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Deutsche Telekom records strong organic growth in the first quarter

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  • Double-digit growth in key financial figures, organic growth of 4.7 percent in revenue and 5.6 percent in adjusted EBITDA
  • Ajusted net profit up by three quarters compared with the prior year to more than EUR 1 billion
  • Year-on-year fiber-optic line additions in Germany more than doubled to 463,000 in the quarter
  • Line losses in Germany at ten-year low
  • T-Mobile US with net adds of more than 1 million for eighth quarter in a row
  • Further stabilization in Europe, and growth areas already accounting for 28 percent of revenue
  • T-Systems increases earnings performance

Deutsche Telekom started financial year 2015 with substantial growth in revenue and adjusted EBITDA. On a like-for-like basis, i.e., excluding the effects of the strong dollar exchange rate and changes in the composition of the Group, revenue increased by 4.7 percent. In this analysis, adjusted EBITDA rose by 5.6 percent. Also benefiting from the translation effect from the increased dollar exchange rate, recognized net revenue increased by 13.1 percent to EUR 16.8 billion. Adjusted EBITDA increased 11.0 percent to EUR 4.6 billion.

Exchange rate fluctuations merely have a mathematical effect on Deutsche Telekom's income statement, but no impact in substance. Hence the Group bases its guidance for the full year on the organic trend of the operating activities, assuming constant exchange rates.

"We are the integrated European telecommunications group with a growth profile. We work hard at this and for this," said Timotheus Höttges, CEO of Deutsche Telekom. "It has been some time since we have seen positive indications for revenue and earnings in our industry. Our clear strategy with strong investment is paying off."

Adjusted for special factors, net profit increased by a good three quarters compared with the prior-year period to EUR 1.0 billion. A settlement agreement had a positive effect of EUR 175 million here. In addition, the change in the accounting treatment of Deutsche Telekom's stake in the EE joint venture in the United Kingdom as held for sale means its dividends are now recognized in profit/loss from financial activities, which also has a positive impact on adjusted net profit. In the prior year, reported net profit had been dominated by the positive special effect of some EUR 1.7 billion from the sale of 70 percent of the stake in Scout. This resulted in a year-on-year lower figure.

Deutsche Telekom continued to invest strongly in its networks on both sides of the Atlantic. Overall, cash capex excluding expenses for mobile spectrum increased by 22.5 percent compared with the first three months of 2014 to EUR 2.5 billion. Investments in Germany alone rose by a good third to around EUR 950 million. This was also the main factor behind the scheduled decline in free cash flow by 12.0 percent to EUR 0.9 billion.

Deutsche Telekom confirms its guidance for the full year. Based on a constant exchange rate compared with 2014 of USD 1.33 per euro, adjusted EBITDA is expected to reach around EUR 18.3 billion and free cash flow some EUR 4.3 billion. The one-time effect of EUR 175 million was not included in the forecast and accordingly was not taken into account for the achievement of the adjusted EBITDA target for the year.

Based on the average dollar/euro exchange rate in the first quarter of USD 1.13 per euro, expected adjusted EBITDA for the full year 2015 would stand at around EUR 19.3 billion.

Germany – Customer numbers increase due to network build-out

Deutsche Telekom's sale of the fiber-optic products VDSL and FTTH accelerated further in Germany. The number of lines increased by 463,000 in the first quarter, i.e. , twice as many net adds as in the prior year. The total number of fiber-optic-based lines increased by more than 70 percent within one year to almost three million. The marketing launch for around 1.3 million households in the fourth quarter of 2014 and another 1 million households in the first three months of 2015 in the rollout areas ensured particularly fast growth in these regions. The encouraging trend in fiber-optic products as well as the successful marketing of MagentaEINS rate plans, with growth of around 400,000 customers in the first quarter alone, contributed to the increase in net broadband adds. The number of broadband lines increased by 76,000 in the first three months of 2015. The Entertain customer base passed the 2.5 million mark in the first quarter.

In German mobile communications, Deutsche Telekom is expected to have further increased its market lead in service revenues. Mobile service revenues increased by 2.8 percent year-on-year. The number of customers who use LTE increased to more than 6.4 million thanks to the successful introduction of the MagentaMobil rate plans and the launch of the iPhone 6.

