2018 First quarter report

05-09-2018 Andreas Fuchs

  • Adjusted EBITDA of 23.3 billion euros expected for full-year 2018
  • Revenue in organic terms rises 3.1 percent
  • EBITDA in organic terms increases 6.6 percent
  • Free cash flow up 12.5 percent to 1.4 billion euros
  • Increase of 32.8 percent in net profit
  • Over 10 million fiber-optic customers in Germany
  • T-Mobile US remains on course for success and raises target for customer growth
  • Sustained uptrend in Europe

A good start to 2018 for Deutsche Telekom on both sides of the Atlantic: In the first quarter of the year, net revenue rose by 3.1 percent year-on-year in organic terms, i.e., adjusted for exchange rate effects and changes in the composition of the Group. Adjusted EBITDA in organic terms increased by as much as 6.6 percent. The strong euro, which gained more than 15 percent against the U.S. dollar in one year, impacted on the figures reported, reducing revenue by 3.9 percent to 17.9 billion euros. Reported adjusted EBITDA remained stable at 5.5 billion euros.

“We will remain on course for success in 2018,” said Tim Höttges, Chairman of the Board of Management at Deutsche Telekom. “Our growth profile, which is unique in our industry, enables us to raise our forecast once again.”

Other key indicators are also trending upward. Free cash flow totaled 1.4 billion euros in the first quarter of 2018, an increase of 12.5 percent year-on-year. Due to a marked decrease in the loss from financial activities, net profit rose by 32.8 percent to 1.0 billion euros. Adjusted net profit increased by 26.7 percent to 1.2 billion euros.

Driven by developments in the United States, where T-Mobile US raised its forecast after a strong first quarter, Deutsche Telekom is raising its guidance for adjusted EBITDA in the full-year 2018 from around 23.2 to around 23.3 billion euros. The free cash flow forecast remains unchanged at around 6.2 billion euros.

Germany – milestone in fiber-optic customer number

More than 10 million customers in Germany use Deutsche Telekom’s fiber-optic lines (FFTH, VDSL/vectoring). The overall number of customers increased in the first quarter to 10.4 million, up 2.8 million or 37 percent year-on-year. A total of 781,000 customer additions in the first three months of the year alone pointed to a further record quarter as a result of the systematic rollout of the fiber-optic network in Germany. By the end of the first quarter, 72.7 percent of all fixed-network households were able to use fiber-optic products, compared with just 65.7 percent a year earlier. Telekom increased its share of the broadband market again with 95,000 customer additions. In all, 3.8 million customers enjoy the advantages of the MagentaEINS product packages, 16.1 percent more than one year earlier.

In mobile communications, the mobile service revenues key indicator is significantly influenced by a change in the accounting standard governing the determination and recognition of revenue (IFRS 15). Excluding this effect gives a substantial increase of 3.2 percent. Telekom thus continues to maintain its leading market position in Germany. Thanks to the StreamOn option launched in April 2017, nearly 1.1 million Telekom customers are able to listen to music and watch videos online without having to use their data volume for this.

Revenue in the Germany operating segment declined slightly by 1.3 percent to 5.3 billion euros in the reporting period. However, the segment’s service revenues, excluding device sales, i.e., revenues from voice and data services as well as add-on products such as Entertain, rose by around 1.2 percent. At the same time, adjusted EBITDA grew by 1.3 percent to 2.1 billion euros. This yielded an adjusted EBITDA margin of 39.1 percent, 1 percentage point higher than in the previous year.

United States – the Un-carrier marches on

The United States sustained the now familiar picture in the first quarter. T-Mobile US is continuing to grow rapidly in terms of customer numbers and financial KPIs. For the 20th consecutive quarter, the company recorded more than one million net customer additions. It had gained 1.4 million new customers between January and March 2018. This trend is reinforced by the extremely low churn rate. In the first quarter, this key indicator reached a record low of 1.07 percent among branded postpaid customers. T-Mobile US had a total of 74.0 million customers at the end of the reporting period.

Revenue also remained on a growth trajectory. In the first quarter, total revenue increased by 8.7 percent year-on-year to 10.4 billion U.S. dollars. Adjusted EBITDA climbed 12.8 percent to 2.9 billion U.S. dollars. T-Mobile US has revised its forecasts for the current year upward and now expects postpaid net customer additions of 2.6 to 3.3 million instead of the 2.0 to 3.0 million net additions previously projected. Based on the U.S. GAAP accounting standards applicable to the company, adjusted EBITDA is now expected to be between 11.4 and 11.8 billion dollars instead of between 11.3 and 11.7 billion dollars as previously targeted.

Europe – sustained positive trend

The encouraging trends from 2017 in the European business also continued in the new year. The number of customers who used fixed-mobile product bundles reached 2.4 million at the end of the first quarter, an increase of 51.1 percent year-on-year. The success of the convergence strategy is expected to be repeated in Austria following the announced acquisition of UPC Austria.

The financial KPIs likewise developed positively in the reporting period. Revenue in the Europe operating segment increased by 1.1 percent to 2.8 billion euros, with adjusted EBITDA rising by 2.5 percent to 0.9 billion euros. This also includes exchange rate effects. In organic terms, revenue grew by 0.2 percent and adjusted EBITDA by 1.6 percent. The earnings trend reflected in particular the reduction in indirect costs.

Systems Solutions – investments in new business weigh on results

Order entry at T-Systems in the first quarter rose by 18.2 percent year-on-year to 1.5 billion euros. Revenue, on the other hand, decreased marginally by 2.3 percent to 1.7 billion euros. The IT Division continues to be affected by price pressure in the industry and falling volumes.

On the earnings side, particularly the high expenses for new business areas such as the Internet of Things, the cloud, and healthcare had an impact on the Digital Division in the first quarter. Due to these start-up costs, adjusted EBITDA decreased by 40.6 percent compared with the prior-year period to 57 million euros. Adjusted EBIT declined to minus 38 million euros. In spite of this level of earnings, T-Systems is sticking to its targets for the year as a whole.

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