- Revenue up by 0.9 percent to 75.7 billion euros; organic growth of 3.1 percent
- Adjusted EBITDA up by 5.0 percent to 23.3 billion euros, organic growth of 7.2 percent
- Free cash flow reaches 6.2 billion euros, up 13.7 percent against 2017, organic growth of 18.9 percent
- Dividend to increase from 65 eurocents to 70 eurocents per share
- Record investments of 12.2 billion euros worldwide
- Net profit down against prior year, primarily due to U.S. tax reform
- Germany business strong in mobile communications
- Growth at T-Mobile US continues unabated
- Sustainable growth in Europe
- 2019 forecast shows undiminished growth momentum
Deutsche Telekom remained on course in the final quarter of 2018. The Group exceeded its financial guidance, which had been raised three times in the course of the year. Revenue increased by 0.9 percent in 2018 to 75.7 billion euros, adjusted EBITDA by 5.0 percent to 23.3 billion euros. At the same time, free cash flow increased by 13.7 percent in the full year to 6.2 billion euros. In organic terms – i.e., assuming constant exchange rates and the same composition of the Group – revenue grew by 3.1 percent, adjusted EBITDA by 7.2 percent, and free cash flow by 18.9 percent.
Deutsche Telekom’s guidance is established on an organic basis. The target values, adjusted most recently in November, stood at around 23.6 billion euros for adjusted EBITDA and around 6.3 billion euros for free cash flow. On an organic basis, the Group clearly exceeded these forecast figures, achieving 23.8 billion euros in adjusted EBITDA and 6.3 billion euros in free cash flow.
“We kept our promises and continued to grow in 2018,” said Tim Höttges, CEO of Deutsche Telekom. “With a strong presence on both sides of the Atlantic combined with our vast investment capacity, our growth profile is unique in the industry.”
The Group’s investments once again increased to a record level. Cash capex before expenses for mobile spectrum reached 12.2 billion euros. This takes the investments made by the Group worldwide in the last four years to more than 46 billion euros, around 21 billion euros of this in Germany. In addition, more than 14 billion euros was spent on mobile spectrum licenses. The success of these massive investments can be seen in all the network tests Deutsche Telekom has won over the last few years, and in particular in the unabated strong customer growth on both sides of the Atlantic.
The decline in adjusted net profit is primarily attributable to the positive one-time effects of the U.S. corporate tax reform in the prior year, which were not matched by any comparable effect in the reporting year. At 4.5 billion euros, adjusted net profit in 2018 was therefore 24.7 percent below the prior-year figure. Reported net profit declined 37.4 percent to 2.2 billion euros. The 2017 figure also included positive special factors from the reversal of impairment losses on U.S. mobile spectrum and proceeds from the disposal of Strato and Scout.
Based on the results achieved, the Board of Management and Supervisory Board will propose to the shareholders’ meeting on March 28 a dividend of 70 eurocents per share. In the prior year, a dividend of 65 eurocents per share had been paid out.
2019 guidance – Deutsche Telekom intends to maintain growth momentum
There are no plans to let up. Deutsche Telekom intends to maintain its current rate of growth in 2019. The guidance follows the medium-term outlook given at the Capital Markets Day 2018, where the Group announced its target average annual increases through 2021: of 1 to 2 percent for revenue, 2 to 4 percent for adjusted EBITDA, and of around 10 percent for free cash flow.
The precise figures are strongly impacted by the application of the IFRS 16 accounting standard, which relates to the reporting of leases and became mandatory as of 2019. In order to ensure comparability, Deutsche Telekom is using adjusted key performance indicators, in line with European competitors: adjusted EBITDA AL (after leases) and free cash flow AL (after leases). As a starting point for the 2019 guidance, Deutsche Telekom is using pro-forma figures AL for 2018, which include the acquisitions in Austria and the Netherlands, as well as the described AL logic, so as to provide better comparability for the full year 2018.
All figures in billions of €
a Significant changes in the composition of the consolidated group included up to the date of preparation of the consolidated financial statements and the combined management report (e.g., the acquisition of UPC Austria in Austria or the acquisition of Tele2 Netherlands in the Netherlands).
b On a like-for-like basis.
c Possible implications from the planned transaction with Sprint in the United States are not included in the guidance figures.
d Before dividend payments and spectrum investment.
