Deutsche Telekom continued its course of earnings-oriented growth and pushed ahead with its debt reduction in the first half of the year. The Deutsche Telekom Group's new focus is showing clear results.
Group revenue increased by EUR 1.5 billion, 5.7 percent, year-on-year to EUR 27.2 billion. Adjusted Group EBITDA increased by around 17 percent year-on-year to approximately EUR 9.1 billion, primarily as a result of the implementation of the Triple-E program.
Net income improved by EUR 5 billion year-on-year to a positive EUR 1.1 billion in the first half of 2003, mainly as a consequence of the improvement in results from ordinary business activities. Net debt decreased by around EUR 8.1 billion since December 31, 2002 to EUR 53.0 billion at June 30, 2003. Compared with EUR 64.3 billion at September 30, 2002, net debt has decreased by EUR 11.3 billion.
"We have further increased revenue and EBITDA and have made rapid progress in reducing debt. Our programs for improving efficiency are generating better and better results. We are growing - and our growth is increasingly profitable. And this is against the background of a weak economy in the first six months of the year," said Kai-Uwe Ricke in Bonn on Thursday.
Overview of selected key figures
| billions of € | Q2 2003 millions of € | Q2 2002 millions of € | Change% | H1 2003 millions of € | 1 st half-year 2002 millions of € | Change% | FY 2002 millions of € |
| Total revenue | 13,593 | 12,984 | 4.7 | 27,211 | 25,754 | 5.7 | 53,689 |
| Domestic | 8,630 | 8,683 | (0.6) | 17,136 | 17,201 | (0.4) | 35,288 |
| International | 4,963 | 4,301 | 15.4 | 10,075 | 8,553 | 17.8 | 18,401 |
| Net income/(loss) | 256 | (2,083) | n.a. | 1,109 | (3,891) | n.a. | (24,587) |
| EBITDA 1 | 4,710 | 3,777 | 24.7 | 9,614 | 7,559 | 27.2 | 16,116 |
| EBITDA adjusted for special factors 1 | 4,598 | 3,975 | 15.7 | 9,074 | 7,757 | 17.0 | 16,314 |
| Free cash flow after dividend 2 | | | | 3,912 | 1,260 | n.a. | 3,256 |
| Investments in property, plant and equipment and intangible assets 3 | (1,196) | (1,874) | 36.2 | (2,105) | (3,497) | 39.8 | (7,928) |
| Net debt at balance sheet date 4 | | | | 53,009 | 64,529 | (17.9) | 61,106 |
| Number of employees at balance sheet date | | | | 250,533 | 254,806 | (1.7) | 255,969 |
1) EBITDA = Results of ordinary business activities before net financial income / expense, including income related to subsidiaries, associated and related companies, amortization and depreciation, and before other taxes; for a detailed explanation of these figures, please refer to the chapter "Reconciliation to pro forma figures" in the Group Report on the second quarter of 200 2) For detailed information and calculations please refer to "Reconciliation to pro forma figures". 3) Excluding goodwill. 4) Bonds, liabilities to banks, liabilities to non-banks from loan notes, and other liabilities after deduction of liquid assets, marketable securities, other investments in noncurrent securities, other assets, and loan discounts (prepaid expenses, deferred charges).
Increased efficiency and reduced costs The T-Mobile and T-Online divisions were the major contributors to revenue growth in the second quarter and the first half of 2003. Group revenue increased by 4.7 percent in the second quarter to EUR 13.6 billion. The impact of the deconsolidation of the cable business, sold effective March 1, 2003, and the strength of the euro - against the U.S. dollar and the pound sterling in particular - which has the effect of reducing revenue figures when translated, should be taken into consideration. Revenue growth in the first six months of 2003 was 5.7 percent, bringing the figure up to EUR 27.2 billion. Organic growth (after deconsolidation of the remaining cable companies, assuming constant foreign currency exchange rates and excluding T-Mobile Netherlands) would have amounted to 9.1 percent to EUR 27.8 billion in the first half of 2003.
Deutsche Telekom's international business also developed positively, with a plus of 15.4 percent to almost EUR 5 billion in the quarter and almost 18 percent to EUR 10.1 billion in the half-year. Despite the negative foreign currency translation effects from the conversion of revenue figures into euros, the proportion of international revenue in the first half of 2003 increased considerably to 37.0 percent from 33.2 percent in the first half of 2002.