In the first quarter, the Group once again increased the revenue on its home market. At EUR 5.6 billion, revenue in the Germany operating segment was up 1.9 percent against the first quarter of 2014. Adjusted EBITDA was down 0.9 percent to EUR 2.2 billion. This equates to an adjusted EBITDA margin of 39.6 percent. The decline in EBITDA also reflects increased costs incurred as a result of the IP migration and the efforts to maintain service quality. As of the end of the first quarter, 6.9 million lines had been migrated to the IP platform, more than twice as many as a year earlier.

United States – Customer growth continues unabated

T-Mobile US continued on its course of strong growth, reporting the highest figures among the national U.S. providers. Revenue increased by 11.7 percent to USD 7.7 billion, with adjusted EBITDA rising by 18.4 percent to USD 1.4 billion. With 1.8 million net adds in the first quarter, the customer base was up by almost 7.8 million compared with the prior year.

T-Mobile US was the only national provider in the first quarter to increase its branded phone postpaid customer base, recording growth of as much as 1 million. In this segment of particularly valuable customers, the three other major U.S. network operators all lost significant numbers of customers. This eighth quarter in a row of more than a million increase in postpaid customers was accompanied by a record low churn rate of 1.3 percent in branded postpaid phone customers. Building on this successful quarter, T-Mobile US revised upwards its expectations for customer growth in 2015. The company now expects an increase in branded postpaid customers of between 3 and 3.5 million, up from the previous guidance of 2.2 to 3.2 million.

The earnings guidance for the full year remains unchanged, i.e., higher customer growth with earnings expected to rise by more than 20 percent.
T-Mobile US's 4G LTE network now covers 275 million people in the United States. This figure is expected to increase to 300 million by the end of the year.

Europe – Technology transformation on track

Business in the European national companies stabilized further in the first quarter of this year. Revenue declined by just 0.6 percent to EUR 3.1 billion. Adjusted EBITDA decreased by 1.9 percent compared with the first quarter of 2014 to EUR 1.0 billion.

The revenue transformation continued to advance in the Europe operating segment. Growth areas now account for 28 percent of revenue, compared with 25 percent one year ago. Substantial progress was also made in the technology transformation. In Europe, the share of fixed-network lines that are IP-based increased from 29 percent a year ago to 40 percent. The targeted full migration to the IP platform by the end of 2018 is fully on track. In mobile communications, the rollout of LTE networks was intensified. Network coverage is now 53 percent of the population, after 38 percent in the previous year.

The national companies in Austria and Hungary in particular performed well in the first quarter, increasing both their revenue and their adjusted EBITDA.

Systems Solutions – Cost reductions start to take effect

T-Systems' financial indicators for the first quarter of 2015 show an encouraging trend. At EUR 1.7 billion, the Market Unit's revenue increased by 1.0 percent compared with the first quarter of 2014. Earnings performance increased driven by cost reductions. The Market Unit achieved a positive adjusted EBIT margin of 2.0 percent compared with minus 0.4 percent in the prior-year period.

At EUR 1.3 billion, the Market Unit's order entry declined by 9.1 percent against the first quarter of 2014. The stricter profitability hurdles introduced under the transformation program T-Systems 2015+ lead to lower order volumes than previously. In addition, the major deal with Daimler had a substantial impact in the first quarter of 2014. In the cloud growth area, by contrast, T-Systems increased its revenue by almost 20 percent in line with the strategy.

The Deutsche Telekom Group at a glance:

 

 

Q1

2015

millions of €

Q1

2014

millions of €

Change

%

FY 2014

millions of €

Revenue

16,842

14,894

13.1

62,658

Proportion generated internationally in %

63.0

58.7

4.3p

60.1

EBITDA

4,160

5,638

(26.2)

17,821

Adjusted EBITDA

4,574

4,121

11.0

17,569

Net profit

787

1,817

(56.7)

2,924

Adjusted net profit

1,036

587

76.5

2,422

Free cash flowa

865

983

(12.0)

4,140

Cash capexb  
(before spectrum)

2,530

2,065

22.5

9,534

Cash capexb

4,429

2,197

n.a.

