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Andreas Fuchs

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Deutsche Telekom continues to grow on both sides of the Atlantic

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  • Adjusted EBITDA of 23.3 billion euros expected for full-year 2018
  • Revenue in organic terms rises 3.1 percent
  • EBITDA in organic terms increases 6.6 percent
  • Free cash flow up 12.5 percent to 1.4 billion euros
  • Increase of 32.8 percent in net profit
  • Over 10 million fiber-optic customers in Germany
  • T-Mobile US remains on course for success and raises target for customer growth
  • Sustained uptrend in Europe

A good start to 2018 for Deutsche Telekom on both sides of the Atlantic: In the first quarter of the year, net revenue rose by 3.1 percent year-on-year in organic terms, i.e., adjusted for exchange rate effects and changes in the composition of the Group. Adjusted EBITDA in organic terms increased by as much as 6.6 percent. The strong euro, which gained more than 15 percent against the U.S. dollar in one year, impacted on the figures reported, reducing revenue by 3.9 percent to 17.9 billion euros. Reported adjusted EBITDA remained stable at 5.5 billion euros.

“We will remain on course for success in 2018,” said Tim Höttges, Chairman of the Board of Management at Deutsche Telekom. “Our growth profile, which is unique in our industry, enables us to raise our forecast once again.”

Other key indicators are also trending upward. Free cash flow totaled 1.4 billion euros in the first quarter of 2018, an increase of 12.5 percent year-on-year. Due to a marked decrease in the loss from financial activities, net profit rose by 32.8 percent to 1.0 billion euros. Adjusted net profit increased by 26.7 percent to 1.2 billion euros.

Driven by developments in the United States, where T-Mobile US raised its forecast after a strong first quarter, Deutsche Telekom is raising its guidance for adjusted EBITDA in the full-year 2018 from around 23.2 to around 23.3 billion euros. The free cash flow forecast remains unchanged at around 6.2 billion euros.

Germany – milestone in fiber-optic customer number

More than 10 million customers in Germany use Deutsche Telekom’s fiber-optic lines (FFTH, VDSL/vectoring). The overall number of customers increased in the first quarter to 10.4 million, up 2.8 million or 37 percent year-on-year. A total of 781,000 customer additions in the first three months of the year alone pointed to a further record quarter as a result of the systematic rollout of the fiber-optic network in Germany. By the end of the first quarter, 72.7 percent of all fixed-network households were able to use fiber-optic products, compared with just 65.7 percent a year earlier. Telekom increased its share of the broadband market again with 95,000 customer additions. In all, 3.8 million customers enjoy the advantages of the MagentaEINS product packages, 16.1 percent more than one year earlier.

In mobile communications, the mobile service revenues key indicator is significantly influenced by a change in the accounting standard governing the determination and recognition of revenue (IFRS 15). Excluding this effect gives a substantial increase of 3.2 percent. Telekom thus continues to maintain its leading market position in Germany. Thanks to the StreamOn option launched in April 2017, nearly 1.1 million Telekom customers are able to listen to music and watch videos online without having to use their data volume for this.

Revenue in the Germany operating segment declined slightly by 1.3 percent to 5.3 billion euros in the reporting period. However, the segment’s service revenues, excluding device sales, i.e., revenues from voice and data services as well as add-on products such as Entertain, rose by around 1.2 percent. At the same time, adjusted EBITDA grew by 1.3 percent to 2.1 billion euros. This yielded an adjusted EBITDA margin of 39.1 percent, 1 percentage point higher than in the previous year.

United States – the Un-carrier marches on

The United States sustained the now familiar picture in the first quarter. T-Mobile US is continuing to grow rapidly in terms of customer numbers and financial KPIs. For the 20th consecutive quarter, the company recorded more than one million net customer additions. It had gained 1.4 million new customers between January and March 2018. This trend is reinforced by the extremely low churn rate. In the first quarter, this key indicator reached a record low of 1.07 percent among branded postpaid customers. T-Mobile US had a total of 74.0 million customers at the end of the reporting period.

