Deutsche Telekom stays on track, posting good results in the first quarter of 2008

Deutsche Telekom has got off to a sound start in the 2008 financial year with its first-quarter results. Adjusted EBITDA of the Group remained stable at EUR 4.7 billion compared with the prior-year figure. Adjusted to exclude exchange rate fluctuations, it increased by 3.1 percent. Enhanced efficiency, improved processes and reduced costs had a positive impact on EBITDA, as did the deconsolidation of Ya.com and Club Internet. Reported EBITDA of EUR 5.0 billion came in 9.1 percent above the previous year's figure. "Over the first three months of this year we laid strong foundations for the rest of the year,” said René Obermann, Chairman of the Board of Management of Deutsche Telekom AG.
In addition to the positive development of profit from operations and lower capital expenditure, working capital effects in particular were the main drivers behind improved free cash flow. Reported net profit increased year-on-year by EUR 0.5 billion to EUR 0.9 billion for the first quarter of 2008. Net profit adjusted for special factors increased by 33.2 percent to EUR 0.75 billion.
Net revenue of EUR 15.0 billion represents a year-on-year decrease of 3.1 percent, impacted by the decline in revenue in the Broadband/Fixed Network and Business Customers segments. Exchange rate effects associated with the translation from U.S. dollars and pounds sterling into euros had a negative impact on the Group's net revenue. The negative effects of changes in the composition of the Group due to the
aforementioned deconsolidations were, however, virtually offset by the positive effects of the first-time consolidation of Orange Nederland and SunCom. Adjusted for changes in the composition of the Group and excluding the effect of exchange rate fluctuations, revenue came in 0.4 percent above the previous year's figure.
The proportion of net revenue generated outside Germany increased slightly to 51.6 percent. At EUR 1.6 billion, free cash flow in the first quarter of 2008 increased by EUR 1.1 billion year-on-year.
Deutsche Telekom remains on course to consistently implement its Group strategy. In the domestic market, T-Home's sales of DSL lines for new customers remained high in the first quarter of 2008, totaling 539,000. Deutsche Telekom now accounts for around 43 percent of growth in the entire German broadband market. The company's position outside Germany was also strengthened by the consolidation of new acquisitions Orange Nederland and the U.S. company SunCom. T-Mobile gained some
3.4 million mobile customers as a result. Overall, T-Mobile's customer base increased year-on-year by 13.9 million to 123 million worldwide.
Deutsche Telekom's cost-cutting programs also continue to perform well. The “Save for Service” program alone generated additional savings of around EUR 240 million in the first quarter compared with the prior-year period. The impact the revenue shortfall from line losses and lower call charges had on profit was offset in part by further cost reductions in Germany, in particular through enhanced service efficiency.
Outlook
Deutsche Telekom still forecasts adjusted EBITDA of approximately EUR 19.3 billion and free cash flow of some EUR 6.6 billion for the 2008 financial year. The company therefore remains committed to a policy of paying an attractive dividend.
Developments in the business areas at a glance
Mobile Communications
T-Mobile Deutschland strengthened its position in the domestic market, which was dominated by fierce price wars. Although T-Mobile Deutschland reported a 3.4 percent decline in revenue to EUR 1.9 billion, the efficiency gains had a significant positive effect. Adjusted EBITDA decreased only slightly year-on-year by 1.1 percent, totaling EUR 692 million. The EBITDA margin improved by 0.8 percentage points to 36.7 percent.
The new calling plans launched at CeBIT 2008 have generated strong demand, especially MyFaves and Max. New data plans, including cell phone and laptop flat rates, along with cooperation with Yahoo! have also improved competitiveness in the field of mobile Internet usage. Growth also continued in this lucrative segment with the addition of 210,000 new fixed-term contract customers in the first quarter. T-Mobile's customer base in Germany increased year-on-year by 12.3 percent to 37.1 million.
The mobile communications business outside Germany continues to perform well. T-Mobile USA alone posted 981,000 net additions in the first three months, three quarters of which were fixed-term contract customers. 1.1 million SunCom customers were also added as SunCom was consolidated on February 22. This took T-Mobile USA past the 30 million customer mark, with 4.8 million net additions compared with the first quarter of 2007, bringing the total to 30.8 million customers.
Currency translation effects had a significant impact on the U.S. subsidiary's revenue and profit. Due to the weak dollar, revenue decreased slightly year-on-year by 0.2 percent to EUR 3.5 billion; adjusted EBITDA rose, however, by 3.3 percent to EUR 966 million. By contrast, revenue increased by 14.1 percent, and adjusted EBITDA by as much as 18.0 percent, when measured in U.S. dollars.
Negative currency translation effects were also noticeable in the figures reported by T-Mobile UK. While revenue measured in euros decreased by 9.2 percent to EUR 1.06 billion, the same figure expressed in pounds sterling increased by 2.6 percent. EBITDA for the first quarter of 2008 increased year-on-year by 2.7 percent to EUR 230 million; the gain was 16.0 percent when measured in sterling. The EBITDA margin improved considerably by 2.5 percentage points to 21.7 percent.
Among the other national companies, the Czech Republic and Poland stand out in particular. While adjusted EBITDA increased year-on-year by 23.4 percent to EUR 158 million at T-Mobile CZ, the same figure increased by 25.2 percent to EUR 184 million at PTC.
The number of contract customers in the entire Mobile Communications segment increased on a pro forma basis – that is including SunCom and Orange Nederland in the historical figures – by 10.7 percent. Revenue from data services, excluding SMS text messages, continued to grow. The European national companies achieved a growth rate of 41.5 percent compared with the prior-year level in this area.