- Revenue from continuing operations down by 4.1 percent in the quarter to EUR 11.0 billion
- Successful cost-cutting in the third quarter leads to increase in EBITDA margin by 0.5 percentage points
- Adjusted EBITDA from continuing operations falls 2.7 percent to EUR 3.9 billion
- Net profit up 14.6 percent to EUR 1.1 billion
- High adjusted EBITDA margin in Germany of 41.5 percent
Deutsche Telekom has confirmed its financial targets for the full year 2011 with solid third-quarter figures despite persistently difficult conditions characterized by a weak economy and the negative effects of decisions by governments and regulatory authorities in several countries. Between July and September 2011, adjusted EBITDA from continuing operations - i.e., excluding the discontinued operation in the United States - totaled EUR 3.9 billion, a decline of 2.7 percent compared with the same period last year. Revenue decreased 4.1 percent in the same period to EUR 11.0 billion. Including U.S. business, adjusted EBITDA fell 2.3 percent and revenue declined by 6.0 percent. Net profit increased by 14.6 percent to EUR 1.1 billion, while adjusted net profit grew by 48.9 percent to EUR 1.3 billion. At EUR 1.7 billion, free cash flow in the third quarter was 9.4 percent below the prior-year figure. "We have once again demonstrated that we can stand our ground in a difficult environment," said René Obermann, Chairman of the Board of Management of Deutsche Telekom. "We cannot afford to be complacent in our efforts as the challenges will continue to intensify." The company has further trimmed its operating costs, having already saved EUR 1.5 billion in the first nine months of the year with the Save for Service initiative. This has brought the cost base down by EUR 3.9 billion in total since 2010. Save for Service is targeting savings of EUR 4.2 billion for 2010 through 2012. At EUR 2.1 billion in the third quarter of 2011, 3.8 percent above the prior-year figure, the Group's investments - measured in terms of cash capex - remained at a sustained high level. Deutsche Telekom has confirmed its guidance for the full year 2011. The Group continues to expect adjusted EBITDA from continuing operations of around EUR 14.9 billion. Adjusted EBITDA of around USD 5.5 billion is anticipated from business in the United States. Free cash flow of the Group is expected to total at least EUR 6.5 billion. Germany- margin continues to climb The best adjusted EBITDA margin since reporting of the Germany segment began was recorded in the third quarter and was the result of consistent cost management. The margin amounted to 41.5 percent compared with 39.9 percent in the prior-year quarter. Total revenue declined by 5.0 percent to EUR 6.0 billion. When adjusted for the reduction in mobile termination rates (MTR), other regulatory effects, and the discontinued cash card business, the decrease is reduced to 3.4 percent. Adjusted EBITDA fell 1.3 percent to EUR 2.5 billion. The decline in revenues from mobile communications business is primarily attributable to weaker handset revenues and the reduction in MTRs. Looking at mobile service revenues alone, adjusted for the MTR cuts they were slightly higher than in the prior year, totaling EUR 1.8 billion in the third quarter of 2011. With growth of 26 percent to EUR 410 million, mobile data revenues remained the key driver of mobile communications business in Germany. Smartphones now account for 64 percent of all devices sold, a strong increase compared to 53 percent in the prior year. The contract customer base increased by 466,000 in the quarter. This is partially a result of the success of various special rate plan offers, above all the extremely popular Special Call & Surf Mobil. It is also thanks to Deutsche Telekom's efforts to significantly broaden business with service providers. Fixed-network business also reported extremely satisfactory customer development in the third quarter. Deutsche Telekom maintained its market share of broadband customers of over 45 percent. The number of customers using Entertain - the television service of the future - rose 32 percent year-on-year. The Entertain Sat offering launched in September has been particularly successful, with more than 50,000 customers having signed up by the end of September. At 323,000 in the third quarter, the number of line losses caused by competition and regulatory intervention was 39 percent below the prior-year figure. Europe- profitability stable despite the crisis Many of the companies brought together within the Europe segment continued to drive up earnings in the third quarter despite some very strong headwinds from the economy, regulation and the levying of special taxes in certain countries. Adjusted EBITDA declined by just 5.3 percent year-on-year between July and September to EUR 1.4 billion, following year-on-year de-creases of 13 percent in the first quarter