Year-end targets exceeded in 2003 - Dual strategy of debt reduction and profitable growth a success - Net revenue in the first quarter of 2004 increased by 2.7 percent to EUR 14 billion - Organic revenue growth of 7.5 percent - In 2004 Deutsche Telekom intends to increase adjusted EBITDA to at least EUR 19.2 billion and continue its profitable growth.
After the difficult 2002 financial year, Deutsche Telekom is now back on track again, as shown in the 2003 financial statements. "Our dual strategy of debt reduction and promotion of profitable growth has been a success", emphasized Kai-Uwe Ricke, Chairman of the Board of Management of Deutsche Telekom, at this year's Shareholders' Meeting in Cologne. "We set ourselves ambitious financial goals, and we have reached those goals. We have returned to bottom-line profitability", continued Ricke. The Group's debt was reduced considerably, the deleveraging program "6 plus 6" was completed ahead of schedule at the end of the third quarter, all divisions improved their margins and thus significantly increased Group EBITDA. Ricke announced that the company is doing everything in its power to be able to propose payment of a dividend in the coming year. The amount of the potential dividend will depend on the net income recorded in the 2004 financial year.
Year-end targets exceeded Deutsche Telekom reduced its net debt to EUR 46.6 billion last year. Our original target was to reduce this debt to a range between EUR 52.3 and 49.5 billion by the end of 2003. With this result, we have reduced our debt by a total of EUR 17.7 billion following the strategic review in late fall of 2002. The "6 plus 6" deleveraging program generated proceeds of around EUR 6.7 billion from the disposal of non-core assets. Free cash flow was EUR 8.3 billion, over EUR 2 billion higher than the target. Our free cash flow has increased by 70 percent over the previous year. Adjusted EBITDA increased to EUR 18.3 billion, thus also exceeding the target. Originally, a level of between EUR 16.7 and 17.7 billion was planned. This is equivalent to an increase of 12.1 percent over the previous year's figure of EUR 16.3 billion.
A net income of EUR 1.3 billion was recorded in 2003 which, adjusted for special factors, amounted to EUR 0.2 billion. As a result, the 2003 financial year was one of successful consolidation and profitable growth.
2003: A year of profitable growth Net revenue increased by four percent from EUR 53.7 billion to EUR 55.8 billion. Adjusted for the exchange rate trend of the weak U.S. dollar and excluding changes in the consolidated group as well as exchange rate fluctuations, the growth rate was even higher, at 8 percent.
In Cologne Kai-Uwe Ricke emphasized that this revenue increase was achieved even though the challenges posed by the competitive environment in Germany at a time when the economy is weak have grown again. As examples, he mentioned call-by-call and pre-selection in the local network, which resulted in losses of market share and revenue for Deutsche Telekom. Although revenue generated in Germany declined year-on-year by 1.7 percent, the Group as a whole recorded revenue growth. International revenue increased by approximately 15 percent in the year under review.
Divisions hold their own in a fiercely competitive environment T-Com is holding its own in a highly competitive, regulated sector. In response to strong competitive pressure on call charges, access line features were further upgraded. As a result, the share of access charges in total revenue increased further and offset to a considerable extent the decline in call revenues. Broadband is the undisputed driver behind T-Com's growth. The number of installed T-DSL lines in Germany increased by over 40 percent, to four million. With 4.1 million DSL lines, T-Com was Europe's leading broadband access provider at the end of 2003.
T-Mobile significantly increased revenue and profitability. The T-Mobile group's total revenue amounted to EUR 22.8 billion, up 15.4 percent from EUR 19.7 billion in 2002. As a result, T-Mobile now accounts for nearly 40 percent of the Deutsche Telekom Group's net revenue. Adjusted EBITDA grew by 32.4 percent from EUR 5.0 billion to EUR 6.7 billion. The number of customers in all fully consolidated companies increased by 7.2 million to 61.1 million. The U.S. market recorded the strongest growth. 3.2 million new subscribers were gained, and the total subscriber base increased to 13.1 million.
In spite of persistently difficult conditions in the market and competitive environment, developments at T-Systems were positive. Revenue increased by 1.2 percent, to EUR 10.6 billion. Adjusted EBITDA grew by just under 23 percent to EUR 1.4 billion. The large order book of EUR 12.6 billion already exceeds total revenue recorded in 2003.
T-Online's revenue grew by nearly 17 percent in 2003 from EUR 1.6 billion to EUR 1.9 billion. Apart from continuing strong subscriber growth, demand for content and services also increased, as did the time spent online. Adjusted EBITDA quadrupled from EUR 76 million to EUR 310 million.
The first quarter of 2004 - on track
In the first quarter of 2004, Deutsche Telekom recorded organic revenue growth of 7.5 percent. In organic terms, adjusted EBITDA grew by
6.2 percent. Reported net revenue rose by 2.7 percent. Continuing measures to improve efficiency boosted both EBITDA and free cash flow in line with expectations. Reported adjusted Group EBITDA grew by 2.4 percent.
"We have achieved this growth mainly on the basis of our strong international business and in spite of the persistently difficult economic situation in Germany and further intensified competitive pressure in our domestic market", stated Kai-Uwe Ricke, expressing his satisfaction with the results of the first quarter.
Net income adjusted for special factors increased from EUR 113 million to EUR 227 million in the first quarter of 2004. The free cash flow was increased from EUR 2.0 billion in the corresponding quarter of last year to EUR 2.9 billion. As a result, net debt decreased by a further EUR 2 billion since year-end 2003 to EUR 44.6 billion.