Group EBITDA improved by 27.2 percent in the first half of 2003 to EUR 9.6 billion, compared with EUR 7.6 billion in the same period last year. Adjusted EBITDA in the first half of 2003 increased by 17 percent to EUR 9.1 billion. The adjusted EBITDA margin improved considerably from 30.1 percent to 33.3 percent at the same time.
All the divisions of the Group contributed to the EBITDA increase. Special factors amounting to a net total of around EUR 0.1 billion had a positive effect on EBITDA in the second quarter. These special factors were primarily a result of the income from the sale of financial assets (principally from T-Mobile's disposal of interests in MTS). This was offset by expenses from higher additions to pension accruals occasioned by changes in discount rates (additional minimum liability, AML), particularly at T-Com .
Group EBITDA in the second quarter of 2003 increased by almost 25 percent year-on-year to EUR 4.7 billion; adjusted for special influences, EBITDA increased by almost 16 percent to EUR 4.6 billion. Adjusted EBITDA also increased by approximately 2.7 percent compared with the first quarter of 2003 (EUR 4.5 billion).
The EBITDA growth clearly shows that the massive range of measures to increase efficiency are having a positive effect. Thanks to its Triple-E program, the Group has been able to generate an extra contribution to earnings of approximately EUR 800 million, mainly as a result of cost savings and economies of scale. Both T-Com and T-Systems saved slightly over EUR 0.4 billion in the cost of materials. T-Mobile and T-Online generated considerable economies of scale of around EUR 0.4 billion while increasing their revenues and thus further expanded the EBITDA margin.
Net income
The year-on-year improvement of EUR 5 billion in the Group's net income to EUR 1.1 billion in the first half of 2003 is attributable primarily to the improvement in results from ordinary business activities, but also, to a lesser extent, to the favorable tax effects, recorded in the first quarter. Adjusted for the relevant special effects, relating to sales of interests, the adjustment of pension accruals, write-downs and tax effects, net income for the first half of 2003 amounted to EUR 275 million, as compared with a net loss of approximately EUR 3.1 billion in the same period last year.
Reduction of net debt Since debt reduction measures were initiated in the third quarter of 2002, net debt has decreased by EUR 11.3 billion by June 30, 2003. With just half the year gone, therefore, the debt reduction target announced in November last year as part of the 6+6 program has practically been achieved.Net debt was reduced to EUR 53.0 billion at June 30, 2003. This represents a further reduction of EUR 3.3 billion in the second quarter in addition to the EUR 4.8 billion already achieved in the first quarter of this year. The reduction is primarily attributable to cash inflows from the disposal of shareholdings (in particular the sale of shares in MTS for around EUR 0.5 billion and the stake in the Malaysian company Celcom for approximately EUR 0.1 billion in the second quarter). Net cash provided by operating activities and foreign currency translation effects also contributed to debt reduction.
Free cash flow Free cash flow before dividend amounted to EUR 4.0 billion in the first half of 2003, approximately 40 percent higher than in the first half of 2002 (EUR 2.8 billion). In addition, the fact that a dividend was paid in 2002 for the 2001 financial year, but not in 2003 for the 2002 financial year, improved 'free cash flow after dividend payment' in the first half of 2003 in a year-on-year comparison from EUR 1.3 billion to EUR 3.9 billion.
