- Improved revenue trend in continuing operations over course of year
- Adjusted EBITDA down by 6.5 percent to EUR 4.7 billion, continuing operations down by 2.6 percent
- Adjusted net profit up by 17 percent to EUR 951 million
- Free cash flow 19 percent higher than prior-year figure at EUR 1.8 billion
- Forecast confirmed for full year 2011
- Margin increases to over 40 percent for business in Germany
- Positive revenue and margin trends in Europe compared with first quarter
- IPTV grows by 42 percent in Europe
- Broadband lines overtake traditional telephone lines in Germany for first time
Deutsche Telekom’s financial figures for the second quarter of 2011 are characterized by significantly improved trends in a number of operational areas and a 17-percent increase in adjusted net profit, causing the adjusted EBITDA margin to rise to over 40 percent. Key figures improved in many European countries compared with the first quarter despite a persistently tough economic environment. In other areas, challenges remain. This is particularly true in the United States.
Net revenue in the second quarter decreased by 6.8 percent year-on-year to EUR 14.5 billion. Looking at continuing operations only (that is, excluding the United States), net revenue fell by 3.3 percent. On a like-for-like basis (i.e., excluding T-Mobile UK), the drop in revenue back in the first quarter amounted to 3.7 percent. Adjusted EBITDA for the Group as a whole fell by 6.5 percent to EUR 4.7 billion. The decrease in continuing operations was 2.6 percent.
The development of adjusted net profit was positive, increasing by 16.8 percent in the second quarter of 2011 compared with the same period last year to EUR 951 million. Negative special factors came to almost EUR 0.3 billion more than in the same period last year, particularly as a consequence of the costs of staff reorganization, resulting in an unadjusted decrease of 26.7 percent to EUR 348 million. The Group recorded an 18.7-percent increase in free cash flow to EUR 1.8 billion.
"Although these figures are not a cause for celebration, they still give us reason to be confident that we will achieve our targets in a persistently difficult environment," said René Obermann, CEO of Deutsche Telekom. "We are now also seeing light at the end of the tunnel in Southeastern Europe.“
Once again, the mobile Internet proved to be a growth driver, with revenues in this area increasing by 13 percent to EUR 1.2 billion. The constant growth in the use of smartphones contributed to this increase. Smartphones now account for 46 percent of all devices sold by the European national companies com-pared with 21 percent one year before. There was also a significant increase in the number of smartphones in the T-Mobile USA network, up by over 50 percent to almost 10 million within a year.
Deutsche Telekom confirms its targets for the full year. Expectations for adjusted EBITDA from continuing operations remain unchanged at approximately EUR 14.9 billion. The forecast for the United States remains around USD 5.5 billion, which equates to approximately EUR 4.2 billion based on an exchange rate of USD 1.33 dollars to the euro. The company expects at least EUR 6.5 billion in free cash flow.
Germany – increase in profitability The second quarter of 2011 marks an historic period for Deutsche Telekom in its domestic market, with the number of broadband lines overtaking the number of conventional telephone lines for the first time. There was good news on many fronts in the development of the number of fixed-network customers: at 295,000, line losses were at an all-time low during the quarter. Deutsche Telekom retained its share of the broadband market, at around 46 percent. The number of users connected to the Internet-based TV service Entertain increased by 34 percent to 1.3 million within a year.
In the growth area of mobile Internet, revenue increased by over 30 percent year-on-year to EUR 409 million, due in large part to the growth in the use of smartphones. Smartphones now account for more than 60 percent of all devices sold, a year-on-year increase of 30 percent.
Revenue in the Germany segment fell by 3.4 percent to EUR 6 billion com-pared to the second quarter of 2010. When adjusted for the reduction in mo-bile termination charges and the discontinuation of business with prepaid mobile communications cards of other carriers, the decrease is reduced to 2 percent. Service revenues in mobile communications declined by 3.4 percent to EUR 1.7 billion. If the impact of the regulatory decision to drastically cut termination charges is eliminated, service revenues remained at the prior-year level.