Revenue also remained on a growth trajectory. In the first quarter, total revenue increased by 8.7 percent year-on-year to 10.4 billion U.S. dollars. Adjusted EBITDA climbed 12.8 percent to 2.9 billion U.S. dollars. T-Mobile US has revised its forecasts for the current year upward and now expects postpaid net customer additions of 2.6 to 3.3 million instead of the 2.0 to 3.0 million net additions previously projected. Based on the U.S. GAAP accounting standards applicable to the company, adjusted EBITDA is now expected to be between 11.4 and 11.8 billion dollars instead of between 11.3 and 11.7 billion dollars as previously targeted.

Europe – sustained positive trend

The encouraging trends from 2017 in the European business also continued in the new year. The number of customers who used fixed-mobile product bundles reached 2.4 million at the end of the first quarter, an increase of 51.1 percent year-on-year. The success of the convergence strategy is expected to be repeated in Austria following the announced acquisition of UPC Austria.

The financial KPIs likewise developed positively in the reporting period. Revenue in the Europe operating segment increased by 1.1 percent to 2.8 billion euros, with adjusted EBITDA rising by 2.5 percent to 0.9 billion euros. This also includes exchange rate effects. In organic terms, revenue grew by 0.2 percent and adjusted EBITDA by 1.6 percent. The earnings trend reflected in particular the reduction in indirect costs.

Systems Solutions – investments in new business weigh on results

Order entry at T-Systems in the first quarter rose by 18.2 percent year-on-year to 1.5 billion euros. Revenue, on the other hand, decreased marginally by 2.3 percent to 1.7 billion euros. The IT Division continues to be affected by price pressure in the industry and falling volumes.

On the earnings side, particularly the high expenses for new business areas such as the Internet of Things, the cloud, and healthcare had an impact on the Digital Division in the first quarter. Due to these start-up costs, adjusted EBITDA decreased by 40.6 percent compared with the prior-year period to 57 million euros. Adjusted EBIT declined to minus 38 million euros. In spite of this level of earnings, T-Systems is sticking to its targets for the year as a whole. 

The Deutsche Telekom Group at a glance:



Q1

2018

millions of

Q1

2017

millions of

Change

%

FY 2017

millions of

Revenue

17,924

18,646

(3.9)

74,947

Proportion generated internationally (%)

66.6

67.3

(0.7p)

67.2

EBITDA

5,269

5,963

(11.6)

23,969

Adjusted EBITDA

5,549

5,550

(0.0)

22,230

Net profit

992

747

32.8

3,461

Adjusted net profit

1,190

939

26.7

6,039

Free cash flowa

1,382

1,228

12.5

5,497

Cash capexb

3,139

3,280

(4.3)

19,494

Cash capexb

(before spectrum)

3,076

3,245

(5.2)

12,099

Net debt

50,455

49,963

1.0

50,791

Number of employeesc

216,926

216,548

0.2

217,349

Comments on the table:
The new accounting standards IFRS 15 “Revenue from Contracts with Customers” and IFRS 9 “Financial Instruments” took effect as of January 1, 2018. Prior-year comparatives were not adjusted. Application of these standards did not have any material effect on the Group’s results of operations.
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:



Q1

2018

millions of

Q1

2017

millions of

Change

%

FY 2017

millions of

Germany





Total revenue

5,325

5,397

(1.3)

21,931

EBITDA

1,915

2,006

(4.5)

8,104

Adjusted EBITDA

2,082

2,055

1.3

8,412

Number of employeesa

64,695

65,917

(0.2)

64,798

United States





Total revenue

8,455

8,982

(5.9)

35,736

US-$

10,394

9,563

8.7

40,317

EBITDA

2,360

2,390

(1.3)

10,949

Adjusted EBITDA

2,332

2,386

(2.3)

