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Andreas Fuchs

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Deutsche Telekom stays well on track, posting strong financial figures in the first half of 2019

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  • Net revenue up by 3.2 percent in organic terms in the first six months to 39.2 billion euros
  • In organic terms, adjusted EBITDA AL is up by 3.7 percent compared with the first half of 2018 to 12.2 billion euros
  • Free cash flow AL up by 9.0 percent in organic terms to 3.1 billion euros in the first six months
  • Net profit up by more than 90 percent in the second quarter
  • Operations in Germany still leading in mobile communications
  • Customer boom at T-Mobile US continues
  • Converged products drive growth once again in Europe

Following a strong first half of 2019, Deutsche Telekom is keeping its sights set firmly on its targets for the full year. In the first six months of 2019, net revenue grew by 3.2 percent year-on-year in organic terms to 39.2 billion euros, adjusted EBITDA AL by 3.7 percent to 12.2 billion euros, and free cash flow AL by 9.0 percent to 3.1 billion euros. These increases are excluding exchange rate effects and changes in the composition of the Group. If these changes are included, growth rates are higher, primarily on account of the acquisitions in Austria and the Netherlands and due to the translation of U.S. dollars: 7.9 percent for net revenue, 7.7 percent for adjusted EBITDA AL, and 11.4 percent for free cash flow AL.

“We remain reliable,” said Tim Höttges, CEO of Deutsche Telekom. “Our business performed well in all areas again in the first half of 2019. That puts us in a position to deliver the results we promised.”

There was a jump in reported net profit in the second quarter. At 0.9 billion euros, it stood 90.7 percent above the prior-year level. The main reason for this was a negative special factor in the second quarter of 2018 from the settlement in the Toll Collect arbitration proceedings, which was not matched by any comparable effect in the reporting year. For the first half of the year, net profit increased by 24.1 percent year-on-year to 1.8 billion euros. Adjusted for special factors, net profit increased by 7.4 percent in the second quarter and by 3.5 percent in the first half of the year.

The Group continued to invest at a high level in the first six months of 2019. Cash capex before expenses for mobile spectrum rose by 14.9 percent to 7.0 billion euros. Investments increased due to the continued build-out and upgrade of the networks in the Germany, Europe, and Group Development operating segments and, in particular, in the United States due to the accelerated infrastructure build-out in the 600 Mhz spectrum. 

Germany – growth trend continues

Between April and June, Telekom extended its leading position on the German mobile market in terms of service revenues, which increased by 2.4 percent against the prior-year period, thereby continuing the strong trend of the first three months of the reporting year. The average mobile data used per month by branded contract customers exceeded 3 gigabytes for the first time. Customers with an LTE rate plan and LTE-enabled smartphone used six times as much data as other customers.

In the fixed network, growth in fiber-optic-based lines (FTTH, FTTC/vectoring) continued. At 13.4 million lines, the number was up 22 percent on the prior-year figure. 521,000 lines were added in the second quarter. 83 thousand new customers opted for converged product under the name MagentaEINS.

Revenue in the Germany operating segment amounted to 5.4 billion euros in the second quarter, up by 1.2 percent against the prior-year period. Growth in adjusted EBITDA AL was even more substantial, up by 2.4 percent to 2.2 billion euros, leading to a margin of 40.0 percent compared with 39.5 percent in the second quarter of the prior year.

United States – record setting continues

T-Mobile US set new records again in the second quarter of 2019. Total revenue increased by 5.1 percent year-on-year to 11.0 billion U.S. dollars, while service revenues rose by 6.9 percent to 8.3 billion U.S. dollars.
Adjusted EBITDA AL increased by 6.0 percent to 3.2 billion U.S. dollars.

The company accelerated its customer growth again with 1.8 million net customer additions in the second quarter, bringing the total customer count to 83.1 million at the end of June. T-Mobile US had a reason to celebrate: It recorded more than one million net customer additions in a quarter for the 25th time in a row. Of the total customer growth, 710,000 were branded phone postpaid net customer additions. In the United States, T-Mobile US remains far and away the fastest growing company on the market. The record low churn rate of 0.78 percent made a significant contribution to this. In the prior year, this figure had been 17 basis points higher.

Europe – converged products now available everywhere

In the European national companies, the encouraging trends of last year continued steadily. Following the launch of converged products comprising fixed-network and mobile communications (FMC) in Austria and Poland in the second quarter, these offers are now available in all ten countries. 

This segment continued to develop very well, with 330,000 new FMC customers. The number of customers thus increased by 53 percent compared with the end of June 2018, passing the 4 million mark for the first time.

The companies again recorded strong development in the number of mobile contract customers, with 300,000 net additions, and broadband lines, with an increase of 63,000.

These trends are reflected in further improvements in financial figures. In organic terms, revenue increased by 0.4 percent year-on-year to 3.0 billion euros and adjusted EBITDA AL rose by 2.0 percent to 1.0 billion euros. An increase in higher-margin revenues and cost reductions contributed to the improvement in EBITDA AL.