In adjusted EBITDA, strict cost discipline compensated for the decline in revenue. At EUR 2.4 billion, the figure for the second quarter of 2011 was at the level of the same quarter of the prior year. This resulted in an adjusted EBITDA margin of over 40 percent for the first time ever. At 40.7 percent, the margin was up 1.4 percentage points on the prior-year figure.
Europe – improved quarter-on-quarter trends The national companies combined within the Europe operating segment recorded in some cases significantly improved revenue and earnings trends compared with the first quarter of 2011. Total revenue fell by 5.5 percent to EUR 3.8 billion compared with the same quarter in 2010. The decrease in the first quarter, adjusted to take into account the deconsolidation of T-Mobile UK, had still amounted to 8 percent. The situation is similar for adjusted EBITDA, which fell by 8 percent year-on-year in the second quarter, while the decrease in the first quarter of this year had still stood at 13 percent.
Many national companies again proved their robustness in terms of profitability. The best performers were Croatia, with an adjusted EBITDA margin of 45.4 percent, and the Magyar Telekom Group, with a margin of 43.9 percent, adjusted for the influence of the special tax in Hungary. A margin of 38.9 percent was achieved for mobile business in Poland, where the T-Mobile brand was launched in the second quarter in a nationwide campaign.
The economic situation in Greece and Romania remains difficult and continues to put noticeable strain on the business of the OTE Group, where revenue and earnings have fallen significantly. Regardless of this fact, some positive trends have emerged in the Greek mobile business. Adjusted EBITDA stabilized and the churn rate was significantly reduced. All in all, the OTE Group's earnings remained largely stable despite the difficult economic environment, with an adjusted EBITDA margin of 33.4 percent.
Growth trends continued apace on the future markets within the Europe segment. At 26.6 million, the number of mobile contract customers was 3 percent above the level for the same quarter last year. The number of broadband lines climbed 10 percent to 4.75 million. A year-on-year increase of as much as 42 percent was achieved for Internet-based television.
Systems Solutions – new international contracts As in the first quarter, start-up costs for the major deals secured last year had a noticeable effect on T-Systems’ figures. As such, the adjusted EBIT margin totaled 2 percent in the second quarter, down from 3.4 percent the previous year. However, the margin had improved compared with the first quarter of 2011 when it totaled 1.3 percent.
Revenue increased by 1.5 percent to EUR 2.3 billion. External revenue growth stood at 1.7 percent while there was a disproportionately significant increase of 3.1 percent in international revenues. The corporate customer segment recorded a 14.7 percent decrease in adjusted EBITDA to EUR 0.2 billion, due primarily to the aforementioned start-up costs.
An important foundation for future revenues is the number of new contracts, and T-Systems concluded major new contracts in the second quarter as well, including agreements with Swiss trading company Valora, automotive supplier Magna, and oil and gas company Total. The number of new orders increased by 4.1 percent in the first half-year. In a comparison of the second quarters, however, it fell by 11 percent. This was due in part to the conclusion of a particularly big deal with Deutsche Post DHL in the second quarter of the prior year and in part to the focus on the execution of big deals and quality assurance.
International analyst firm IDC sees T-Systems in a leading market position when it comes to private cloud services in Europe. According to IDC, the Deutsche Telekom subsidiary has built up a competitive edge for itself by entering the market early on. In simple terms, private clouds are cloud-based applications used on a shared basis by employees of a single company.
United States (discontinued operation since first quarter of 2011) – data business remains on track The number of T-Mobile USA customers fell by 50,000 to 33.6 million in the second quarter of 2011. The drop in customer numbers had still stood at 99,000 in the previous quarter, while a decrease of 93,000 customers had been recorded in the second quarter of 2010. The contract-customer situation remains unsatisfactory, with the churn rate remaining at 2.4 percent.
