- Revenue grows 37.5 percent year-on-year to 27.0 billion euros in the second quarter after inclusion of Sprint
- Adjusted EBITDA AL up 56.4 percent to 9.8 billion euros
- Free cash flow AL up 56.9 percent to 2.4 billion euros
- New guidance for 2020: adjusted EBITDA AL of around 34 billion euros and free cash flow AL of at least 5.5 billion euros
- Business in Germany with strong broadband figures
- T-Mobile US now has almost 100 million customers
- Stable development of customer numbers in Europe
- Coronavirus pandemic impacts on Systems Solutions and roaming revenues
The second quarter of 2020 marks the start of a new chapter for Deutsche Telekom. The inclusion of Sprint for the first time following the conclusion of the merger with T-Mobile US as of April 1, 2020, means the Group is pushing new financial frontiers. In the second quarter of 2020, revenue increased 37.5 percent year-on-year to 27.0 billion euros. At the same time, adjusted EBITDA AL grew 56.4 percent to 9.8 billion euros. In organic terms, i.e., adjusted for exchange rate effects and changes in the composition of the Group, revenue remained more or less stable, down just 0.6 percent, and adjusted EBITDA AL increased by 8.4 percent.
“The merger in the United States is a historic step for the Group”, said Tim Höttges, CEO of Deutsche Telekom. “Our figures are formidable and our strong business operations in Germany and the rest of Europe also play a part in this.”
The coronavirus pandemic continued to have a limited impact on Deutsche Telekom’s figures in the second quarter of 2020. The effects were primarily felt in the corporate customer business, where new orders slowed, and in mobile roaming revenues, which came under pressure as a result of travel restrictions.
Free cash flow AL totaled 2.4 billion euros, an increase of 56.9 percent year-on-year. Adjusted net profit decreased by 3.8 percent year-on-year in the second quarter to 1.3 billion euros. Unadjusted net profit declined 20.1 percent to 754 million euros.
In the context of the merger in the United States, Deutsche Telekom has always noted that the costs of integrating the two companies would have a negative impact on net earnings, especially in the first three years. The increased shares of non-controlling interests in the net profit of the Group companies must also be taken into account. The rise in adjusted EBITDA AL attests to the higher operational earnings power of the expanded business.
Deutsche Telekom updated its guidance for the current financial year on account of the new Group structure following the merger in the United States. All figures for the business outside of the United States remain unchanged from the previous guidance. The Group now expects to post adjusted EBITDA AL of around 34 billion euros in 2020, up from the previous guidance of around 25.5 billion euros. Free cash flow AL is expected to be at least 5.5 billion euros, after the previous guidance of around 8.0 billion euros. The integration costs set out when the merger with Sprint was announced have an impact here.
Germany – rock solid in the global crisis
On its home market, Deutsche Telekom recorded its most successful quarter in broadband business in two years, measured in terms of net customer additions. Between April and June, the number of broadband customers increased by 87,000, thus outperforming all competitors. 386,000 customers switched to fiber-optic-based lines (FTTH, FTTC/vectoring). A total of 15.2 million of these lines now exist, which is 1.8 million more than a year earlier.
In mobile business, roaming revenues lost on account of the travel restrictions had an impact. As a result, mobile service revenues were down 1.1 percent year-on-year in the second quarter. But this decline is much smaller than that of our competitors. Thus, Deutsche Telekom further extended its market leadership measured in terms of service revenues. Excluding the negative effects of the coronavirus restrictions, mobile service revenues increased by around 2 percent.
Despite the negative effect of the pandemic on roaming revenues, total revenue in the Germany operating segment increased by 1.1 percent in the second quarter compared with the prior-year period to 5.4 billion euros. At the same time, adjusted EBITDA AL grew 3.0 percent to 2.2 billion euros. Our margin thus improved by 0.7 percentage points year-on-year to 40.7 percent.
United States – new T-Mobile climbs to number two
The merger of T-Mobile and Sprint was concluded on April 1. The integration is well underway, with the Sprint brand having been retired as of August 2. At the end of the second quarter of 2020, the new T-Mobile had 107.7 million customers. As of July 1, T-Mobile sold Sprint’s prepaid business, as required by the U.S. authorities, leaving a customer base of 98.3 million. As such, T-Mobile overtook AT&T in the United States in terms of customer numbers and is the new number two on the U.S. mobile market.
There was of course also a clear jump in the financials. T-Mobile generated total revenues of 19.0 billion U.S. dollars in the second quarter, up 72.5 percent year-on-year. Adjusted EBITDA AL was up 115 percent year-on-year to 6.9 billion euros. In organic terms, adjusted EBITDA AL increased by 11.1 percent. Revenue decreased slightly by 0.8 percent on an organic basis. This was due to the effects of the coronavirus pandemic and the fact that Sprint’s business was shrinking before the merger.
Europe – continued earnings growth
The stark travel restrictions had a negative impact on mobile service revenues in Europe as a result of much lower roaming revenues. This affected Greece in particular. As a result, total revenue in the segment decreased by 2.0 percent in the second quarter in organic terms to 2.8 billion euros. Strict cost discipline helped to prevent this trend being reflected in earnings. Adjusted EBITDA AL increased by 1.1 percent year-on-year in organic terms to 1.0 billion euros, marking the tenth quarter of growth in succession.
The positive trend in customer numbers also continued unabated. In the second quarter, the national companies recorded 174,000 mobile contract net additions. The broadband customer base grew by 69,000 between April and June. In addition, the companies gained 265,000 new users of converged fixed-mobile products, a year-on-year increase of more than 30 percent in the FMC customer base.
Systems Solutions – pandemic takes its toll
T-Systems saw a clear impact from the global pandemic in the second quarter. Above all, there was a slowdown in new deals closed with corporate customers. Many new IT projects were suspended or stopped. Customers are focusing on securing the continuity of their business and preparing for the period after the pandemic. Below the line, order entry declined by 24.0 percent year-on-year in the second quarter to 1.4 billion euros.
Adjusted EBITDA AL declined by 22.8 percent to 98 million euros, revenue was down by 3.4 percent compared with the second quarter of 2019 to 1.6 billion euros. The growth areas public cloud and security each recorded substantial double-digit growth.
Group Development – growth in earnings at T-Mobile NL
The business areas that make up the Group Development segment continued to grow in the second quarter of 2020. Revenue in the cell tower business increased by 3.8 percent year-on-year, while adjusted EBITDA AL also increased by 3.8 percent. At the end of June, there were 34,700 cell sites in Germany and the Netherlands combined, 1,800 more than a year ago.
Despite the negative impact of the coronavirus pandemic, T-Mobile NL recorded strong growth once again, with 50,000 contract net additions. Mobile service revenues increased by 2.3 percent year-on-year in the second quarter. Adjusted EBITDA AL jumped by 22.2 percent.
The Deutsche Telekom Group at a glance
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
Comments on the table:
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 second quarter of 2020
Comments on the table:
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 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.
e 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
Comments on the table:
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 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.
e 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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