9,316

US-$

2,866

2,540

12.8

10,479

Europe





Total revenue

2,811

2,781

1.1

11,589

EBITDA

905

877

3.2

3,619

Adjusted EBITDA

911

889

2.5

3,749

Systems Solutions





Order entry

1,506

1,274

18.2

5,241

Total revenue

1,665

1,704

(2.3)

6,918

Adjusted EBIT margin
(%)

(2.3)

(0.1)

(2.2p)

1.7

EBITDA

19

61

(68.9)

280

Adjusted EBITDA

57

96

(40.6)

509

Comments on the table:
The new accounting standards IFRS 15 “Revenue from Contracts with Customers” and IFRS 9 “Financial Instruments” took effect as of January 1, 2018.
Prior-year comparatives were not adjusted. Application of these standards did not have any material effect on the Group’s results of operations.
a  At the reporting date.

Development of customer numbers
Operating segments: development of customer numbers in the first quarter of 2018


Mar. 31, 2018

thousands

Dec. 31, 2017

thousands

Change

thousands

Change

%

Germany





Mobile customers

42,730

43,125

(395)

(0.9)

Of which contract customers

25,102

25,887

(785)

(3.0)

Fixed-network lines

19,149

19,239

(90)

(0.5)

Of which retail IP-based

12,843

11,996

847

7.1

Broadband lines

13,357

13,209

148

1.1

Of which optical fibera

6,232

5,803

429

7.4

Television (IPTV, satellite)

3,193

3,139

54

1.7

Unbundled local loop lines (ULLs)

5,846

6,138

(292)

(4.8)

United States





Mobile customers

74,040

72,585

1,455

2.0

Of which branded postpaid customers

39,065

38,047

1,018

2.7

Of which branded prepay customers

20,876

20,668

208

1.0

Europe





Mobile customers

49,254

48,842

412

0.8

Of which contract customers

25,686

25,483

203

0.8

Fixed-network lines

8,409

8,439

(30)

(0.4)

Of which IP-based

5,947

5,734

213

3.7

Retail broadband lines b

5,821

5,647

174

3.1

Television (IPTV, satellite, cable)

4,271

4,244

27

0.6

Comments on the table:
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b  Retail broadband lines were reclassified as of January 1, 2018. This means that all lines based on broadband technology are now included in the definition, irrespective of which service the customer is using. Prior-year comparatives were not adjusted.

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


Mar. 31, 2018
thousands

Mar. 31, 2017
thousands

Change

thousands

Change

%

Germany





Mobile customers

42,730

42,114

616

1.5

Of which contract customers

25,102

25,270

(168)

(0.7)

Fixed-network lines

19,149

19,648

(499)

(2.5)

Of which retail IP-based

12,843

9,801

3,042

31.0

Broadband lines

13,357

12,989

368

2.8

Of which optical fibera

6,232

4,693

1,539

32.8

Television (IPTV, satellite)

3,193

2,955

238

8.1

Unbundled local loop lines (ULLs)

5,846

6,952

(1,106)

(15.9)

United States





Mobile customers

74,040

72,597

1,443

2.0

Of which branded postpaid customers

39,065

35,341

3,724

10.5

Of which branded prepay customers

20,876

20,199

677

3.4

Europe





Mobile customers

49,254

47,348

1,906

4.0

Of which contract customers

25,686

24,482

1,204

4.9

Fixed-network lines

8,409

8,486

(77)

(0.9)

Of which IP-based

5,947

5,190

757

14.6

Retail broadband lines b

5,821

5,444

377

6.9

Television (IPTV, satellite, cable)

4,271

4,100

171

4.2

Comments on the table:
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b  Retail broadband lines were reclassified as of January 1, 2018. This means that all lines based on broadband technology are now included in the definition, irrespective of which service the customer is using. Prior-year comparatives were not adjusted.

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. These 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.

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