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Deutsche Telekom records jump in profit in the third quarter

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  • Net profit up by almost 60 percent to more than 800 million euros, adjusted net profit up by 30 percent
  • Revenue up 9.3 percent to 17.1 billion euros
  • Adjusted EBITDA up 12.9 percent to 5.2 billion euros
  • Free cash flow increased 16.3 percent on prior-year figure to 1.3 billion euros
  • Strong growth in number of fiber-optic customers in Germany and mobile customers in the United States

Deutsche Telekom's performance in the third quarter of 2015 was dominated by double-digit growth rates in the most important financial indicators. Net profit increased by 59.9 percent to 809 million euros compared with the same period in the prior year. Adjusted for special factors, net profit increased by 30 percent to 1.0 billion euros.

Adjusted EBITDA also recorded substantial growth, increasing by 12.9 percent to 5.2 billion euros. At the same time, net revenue increased by 9.3 percent to 17.1 billion euros. Revenue growth was somewhat lower than in the previous quarters due to the effects of the new terminal equipment lease model in the United States. On an organic basis, i.e., adjusted for exchange rate effects and changes in the composition of the Group, revenue increased by 2.2 percent and adjusted EBITDA by 8.1 percent in the third quarter.

"We are resolutely forging ahead with our strategy," explained Tim Höttges, CEO of Deutsche Telekom. "High investments in broadband roll-out and connectivity remain the basis for growth."

The Group invested 2.7 billion euros in the third quarter of 2015, which in terms of cash capex excluding mobile spectrum expenses is 8.2 percent more than the previous year. Despite the high capital expenditure, free cash flow also increased substantially, by 16.3 percent to 1.3 billion euros. This made a significant contribution to reducing net debt from 48.8 billion euros to 47.8 billion euros in just three months.

Deutsche Telekom confirms its guidance for the full year 2015. Based on a constant exchange rate compared with 2014 of USD 1.33 per euro, adjusted EBITDA is expected to reach around 18.3 billion euros and free cash flow around 4.3 billion euros.

Germany – Continued strong growth in fiber-optic lines

Deutsche Telekom once again recorded significant growth in a key innovation market in Germany in the third quarter: The number of customers using fiber-optic broadband lines (VDSL and FTTH) increased by another 425,000 (retail and wholesale).

The continuous growth in this forward-looking market segment is the result of a systematic network build-out. In the third quarter of 2015, fiber-optic broadband went on sale for another 600,000 households. As of the end of the reporting quarter, the number of fiber-optic lines stood at 3.84 million – up 75 percent in just one year.

The number of branded broadband customers climbed by 78,000 in the third quarter. Deutsche Telekom's revenue from broadband business is gradually gaining momentum, growing by 0.9 percent in the third quarter. Another component of the growth trend in broadband business is hybrid lines, in which Deutsche Telekom bundles the potential offered by the fixed network technology DSL and the mobile technology LTE. In the third quarter of 2015, the net number of these lines increased by 51,000 to a total of 109,000. In the traditional fixed-network business, Deutsche Telekom lost a net total of 83,000 lines, the lowest value since recording of the trend began eleven years ago.

In the mobile business, Deutsche Telekom remains the clear market leader in terms of service revenues in Germany, with a decrease of 0.4 percent. Deutsche Telekom promoted the trend in mobile broadband communication among other initiatives by further rolling out its LTE network. The network now covers 87 percent of the population in Germany. In the same quarter of 2014, network coverage stood at just 79 percent.

Total revenue in the Germany segment increased by 0.1 percent year-on-year to 5.6 billion euros in the third quarter of 2015 compared with the prior-year quarter. Adjusted EBITDA fell by 2.4 percent to 2.3 billion euros, giving an EBITDA margin of 40.8 percent.

United States – Customer forecast raised again

T-Mobile US increased its forecast for the number of new branded postpaid customers in 2015 for the third time this year. The company now expects between 3.8 million and 4.2 million new customers in this segment. 1.1 million net additions were recorded in the third quarter. The total number of customers increased by 2.3 million to 61.2 million between July and September.