Revenue is also expected to increase again this year. According to Deutsche Telekom’s plans, investments worldwide are set to increase again from the record level of 2018.
Operating segments: 2018 performance in detail
Germany – positive trends continue
In 2018, business in Germany enjoyed successes with MagentaEINS, the extension of the market lead in mobile communications, and steady growth in the customer base for fiber-optic-based products (FTTH and FTTC/vectoring). The year-end figures were impressive.
Of branded mobile contract customers, 50.7 percent now use product packages combining mobile communications and fixed network, compared with 41.7 percent a year earlier. The number of MagentaEINS customers rose to 4.3 million as of the end of the year, up 17.5 percent from the end of December 2017.
Deutsche Telekom continued to lead the industry in mobile service revenues in the final quarter of 2018, with a 2.0 percent increase in this most important performance measure for mobile communications.
The fiber-optic build-out, which has been driven forward year after year, is resulting in a steady rise in customer numbers. 12.2 million customers now use a fiber-optic line, up more than 27 percent compared with the end of 2017. About half of branded consumers in the broadband business are already benefiting from the high speeds of fiber-optic lines.
While revenue remained almost stable, falling just 1.1 percent to 21.7 billion euros, adjusted EBITDA in the Germany segment increased by 2.4 percent to 8.6 billion euros. The first-time application of the new accounting standard IFRS 15 had a negative impact on revenue and a positive effect on adjusted EBITDA.
United States – T-Mobile US still unstoppable
No signs of a slowdown at T-Mobile US. Just the opposite, in fact: The Un-carrier increased its rapid rate of growth yet again, with 1.4 million branded postpaid net additions in the fourth quarter of 2018 alone, compared with 1.1 million a year earlier. At the end of the year, T-Mobile USA had 79.7 million customers. This figure increased by more than 7 million in the last year.
The net additions are not only due to rising numbers of new customers. There is also a steady rise in the loyalty of existing customers, which can be seen in ever smaller churn rates. In the final quarter of 2018, this figure decreased to 0.99 percent for branded phone contract customers, compared with a churn rate of 1.18 percent a year earlier.
T-Mobile US’ financial performance indicators also developed positively. Total revenue grew by 6.8 percent in 2018 to 43.1 billion U.S. dollars. At the same time, adjusted EBITDA rose by 13.6 percent to 11.9 billion U.S. dollars.
Europe – stable growth rates achieved
Growth in revenue and earnings in all four quarters of 2018. That is the proud achievement of the Europe business in the reporting year. On an organic basis, revenue increased by 1.5 percent in the full year, adjusted EBITDA by 1.8 percent. Due to the first-time consolidation of UPC in Austria, the increases in the reported figures were even higher. Revenue increased by 2.6 percent in 2018 to 11.9 billion euros. Adjusted EBITDA rose by 3.5 percent to 3.9 billion euros.
The success of product packages combining fixed-network and mobile communications continued in 2018. As of year-end, 3.3 million customers were using these convergent products, an increase of around 50 percent year-on-year. In the future, such offers will also be brought to the market by T-Mobile Austria, thanks to the takeover of cable network operator UPC, and T-Mobile Polska, following the agreement concerning the use of a competitor’s fiber-optic network. Hence, these companies will also contribute to the growth trend in this area.
The positive trend in mobile contract customers also continued, with an increase of 4.6 percent to 26.7 million customers. The number of broadband consumers shot up by 15.8 percent to 6.4 million, thanks to the takeover of UPC and organic growth.
Systems Solutions – new deals for T-Systems
T-Systems closed the year with strong growth in order entry. At 6.8 billion euros, the volume of deals closed was up 29.3 percent against the prior year.
Revenue remained stable year-on-year, increasing 0.3 percent to 6.9 billion euros and thus slightly exceeding expectations. Positive developments in growth areas such as cloud computing, health, and IoT were offset by declines in traditional IT business. Adjusted EBITDA decreased by 15.7 percent to 429 million euros, due in particular to the investments planned for growth areas and to the IP network migration.
The Deutsche Telekom Group at a glance:
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:
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.
b Inclusion of UPC Austria as of July 31, 2018. Prior-year comparatives have not been adjusted.
Development of customer numbers
Operating segments: development of customer numbers in the fourth quarter of 2018
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 have not been adjusted.
c 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
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 have not been adjusted.
c 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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