11,844

Net debt

46,310

37,964

22.0

42,500

Number of employeesc

227,184

227,240

(0.0)

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:

 

Q1
2015
millions of €

Q1
2014
millions of €

Change
%

FY 2014
millions of €

Germany    
Total revenue

5,589

5,483

1.9

22,257

EBITDA

2,125

2,205

(3.6)

8,556

Adjusted EBITDA

2,211

2,230

(0.9)

8,810

Number of employeesa

69,404

67,318

3.1

68,754

United States

 

 

 

 

Total revenue

6,905

5,074

36.1

22,408

EBITDA

1,111

795

39.7

4,244

Adjusted EBITDA

1,225

844

45.1

4,296

Europeb

 

 

 

 

Total revenue

3,106

3,125

(0.6)

12,972

EBITDA

953

1,012

(5.8)

4,301

Adjusted EBITDA

1,008

1,027

(1.9)

4,432

Systems Solutions

 

 

 

 

Order entry

1,286

1,414

(9.1)

7,456

Total revenue

2,001

2,052

(2.5)

8,601

Of which Market Unit

1,695

1,679

1.0

6,874

Adjusted EBIT margin (%)

0.9

(0.1)

1.0p

1.5

Adj. EBIT margin, Market Unit (%)

2.0

(0.4)

2.4p

2.4

EBITDA

80

81

(1.2)

295

Adjusted EBITDA

154

138

11.6

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 first quarter of 2015

 

Mar. 31, 2015

thousands

Mar. 31, 2014

thousands

Change

thousands

Change

%

Germany

 

 

 

 

Mobile customers

39,200

38,989

211

0.5

Of which contract customers

22,576

22,287

289

1.3

Fixed-network lines

20,555

20,686

(131)

(0.6)

Of which retail IP-based

5,120

4,383

737

16.8

Broadband lines

12,437

12,361

76

0.6

Of which optical fibera

2,094

1,799

295

16.4

Television (IPTV, satellite)

2,516

2,442

74

3.0

Unbundled local loop lines (ULLs)

8,619

8,801

(182)

(2.1)

United States

 

 

 

 

Mobile customers

56,836

55,018

1,818

3.3

Of which branded postpaid customers

28,310

27,185

1,125

4.1

Of which branded prepay customers

16,389

16,316

73

0.4

Europe

 

 

 

 

Mobile customers

55,849

55,992

(143)

(0.3)

Of which contract customers

25,422

25,400

22

0.1

Fixed-network lines

8,922

9,033

(111)

(1.2)

Of which IP-based

3,606

3,486

120

3.4

Retail broadband lines

5,038

4,995

43

0.9

Television (IPTV, satellite, cable)

3,741

3,714

27

0.7

Comments 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

 

Mar. 31, 2015
thousands

Mar. 31, 2014
thousands

Change
thousands

Change
%

Germany

 

 

 

 

Mobile customers

39,200

39,145

55

0.1

Of which contract customers

22,576

22,104

472

2.1

Fixed-network lines

20,555

21,202

(647)

(3.1)

Of which retail IP-based

5,120

2,640

2,480

93.9

Broadband lines

12,437

12,354

83

0.7

Of which optical fibera

2,094

1,375

719

52.3

Television (IPTV, satellite)

2,516

2,255

261

11.6

Unbundled local loop lines (ULLs)

8,619

9,207

(588)

(6.4)

United States

 

 

 

 

Mobile customers

56,836

49,065

7,771

15.8

Of which branded postpaid customers

28,310

23,622

4,688

19.8

Of which branded prepay customers

16,389

15,537

852

5.5

Europe

 

 

 

 

Mobile customers

55,849

56,615

(766)

(1.4)

Of which contract customers

25,422

25,521

(99)

(0.4)

Fixed-network lines

8,922

9,215

(293)

(3.2)

Of which IP-based

3,606

2,680

926

34.6

Retail broadband lines

5,038

4,784

254

5.3

Television (IPTV, satellite, cable)

3,741

3,558

183

5.1

Comments 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 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 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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