Systems Solutions – transformation on track

In the second quarter of 2019, T-Systems again managed to increase order entry compared with the prior-year period to 1.9 billion euros, 2.4 percent higher than between April and June 2018. Successes included wins in the area of the connected car.

The key financial ratios remained stable. Revenue was more or less unchanged against the prior-year period at 1.7 billion euros, while adjusted EBITDA AL increased by 3 million euros against 2018 to 127 million euros. Adjusted EBITDA AL increased by 19 percent year-on-year in the first half of 2019 to

219 million euros. The first successes of the transformation are beginning to show in these figures.

The Deutsche Telekom Group at a glance



Q2

2019

millions of

Q2

2018

millions of

Change

%

H1

2019

millions of

H1
2018

millions of

Change

%

FY
2018

millions of

Net revenue

19,664

18,367

7.1

39,152

36,291

7.9

75,656

Proportion generated internationally

%

69.0

67.6

1.4p

69.0

67.1

1.9p

67.8

EBITDA

6,701

5,556

20.6

13,162

10,825

21.6

21,836

Adjusted EBITDA

7,263

5,928

22.5

14,164

11,477

23.4

23,333

Adjusted EBITDA AL

6,283

5,866

7.1

12,223

11,353

7.7

23,074

Net profit

944

495

90.7

1,845

1,487

24.1

2,166

Adjusted net profit

1,329

1,238

7.4

2,512

2,428

3.5

4,545

Free cash flowa

2,312

1,514

52.7

4,682

2,896

61.7

6,250

Free cash flow ALa

1,546

1,467

5.4

3,103

2,785

11.4

6,051

Cash capexb

4,199

3,094

35.7

8,027

6,234

28.8

12,492

Cash capexb

(before spectrum)

3,324

3,021

10.0

7,006

6,097

14.9

12,223

Net debtc

75,709

54,772

38.2

55,425

Number of employeesd

212,762

216,319

(1.6)

215,675


Comments on the table:
The new IFRS 16 “Leases” accounting standard has been applied since January 1, 2019. This led to a change in the definition of some of our financial performance indicators. The published prior-year figures were not adjusted; however, we show prior-year comparatives calculated on a pro-forma basis for the redefined key performance indicators “adjusted EBITDA after leases (adjusted EBITDA AL)” and “free cash flow after leases (free cash flow AL)”.
a   Before dividend payments and spectrum investment.
b   Cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill).
c   First-time application of IFRS 16 “Leases” as of January 1, 2019: The new standard results in a mathematical increase in net debt of 15.6 billion euros. The Company’s financial position remains unchanged by this.
d  At the reporting date.

Operating segments



Q2

2019

millions of

Q2

2018

millions of

Change

%

H1

2019

millions of

H1
2018

millions of

Change

%

FY
2018

millions of

Germany

Total revenue

5,388

5,322

1.2

10,745

10,648

0.9

21,700

EBITDA

2,036

1,941

4.9

3,981

3,857

3.2

8,012

Adjusted EBITDA

2,161

2,126

1.6

4,274

4,209

1.5

8,610

Adjusted EBITDA AL

2,153

2,103

2.4

4,261

4,161

2.4

8,516

Number of employeesa

61,552

63,872

(3.6)

62,621

United States

Total revenue

9,826

8,821

11.4

19,623

17,277

13.6

36,522

US-$

11,041

10,510

5.1

22,166

20,904

6.0

43,063

EBITDA

3,334

2,522

32.2

6,545

4,882

34.1

9,928

Adjusted EBITDA

3,534

2,553

38.4

6,843

4,885

40.1

10,088

Adjusted EBITDA AL

2,872

2,552

12.5

5,551

4,883

13.7

10,084

US-$

3,227

3,045

6.0

6,269

5,910

6.1

11,901

Europeb

Total revenue

2,978

2,896

2.8

5,869

5,707

2.8

11,885

EBITDA

1,038

907

14.4

2,072

1,812

14.3

3,757

Adjusted EBITDA

1,099

953

15.3

2,158

1,864

15.8

3,880

Adjusted EBITDA AL

991

936

5.9

1,937

1,834

5.6

3,813

Systems Solutions

Order entry

1,886

1,842

2.4

3,494

3,348

4.4

6,776

Total revenue

1,673

1,674

(0.1)

3,304

3,339

(1.0)

6,936

Adj. EBIT margin (%)

1.9

1.4

0.5p

0.8

(0.4)

1.2p

0.5

EBITDA

29

71

(59.2)

108

90

20.0

163

Adjusted EBITDA

158

121

30.6

284

179

58.7

429

Adjusted EBITDA AL

127

124

2.4

219

184

19.0

442

Comments on the table:
The new IFRS 16 “Leases” accounting standard has been applied since January 1, 2019. This led to a change in the definition of some of our financial performance indicators. The published prior-year figures were not adjusted; however, we show prior-year comparatives calculated on a pro-forma basis for the redefined key performance indicators “adjusted EBITDA after leases (adjusted EBITDA AL)” and “free cash flow after leases (free cash flow AL)”.
a   At the reporting date.
b   Inclusion of UPC Austria as of July 31, 2018. Prior-year comparatives were not adjusted.