This clear customer growth is increasingly reflected in the key financial figures. Adjusted EBITDA increased by more than 40 percent year-on-year in the third quarter of 2015 to 1.9 billion U.S. dollars. Total revenue increased by 6.7 percent to 7.8 billion U.S. dollars. This growth was weaker due to the effect of terminal equipment being leased under the new JUMP! On Demand business model. As part of this model, revenue is spread over the term of the contract instead of being recognized in full on its conclusion, as under the previous contract model.

T-Mobile US continues to engage very successfully in new initiatives of the Un-carrier strategy while at the same time rapidly building out the network. The company achieved its annual target of population coverage of 300 million people with LTE technology in the third quarter, months earlier than planned.

Europe – Network modernization continued

The importance of the growth areas in the European national companies continues to rise. The share of revenue from this business, which includes, among other areas, mobile Internet and television, reached 29 percent in the third quarter, up 4 percentage points year-on-year. The number of TV customers in the Europe segment increased to more than 3.8 million. More than 400,000 of them are in Greece, where the broadcasting rights to the UEFA Champions League makes the offering particularly attractive.

The modernization of the networks is in full swing. In the fixed network, 45 percent of lines are now IP-based, 10 percentage points more than at the same point in 2014. In mobile communications, network coverage with the LTE standard continues to grow, up from 42 percent a year ago to now 65 percent.

The financial indicators of the Europe operating segment decreased slightly. Revenue in the third quarter stood at 3.2 billion euros. That is 3.6 percent less than a year earlier. At the same time, adjusted EBITDA declined by 3.0 percent to 1.1 billion euros.

Systems Solutions – Growth in revenue

In persistently intense competition, T-Systems succeeded in increasing revenue from corporate customers in the third quarter of 2015. In the Market Unit, which mainly comprises business with external customers, revenue increased by 4.6 percent year-on-year to 1.8 billion euros. Adjusted for exchange rate effects, the growth rate was 3.3 percent. In the growth area of the cloud, revenues increased by 27 percent in the third quarter to around 260 million euros.

Earnings declined moderately. Adjusted EBIT in the Market Unit fell by 8 million euros compared with the third quarter of 2014 to 48 million euros. This resulted in an adjusted EBIT margin of 2.7 percent, compared with 3.4 percent in the previous year. For the first nine months of the year, the adjusted EBIT margin was 2.3 percent, after 0.9 percent in the prior-year period.

The Deutsche Telekom Group at a glance:

 

 

Q 3
2015
millions of
Q 3
2014
millions of
Change
%
Q1-Q3
2015
millions of
Q1-Q3
2014
millions of
Change
%
FY 2014
millions of
Revenue

17,099

15,648

9.3

51,369

45,656

12.5

62,658

Proportion generated internationally (%)

63.6

60.3

3.3p

63.6

59.5

 4.1p

60.1

EBITDA

4,581

4,007

14.3

13,275

14,062

(5.6)

17,821

Adjusted EBITDA

5,165

4,575

12.9

14,765

13,125

12.5

17,569

Net profit

809

506

59.9

2,308

3,034

(23.9)

2,924

Adjusted net profit

1,040

800

30.0

3,154

2,023

55.9

2,422

Free cash flowa

1,308

1,125

16.3

3,548

3,157

12.4

4,140

Cash capexb

2,813

2,584

8.9

11,572

8,727

32.6

11,844

Cash capexb

(before spectrum)

2,698

2,493

8.2

7,803

6,755

15.5

9,534

Net debt

47,868

41,809

14.5

47,868

41,809

14.5

42,500

Number of employeesc

226,325

228,588

(1.0)

226,325

228,588

(1.0)

227,811

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 reporting date.

Operating segments:

 
 
Q 3 2015
millions of
Q 3 2014
millions of
Change
%
Q1-Q3 2015
millions of
Q1-Q3 2014
millions of
Change
%
FY 2014
millions of
Germany       
Total revenue

5,593

5,587

0.1

16,762

16,534

1.4

22,257

EBITDA

2,146

2,236

(4.0)

6,373

6,658

(4.3)

8,556

Adjusted EBITDA

2,269

2,324

(2.4)

6,704

6,810

(1.6)

8,810

Number of employeesa

69,663

68,788

1.3

69,663

68,788

1.3

68,754

United States

 

 

 

 

 