T-Mobile recorded net additions of 2.4 million - of which 1.2 million were in the United States alone - having increased the subscriber base to more than 63 million. Reported revenue increased 11.9 percent; excluding exchange rate fluctuations and changes in the consolidated group, it increased by 19.7 percent.
Although, due to the impact of regulatory decisions, T-Com recorded a decline in revenue of 4.7 percent on a like-for-like basis, there was an encouraging improvement in its earning power. Cost cuts contributed around EUR 0.5 billion. The broadband initiative, which was launched at the end of 2003, developed successfully, resulting in a net total of almost 400,000 new T-DSL subscribers in the first quarter. Overall, some 4.5 million customers served by the Group now use T-Com's DSL services; of these, 4.4 million are in Germany.
Despite the effects of the deconsolidations, e.g., Telecash and Siris in France, T-Systems still recorded a slight increase in revenue of 0.3 percent. T-Systems increased its adjusted EBITDA by some 5 percent in spite of strong competitive and cost pressures, and by continuing its efficiency enhancement measures.
In the first quarter, T-Online recorded strong growth in revenue and earning power. Revenue increased by just under 11 percent, to nearly EUR 0.5 billion, as a result of continued strong customer growth.
Ambitious goals once again in 2004 Deutsche Telekom aims to increase adjusted EBITDA to at least EUR 19.2 billion and continue its profitable growth in 2004. At the Shareholders' Meeting, Ricke emphasized that the Group "is still not looking to make acquisitions". Value-enhancing acquisition opportunities will be examined on a case-by-case basis.
Agenda 2004: Six initiatives strengthen cross-divisional cooperation Growth and profitability are to be further increased through cross-divisional cooperation based on existing business potential in the individual divisions, which has already improved considerably. Six top-priority Group-wide initiatives have therefore been launched.
1) The broadband initiative is being driven by the divisions T-Com , T-Online and T-Mobile . The aim is to significantly increase use of the broadband technologies T-DSL, W-LAN and UMTS. Broadband enables fast access to Internet content such as films, music and games.
2) The business customer initiative is another key element of Agenda 2004. Throughout the Group, products and services will be increasingly geared to the needs of business customers, the aim being to further tap the existing potential of small and medium-sized enterprises, for example. Integrated planning of the T-Com and T-Systems divisions will considerably enhance the service provided to customers on site.
3) The human resources initiative supports the profitable growth trend of the Group by reducing personnel costs. In the past year, the Group's personnel service provider, Vivento, laid down the foundations for the efficient management of personnel surpluses. In 2004 the focus will be on setting up and operating new business. A network infrastructure company is expected to begin operations in July. In March, an employment alliance was agreed with the ver.di union, which continues to avoid compulsory redundancies and creates capacity for around 10,000 new positions at DTAG by reducing working hours. Deutsche Telekom will also once again be offering 4,000 training positions in 2004. In return, trainees will also make a solidarity contribution to the employment alliance, e.g. foregoing the Christmas allowance. The best ten percent of the trainees will be offered a job in the Group after completing their training.
4) The innovation initiative focuses on technological innovations in the next 2 to 5 years. Under the motto "4i", the drive aims to achieve intuitive operability, i.e., products and services that are easy to use, intelligent access to the network independently of the product, integrated cross-divisional communications systems, and an ideal infrastructure developed in line with future customer requirements.
5) The quality drive is the fifth Group-wide initiative of Agenda 2004. To enhance quality an ambitious program was launched with the aim
of significantly increasing customer satisfaction. Interfaces between T-Com and T-Online have been improved, for example, making the processing of customer inquiries considerably faster.
6) The efficiency initiative focuses on earnings, free cash flow and capital expenditures as well as improving the Group's balance sheet ratios. Operating working capital is to be improved, e.g., by further streamlining billing processes. The initiative aims at streamlining noncurrent and current assets as well as increasing efficiency, and at the same time, reviewing the options for selling non-core assets.
Medium and long-term focus on strategic growth areas In future, Deutsche Telekom will focus on three strategic business areas under its single brand identity: Broadband, mobile communications and business customers. This further development is based on the existing divisional structure. This strategic focus is intended to generate profitable growth in the future, in line with the requirements of markets and customers.
Kai-Uwe Ricke: "We plan to keep developing our 4-pillar structure in keeping with our Agenda 2004 and our central strategy. This will open up additional growth potential for Deutsche Telekom. By focusing systematically on the three growth areas, we intend to become Europe's fastest growing integrated telecommunications company. We plan to move forward with Deutsche Telekom's internationalization organically and inorganically, but we will do so in an evolutionary way, initially by developing our processes further, and not endangering our operational business with radical reorganization measures. The special challenge now is to approach these central strategic growth areas in a manner that integrates all our divisions and yet is oriented to specific tasks."
The focus remains on Deutsche Telekom's internationalization. This includes acquisitions that have the potential to strengthen the profile of the integrated telecommunications company with the highest growth rates in Europe, which is currently mainly driven by the developments in the United States, the United Kingdom, and Eastern Europe.
According to Ricke, it is imperative that these acquisitions meet return on capital requirements. "This applies especially to Eastern Europe, where we are already very well positioned with our subsidiaries. Taking into account the EU's enlargement towards the east, we are placing a special focus on this region. A particularly good example of a value-enhancing, selective acquisition is our business in Poland, where we already hold a 49-percent-stake in the mobile communications provider PTC. As you know, we submitted an offer to PTC for the acquisition of the remaining 51 percent."