Development of customer numbers

Operating segments: development of customer numbers in the second quarter of 2019

June 30, 2019
 

thousands

Mar. 31, 2019
 

thousands

Change
 

thousands

Change
 

%

Germany

Mobile customers

44,827

44,657

170

0.4

Of which contract customers

24,974

25,195

(221)

(0.9)

Fixed-network lines

18,228

18,414

(186)

(1.0)

Of which retail IP-based

16,614

16,065

549

3.4

Broadband lines

13,636

13,608

28

0.2

Of which optical fibera

7,913

7,609

304

4.0

Television (IPTV, satellite)

3,477

3,419

58

1.7

Unbundled local loop lines (ULLs)

4,913

5,050

(137)

(2.7)

United States

Mobile customers

83,052

81,301

1,751

2.2

Of which branded postpaid customers

44,646

43,538

1,108

2.5

Of which branded prepay customers

21,337

21,206

131

0.6

Europeb

Mobile customersc

46,469

47,800

(1,331)

(2.8)

Of which contract customers

27,022

26,844

178

0.7

Fixed-network lines

8,986

8,977

9

0.1

Of which IP-based

7,961

7,663

298

3.9

Broadband customersd

6,540

6,478

62

1.0

Television (IPTV, satellite, cable)

4,910

4,904

6

0.1


Comments on the table:
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b  Inclusion of UPC Austria as of July 31, 2018. Prior-year comparatives were not adjusted.
c  As of January 1, 2019, the portfolio of M2M SIM cards in Austria was streamlined. 2.4 million customers were deactivated. Prior-year comparatives were not adjusted.
d Starting in Q2/2018, Deutsche Telekom no longer reports the number of retail broadband lines from a technical perspective. Instead, it reports the number of broadband customers. Prior-year comparatives have been adjusted.

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

June 30, 2019
 
thousands

June 30, 2018

thousands

Change
 

thousands

Change
 

%

Germany

Mobile customers

44,827

43,023

1,804

4.2

Of which contract customers

24,974

24,965

9

0.0

Fixed-network lines

18,228

18,989

(761)

(4.0)

Of which retail IP-based

16,614

13,629

2,985

21.9

Broadband lines

13,636

13,437

199

1.5

Of which optical fibera

7,913

6,559

1,354

20.6

Television (IPTV, satellite)

3,477

3,240

237

7.3

Unbundled local loop lines (ULLs)

4,913

5,587

(674)

(12.1)

United States

Mobile customers

83,052

75,619

7,433

9.8

Of which branded postpaid customers

44,646

40,082

4,564

11.4

Of which branded prepay customers

21,337

20,967

370

1.8

Europeb

Mobile customersc

46,469

49,886

(3,417)

(6.8)

Of which contract customers

27,022

26,022

1,000

3.8

Fixed-network lines

8,986

8,414

572

6.8

Of which IP-based

7,961

6,235

1,726

27.7

Broadband customersd

6,540

5,671

869

15.3

Television (IPTV, satellite, cable)

4,910

4,293

617

14.4


Comments on the table:
a Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b  Inclusion of UPC Austria as of July 31, 2018. Prior-year comparatives were not adjusted.
c  As of January 1, 2019, the portfolio of M2M SIM cards in Austria was streamlined. 2.4 million customers were deactivated. Prior-year comparatives were not adjusted.
d Starting in Q2/2018, Deutsche Telekom no longer reports the number of retail broadband lines from a technical perspective. Instead, it reports the number of broadband customers. Prior-year comparatives have been adjusted.

This media information contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. They are generally identified by the words “expect,” “anticipate,” “believe,” “intend,” “estimate,” “aim,” “goal,” “plan,” “will,” “seek,” “outlook,” or similar expressions and include generally any information that relates to expectations or targets for revenue, adjusted EBITDA, or other performance measures. Forward-looking statements are based on current plans, estimates, and projections, and 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. They include, for instance, the progress of Deutsche Telekom's staff-related restructuring measures and the impact of other significant strategic or business initiatives, including acquisitions, dispositions, and business combinations. In addition, movements in exchange rates and interest rates, regulatory rulings, stronger than expected competition, technological change, litigation, and regulatory developments, among other factors, may have a material adverse effect on costs and revenue development. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, Deutsche Telekom's actual results may be materially different from those expressed or implied by such statements. Deutsche Telekom can offer no assurance that its expectations or targets 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 account for new information or future events or anything else. In addition to figures prepared in accordance with IFRS, Deutsche Telekom presents alternative performance measures, e.g., EBITDA, EBITDA AL, EBITDA margin, adjusted EBITDA, adjusted EBITDA AL, adjusted EBITDA margin, adjusted EBIT, adjusted EBIT margin, adjusted net profit/loss, free cash flow, free cash flow AL, gross debt, and net debt. These 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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