| Q1 2003 millions | Q1 2002 millions | Change% 6 | FY 2002millions |
| Deutsche Telekom GroupTelephone lines(incl. ISDN channels) | 58.1 | 57.9 | 0.3 | 58.1 |
| T-Com | | | | |
| Fixed-network lines, incl. ISDN channels | 55.8 | 55.9 | (0.2) | 56.2 |
| of which: Germany 1 | 49.1 | 49.1 | 0 | 49.3 |
| Standard lines | 28.0 | 29.3 | (4.4) | 28.6 |
| ISDN channels | 21.1 | 19.8 | 6.6 | 20.7 |
| T-DSL contracts sold | 3.7 | 2.5 | 48.0 | 3.1 |
| of which: international | 6.7 | 6.8 | (1.5) | 6.9 |
| Matav 2 | 3.5 | 3.6 | (2.8) | 3.6 |
| Slovenske Telekomunikacie | 1.4 | 1.5 | (6.7) | 1.5 |
| Hrvatske Telekomunikacije | 1.8 | 1.8 | 0 | 1.8 |
| Mobile communications subscribers | | | | |
| T-Mobile Deutschland | 25.3 | 23.3 | 8.6 | 24.6 |
| T-Mobile USA 4 | 11.4 | 8.0 | 42.5 | 9.9 |
| T-Mobile UK 5 | 12.5 | 11.1 | 12.6 | 12.4 |
| T-Mobile Austria | 2.0 | 2.0 | 0 | 2.0 |
| T-Mobile CZ | 3.6 | 3.1 | 16.1 | 3.5 |
| T-Mobile NL 3 | 1.7 | 1.3 | 30.8 | 1.4 |
| Majority-owned subsidiaries of T-Mobile International | 56.5 | 48.9 | 15.5 | 53.9 |
| Westel | 3.5 | 3.0 | 16.7 | 3.4 |
| Hrvatske Telekomunikacije. | 1.3 | 1.1 | 18.2 | 1.2 |
| Majority-owned subsidiaries of the Deutsche Telekom Group | 61.4 | 52.9 | 16.1 | 58.6 |
| T-Online subscribers | 12.67 | 11.57 | 9.5 | 12.24 |
| of which: T-Online (Germany) | 10.35 | 9.46 | 9.4 | 9.96 |
| of which: Rest of Europe | 2.32 | 2.11 | 10.0 | 2.28 |
| DSL subscribers in total | 3.22 | 2.29 | 40.6 | 2.80 |
1) Telephone lines, including for internal use. 2) Number of lines includes the MATÁV subsidiary Maktel for the first time. Prior-year by figures restated. 3) T-Mobile Netherlands fully consolidated since Q4 2002, presented on a pro forma basis to facilitate comparison. 4) Including Powertel, Inc 5) Including Virgin Mobile. 6) Percentages calculated on the basis of figures shown
T-COM: EBITDA margin increased
The decrease of 2.7 percent in total revenue in the first half of 2003 was influenced by the difficult economic environment and the deconsolidation of the remaining cable companies (EUR 0.2 billion).
T-Com made considerable progress in increasing efficiency. Costs savings of more than EUR 300 million were made in the first half of 2003 compared with the same period last year. Mainly as a result of these improvements in efficiency, T-Com increased its EBITDA by 1.7 percent in the first half of 2003 to slightly more than EUR 5.1 billion. Taking the special factors into account, adjusted EBITDA even increased by 3.5 percent to EUR 5.2 billion. T-Com thus further expanded its EBITDA margin from 33.6 percent in the first six months of 2002 to 35.7 percent in the first half of 2003.
An important trend affecting T-Com's business development in the second quarter of 2003 continued to be the migration of customers to more advanced lines, and particularly broadband lines. The number of T-DSL lines sold in Germany grew by another 300,000, almost 9 percent, reaching 3.7 million in the second quarter of 2003. This represents a year-on-year increase of around 48 percent.
| Q2 2003 | Q2 2002 4) | Change% | Q1 2003 | Q1 2002 4) | Change% |
| Total revenue 1) | 7,153 | 7,509 | (4.7) | 14,643 | 1,5042 | (2.7) |
| Results from ordinary business activities | 859 | 971 5) | (11.5) | 2,277 | 1,672 5) | 36.2 |
| EBITDA 2) | 2,258 | 2,555 | (11.6) | 5,136 | 5,049 | 1,7 |
| Adjusted EBITDA 4) | 2,554 | 2,555 | (0.04) | 5,228 | 5,049 | 3.5 |
| Number of employees 3) | 141,065 | 153,814 | (8.3) | 143,264 | 154,519 | (7.3) |
1) Including DeTeMedien and agency business. 2) EBITDA = Results from ordinary business activities excluding other taxes, net financial income/(expense), amortization, and depreciation 3) Average number of employees, including DeTeMedien 4) For detailed information and calculations please refer to "Reconciliation to pro forma figures" in the 2002 Annual Report 5) Difference due to the switch to cost-of-sales accounting
T-Mobile continues to drive EBITDA growth forward The significant year-on-year improvement in the T-Mobile division's total revenue by 19 percent to EUR 10.9 billion in the first half of 2003 was due to the substantial increase in the number of subscribers, and to higher revenue per customer in almost all markets. The number of T-Mobile customers increased by 1.4 million in the second quarter of 2003 alone; growth in the first half of 2003 compared with the end of 2002 was 2.6 million. The total number of mobile subscribers served by majority-owned companies of the Deutsche Telekom Group - including mobile communications shareholdings not held by T-Mobile - increased by 2.8 million compared with December 31, 2002 to 61.4 million. In addition, the first-time consolidation of T-Mobile Netherlands has had a positive effect since the fourth quarter of 2002. Excluding the effects of the first-time consolidation of T-Mobile Netherlands, revenue increased by 14.2 percent in the second quarter of 2003, compared with the same period last year.
