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Andreas Fuchs

Deutsche Telekom continues to grow in the third quarter and raises its full-year 2017 earnings forecast for the second time

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  • Revenue up 0.8 percent in the third quarter of 2017 to 18.3 billion euros; organic growth of 3.3 percent
  • Adjusted EBITDA rises 3.3 percent to 5.7 billion euros; organic growth of 5.7 percent
  • Adjusted net profit 19.6 percent higher at 1.2 billion euros
  • EBITDA forecast for full-year 2017 raised once again
  • Record capital expenditure of 9.2 billion euros in the nine-month period, 12.2 percent more than in the comparable prior-year period
  • Unbroken broadband boom in Germany
  • Strong profit growth at T-Mobile US
  • Positive trends in Europe
  • Impairment at T-Systems due to low order entry

Deutsche Telekom increased its revenue and earnings in the third quarter of 2017, prompting it to raise its full-year profit forecast yet again. While revenue from July through September rose 0.8 percent year-on-year to 18.3 billion euros, adjusted EBITDA grew 3.3 percent to 5.7 billion euros. In organic terms – i.e., excluding the effects of changes in exchange rates and in the composition of the Group – revenues increased 3.3 percent and EBITDA 5.7 percent. The weaker U.S. dollar had a noticeable impact here.

The strong upward trend in adjusted EBITDA of the first six months thus continued in the third quarter as well, prompting the Group to raise its full-year profit forecast for the second time this year. Assuming constant exchange rates, Deutsche Telekom now expects to post full-year adjusted EBITDA of around 22.4 to 22.5 billion euros in 2017. At the start of the year, the company had forecast full-year earnings of around 22.2 billion euros, raising that figure to around 22.3 billion euros in August. The guidance for free cash flow remains unchanged at around 5.5 billion euros.

"Deutsche Telekom continues to post strong growth, which is why we are upgrading our forecast for the second time this year," said Tim Höttges, CEO of Deutsche Telekom. "This was made possible by our booming U.S. business, our strong performance in Germany, and the positive trends in our European subsidiaries."

The Group's record capital expenditures form the basis for this success story. In the third quarter alone, cash capex (excluding expenses for mobile spectrum) grew 9.6 percent to over 3 billion euros. In the first nine months of 2017, Deutsche Telekom's global investment spending exceeded 9.2 billion euros, up 12.2 percent on the comparable prior-year period. Cash capex is planned to reach around 12 billion euros by year-end. With planned cash capex of over 5 billion euros in Germany alone – across all operating segments – Deutsche Telekom continues to pursue its build-out of cutting-edge infrastructure, from fiber-optic cables in the fixed network through to Europe's largest data center in Biere.

Free cash flow rose 8.8 percent in the first nine months to 4.4 billion euros, keeping the company well on track to reach its full-year guidance. In the quarter just passed, there was a slight decrease of 1.6 percent in free cash flow to 1.9 billion euros.

The trend in adjusted net profit was very positive in the third quarter, with an increase of 19.6 percent to 1.2 billion euros. Reported net profit, on the other hand, declined by 51.9 percent to 0.5 billion euros, with a number of special factors playing a role in this decrease.

The impairment of goodwill at T-Systems in the amount of 1.2 billion euros had a negative impact that did not affect cash flows. It resulted from an impairment test carried out because order entry has remained below the planned figures throughout the year to date.

The reversal of impairment losses on U.S. mobile spectrum licenses had a positive effect of 1.7 billion euros. After non-controlling interests and taxes were taken into account, this special factor had a positive impact, on balance, of around 0.7 billion euros on Deutsche Telekom's net profit.

Germany – fiber-optic build-out continues to fuel growth

In Germany, Deutsche Telekom continued to post strong customer growth in the third quarter of 2017. 700,000 new fiber-optic lines (FTTC/vectoring, FTTH) within the three-month period ratcheted up the total number of lines in operation to 8.9 million. That was 2.8 million more lines than a year ago and a rise of 45 percent. The number of customers with the bundled product MagentaEINS exceeded 3.5 million, after 2.6 million a year earlier. The proportion of households with a Deutsche Telekom broadband line using MagentaEINS rose from 14 percent to 18 percent year-on-year.

Deutsche Telekom continues to build out its German network at a fast pace. 28.8 million households already have access to fiber-optic products, 15 percent or 3.7 million households more than a year ago. Just under two-thirds of all lines have already been converted to IP technology.

Deutsche Telekom remains the benchmark in Germany's mobile communications market. The company recorded an increase of 0.9 percent in its most important KPI, mobile service revenues. If the effects of regulation and cuts in roaming charges and mobile termination rates are factored out, the increase would have been 3.7 percent. As a result, Deutsche Telekom continued to grow substantially faster than the market as a whole and strengthened its position as No. 1 for mobile service revenues.

