Thursday, February 26, 2009

Deutsche Telekom Narrows Loss in Q4, Sees Stable Performance

Overall, Deutsche Telekom exceeded its financial targets in the 2008 financial year. The net loss narrowed in Q4 2008 to EUR 730 million compared to EUR 750 million a year earlier as revenue rose 2% to EUR 16.11 billion.

"Our 2008 financial year is characterized by stable performance and sound financial figures," said Chairman of the Board of Management, René Obermann, at the annual press conference in Bonn. The development of earnings in the past years and the current financial figures were proof of the fact that Deutsche Telekom was in good shape, he emphasized.

Adjusted EBITDA increased 0.7 percent compared with 2007 to EUR 19.5 billion, thus exceeding the original guidance of around EUR 19.3 billion. The company said its balance sheet and debt ratios are testimony to the continued solid and sound state the company is in: net debt only increased by around EUR 1 billion year-on-year to EUR 38.2 billion, although Deutsche Telekom incurred a net expense of approximately EUR 4.4 billion for the 25 percent stake in the Greek company OTE and for the acquisition of the U.S. company SunCom in 2008.

Despite the challenging economic conditions, Deutsche Telekom currently is forecasting an adjusted EBITDA around the level achieved in 2008, that is around EUR 19.5 billion, excluding the impact of OTE. Free cash flow for 2009 is also expected to be stable at around EUR 7 billion.

Some highlights:

Mobile Communications

  • Mobile Communications in Europe and the U.S. operating segments recorded revenue growth of 2.4 percent to EUR 35.6 billion in 2008. This includes net negative exchange rate effects of EUR 1.3 billion. Revenue growth of 7.1 percent in the fourth quarter outperformed the full year. Adjusted EBITDA growth of 6.2 percent to EUR 11.4 billion was significantly stronger for the full year 2008 than the increase in revenue. Exchange rate effects had an offsetting effect of approximately EUR 0.3 billion. In the fourth quarter, EBITDA increased by as much as 12.7 percent.

  • In the past year, T-Mobile maintained its leadership in the German mobile communications market. The company gained more than 950,000 new contract customers in 2008, virtually the same high level as in the prior year. While revenue in this fiercely competitive market decreased 2.8 percent to EUR 7.8 billion in 2008, adjusted EBITDA rose 3.1 percent to EUR 3.0 billion during the same period. As a result, the EBITDA margin improved from 36.8 percent to 39.0 percent.

  • T-Mobile USA continued to post double-digit growth rates. Revenue rose by 13.5 percent year-on-year to USD 21.9 billion, while adjusted EBITDA increased by 16.0 percent to USD 6.2 billion. The weak U.S. dollar resulted in lower revenue and adjusted EBITDA growth on a euro basis of 6.3 percent and 8.5 percent, respectively. The U.S. subsidiary's customer base grew by 4.1 million over the course of the year, of which almost three million were gained organically. 1.1 million customers were also added from SunCom which was consolidated in February 2008. As a result, T-Mobile USA had 32.8 million customers on December 31, 2008. 7.7 million of these use the MyFaves community service, which corresponds to a 54-percent increase in one year.

  • Business in the United Kingdom was negatively affected by continued fierce competition. While revenue fell 2.2 percent to GBP 3.2 billion compared to 2007, adjusted EBITDA decreased by 12.7 percent to GBP 708 million. Measured in euros, the decline is significantly more apparent as a result of the continuing weak pound sterling, with revenue dropping 15.8 percent and EBITDA 24.9 percent. The negative trend in contract customer numbers was reversed over the course of the year following the introduction of new calling plans.

  • The companies in Central and Eastern Europe remain important growth drivers, with revenue increasing by 10.0 percent to over EUR 6.1 billion and adjusted EBITDA growing by as much as 14.3 percent. With more than EUR 2.5 billion EBITDA, these countries once again made an important contribution to the Group's earnings. The majority of the national companies succeeded in increasing their profitability. For example, Polish company PTC improved its EBITDA margin from 32.9 percent in 2007 to 34.7 percent and at the same time increased its contract customer base by more than 15 percent to a total of 6.3 million.

