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Deutsche Telekom invests at record level in 2016 and continues growth course

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  • Net revenue up 5.6 percent to 73.1 billion euros
  • Adjusted EBITDA up 7.6 percent to 21.4 billion euros
  • Free cash flow up 8.6 percent on 2015 to 4.9 billion euros
  • Financial targets for 2016 achieved, some exceeded
  • Dividend to increase to 60 eurocents per share
  • Success story continues at T-Mobile US
  • Earnings stable in Germany

2016 was a successful financial year for Deutsche Telekom. The Group increased its revenue by 5.6 percent year-on-year, driven by the strong U.S. business, to 73.1 billion euros. At the same time, adjusted EBITDA grew 7.6 percent to 21.4 billion euros.

Free cash flow reached 4.9 billion euros in 2016, 8.6 percent more than in the previous year. Thus, the Group achieved its guidance for the financial year and in some cases even exceeded it.

"Once again, we have reliably delivered on our promises," said Tim Höttges, CEO of Deutsche Telekom. "The basis of our strong growth remains the high investment in our networks."

The high level of 2015 was raised even further in the past year. Cash capex excluding expenses for mobile spectrum rose by 1.3 percent to 11.0 billion euros for the first time.

Adjusted net profit of 4.1 billion euros remained stable against the prior year. On a reported basis, i.e., including special factors, it declined by 17.8 percent or some 0.6 billion euros to 2.7 billion euros. This net decline for the full year is primarily attributable to the year-on-year increase in extraordinary expenses for workforce restructuring by around 0.4 billion euros to 1.6 billion euros.

The main negative effect on net profit came from a write-down in the fourth quarter on the financial stake of 12 percent in the BT Group, mainly as a result of declines in the BT share price and in the pound sterling following the Brexit referendum. These two factors resulted in an impairment loss of 2.2 billion euros, which had a negative impact on net profit in the fourth quarter. The impairment loss does not affect cash flow and impacts neither on the guidance KPIs nor on Deutsche Telekom's ability to pay out dividends. The acceptance of the BT shares in return for the stake in the British mobile company EE in the first quarter of 2016 had a positive special effect on net profit of around 2.5 billion euros. Thus the overall effect on net profit for the full year from the transaction with BT was positive, at around 0.3 billion euros.

Based on the results achieved, the Board of Management and Supervisory Board will propose to the shareholders’ meeting on May 31 a 5-eurocent increase in the dividend to 60 eurocents per share. The proposal follows the Group's shareholder remuneration policy, which aims to increase the dividend in line with the increase in free cash flow.

Germany – Record growth in fiber-optic lines

2016 was a very special year for Deutsche Telekom's broadband business in Germany: The company achieved its highest ever sales of fiber-optic-based lines (FTTH, FTTC, vectoring), with 674,000 net additions in the fourth quarter. The number of fiber-optic lines increased by 2.4 million year-on-year – up 56 percent compared with the end of 2015.

The build-out of the network and sales initiatives like the "Test the best" offer, including a year of Entertain, had a clear positive effect on broadband sales, with growth in net adds accelerating to 87,000 in the fourth quarter.

In the German mobile business, Deutsche Telekom consolidated its position as market leader in the final quarter of 2016. Market share of service revenue remained stable over the year as a whole. The data volume used by Deutsche Telekom consumers with mobile contracts increased by 78 percent compared with the fourth quarter of the prior year. Clear proof that customers are making use of the outstanding network quality that has been confirmed by numerous independent tests.

The strong networks also had a positive impact on sales of the MagentaEINS package offers. By the end of 2016, the number of MagentaEINS customers rose to three million, thereby reaching the target level the company had actually only set for itself for 2018.

In 2016, Deutsche Telekom generated revenue of 22.0 billion euros in the Germany segment. This year-on-year decline of 1.7 percent is primarily due to lower mobile terminal equipment revenue and the ongoing decline in traditional telephone business (single play). The growth in Deutsche Telekom's broadband business was not yet quite enough to compensate for this. Excluding the terminal equipment business, revenue in the Germany segment remained more or less stable.