T-Mobile increased its adjusted EBITDA even more sharply than its revenue - by 27 percent compared with the first six months of 2002 - to EUR 3.3 billion. Practically all companies generated an absolute increase in EBITDA and almost all foreign companies increased their EBITDA margin. Business in the U.S.A. made a particular contribution to EBITDA growth. T-Mobile USA's EBITDA more than tripled year-on-year on the basis of a dollar comparison to around USD 850 million in the first half of 2003. Measured in euros, it amounted to 766 million.
The number of new customers in the U.S. increased by 1.5 million in the first six months of the year; this figure is the second highest, by far, of all U.S. mobile communications companies. T-Mobile USA now has over 11 million customers. T-Mobile USA has focused its activities on quality growth of its customer base: At around 652,000, the number of new contract subscribers in the second quarter of 2003 was even higher than the number of net additions (606,000). At over 10 million, contract subscribers now account for 88 percent of all customers. The average revenue per user (ARPU) per month also increased by approximately USD 4 year-on-year to USD 53 in the second quarter of 2003.
| Q2 2003 | Q2 2002 | Change% | Q1 2003 | Q1 2002 | Change% |
| Total revenue | 5,557 | 4,675 | 18.9 | 10,867 | 9,140 | 18.9 |
| Results from ordinary business activities | 475 | (682) 1) | n.a. | 398 | (1,543) 1) | n.a. |
| EBITDA 2) | 2,088 | 1,348 | 54,9 | 3,602 | 2,559 | 40.8 |
| Adjusted EBITDA 4) | 1,743 | 1,348 | 29,3 | 3,257 | 2,559 | 27.3 |
| Number of employees 3) | 40,986 | 38,143 | 7.5 | 41,306 | 37,957 | 8.8 |
1) Difference due to the switch to cost-of-sales accounting 2) EBITDA = Results from ordinary business activities excluding other taxes, net financial income/(expense), amortization, and depreciation 3) Average number of employees. 4) For detailed information and calculations please refer to "Reconciliation to pro forma figures" in the 2002 Annual Report
T-Systems - efficiency increased considerably in the first half-year
In the first six months of 2003, T-Systems recorded a stable overall development at what was a difficult time for the industry. At around EUR 5.1 billion in the first half of 2003, the total revenue of the T-Systems division was slightly higher than in the same period last year. Adjusted EBITDA increased by just over 22 percent year-on-year from EUR 509 million to EUR 623 million.
This demonstrates that T-Systems also made considerable progress in increasing efficiency. In the first half of 2003, the division was able to achieve cost savings of just under EUR 140 million. T-Systems currently also has a very healthy order book. A prime example is the new service agreement signed with DaimlerChrysler, worth approximately EUR 1.2 billion over three years, making it one of the largest customer orders placed this year.
| Q2 2003 | Q2 2002 4) | Change% | Q1 2003 | Q1 2002 4) | Change% |
| Total revenue | 2,567 | 2,588 | (0.8) | 5,127 | 5,079 | 0.9 |
| Results from ordinary business activities | (71) | (438) 1) | 83.8 | (89) | (540) 1) | 83.5 |
| EBITDA 2) | 319 | 251 | 27.1. | 687 | 509 | 35.0 |
| Adjusted EBITDA 4) | 337 | 251 | 34.3 | 623 | 509 | 22.4 |
| Number of employees 3) | 42,305 | 43,223 | (2.1) | 42,816 | 43,454 | (1.5) |
1) Difference due to the switch to cost-of-sales accounting 2) EBITDA = Results from ordinary business activities excluding other taxes, net financial income/(expense), amortization, and depreciation 3) Average number of employees. 4) For detailed information and calculations please refer to "Reconciliation to pro forma figures" in the 2002 Annual Report
T-Online further increases revenue and gross earnings In the first half of 2003, the T-Online division again recorded a further substantial year-on-year increase of 21 percent in total revenue to EUR 894 million. This growth was partly due to the sustained growth of the customer base, notably in the numbers of broadband customers.