With revenue rising in the third quarter by a slight 0.1 percent to 5.5 billion euros, adjusted EBITDA rose 4.5 percent to 2.2 billion euros. That yielded an adjusted EBITDA margin of 39.9 percent, 1.7 percentage points higher than a year ago.

United States – unabated growth in customer numbers and financial KPIs

The boom in customer growth that T-Mobile US has been experiencing for years is starting to have an ever stronger impact on its financial KPIs. In the third quarter, service revenues rose 6.5 percent year-on-year to reach 7.4 billion U.S. dollars. At the same time, adjusted EBITDA increased by 11.4 percent to 2.7 billion U.S. dollars. That prompted T-Mobile US to once again raise its guidance for full-year 2017. The company now expects to post adjusted EBITDA of 10.8 to 11.0 billion U.S. dollars on a U.S. GAAP basis. Previously, the forecast figure was 10.5 to 10.9 billion U.S. dollars.

The trend in customer growth remains unbroken, with T-Mobile US gaining 1.3 million new customers in the third quarter. It was the 18th successive quarter in which the company acquired more than one million new customers, and it now has a total customer base of 70.7 million. In the particularly lucrative branded postpaid customer segment, the company added another 817,000 customers, strengthening T-Mobile US' position as the country's fastest growing mobile operator.

Europe – customer growth across a broad front

In Europe, the favorable trend of the preceding quarters remained unbroken. Customer numbers, in particular, developed very well from July through September, with the company posting 265,000 new mobile contract customers, 49,000 new broadband lines, and 44,000 new customers for TV products. The bundling of fixed-network and mobile products is becoming ever more popular in the European subsidiaries, where the corresponding customer numbers grew by a total of 167,000 to currently over 2 million.

Broadband coverage in both the fixed and mobile networks improved in the third quarter of 2017, with 5.7 million households now having access to bandwidths of at least 100 Mbit/s in the fixed network. That is an increase of over 1.2 million within one year. The LTE mobile communications standard already covers 105 million people, 20 million more than just a year ago.

Financial KPIs continued to stabilize. Revenue increased 1.6 percent to 2.9 billion euros, or 0.7 percent in organic terms. Adjusted EBITDA declined by 2.9 percent year-on-year in the third quarter to 1 billion euros, a minus of 1.3 percent in organic terms.

Systems Solutions – decline expected in fourth quarter

T-Systems posted order entry of 1.4 billion euros in the third quarter, a year-on-year rise of 4.8 percent. Viewed over the nine-month period, however, order entry was down by around 10 percent year-on-year. A further decrease is expected in the fourth quarter, given that fewer big deals are likely to be closed than in the same period last year. This expectation was the reason behind the above-mentioned impairment of goodwill of 1.2 billion euros in the Systems Solutions operating segment.

Revenue rose 2.0 percent in the third quarter to 1.7 billion euros. Revenue growth in the Telecommunications Division and in the Digital Division, as well as initial revenue from the newly established Telekom Security, more than compensated for falling revenues from IT business with corporate customers, the latter resulting from price pressure in the industry when extending existing contracts or concluding new ones. The cloud business performed well in the first nine months 2017, with revenues up 14 percent to 1.3 billion euros. Earnings indicators were mixed: Whereas adjusted EBITDA declined 5.8 percent to 131 million euros, the adjusted EBIT margin remained unchanged at 2.2 percent, as depreciation and amortization were lower than a year ago.

The Deutsche Telekom Group at a glance:

 

 

Q3

2017

millions of

Q3

2016

millions of

Change

%

Q1-Q3

2017

millions of

Q1-Q3

2016

millions of

Change

%

FY 2016

millions of

Revenue

18,251

18,105

0.8

55,787

53,552

4.2

73,095

Proportion generated internationally (%)

66.4

65.8

0.6p

67.3

65.8

1.5p

66.3

EBITDA

7,318

5,334

37.2

19,267

17,698

8.9

22,544

Adjusted EBITDA

5,720

5,535

3.3

17,215

16,155

6.6

21,420

Net profit

507

1,053

(51.9)

2,129

4,799

(55.6)

2,675

Adjusted net profit

1,244

1,040

19.6

3,382

3,141

7.7

4,114

Free cash flowa

1,873

1,904

(1.6)

4,403

4,046

8.8

4,939

Cash capexb

3,021

3,885

(22.2)

16,541

10,484

57.8

13,640

Cash capexb

(before spectrum)

3,002

2,739

9.6

9,241

8,234

12.2

10,958

Net debt

52,635

48,484

8.6

52,635

48,484

8.6

49,959

Number of employeesc

216,343

219,254

(1.3)

216,343

219,254

(1.3)

218,341

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 the reporting date.