Adjusted EBITDA remained on a par with the 2015 level in the reporting year at 8.8 billion euros. This puts the EBITDA margin at 39.9 percent for the full year 2016.

United States – Un-carrier outstrips the competition

For T-Mobile US, the last year was marked by unabated growth in all key figures. The star on the U.S. mobile market set the bar for growth in customer numbers as well as in revenue and earnings, leaving competitors well behind in each of these categories.

In 2016, T-Mobile US increased its total number of customers by 8.2 million to 71.5 million. Between October and December alone, the company won another 2.1 million customers, 1.2 million of them branded postpaid customers. For the full year 2016, T-Mobile US recorded 4.1 million branded postpaid net adds. And this boom is set to continue. The guidance for 2017 is for 2.4 to 3.4 million net adds in this lucrative segment. This success is clearly down to the systematic network build-out and the innovative Un-carrier initiatives for rate plans and offers.

The rising customer numbers are also reflected in revenue and earnings. Revenue increased by 16.3 percent in 2016 to 37.3 billion U.S. dollars. Adjusted EBITDA increased by 28.7 percent to 9.5 billion U.S. dollars.

Europe – Focus on networks

In 2016, network build-out and network upgrade were priorities for the European subsidiaries. Network coverage with the mobile communications standard LTE increased over the last 12 months to 109 million people, which is 84 percent of the population or 13 percentage points more than a year earlier. Around 60 percent of all lines in the fixed network have now been migrated to IP technology. Apart from a few remaining lines, Hungary completed the IP conversion on schedule in 2016, the fifth national company to do so.

The product packages of fixed-network and mobile communications are flourishing on the market. In the integrated national companies of our Europe operating segment, more than 1.4 million customers are using corresponding offers, that is 56 percent more than a year earlier. The number of broadband lines reached 5.6 million. 4.05 million customers are using the various TV offers, up 3.7 percent on the previous year.

Revenue in the Europe operating segment declined 2.1 percent year-on-year to 12.7 billion euros. Net of currency effects and changes in the composition of the Group, it declined by just 0.5 percent. Adjusted EBITDA declined by 5.4 percent to 4.1 billion euros, primarily owing to the decision in favor of higher market investments in order to use the momentum from increased network coverage and the MagentaONE offers to win customers in the fourth quarter.

Systems Solutions – Decline due to provisions for risk in the statement of financial position

In the Market Unit, i.e., in business with the Group's external business customers, T-Systems recorded order entry of 6.6 billion euros for the full year – up 17.8 percent compared with the prior year. This also included two high-volume contract extensions with the corporate customers Deutsche Post DHL and Shell in the fourth quarter. Revenue in the Market Unit totaled 6.5 billion euros in 2016, a slight decline of 2.9 percent compared with the full year 2015. A necessary provision for risk recognized in the fourth quarter had a negative impact on revenue and earnings for the full year 2016. This provision was necessary on account of a small number of legacy contracts. T-Systems has already taken measures to optimize the profitability of these outsourcing arrangements.

The Market Unit's key earnings indicators also fell as a result. Adjusted EBITDA declined by 21.4 percent to 530 million euros, whereas adjusted EBIT for 2016 decreased to 127 million euros. This also resulted in the negative development of the adjusted EBIT margin from 2.6 percent in 2015 to 2.0 percent. These developments took place against the background of declining price trends in the market and technology environment, the migration of business customer networks to all IP, and the aforementioned provision for risk in the fourth quarter.

