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Andreas Fuchs

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Deutsche Telekom raises guidance for 2020 following strong growth despite the coronavirus pandemic

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  • Revenue growth of 31.9 percent in the third quarter to 26.4 billion euros
  • Adjusted EBITDA AL up 49.6 percent year-on-year to 9.7 billion euros
  • Adjusted net profit up 6.3 percent to 1.5 billion euros
  • New full-year guidance: adjusted EBITDA AL of at least 35 billion euros, free cash flow AL of at least 6.0 billion euros, higher earnings expected on both sides of the Atlantic
  • Germany: clear growth in broadband business 
  • T-Mobile US integrates Sprint ahead of plan 
  • Growth continues in Europe

Growth continues apace: Following the merger of T-Mobile US and Sprint, Deutsche Telekom’s key financials increased significantly, as in the second quarter. Revenue increased by 31.9 percent in the third quarter of 2020 to 26.4 billion euros. Adjusted EBITDA AL increased by 49.6 percent to 9.7 billion euros. But even in organic terms, adjusted for changes in the composition of the Group and exchange rate effects, the Group recorded growth of 2.0 percent in revenue and 10.0 percent in adjusted EBITDA AL.

On the back of the strong performance in the first nine months and a positive outlook for the rest of the year, the Group raised its guidance for the current financial year. Deutsche Telekom now expects to report adjusted EBITDA AL of at least 35 billion euros and free cash flow AL of at least 6.0 billion euros. This puts the guidance for adjusted EBITDA AL around a billion euros higher and for free cash flow AL around 0.5 billion euros higher than it was in August. This is not only due to the raising of the guidance for T-Mobile US. The rest of the Group also expects higher adjusted EBITDA AL for the full year of around 14.0 billion euros, despite the negative impact of the coronavirus pandemic. Previously, the guidance for the Group ex U.S. had stood at 13.9 billion euros. Deutsche Telekom confirmed its plans to award an unchanged dividend of 60 euro cents per share.

“Deutsche Telekom is showing its strengths,” said CEO Tim Höttges. “We are raising our guidance thanks to strong business on both sides of the Atlantic. And we are able to do this despite feeling the effects of the pandemic in some areas.”

Free cash flow AL declined by 23.9 percent in the quarter to 1.6 billion euros, but after nine months is still up on the prior-year level at 5.3 billion euros. Net profit decreased by 40.3 percent to 0.8 billion euros year-on-year in the third quarter, mainly due to an impairment loss recognized in the Systems Solutions segment as a result of the dampened short and medium-term expectations for the business. Adjusted for special factors, net profit increased by 6.3 percent to 1.5 billion euros.

Germany – margin improves in quarter 

Telekom grew much faster between July and September than in the previous quarters, with 97,000 net broadband additions. Around 15.5 million lines in Telekom’s network are now fiber-optic-based (FTTH and FTTC/vectoring), 1.6 million more than a year ago. Almost 3.8 million customers use the television service MagentaTV, with 63,000 new users in the quarter and growth of 6.9 percent year-on-year.

In the third quarter, Telekom won 192,000 new branded mobile contract customers. The company recorded a slight year-on-year decline of 0.5 percent in mobile service revenues, mainly due to lower roaming and visitor revenues on account of the reduction in travel as a consequence of the coronavirus pandemic. Without this factor, mobile service revenues would have risen by around 2 percent.

Adjusted EBITDA AL increased by 1.3 percent year-on-year in the third quarter to 2.4 billion euros. As a result of low equipment revenue and the effects of the coronavirus, revenue declined slightly by 1.1 percent to 5.8 billion euros. This results in an adjusted EBITDA AL margin of 40.6 percent for the Germany operating segment. That is 0.9 percentage points more than in the previous year.

United States – well on course following merger

In the third quarter of 2020, T-Mobile US passed the 100-million customer mark. 2.0 million net additions between July and September brought the total number of customers of the number two on the U.S. mobile market to 100.4 million.

The key financials increased substantially on the back of the Sprint takeover. Revenue grew by 74.2 percent to 19.4 billion U.S. dollars. Adjusted EBITDA AL increased 119.3 percent to 7.0 billion U.S. dollars. Adjusted for the Sprint transaction, in organic terms, revenue grew by 4.0 percent and adjusted EBITDA AL by 14.6 percent.