The growth trend for mobile data revenues is remaining steady, with average data revenue per customer having reached USD 13.60, USD 2 more than one year ago.
As a result of the weaker year-on-year performance of the US dollar against the euro, a different picture emerges for the financial figures depending on the currency under consideration. While there was a 16.2 percent decrease in year-on-year revenue measured in euros to EUR 3.5 billion, the decrease is just 5.1 percent when measured in dollars. Adjusted EBITDA declined by 20.4 percent to EUR 0.9 billion. Measured in dollars, adjusted EBITDA declined by 9.9 percent.
T-Mobile USA’s high-speed HSPA+ network now supplies over 200 million people in the United States. Over 170 million of them can already use the version with a download speed of up to 42 Mbit/s.
Pro-forma figures adjusted for the deconsolidation of T‑Mobile UK as of April 1, 2010. In the United Kingdom, the former T-Mobile UK became part of the joint venture with France Télécom's subsidiary Orange UK called Everything Everywhere effective April 1, 2010. In the following table, revenue, adjusted EBITDA, and adjusted and unadjusted net profit for the first half of 2010 are presented both including and excluding T-Mobile UK to improve the transparency of the development of operations in both years. This presentation is a supplement to the table showing the actual figures.
Comments on the table:
The first half of 2010 has been adjusted to eliminate the revenue and earnings contribution of T-Mobile UK to adjusted EBITDA, net profit, and adjusted net profit. No adjustments are necessary for the second quarter of 2010, as the figures are already comparable with the second quarter of 2011 on a reported basis.
The Deutsche Telekom Group at a glance*: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Comments on the table:
* Deutsche Telekom defines EBITDA as profit/loss from operations before depreciation, amortization and impairment losses.
a Before dividend payments, spectrum investment and PTC transaction.
b Cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill).
Germanyoperating segment*:
Europeoperating segment*:
Comments on the table: The figures for the national companies generally correspond to their respective unconsolidated financial statements and do not take consolidation effects at operating segment level into consideration.
a Deconsolidation of T-Mobile UK effective April 1, 2010.
b Other: national companies of Bulgaria, Albania, the F.Y.R.O. Macedonia, and Montenegro, as well as ICSS, Europe Headquarters, and, up to and including May 2010, Deutsche Telekom International UK (formerly T-Mobile International UK).
United Statesoperating segment*: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Systems Solutions operating segment*:
Comments on the table:
a Non-core activities and consolidation.
Group Headquarters & Shared Services*:
* Deutsche Telekom defines EBITDA as profit/loss from operations before depreciation, amortization and impairment losses.
Development of customer numbers in the second quarter of 2011.
Germanyoperating segment:
Comments 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:
Comments on the table:
a For better comparability, the customers of T-Mobile UK, who were transferred to the Everything Everywhere joint venture as of April 1, 2010, following the merger of T-Mobile UK and Orange UK, were subtracted from all historical customer figures.
b With effect from January 1, 2011, the business customer base was reclassified and divided between the Europe and Systems Solutions operating segments. As part of this process, mobile customers and the fixed-network lines of corporate customers in Hungary were reassigned to T-Systems.
c Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro.
United Statesoperating segment: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Comments on the table:
a One mobile communications card corresponds to one customer.
Net additions in the second quarter of 2011. Germanyoperating segment:
Comments 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:
Comments on the table: a For better comparability, the customers of T-Mobile UK, who were transferred to the Everything Everywhere joint venture as of April 1, 2010, following the merger of T-Mobile UK and Orange UK, were subtracted from all historical customer figures.
b With effect from January 1, 2011, the business customer base was reclassified and divided between the Europe and Systems Solutions operating segments. As part of this process, mobile customers and the fixed-network lines of corporate customers in Hungary were reassigned to T-Systems.
c Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro.
United Statesoperating segment: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Comments 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, 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.