The Deutsche Telekom Group at a glance:

 

 

Q4 2016

millions of €

Q4 2015

millions of €

Change

%

FY 2016

millions of €

FY 2015

millions of €

Change

%

Revenue

19,543

17,859

9.4

73,095

69,228

5.6

Proportion generated internationally (%)

67.6

64.3

3.3p

66.3

63.8

2.5p

EBITDA

4,846

5,113

(5.2)

22,544

18,388

22.6

Adjusted EBITDA

5,265

5,143

2.4

21,420

19,908

7.6

Net profit

(2,124)

946

n.a.

2,675

3,254

(17.8)

Adjusted net profit

973

959

1.5

4,114

4,113

0.0

Free cash flowa

893

998

(10.5)

4,939

4,546

8.6

Cash capexb

3,156

3,041

3.8

13,640

14,613

(6.7)

Cash capexb

(before spectrum)

2,724

3,015

(9.7)

10,958

10,818

1.3

Net debt

49,959

47,570

5.0

49,959

47,570

5.0

Number of employeesc

218,341

225,243

(3.1)

218,341

225,243

(3.1)

Comments on the table:
a  Before dividend payments and spectrum investment.
b  Cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill).
c  At the reporting date.

Operating segments:

 

 

Q4 2016

millions of €

Q4 2015

millions of €

Change

%

FY 2016

millions of €

FY 2015

millions of €

Change

%

Germany

 

 

 

 

 

 

Total revenue

5,632

5,659

(0.5)

22,041

22,421

(1.7)

EBITDA

1,895

1,872

1.2

7,890

8,245

(4.3)

Adjusted EBITDA

2,145

2,086

2.8

8,800

8,790

0.1

Number of employeesa

66,142

68,638

(3.6)

66,142

68,638

(3.6)

United States

 

 

 

 

 

 

Total revenue

9,445

7,518

25.6

33,738

28,925

16.6

EBITDA

2,335

2,069

12.9

8,967

6,229

44.0

Adjusted EBITDA

2,325

2,075

12.0

8,561

6,654

28.7

Europe

 

 

 

 

 

 

Total revenue

3,338

3,397

(1.7)

12,747

13,024

(2.1)

EBITDA

908

1,022

(11.2)

3,963

4,108

(3.5)

Adjusted EBITDA

970

1,075

(9.8)

4,094

4,329

(5.4)

Systems Solutions

 

 

 

 

 

 

Order entry

2,458

1,924

27.8

6,605

5,608

17.8

Total revenue

1,978

2,163

(8.6)

7,907

8,194

(3.5)

     Of which

     Market Unit

1,597

1,724

(7.4)

6,463

6,657

(2.9)

Adjusted EBIT margin (%)

(4.0)

3.7

(7.7p)

0.4

2.1

(1.7p)

Adj. EBIT margin, Market Unit (%)

(1.6)

4.5

(6.1p)

2.0

2.6

(0.6p)

EBITDA

(37)

4

n.a.

245

93

n.a.

Adjusted EBITDA

60

216

(72.2)

582

740

(21.4)

Comments on the table:
Business customer operations at Magyar Telekom in Hungary, which had previously been organizationally assigned to the Systems Solutions operating segment, have been bundled and reported under the Europe operating segment since January 1, 2016. Comparative figures have been adjusted retrospectively.
a  At the reporting date.

Operating segments: development of customer numbers in the fourth quarter of 2016

 

Dec. 31, 2016

thousands

Sept. 30, 2016

thousands

Change

thousands

Change

%

Germany

 

 

 

 

Mobile customers

41,849

41,461

388

0.9

Of which contract customers

25,219

24,705

514

2.1

Fixed-network lines

19,786

19,873

(87)

(0.4)

Of which retail IP-based

9,042

8,435

607

7.2

Broadband lines

12,922

12,835

87

0.7

Of which optical fibera

4,250

3,857

393

10.2

Television (IPTV, satellite)

2,879

2,818

61

2.2

Unbundled local loop lines (ULLs)

7,195

7,431

(236)

(3.2)

United States

 

 

 

 

Mobile customers

71,455

69,354

2,101

3.0

Of which branded postpaid customers

34,427

33,230

1,197

3.6

Of which branded prepay customers

19,813

19,272

541

2.8

Europe

 