and 8 percent in the second quarter. Revenue for the entire segment fell by 6.1 percent in the third quarter to EUR 3.9 billion. Despite the tough economic situation in many countries, most of the subsidiaries held their ground against the competition. The figures for the Greek subsidiary OTE were unable to escape the effects of the financial and economic crisis, however. Revenue in Greece declined by 5.0 percent in the third quarter to EUR 0.9 billion, while adjusted EBITDA fell 7.2 percent in the same period to EUR 0.35 billion. A reduction in working hours and a corresponding drop in pay have since been agreed on with the trade unions. This is one aspect designed to help boost OTE's competitiveness despite the difficult macroeconomic environment and persistently aggressive regulation. The mobile communications business in Poland has successfully completed its rebranding as T-Mobile. It reported growth in contract customer figures, and the adjusted EBITDA margin climbed year-on-year from 33.7 percent to 35.6 percent. The Europe operating segment once again demonstrated that it is heading in the right direction in terms of key growth areas. The number of broadband lines climbed 8.2 percent, and the customer base for Internet-based television (IPTV) grew by 35 percent compared with the third quarter of 2010. Smart-phone market penetration increased, with smartphones now accounting for 50 percent of all devices sold - up from just 30 percent one year earlier. Systems Solutions - improved order situation Order entry at Systems Solutions developed encouragingly in the third quarter, climbing 18.5 percent year-on-year to EUR 1.9 billion. The higher order volume was a result of big deals such as with Daimler, as well as numerous smaller contracts for cloud services. From January to September 2011, order entry increased by 8 percent year-on-year to EUR 6.6 billion. T‑Systems also reported revenue growth in the third quarter of 2011. With a rise of 2.3 percent to EUR 2.3 billion, the increase was, however, somewhat lower than in the first half of the year. Seen over the first nine months of the year, revenue climbed 3.3 percent to EUR 6.8 billion. Costs relating to quality assurance measures for existing agreements continued to have a negative impact on earnings and margins. Adjusted EBITDA decreased by 8.1 percent in the third quarter to EUR 0.2 billion. The adjusted EBIT margin is the key indicator of the profitability of Systems Solutions business and fell to 2.4 percent compared with 3.3 percent in the third quarter of 2010. This was, however, better than the 1.6 percent in the first half of the year. The quality assurance measures are starting to pay off and have, for example, resulted in improved customer satisfaction indices over the course of the year. Progress was also seen in the growth areas of the Group that fall under the banner of intelligent network solutions. In the healthcare field, Germany's first national telemedicine network was launched in Brandenburg in early October. The network enables at-risk heart patients to receive remote medical treatment thanks to Deutsche Telekom technology. Unnecessary examinations and hospital stays will be minimized as a result, and the quality of life for patients improved. United States(discontinued operation since first quarter of 2011) - customer figures on the up T‑Mobile USA reported somewhat more positive development than in past quarters. While revenue in the third quarter decreased 11.1 percent year-on-year to EUR 3.7 billion, adjusted EBITDA fell only slightly by 0.3 percent to EUR 1.0 billion. These figures are distorted by the weaker performance of the U.S. dollar com-pared with 2010. Calculated in dollars, revenue declined by just 2.7 percent and adjusted EBITDA climbed by 9.2 percent. The improvement in earnings was largely attributable to successful savings initiatives and new rate plans without subsidized handsets. For the first time for a year, the U.S. subsidiary's customer base grew quarter-on-quarter. A decline of 186,000 contract customers in the third quarter was offset by an increase in prepay customers of 312,000. Average data revenue per customer reached USD 14.00, a climb of 13 percent year-on-year. The number of smartphone users also grew, rising 40 percent to 10.1 million. Pro-forma figures adjusted for the deconsolidation of T‑Mobile UK as of April 1, 2010 In the United Kingdom, the former T-Mobile UK became part of the joint venture with France Télécom's subsidiary Orange UK called Everything Everywhere effective April 1, 2010. In the following table, revenue, adjusted EBITDA, and adjusted and unadjusted net profit for the first three quarters of 2010 are presented both including and excluding T-Mobile UK to improve the transparency of the development of operations in both years. This presentation is a supplement to the table showing the actual figures.