Operating segments:

 

 

Q3

2017

millions of

Q3

2016

millions of

Change

%

Q1-Q3

2017

millions of

Q1-Q3

2016

millions of

Change

%

FY 2016

millions of

Germany

 

 

 

 

 

 

 

Total revenue

5,488

5,485

0.1

16,256

16,208

0.3

21,774

EBITDA

2,116

1,972

7.3

6,132

5,564

10.2

7,327

Adjusted EBITDA

2,190

2,095

4.5

6,360

6,224

2.2

8,237

Number of employeesa

64,388

66,677

(3.4)

64,388

66,677

(3.4)

65,452

United States

 

 

 

 

 

 

 

Total revenue

8,466

8,281

2.2

26,684

24,293

9.8

33,738

EBITDA

3,934

2,241

75.5

8,960

6,632

35.1

8,967

Adjusted EBITDA

2,288

2,156

6.1

7,313

6,236

17.3

8,561

Europe

 

 

 

 

 

 

 

Total revenue

2,945

2,900

1.6

8,587

8,458

1.5

11,454

EBITDA

959

1,015

(5.5)

2,749

2,879

(4.5)

3,773

Adjusted EBITDA

1,007

1,037

(2.9)

2,843

2,936

(3.2)

3,866

Systems Solutions

 

 

 

 

 

 

 

Order entry

1,366

1,303

4.8

3,936

4,356

(9.6)

6,851

Total revenue

1,707

1,674

2.0

5,099

5,252

(2.9)

6,993

Adjusted EBIT margin
(%)

2.2

2.2

0.0p

1.5

2.9

(1.4p)

1.8

EBITDA

56

87

(35.6)

214

268

(20.1)

278

Adjusted EBITDA

131

139

(5.8)

362

446

(18.8)

530

Comment on the table:
a  At the reporting date.

Development of customer numbers
Operating segments: development of customer numbers in the third quarter of 2017

 

Sept. 30, 2017

thousands

June 30, 2017

thousands

Change

thousands

Change

%

Germany

 

 

 

 

Mobile customers

42,534

42,011

523

1.2

Of which contract customers

25,452

25,084

368

1.5

Fixed-network lines

19,352

19,477

(125)

(0.6)

Of which retail IP-based

11,177

10,351

826

8.0

Broadband lines

13,105

13,035

70

0.5

Of which optical fibera

5,417

5,033

384

7.6

Television (IPTV, satellite)

3,089

3,024

65

2.1

Unbundled local loop lines (ULLs)

6,417

6,723

(306)

(4.6)

United States

 

 

 

 

Mobile customersb

70,731

69,562

1,169

1.7

Of which branded postpaid customers

36,975

36,158

817

2.3

Of which branded prepay customers

20,519

20,293

226

1.1

Europe

 

 

 

 

Mobile customers

48,205

47,688

517

1.1

Of which contract customers

25,119

24,854

265

1.1

Fixed-network lines

8,422

8,464

(42)

(0.5)

Of which IP-based

5,555

5,416

139

2.6

Retail broadband lines

5,558

5,509

49

0.9

Television (IPTV, satellite, cable)

4,200

4,156

44

1.1

Comments on the table:
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b  As of Q2/17, 4.368 million wholesale customers from the Lifeline program are no longer included in the figures.

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

 

Sept. 30, 2017
thousands

Sept. 30, 2016
thousands

Change

thousands

Change

%

Germany

 

 

 

 

Mobile customers

42,534

41,461

1,073

2.6

Of which contract customers

25,452

24,705

747

3.0

Fixed-network lines

19,352

19,873

(521)

(2.6)

Of which retail IP-based

11,177

8,435

2,742

32.5

Broadband lines

13,105

12,835

270

2.1

Of which optical fibera

5,417

3,857

1,560

40.4

Television (IPTV, satellite)

3,089

2,818

271

9.6

Unbundled local loop lines (ULLs)

6,417

7,431

(1,014)

(13.6)

United States

 

 

 

 

Mobile customersb

70,731

69,354

1,377

2.0

Of which branded postpaid customers

36,975

33,230

3,745

11.3

Of which branded prepay customers

20,519

19,272

1,247

6.5

Europe

 

 

 

 

Mobile customers

48,205

48,508

(303)

(0.6)

Of which contract customers

25,119

24,005

1,114

4.6

Fixed-network lines

8,422

8,599

(177)

(2.1)

Of which IP-based

5,555

4,757

798

16.8

Retail broadband lines

5,558

5,352

206

3.8

Television (IPTV, satellite, cable)

4,200

4,010

190

4.7

Comments on the table:
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).
b  As of Q2/17, 4.368 million wholesale customers from the Lifeline program are no longer included in the figures.

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.

About Deutsche Telekom: Companyprofile

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