The integration of Sprint is ahead of plan. Just a few short months after the transaction was closed, 15 percent of the voice and data traffic of Sprint contract customers is already being processed on the network of the new T Mobile. The company expects to realize synergies of 1.2 billion dollars in the current year, primarily from the integration of networks and sales.

Europe – entities prove themselves robust

The European national companies remain on course for growth. In organic terms, adjusted EBITDA AL increased by 2.1 percent year-on-year in the third quarter to 1.1 billion euros. This means that the segment posted organic earnings growth for the eleventh quarter in a row, despite the headwind from coronavirus-induced declines in roaming revenues. Revenue remained stable at the prior-year level, rising 0.2 percent to 2.9 billion euros.

The number of mobile contract customers grew by 171,000 in the quarter. Broadband net additions totaled 60,000, with the companies in Greece and Hungary being primarily responsible for this growth. Fixed-mobile convergence product bundles won 258,000 new users. The percentage of broadband households using such products passed the 50-percent mark.

Systems Solutions – tangible impact of pandemic

T-Systems is feeling the effects of the coronavirus pandemic. Order entry in the third quarter declined by 24.9 percent to 0.7 billion euros. Adjusted for the restructuring within the Group, revenue decreased by 11.6 percent to 1.0 billion euros. Adjusted EBITDA AL fell by 16.3 percent year-on-year to 67 million euros.

The development of traditional IT business, which has fallen short of expectations due to the coronavirus pandemic, resulted in the recognition of an impairment loss on non-current assets totaling 0.5 billion euros in the Group.

Group Development – Strong growth at TMNL and with cell towers

The robust customer growth at T-Mobile Netherlands (TMNL) continued again in the third quarter of 2020. Between July and September, the company recorded 62,000 mobile contract net additions. As in the previous quarters, adjusted EBITDA AL rose substantially by 6.8 percent year-on-year in organic terms to 141 million euros. Mobile service revenues recorded slight organic growth of 0.4 percent year-on-year, despite the reduction in roaming revenues due to the pandemic.

With 35,000 cell sites as of the end of the third quarter, the cell tower business recorded growth of 5.3 percent compared with the prior-year period. While revenue increased by 3.8 percent compared with the third quarter of 2019 to 248 million euros, adjusted EBITDA AL was up 5.0 percent to 149 million euros. 

The Deutsche Telekom Group at a glance



Q3

2020

millions of

Q3

2019

millions of

Change

%

Q1-Q3

2020

millions of

Q1-Q3

2019

millions of

Change

%

FY
2019

millions of

Net revenue

26,393

20,017

31.9

73,377

59,169

24.0

80,531

Proportion generated internationally

%

77.2

69.9

7.3p

75.3

69.3

6.0p

69.5

EBITDA

10,615

7,314

45.1

27,581

20,476

34.7

27,120

Adjusted EBITDA

11,102

7,490

48.2

29,936

21,654

38.2

28,708

Adjusted EBITDA AL

9,692

6,478

49.6

26,065

18,701

39.4

24,731

Net profit (after non-controlling interests)

817

1,368

-40.3

2,487

3,213

-22.6

3,867

Adjusted net profit (after non-controlling interests)

1,509

1,420

6.3

4,072

3,932

3.6

4,948

Free cash flowa

2,897

2,913

-0.5

8,867

7,596

16.7

10,133

Free cash flow ALa

1,634

2,147

-23.9

5,347

5,250

1.8

7,013

Cash capexb

4,763

3,180

49.8

12,880

11,206

14.9

14,357

Cash capexb

(before spectrum)

4,490

3,037

47.8

11,512

10,043

14.6

13,118

Net debt

124,521

78,807

58.0

76,031

Number of employeesc

227,584

211,884

7.4

210,533

Comments on the table:
Sprint has been included in Deutsche Telekom’s consolidated financial statements as a fully consolidated subsidiary since April 1, 2020. As a result of the change in the composition of the Group during the course of the year, the remeasured assets and liabilities were recognized as of this date, and all income and expenses generated from the date of first-time consolidation are included in Deutsche Telekom’s consolidated income statement. This affects the comparability of the figures for the current reporting period with the prior-year figures.
a   Before dividend payments and spectrum investment, before interest payments for zero-coupon bonds, and before repayment of forward-payer swaps at T-Mobile US
b   Cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill).
c   At the reporting date.


