NEWS IN ENGLISH | Harvest time for Deutsche Telekom on both sides of the Atlantic
In organic terms, i.e., adjusted for changes in the composition of the Group and currency effects, revenue was up 0.6 percent in the second quarter; adjusted EBITDA was slightly down by 0.3 percent. For comparison, the organic decline in EBITDA stood at 8.3 percent in the first quarter.
"Our strategy so far has been to make bold and prudent investments, focus first on lifting customer numbers, and then on upping revenues and results. And we are now starting to reap the rewards," said Tim Höttges, Chairman of the Board of Management of Deutsche Telekom. "We are also gaining more customers thanks to our outstanding networks, and this success is being reflected more and more in our financial figures."
Deutsche Telekom invested EUR 2.2 billion in the second quarter, which in terms of cash capex before mobile spectrum was 6.2 percent more than in the prior-year period. Substantially more was invested between April and June in Germany with an increase of 58.1 percent to more than EUR 1 billion. Nevertheless, at Group level, free cash flow was just 5.4 percent below the prior-year level at EUR 1.0 billion, and was therefore in line with the forecast.
Reported net profit increased by 34.2 percent to EUR 711 million, driven by positive effects on earnings from the spectrum swap with Verizon in the United States. By contrast, adjusted net profit declined 21.5 percent to EUR 636 million, primarily due to increased depreciation and amortization as a result of the increased asset base following the MetroPCS takeover and the investment drive in the United States in the prior year.
Deutsche Telekom confirms its guidance for the full year 2014, with adjusted EBITDA expected to amount to around EUR 17.6 billion. Free cash flow is expected to total some EUR 4.2 billion.
Germany- Fiber-optic products still highly sought-after
In Germany, Deutsche Telekom continues to experience strong demand for the fiber-optic products VDSL and FTTH. In the second quarter, the pace accelerated again compared with the first quarter, with 227,000 new customers. Of these customers, 109,000 came from the wholesale sector, mainly due to the success of what is known as the contingent model. Thus, the total number of optical fiber-based lines climbed by 55 percent within one year to almost 2 million.
The development in the broadband market improved slightly compared with previous quarters, with 7,000 net additions for Deutsche Telekom. The Group recorded above-average growth in new broadband customers in the VDSL roll-out areas. Investments made as part of the network upgrade initiative had a direct positive impact. Among the encouraging developments in the quarter was the increase in the number of Entertain customers to more than 2.3 million, with more than half of new branded fiber-optic-product customers booking Entertain as an add-on. The IP transformation is also progressing well. As of the end of the second quarter, 3.2 million retail lines had already been migrated - more than twice as many as a year earlier.
Deutsche Telekom held its lead in mobile communications. Mobile service revenues declined only slightly in the second quarter by 0.3 percent compared with the prior-year period. Deutsche Telekom's market share of service revenues increased by 0.6 percentage points year-on-year to 35.5 percent. The mobile contract customer base grew by 275,000 between April and June, including 198,000 new customers under the Deutsche Telekom and Congstar brands.
In its home market, Deutsche Telekom's financial KPIs remained stable. Revenue in the Germany operating segment fell 1.8 percent against the prior-year period in the second quarter of 2014, to EUR 5.5 billion. Adjusted EBITDA was down slightly by 1.0 percent to EUR 2.3 billion, resulting in an adjusted EBITDA margin of 41.3 percent, a clear improvement of 0.7 percentage points compared with the second quarter of 2013.
United States - Industry leader in terms of growth in service revenues
T-Mobile US continued its rapid growth of the last few quarters, passing the 50-million customer mark for the first time in mid-2014. 1.47 million new customers were recorded in the second quarter of 2014, 908,000 of them branded postpaid customers. The company has once again revised its growth expectations upwards for the full year. The number of branded postpaid customers is expected to increase by between 3.0 and 3.5 million in 2014. At the start of the year, the forecast stood at 2 to 3 million new customers.
This result was mainly driven by the successful Un-carrier strategy and the roll-out of the 4G LTE network to cover 233 million of the population. Growth in branded mobile postpaid phone adds was the strongest of the four competitors operating in the United States, at 579,000. At the same time, effectively five times as many customers chose a tablet or data contract in the second quarter as in the first three months of 2014, with the number reaching 329,000.
The churn rate remained low, while the trend in service revenues continued to gain momentum. On an organic basis, i.e., including MetroPCS in full for the first two quarters of the year, the company reported the strongest growth in service revenues of the four major mobile providers in the United States.
Total revenue increased by 14.6 percent to USD 7.2 billion for the second quarter. On a euro basis, it climbed 9.2 percent to EUR 5.3 billion. The earnings performance also improved substantially, with adjusted EBITDA increasing by 22.1 percent to USD 1.5 billion. On a euro basis, the increase was 16.5 percent to EUR 1.1 billion.
Europe - Rapid pace of technological change
The European national companies performed much more profitably in the second quarter than in the past. Adjusted EBITDA grew by 1.7 percent in organic terms, i.e., excluding changes in the composition of the Group and currency effects. Reported adjusted EBITDA decreased slightly by 1.7 percent to EUR 1.1 billion.
At the same time, revenue fell by 5.3 percent in organic terms. Almost half of this decline is a result of regulatory decisions relating to mobile communications. The reported figure decreased by 7.9 percent to EUR 3.2 billion. These figures result in a reported EBITDA margin of 34.7 percent, after 32.5 percent a year earlier. The earnings development improved primarily as a result of systematic cost discipline in the national companies, with indirect costs falling by almost 8 percent year-on-year on an organic basis.
The conversion of networks to IP is progressing apace and right on schedule. At the end of June 2014, 32 percent of all fixed-network lines in the segment were already IP-based. That is 11 percentage points more than in the previous year. In mobile communications, the number of base stations for the state-of-the-art technology standard LTE increased from 1,600 to 10,000 within a year. Positive trends were also recorded in customer figures: Between April and June, the number of broadband lines increased by 48,000; the number of TV customers rose by 61,000.
Systems Solutions - Transformation well underway
The restructuring of T-Systems impacted on the financial KPIs of Systems Solutions again in the second quarter of the current year. Stricter profitability criteria apply as part of the T-Systems 2015+ transformation. As a result, the company concluded substantially fewer contracts than a year earlier. Accordingly, order entry in the Market Unit, which mainly comprises T-Systems' external business, declined by 30.2 percent to EUR 1.3 billion.
The lower level of new business and the non-renewal of contracts are also reflected in revenue, with the Market Unit recording a year-on-year decrease of 6.0 percent to EUR 1.7 billion in the second quarter. Adjusted for the sale of
T-Systems Italy and the Systems Integration business unit in France, as well as exchange rate effects, the decline was 4.5 percent. At Telekom IT - which handles the Group's internal IT business in Germany - revenue increased by 31.9 percent. This picture is distorted by a partial payment on a major IT project. Essentially, Telekom IT's revenues, and hence the Group's IT costs, will continue to fall according to plan.
In addition to the decrease in revenue, start-up costs for the development of new business areas resulted in a negative earnings trend in the Market Unit. Adjusted EBITDA declined by 35.6 percent to EUR 105 million. In the second quarter, the adjusted EBIT margin lay at minus 0.2 percent, compared with plus 2.8 percent the year before.
At the end of July, T-Systems' subsidiary Satellic signed a 12-year deal to set up and operate a toll system in Belgium. This success shows that Systems Solutions is reinforcing its standing in the market thanks to competitive products. Clear progress is being made, especially with innovative digital business models, such as those based on the cloud. For example, revenue from cloud-based solutions increased by more than 40 percent year-on-year in the first half of 2014.
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