Third Quarter Report 2015

Nov 05, 2015

  • Net profit up by almost 60 percent to more than 800 million euros, adjusted net profit up by 30 percent
  • Revenue up 9.3 percent to 17.1 billion euros
  • Adjusted EBITDA up 12.9 percent to 5.2 billion euros
  • Free cash flow increased 16.3 percent on prior-year figure to 1.3 billion euros
  • Strong growth in number of fiber-optic customers in Germany and mobile customers in the United States

Deutsche Telekom's performance in the third quarter of 2015 was dominated by double-digit growth rates in the most important financial indicators. Net profit increased by 59.9 percent to 809 million euros compared with the same period in the prior year. Adjusted for special factors, net profit increased by 30 percent to 1.0 billion euros.

Adjusted EBITDA also recorded substantial growth, increasing by 12.9 percent to 5.2 billion euros. At the same time, net revenue increased by 9.3 percent to 17.1 billion euros. Revenue growth was somewhat lower than in the previous quarters due to the effects of the new terminal equipment lease model in the United States. On an organic basis, i.e., adjusted for exchange rate effects and changes in the composition of the Group, revenue increased by 2.2 percent and adjusted EBITDA by 8.1 percent in the third quarter.

"We are resolutely forging ahead with our strategy," explained Tim Höttges, CEO of Deutsche Telekom. "High investments in broadband roll-out and connectivity remain the basis for growth."

The Group invested 2.7 billion euros in the third quarter of 2015, which in terms of cash capex excluding mobile spectrum expenses is 8.2 percent more than the previous year. Despite the high capital expenditure, free cash flow also increased substantially, by 16.3 percent to 1.3 billion euros. This made a significant contribution to reducing net debt from 48.8 billion euros to 47.8 billion euros in just three months.

Deutsche Telekom confirms its guidance for the full year 2015. Based on a constant exchange rate compared with 2014 of USD 1.33 per euro, adjusted EBITDA is expected to reach around 18.3 billion euros and free cash flow around 4.3 billion euros.

Germany – Continued strong growth in fiber-optic lines

Deutsche Telekom once again recorded significant growth in a key innovation market in Germany in the third quarter: The number of customers using fiber-optic broadband lines (VDSL and FTTH) increased by another 425,000 (retail and wholesale).

The continuous growth in this forward-looking market segment is the result of a systematic network build-out. In the third quarter of 2015, fiber-optic broadband went on sale for another 600,000 households. As of the end of the reporting quarter, the number of fiber-optic lines stood at 3.84 million – up 75 percent in just one year.

The number of branded broadband customers climbed by 78,000 in the third quarter. Deutsche Telekom's revenue from broadband business is gradually gaining momentum, growing by 0.9 percent in the third quarter. Another component of the growth trend in broadband business is hybrid lines, in which Deutsche Telekom bundles the potential offered by the fixed network technology DSL and the mobile technology LTE. In the third quarter of 2015, the net number of these lines increased by 51,000 to a total of 109,000. In the traditional fixed-network business, Deutsche Telekom lost a net total of 83,000 lines, the lowest value since recording of the trend began eleven years ago.

In the mobile business, Deutsche Telekom remains the clear market leader in terms of service revenues in Germany, with a decrease of 0.4 percent. Deutsche Telekom promoted the trend in mobile broadband communication among other initiatives by further rolling out its LTE network. The network now covers 87 percent of the population in Germany. In the same quarter of 2014, network coverage stood at just 79 percent.

Total revenue in the Germany segment increased by 0.1 percent year-on-year to 5.6 billion euros in the third quarter of 2015 compared with the prior-year quarter. Adjusted EBITDA fell by 2.4 percent to 2.3 billion euros, giving an EBITDA margin of 40.8 percent.

United States – Customer forecast raised again

T-Mobile US increased its forecast for the number of new branded postpaid customers in 2015 for the third time this year. The company now expects between 3.8 million and 4.2 million new customers in this segment. 1.1 million net additions were recorded in the third quarter. The total number of customers increased by 2.3 million to 61.2 million between July and September.

This clear customer growth is increasingly reflected in the key financial figures. Adjusted EBITDA increased by more than 40 percent year-on-year in the third quarter of 2015 to 1.9 billion U.S. dollars. Total revenue increased by 6.7 percent to 7.8 billion U.S. dollars. This growth was weaker due to the effect of terminal equipment being leased under the new JUMP! On Demand business model. As part of this model, revenue is spread over the term of the contract instead of being recognized in full on its conclusion, as under the previous contract model.

T-Mobile US continues to engage very successfully in new initiatives of the Un-carrier strategy while at the same time rapidly building out the network. The company achieved its annual target of population coverage of 300 million people with LTE technology in the third quarter, months earlier than planned.

Europe – Network modernization continued

The importance of the growth areas in the European national companies continues to rise. The share of revenue from this business, which includes, among other areas, mobile Internet and television, reached 29 percent in the third quarter, up 4 percentage points year-on-year. The number of TV customers in the Europe segment increased to more than 3.8 million. More than 400,000 of them are in Greece, where the broadcasting rights to the UEFA Champions League makes the offering particularly attractive.

The modernization of the networks is in full swing. In the fixed network, 45 percent of lines are now IP-based, 10 percentage points more than at the same point in 2014. In mobile communications, network coverage with the LTE standard continues to grow, up from 42 percent a year ago to now 65 percent.

The financial indicators of the Europe operating segment decreased slightly. Revenue in the third quarter stood at 3.2 billion euros. That is 3.6 percent less than a year earlier. At the same time, adjusted EBITDA declined by 3.0 percent to 1.1 billion euros.

Systems Solutions – Growth in revenue

In persistently intense competition, T-Systems succeeded in increasing revenue from corporate customers in the third quarter of 2015. In the Market Unit, which mainly comprises business with external customers, revenue increased by 4.6 percent year-on-year to 1.8 billion euros. Adjusted for exchange rate effects, the growth rate was 3.3 percent. In the growth area of the cloud, revenues increased by 27 percent in the third quarter to around 260 million euros.

Earnings declined moderately. Adjusted EBIT in the Market Unit fell by 8 million euros compared with the third quarter of 2014 to 48 million euros. This resulted in an adjusted EBIT margin of 2.7 percent, compared with 3.4 percent in the previous year. For the first nine months of the year, the adjusted EBIT margin was 2.3 percent, after 0.9 percent in the prior-year period.

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