 

 

Total revenue

7,059

5,554

27.1

21,407

15,898

34.7

22,408

EBITDA

1,468

869

68.9

4,160

3,074

35.3

4,244

Adjusted EBITDA

1,702

1,014

67.9

4,579

2,941

55.7

4,296

Europeb

 

 

 

 

 

 

 

Total revenue

3,198

3,317

(3.6)

9,440

9,605

(1.7)

12,972

EBITDA

1,097

1,142

(3.9)

3,057

3,228

(5.3)

4,301

Adjusted EBITDA

1,148

1,184

(3.0)

3,225

3,309

(2.5)

4,432

Systems Solutions

 

 

 

 

 

 

 

Order entry

1,276

2,351

(45.7)

3,934

5,076

(22.5)

7,456

Total revenue

2,115

2,068

2.3

6,282

6,307

(0.4)

8,601

    Of which Market Unit

1,755

1,678

4.6

5,184

5,031

3.0

6,874

Adjusted EBIT margin (%)

2.6

2.7

 (0.1p)

1.8

1.0

0.8p

1.5

Adj. EBIT margin, Market Unit (%)

2.7

3.4

 (0.7p)

2.3

0.9

1.4p

2.4

EBITDA

43

44

(2.3)

118

280

(57.9)

295

Adj. EBITDA

185

197

(6.1)

553

623

(11.2)

835

Comments on the table:
a At reporting date.
b First-time inclusion of the GTS Central Europe group since May 30, 2014.

Development of customer numbers

Operating segments: Development of customer numbers in the third quarter of 2015

 

Sept. 30, 2015

thousands

June 30, 2015

thousands

Change

thousands

Change

%

Germany    
Mobile customers

39,892

39,465

427

1.1

Of which contract customers

23,347

22,984

363

1.6

Fixed-network lines

20,354

20,437

(83)

(0.4)

Of which retail IP-based

6,354

5,763

591

10.3

Broadband lines

12,596

12,518

78

0.6

Of which optical fibera

2,613

2,365

248

10.5

Television (IPTV, satellite)

2,632

2,578

54

2.1

Unbundled local loop lines (ULLs)

8,231

8,432

(201)

(2.4)

United States

 

 

 

 

Mobile customers

61,220

58,908

2,312

3.9

Of which branded postpaid customers

30,403

29,318

1,085

3.7

Of which branded prepay customers

17,162

16,567

595

3.6

Europe

 

 

 

 

Mobile customers

55,699

55,807

(108)

(0.2)

Of which contract customers

25,438

25,380

58

0.2

Fixed-network lines

8,735

8,810

(75)

(0.9)

Of which IP-based

3,944

3,779

165

4.4

Retail broadband lines

5,114

5,075

39

0.8

Television (IPTV, satellite, cable)

3,832

3,768

64

1.7

Comment on the table:
a Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).

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

 Sept. 30, 2015
thousands
Sept. 30, 2014
thousands
Change
thousands
Change
%
Germany

 

 

 

 

Mobile customers

39,892

39,653

239

0.6

Of which contract customers

23,347

22,812

535

2.3

Fixed-network lines

20,354

20,841

(487)

(2.3)

Of which retail IP-based

6,354

3,744

2,610

69.7

Broadband lines

12,596

12,340

256

2.1

Of which optical fibera

2,613

1,608

1,005

62.5

Television (IPTV, satellite)

2,632

2,377

255

10.7

Unbundled local loop lines (ULLs)

8,231

8,954

(723)

(8.1)

United States

 

 

 

 

Mobile customers

61,220

52,890

8,330

15.7

Of which branded postpaid customers

30,403

25,909

4,494

17.3

Of which branded prepay customers

17,162

16,050

1,112

6.9

Europe

 

 

 

 

Mobile customers

55,699

56,087

(388)

(0.7)

Of which contract customers

25,438

25,323

115

0.5

Fixed-network lines

8,735

9,073

(338)

(3.7)

Of which IP-based

3,944

3,169

775

24.5

Retail broadband lines

5,114

4,880

234

4.8

Television (IPTV, satellite, cable)

3,832

3,670

162

4.4

Comment on the table:
a Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).

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 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 our 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 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 profit, 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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