T-Systems: External revenue and earnings grows in third quarter

Nov 08, 2012

  • New reporting logic:
    Internal IT in Germany bills merely costs, no longer margins.
  • Reduced internal revenues put pressure on overall revenue.
  • Adjusted EBIT and adjusted EBIT margin have increased.

In the third quarter of 2012, T-Systems used a new reporting logic for the first time. All internal IT activities in Germany, which had previously been distributed across the Germany, GHS, and T-Systems segments, were pooled within the Systems Solutions operating segment in the Telekom IT unit. As a milestone on the road to an efficient IT function, Telekom IT was launched as a cost center without margin charging as of July 1 of this year. This has a particularly substantial impact on earnings, since earnings attributable to revenues generated within the Group are eliminated. For better comparability, the prior-year figures were adjusted accordingly.

External revenues in the Systems Solutions operating segment increased by 0.8 percent in the third quarter to EUR 1.6 billion. Revenue development is negatively impacted by persistently high competitive and price pressure in the industry. As far as internal revenues are concerned, T-Systems aims to scale back Telekom IT revenue for the long term because this type of income translates directly into IT costs for the Deutsche Telekom Group. Seasonal effects in the project business and cost-cutting measures meant that Telekom IT's revenues decreased substantially. Total revenue in the Systems Solutions segment decreased by 10.7 percent in the third quarter to EUR 2.2 billion. The segment's adjusted EBIT margin stood at 1.2 percent in the past quarter, compared with -0.1 percent on a like-for-like basis in the third quarter of 2011. For the first nine months of 2012, this profitability indicator amounted to 0.6 percent, compared with -0.4 percent between January and September 2011.

Order entry declined by 5.8 percent compared with the prior-year quarter to EUR 1.6 billion.This reflects the ongoing trend towards smaller, cloud-based deals where the calculation of volumes is based on minimum purchase quantities. Contracts signed with the Catalan government, the chemicals company Clariant, and the oil company BP were some of the largest deals in the third quarter of 2012.

Systems Solutions operating segment*:

 

Q3 2012

millions of EUR

Q3 2011

millions of EUR

Change

%

Q1-Q3 2012

millions of EUR

Q1-Q3 2011

millions of EUR

Change

%

FY 2011 millions of EUR
Total revenue2,2452,513(10.7)7,1877,259(1.0)9,953
Net revenue1,6001,5870.84,8384,841(0.1)6,567
Order entry1,6141,713(5.8)5,1155,468(6.5)7,396
EBIT(39)(118)66.9(239)(228)(4.8)(290)
Adjusted EBIT27(2)n.a.43(31)n.a.23
Adjusted EBIT margin1.2%(0.1%)1.3p0.6%(0.4%)1.0p0.2%
EBITDA11949n.a.225265(15.1)379
Adjusted EBITDA18515519.450745212.2672
Adjusted EBITDA margin8.2%6.2%2.0p7.1%6.2%0.9p6.8%
Number of employees
(average)
52,81652,2481.152,65952,2500.852,241

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.

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. They should therefore be considered 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, 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.

SafeHarborStatement

Additional Information and Where to Find It

This document also relates to a proposed transaction between MetroPCS Communications, Inc.("MetroPCS") and Deutsche Telekom AG ("Deutsche Telekom") in connection with T-Mobile USA, Inc.("T-Mobile"). The proposed transaction will become the subject of a proxy statement to be filed by MetroPCS with the Securities and Exchange Commission (the "SEC"). This document is not a substitute for the proxy statement or any other document that MetroPCS may file with the SEC or send to its stockholders in connection with the proposed transaction. MetroPCS' investors and security holders are urged to read the proxy statement (including all amendments and supplements thereto) and all other relevant documents regarding the proposed transaction filed with the SEC or sent to MetroPCS' stockholders as they become available, because they will contain important information about the proposed transaction. All documents, when filed, will be available free of charge at the SEC's website (www.sec.gov). You may also obtain these documents by contacting MetroPCS' Investor Relations department at +1 (214) 570-4641, or via e-mail at investor_relations@metropcs.com. This communication does not constitute a solicitation of any vote or approval.

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This document includes "forward-looking statements" for the purpose of the "safe harbor" provisions within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Any statements made in this document that are not statements of historical fact, including statements about our beliefs, opinions, projections, and expectations, are forward-looking statements and should be evaluated as such. These forward-looking statements often include words such as "anticipate," "expect," "suggests," "plan," "believe," "intend," "estimates," "targets," "views," "projects," "should," "would," "could," "may," "become," "forecast," and other similar expressions.

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The forward-looking statements speak only as to the date made, are based on current assumptions and expectations, and are subject to the factors above, among others, and involve risks, uncertainties, and assumptions, many of which are beyond our ability to control or ability to predict. Neither MetroPCS' investors and security holders nor any other person should place undue reliance on these forward-looking statements. Neither MetroPCS, Deutsche Telekom, nor any other party undertake any duty to update any forward-looking statement to reflect events after the date of this document, except as required by law.

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