The average length of time that users spent online (stickiness) also increased. This has led to better capacity utilization which in turn has resulted in a higher gross margin.
Second quarter 2003 EBITDA contains a gain of EUR 25 million from the sale of t-info GmbH to DeTeMedien. In the first six months of 2003, EBITDA improved from EUR 15 million to EUR 176 million. The T-Online division's EBITDA adjusted for the above-mentioned effects improved from a negative figure of EUR -12 million in the first half of 2002 to a positive EUR 151 million.
| Q2 2003 | Q2 2002 | Change% | Q1 2003 | Q1 2002 | Change% |
| Total revenue | 449 | 372 | 20.7 | 894 | 738 | 21,1 |
| Results from ordinary business activities | 21 | (56) 3) | n.a. | 23 | (149) 3) | n.a. |
| EBITDA 1) | 101 | 29 | n.a. | 176 | 15 | n.a. |
| Adjusted EBITDA 4) | 76 | 2 | n.a. | 151 | (12) | n.a. |
| Number of employees 2) | 2,655 | 2,458 | 8.0 | 2,644 | 2,475 | 6.8 |
1) EBITDA = Results from ordinary business activities excluding other taxes, net financial income/(expense), amortization, and depreciation. 2) Average number of employees, excluding DeTeMedien. 3) Difference due to the switch to cost-of-sales accounting. 4) For detailed information and calculations please refer to "Reconciliation to pro forma figures" in the 2002 Annual Report.
The T-Online figures shown here were calculated in line with the provisions of German GAAP, as applied throughout the Deutsche Telekom Group, and do not correspond to the figures published by T-Online International AG in accordance with IASs, as T-Online International AG and Deutsche Telekom AG do not apply the same accounting policies.
New corporate vision and values "T-Spirit" After a phase of reorientation in economically difficult times, the Board of Management and senior management have put the focus on the customer with a new corporate vision and set of values and laid the foundation for a new corporate and leadership culture. At the center of this is the vision: "As the leading services company in the telecommunications and information technology industry, we network society for a better future. With top quality, efficiency and innovation, to the benefit of our customers. In every respect.
"In this new vision, the "T" stands for quality, innovation and efficiency. It is the binding element in the Group and the joint performance promise to Deutsche Telekom's customers. In addition to the vision, T-SPIRIT also comprises a single set of six corporate values which, together with the vision, apply to all units within the Group. The six central values can be easily recalled from the acronym SPIRIT: S uperior value, P assion for our customers, I nnovation, R espect, I ntegrity and T op Excellence.
Outlook Although 2003 started well for Deutsche Telekom, a recovery of the national economy is not yet in sight. Deutsche Telekom's goal is therefore still to maintain stable business development and to achieve its planned Group EBITDA of between EUR 17.2 and 17.7 billion for the full financial year. The priorities for 2004 remain: to optimize cash generated from operations and to continue with the reduction of debt. The medium-term goal is to reduce debt to a figure that is between twice and three times adjusted EBITDA in order to guarantee continued, unhampered access to capital markets. The Board of Management also aims to reinstate the dividend for the 2004 financial year, payable in 2005.
This underscores the Board of Management's confidence in the positive medium-term earnings development of the Group and, at the same time, represents a commitment by the Board towards the company's shareholders.
In addition to the results prepared in accordance with German GAAP provided throughout this press release, Deutsche Telekom has presented non-GAAP financial measures, such as EBITDA, EBITDA adjusted, net debt and free cash flow. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. To interpret these non-GAAP financial measures, please refer to the "Reconciliation to pro forma figures". To view these and other reconciliations visit our 'Investor Relations' link under www.telekom.de.
This press release contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of the safe-harbor provisions of the U.S. federal securities laws. Because these forward-looking statements are subject to risks and uncertainties, actual future results may differ materially from those expressed in or implied by the statements.
Many of these risks and uncertainties relate to factors that are beyond Deutsche Telekom's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behavior of other market participants, the actions of governmental regulators and other risk factors detailed in Deutsche Telekom's report filed with the Securities and Exchange Commission (the "Commission"). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release.