  • Data revenue excluding messaging continued to grow unabated. In Europe, this figure climbed 44.9 percent to EUR 1.4 billion in 2008. U.S. operations reported an increase of 19.3 percent to USD 1.5 billion for the full year, with growth accelerating to 24.4 percent in the fourth quarter. This positive trend is chiefly due to innovative devices such as the Apple iPhone 3G in Europe and the Android-based T-Mobile G1 that was launched in the United States and the United Kingdom in October and has been available in other countries, including Germany, since mid-February.

Broadband/Fixed Network

  • Revenue decline in this operating segment could be slowed down to 5.1 percent in 2008, compared with 8 percent in the prior year, thanks to the excellent market performance of T-Home in Germany. The initial forecast had put the decline at between 4 and 6 percent. In the fourth quarter, the decrease totaled 3.9 percent. T-Home was even more successful in terms of cost discipline. The "Save for Service" program resulted in net cost reductions of around EUR 0.8 billion in 2008, allowing decline in EBITDA in Germany to be limited to 4.9 percent, slightly better than the originally expected decrease of 5 to 8 percent.

  • The entire operating segment reported revenue in Germany and abroad of EUR 21.3 billion, 6 percent below the prior-year level. In the fourth quarter, revenue declined by 4.2 percent. Adjusted EBITDA in the Broadband/Fixed Network operating segment fell 4.4 percent to EUR 7.4 billion.

  • T-Home expanded its leading market position in the German DSL market. The DSL net add market share has exceeded 40 percent for nine quarters running and actually reached the 50 percent mark in the fourth quarter of 2008 -- the highest net add market share since the complete packages were introduced. On an annual basis, the DSL net add market share was 45 percent, putting it in line with expectations.

  • With a retail customer base of 10.6 million, T-Home further reinforced its clear lead in the German DSL market in the past financial year. Around 352,000 DSL net adds were recorded in the fourth quarter of 2008 alone. In addition, over half a million customers wanting to return to T-Home from competitors registered over the full year. This figure was, for the first time, significantly higher than the number of customers lost to competitors.

  • In 2008, line losses totaled just under 2.5 million. This was at the lower end of the guidance of 2.5 to 3.0 million. This includes losses due to fierce competition and regulatory measures, as well as lines lost for technical reasons as a result of the migration of DSL resale customers to IP-based lines.

  • As many as 480,000 customers have already ordered the Entertain triple play package, meaning that Deutsche Telekom met its expectations. Internet TV is also becoming increasingly popular in Eastern Europe.
    Deutsche Telekom's subsidiaries in Croatia, Slovakia, Hungary, Macedonia and Montenegro had added a total of more than 220,000 customers by the end of 2008.

  • Revenue and profit from international business in the Broadband/Fixed Network operating segment declined overall, chiefly due to the deconsolidation of T-Online France and T-Online Spain in the previous year. Reported revenue decreased 12.2 percent to EUR 2.3 billion for the full year, a decrease of 5.1 percent in organic terms.

Business Customers

  • On a like-for-like basis, i.e. taking into account the changes in the composition of the Group, revenue decreased only slightly by 1.2 percent considering the difficult economic environment. Adjusted EBITDA remained at the same level as 2007, while adjusted profit from operations (EBIT) increased more than fivefold year-on-year, from EUR 12 million to EUR 61 million.

  • International business reported an increase in revenue of 7.4 percent. The adjusted number of new orders increased by 5.2 percent to EUR 12.3 billion. This was partly due to major deals with Shell, Deutsche Post and Royal & Sun Alliance, for example. The agreement with Linde, announced mid-February 2009, represents another milestone in T-Systems' international growth strategy.

  • As the prior-year figures included Media & Broadcast and ActiveBilling, the reported figures show a decline in revenue of 8.2 percent to EUR 11 billion and in EBITDA of 20.0 percent to EUR 0.9 billion. By reducing costs by EUR 0.5 billion in 2008 under the "Save for Service" program, the Business Customer arm also made a valuable contribution to cost cutting.

  • In 2008, T-Systems entered into a partnership in the systems integration area with the U.S. provider Cognizant. This collaboration is now starting to bear fruit. T-Systems has so far secured 16 joint deals with total revenue of EUR 70 million and new orders worth EUR 121 million. Both partners support Continental's tire divisions in Hanover, for example, and ensure stable operation of the research and development application landscape.