 

 

 

Mobile customers

51,699

52,211

(512)

(1.0)

Of which contract customers

27,297

26,916

381

1.4

Fixed-network linesb

8,695

8,599

96

1.1

Of which IP-based

5,180

4,757

423

8.9

Retail broadband linesb

5,557

5,352

205

3.8

Television (IPTV, satellite, cable)

4,049

4,010

39

1.0

Comments on the table:
Business customer operations at Magyar Telekom in Hungary, which had previously been organizationally assigned to the Systems Solutions operating segment, have been bundled and reported under the Europe operating segment since January 1, 2016. Comparative figures have been adjusted retrospectively.
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b In the fourth quarter of 2016, the number of fixed-network and broadband lines in the Netherlands grew as a result of the acquisition of Vodafone's fixed-network consumer business.

Operating segments: development of customer numbers in year-on-year comparison

 

Dec. 31, 2016

thousands

Dec. 31, 2015

thousands

Change

thousands

Change

%

Germany

 

 

 

 

Mobile customers

41,849

40,373

1,476

3.7

Of which contract customers

25,219

23,709

1,510

6.4

Fixed-network lines

19,786

20,227

(441)

(2.2)

Of which retail IP-based

9,042

6,887

2,155

31.3

Broadband lines

12,922

12,644

278

2.2

Of which optical fibera

4,250

2,923

1,327

45.4

Television (IPTV, satellite)

2,879

2,683

196

7.3

Unbundled local loop lines (ULLs)

7,195

8,050

(855)

(10.6)

United States

 

 

 

 

Mobile customers

71,455

63,282

8,173

12.9

Of which branded postpaid customers

34,427

31,695

2,732

8.6

Of which branded prepay customers

19,813

17,631

2,182

12.4

Europe

 

 

 

 

Mobile customers

51,699

52,737

(1,038)

(2.0)

Of which contract customers

27,297

26,456

841

3.2

Fixed-network linesb

8,695

8,763

(68)

(0.8)

Of which IP-based

5,180

4,132

1,048

25.4

Retail broadband linesb

5,557

5,189

368

7.1

Television (IPTV, satellite, cable)

4,049

3,905

144

3.7

Comments on the table:
Business customer operations at Magyar Telekom in Hungary, which had previously been organizationally assigned to the Systems Solutions operating segment, have been bundled and reported under the Europe operating segment since January 1, 2016. Comparative figures have been adjusted retrospectively.
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b In the fourth quarter of 2016, the number of fixed-network and broadband lines in the Netherlands grew as a result of the acquisition of Vodafone's fixed-network consumer business.

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 Deutsche Telekom's ability to achieve its objectives are the progress of its staff restructuring initiatives and other cost-saving measures, and the impact of other significant strategic, labor, or business initiatives, including acquisitions, dispositions, business combinations, and network upgrade and build-out initiatives. In addition, stronger than expected competition, technological change, legal proceedings, and regulatory developments, among other factors, may have a material adverse effect on cost and revenue development. Further, an economic downturn in the markets, and changes in interest and currency exchange rates, may also have an impact on Deutsche Telekom's business development and the availability of financing on favorable conditions. Changes to Deutsche Telekom's expectations concerning future cash flows may lead to impairment write downs of assets carried at historical cost, which may materially affect the 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, the actual performance may materially differ from the performance expressed or implied by forward-looking statements. There is no assurance that the estimates or expectations will be achieved. Without prejudice to existing obligations under capital market law, Deutsche Telekom does 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 alternative performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net profit, free cash flow, gross debt, and net debt. Alternative performance measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Alternative performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.

About Deutsche Telekom: https://www.telekom.com/companyprofile

Note: Updated on 3/3/2017

Presse conference annual figures 2016

Financial figures of 2016

Media kit concerning the financial figures of 2016.

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