Comments on the table: The figures for the first nine months of 2010 have been adjusted to eliminate the revenue and earnings contribution of T-Mobile UK to adjusted EBITDA, net profit, and adjusted net profit. No adjustments are necessary for the third quarter of 2010, as the figures are already comparable with the third quarter of 2011 on a reported basis.
The Deutsche Telekom Group at a glance*: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Comments on the table:
a Figures for prior-year periods adjusted to measurement and disclosure at year-end.
b Before dividend payments, spectrum investment, and PTC transaction.
c Cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill).
Germanyoperating segment*:
Europeoperating segment*:
Comments on the table: The figures for the national companies generally correspond to their respective unconsolidated financial statements and do not take consolidation effects at operating segment level into consideration.
a Deconsolidation of T-MobileUKeffective April 1, 2010.
b Other: national companies of Bulgaria, Albania, the F.Y.R.O. Macedonia, and Montenegro, as well as ICSS, Europe Headquarters, and, up to and including May 2010, Deutsche Telekom International UK (formerly T-Mobile International UK).
United Statesoperating segment*: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Systems Solutions operating segment*:
Comments on the table:
a Non-core activities and consolidation.
Group Headquarters & Shared Services*:
* Deutsche Telekom defines EBITDA as profit/loss from operations before depreciation, amortization, and impairment losses.
Development of customer numbers in the third quarter of 2011
Germanyoperating segment:
Comments on the table: a Since April 1, 2010, Telekom Deutschland GmbH has automatically terminated prepaid cards that have not been topped up for two years and have been inactive for three months.
Europeoperating segment:
Comments on the table:
a For better comparability, the customers of T-Mobile UK, who were transferred to the Everything Everywhere joint venture as of April 1, 2010, following the merger of T-Mobile UK and Orange UK, were subtracted from all historical customer figures.
b With effect from January 1, 2011, the business customer base was reclassified and divided between the Europe and Systems Solutions operating segments. As part of this process, corporate mobile customers and the fixed-network lines of corporate customers in Hungary were reassigned to T-Systems.
c Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro.
United Statesoperating segment: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Comments on the table:
a One mobile communications card corresponds to one customer.
Net additions in the third quarter of 2011 Germanyoperating segment:
Comments on the table:
a Since April 1, 2010, Telekom Deutschland GmbH has automatically terminated prepaid cards that have not been topped up for two years and have been inactive for three months.
Europeoperating segment:
Comments on the table: a For better comparability, the customers of T-Mobile UK, who were transferred to the Everything Everywhere joint venture as of April 1, 2010, following the merger of T-Mobile UK and Orange UK, were subtracted from all historical customer figures.
b With effect from January 1, 2011, the business customer base was reclassified and divided between the Europe and Systems Solutions operating segments. As part of this process, corporate mobile customers and the fixed-network lines of corporate customers in Hungary were reassigned to T-Systems.
c Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro.
United Statesoperating segment: The United States operating segment has been reported as a discontinued operation since the first quarter of 2011.
Comments on the table:
a One mobile communications card corresponds to one customer.
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. You should consider them 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 our ability to achieve our objectives are the progress of our workforce reduction initiative and other cost-saving measures, and the impact of other significant strategic, labor, or business initiatives, including acquisitions, dispositions, business combinations, and our network upgrade and expansion initiatives. In addition, stronger than expected competition, technological change, legal proceedings, and regulatory developments, among other factors, may have a material adverse effect on our costs and revenue development. Further, the economic downturn in our markets and changes in interest and currency exchange rates may also have an impact on our business development and the availability of financing on favorable conditions. Changes to our expectations concerning future cash flows may lead to impairment write downs of assets carried at historical cost, which may materially affect our 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, our actual performance may materially differ from the performance expressed or implied by forward-looking statements. We can offer no assurance that our estimates or expectations will be achieved. Without prejudice to existing obligations under capital market law, we do 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 non-GAAP financial performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net income, free cash flow, gross debt, and net debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.