Operating segments: development of operations



Q3

2020

millions of

Q3

2019

millions of

Change

%

Q1-Q3

2020

millions of

Q1-Q3

2019

millions of

Change

%

FY
2019

millions of

Germany

Total revenue

5,839

5,905

-1.1

17,520

17,507

0.1

23,730

EBITDA

2,184

2,286

-4.5

6,396

6,430

-0.5

8,668

Adjusted EBITDA

2,387

2,352

1.5

6,930

6,805

1.8

9,121

Adjusted EBITDA AL

2,373

2,343

1.3

6,898

6,774

1.8

9,083

Number of employeesa

66,899

69,839

-4.2

69,117

United Statesb

Total revenue

16,569

10,006

65.6

44,024

29,629

48.6

40,420

US$

19,374

11,120

74.2

49,613

33,286

49.1

45,236

EBITDA

6,923

3,421

n.a.

17,064

9,965

71.2

13,265

Adjusted EBITDA

7,091

3,563

99.0

18,398

10,406

76.8

13,809

Adjusted EBITDA AL

5,994

2,874

n.a.

15,458

8,424

83.5

11,134

US$

7,003

3,194

n.a.

17,429

9,463

84.2

12,463

Europe

Total revenue

2,880

2,929

-1.7

8,344

8,507

-1.9

11,587

EBITDA

1,205

1,148

5.0

3,219

3,173

1.4

4,223

Adjusted EBITDA

1,175

1,171

0.3

3,279

3,279

0.0

4,364

Adjusted EBITDA AL

1,064

1,061

0.3

2,953

2,948

0.2

3,910

Systems Solutions

Order entry

702

935

-24.9

2,503

3,276

-23.6

4,740

Total revenue

961

1,087

-11.6

3,095

3,254

-4.9

4,424

Adj. EBIT margin (%)

1.8

-0.3

2.1p

-1.1

-2.3

1.2p

-2.0

EBITDA

32

52

-38.5

102

43

n.a.

54

Adjusted EBITDA

92

109

-15.6

260

263

-1.1

364

Adjusted EBITDA AL

67

80

-16.3

173

176

-1.7

250

Group Development

Total revenue

719

704

2.1

2,142

2,068

3.6

2,797

EBITDA

344

479

-28.2

993

1,105

-10.1

1,427

Adjusted EBITDA

355

345

2.9

1,049

996

5.3

1,330

Adjusted EBITDA AL

284

269

5.6

836

774

8.0

1,033

Comments on the table:
Consistent with efforts to implement the Group strategy pillar “Lead in business productivity,” Deutsche Telekom combined its B2B telecommunications business within its Germany operating segment as of July 1, 2020. This transfer affected the Germany, Europe, Systems Solutions, and GHS operating segments. Prior-year comparatives for the development of operations, customer numbers, headcount, and order entry were adjusted retrospectively. This internal reorganization does not affect the Group’s figures.
a  At the reporting date.
b  Sprint has been included in Deutsche Telekom’s consolidated financial statements as a fully consolidated subsidiary since April 1, 2020. Comparative figures have not been adjusted.


Operating segments: development of customer numbers in the third quarter of 2020

Sept. 30, 2020

thousands

June 30, 2020

thousands

Change

thousands

Change

%

Germany

Mobile customers

47,844

47,395

449

0.9

Of which contract customers

25,744

25,505

239

0.9

Fixed-network lines

17,602

17,649

-47

-0.3

Of which retail IP-based

17,509

17,509

0

0.0

Broadband lines

13,997

13,900

97

0.7

Of which optical fibera

9,246

9,012

234

2.6

Television (IPTV, satellite)

3,787

3,724

63

1.7

Unbundled local loop lines (ULLs)

4,235

4,361

-126

-2.9

United Statesb

Mobile customersc, d

100,362

107,720

-7,358

-6.8

Of which branded postpaid customers

79,732

77,753

1,979

2.5

Of which branded prepaid customersd

20,630

29,967

-9,337

-31.2

Europe

Mobile customers

45,743

45,665

78

0.2

Of which contract customerse

26,699

26,528

171

0.6

Fixed-network lines

9,062

9,040

22

0.2

Of which IP-basedf

8,381

8,322

59

0.7

Broadband customers

6,866

6,806

60

0.9

Television (IPTV, satellite, cable)

