.a.

(1,786)

1,274

n.a.

Adjusted EBIT

(520)

(479)

(8.6)

(1,506)

(1,424)

(5.8)

EBITDA

(464)

2,756

n.a.

(975)

2,081

n.a.

Adjusted EBITDA

(318)

(266)

(19.5)

(695)

(617)

(12.6)

Number of employees  
(average)

22,771

22,741

0.1

22,808

22,980

(0.7)

Comments on the table:
As of July 1, 2012, Deutsche Telekom reorganized the Group's IT infrastructure and pooled the existing units from the Germany operating segment and Group Headquarters & Shared Services into the Systems Solution operating segment as the new Telekom IT unit. The prior-year figures have been adjusted for better comparability.

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 fourth quarter of 2012 Germany operating segment:

 

Dec. 31, 2012

thousands

Dec. 31, 2011

thousands

Change

thousands

Change

%

Fixed network    
Fixed-network lines

22,384

23,399

(1,015)

(4.3)

Retail broadband lines

12,427

12,265

162

1.3

TV

1,966

1,553

413

26.6

Unbundled local loop lines (ULLs)

9,436

9,598

(162)

(1.7)

Wholesale unbundled lines

1,303

1,222

81

6.6

Wholesale bundled lines

518

704

(186)

(26.4)

Mobile communications

 

 

 

 

Mobile customers

36,568

35,403

1,165

3.3



Europe operating segment:

 

Dec. 31, 2012

thousands

Dec. 31, 2011

thousands

Change

thousands

Change

%

Europe total
Fixed-network lines

9,954

10,563

(609)

(5.8)

Retail broadband lines

4,766

4,588

178

3.9

IPTV

954

809

145

17.9

Unbundled local loop lines (ULLs)

1,963

1,844

119

6.5

Wholesale unbundled lines

74

50

24

48.0

Wholesale bundled lines

153

153

0

0.0

Mobile customers

61,876

60,293

1,583

2.6

Greece

Fixed-network lines

Broadband lines

Mobile customers

 

3,016

1,203

7,697

 

3,317

1,126

7,885

 

(301)

77

(188)

 

(9.1)

6.8

(2.4)

Romania

Fixed-network lines

Broadband lines

Mobile customers

 

2,418

1,134

6,368

 

2,487

1,078

6,499

 

(69)

56

(131)

 

(2.8)

5.2

(2.0)

Hungary

Fixed-network lines

Broadband lines

Mobile customers

 

1,401

875

4,837

 

1,486

848

4,817

 

(85)

27

20

 

(5.7)

3.2

0.4

Poland

Mobile customers

 

16,040

 

14,161

 

1,879

 

13.3

CzechRepublic

Fixed-network lines

Broadband lines

Mobile customers

 

111

111

5,498

 

100

100

5,381

 

11

11

117

 

11.0

11.0

2.2

Croatia

Fixed-network lines

Broadband lines

Mobile customers

 

1,312

658

2,326

 

1,387

651

2,418

 

(75)

7

(92)

 

(5.4)

1.1

(3.8)

Netherlands

Fixed-network lines

Broadband lines

Mobile customers

 

283

275

4,720

 

294

284

4,909

 

(11)

(9)

(189)

 

(3.7)

(3.2)

(3.9)

Slovakia

Fixed-network lines

Broadband lines

Mobile customers

 

960

480

2,311

 

1,021

464

2,326

 

(61)

16

(15)

 

(6.0)

3.4

(0.6)

Austria

Mobile customers

 

4,104

 

4,060

 

44

 

1.1

Bulgaria

Mobile customers

 

4,518

 

4,265

 

253

 

5.9

Othera

Fixed-network lines

Broadband lines

Mobile customers

 

453

258

3,457

 

471

239

3,573

 

(18)

19

           (116)

 

(3.8)

7.9

(3.2)

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


United States operating segment:

 Dec. 31, 2012
thousands
Dec. 31, 2011
thousands
Change
thousands
Change
%
Mobile customers

33,389

33,186

203

0.6

This media release 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 our estimates or expectations 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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