4,986

4,960

26

0.5

Group Development

Netherlands

Mobile customers

5,761

5,741

20

0.3

Fixed-network lines

661

644

17

2.6

Broadband lines

647

628

19

3.0

Comments on the table:
Consistent with efforts to implement the Group strategy pillar “Lead in business productivity,” Deutsche Telekom combined its B2B telecommunications business within its Germany operating segment as of July 1, 2020. This transfer affected the Germany, Europe, Systems Solutions, and GHS operating segments. Prior-year comparatives for the development of operations, customer numbers, headcount, and order entry were adjusted retrospectively. This internal reorganization does not affect the Group’s figures.
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH/B).
b Sprint has been included in Deutsche Telekom’s consolidated financial statements as a fully consolidated subsidiary since April 1, 2020. Comparative figures have not been adjusted.
c Starting in Q1 2020, T-Mobile US discontinued reporting of wholesale customers due to the expansion of M2M and Internet of Things (loT) products and instead will continue to focus on branded customer reporting.
d On July 1, 2020, a major prerequisite of the U.S. Department of Justice (DoJ) for approving the merger of T-Mobile US and Sprint was duly fulfilled: the sale of Sprint’s prepaid business (Boost Mobile) to the satellite TV operator DISH Network. The sale includes around 9.4 million customers. Furthermore, an agreement to sell spectrum to DISH was confirmed.
e M2M cards (machine-to-machine) were reclassified Group-wide as of January 1, 2020 and assigned exclusively to the prepaid customer segment. The portion of M2M cards which had previously been recognized in the contract customer segment was reclassified accordingly. Comparative figures have been adjusted retrospectively.
f  Prior-quarter comparative for IP-based-fixed network lines in the Czech Republic was adjusted as part of the standardization of the underlying customer definition.


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

Sept. 30, 2020
thousands

Sept. 30, 2019
thousands

Change

thousands

Change

%

Germany

Mobile customers

47,844

45,598

2,246

4.9

Of which contract customers

25,744

25,138

606

2.4

Fixed-network lines

17,602

17,996

-394

-2.2

Of which retail IP-based

17,509

17,158

351

2.0

Broadband lines

13,997

13,683

314

2.3

Of which optical fibera

9,246

8,231

1,015

12.3

Television (IPTV, satellite)

3,787

3,544

243

6.9

Unbundled local loop lines (ULLs)

4,235

4,770

-535

-11.2

United Statesb

Mobile customersc, d

100,362

66,503

33,859

50.9

Of which branded postpaid customers

79,732

45,720

34,012

74.4

Of which branded prepaid customersd

20,630

20,783

-153

-0.7

Europe

Mobile customers

45,743

46,501

-758

-1.6

Of which contract customerse

26,699

26,023

676

2.6

Fixed-network lines

9,062

9,069

-7

-0.1

Of which IP-basedf

8,381

8,208

173

2.1

Broadband customers

6,866

6,599

267

4.0

Television (IPTV, satellite, cable)

4,986

4,919

67

1.4

Group Development

Netherlands

Mobile customers

5,761

5,528

233

4.2

Fixed-network lines

661

601

60

10.0

Broadband lines

647

586

61

10.4

Comments on the table:
Consistent with efforts to implement the Group strategy pillar “Lead in business productivity,” Deutsche Telekom combined its B2B telecommunications business within its Germany operating segment as of July 1, 2020. This transfer affected the Germany, Europe, Systems Solutions, and GHS operating segments. Prior-year comparatives for the development of operations, customer numbers, headcount, and order entry were adjusted retrospectively. This internal reorganization does not affect the Group’s figures.
a Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH/B).
b  Sprint has been included in Deutsche Telekom’s consolidated financial statements as a fully consolidated subsidiary since April 1, 2020. Comparative figures have not been adjusted.
c Starting in Q1 2020, T-Mobile US discontinued reporting of wholesale customers due to the expansion of M2M and Internet of Things (loT) products and instead will continue to focus on branded customer reporting.
d On July 1, 2020, a major prerequisite of the U.S. Department of Justice (DoJ) for approving the merger of T-Mobile US and Sprint was duly fulfilled: the sale of Sprint’s prepaid business (Boost Mobile) to the satellite TV operator DISH Network. The sale includes around 9.4 million customers. Furthermore, an agreement to sell spectrum to DISH was confirmed.
e M2M cards (machine-to-machine) were reclassified Group-wide as of January 1, 2020 and assigned exclusively to the prepaid customer segment. The portion of M2M cards which had previously been recognized in the contract customer segment was reclassified accordingly. Comparative figures have been adjusted retrospectively.
f   Prior-quarter comparative for IP-based-fixed network lines in the Czech Republic was adjusted as part of the standardization of the underlying customer definition.

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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