Deutsche Telekom Reports Decline in Revenue & Profitability

Citing a persistently tough economic environment, especially for its T-Mobile USA operation, Deutsche Telekom reported Q2 revenue of EUR 14.5 billion, a decline of 6.8 percent year-on-year. Revenue for continuing operations, excluding T-Mobile USA, fell by 3.3 percent. On a like-for-like basis (i.e., excluding T-Mobile UK), the drop in revenue back in the first quarter amounted to 3.7 percent. Adjusted EBITDA for the Group as a whole fell by 6.5 percent to EUR 4.7 billion. The decrease in continuing operations was 2.6 percent.

Adjusted net profit was positive, increasing by 16.8 percent in the second quarter of 2011 compared with the same period last year to EUR 951 million. Negative special factors came to almost EUR 0.3 billion more than in the same period last year, particularly as a consequence of the costs of staff reorganization, resulting in an unadjusted decrease of 26.7 percent to EUR 348 million. The Group recorded an 18.7-percent increase in free cash flow to EUR 1.8 billion.

"Although these figures are not a cause for celebration, they still give us reason to be confident that we will achieve our targets in a persistently difficult environment," said René Obermann, CEO of Deutsche Telekom. "We are now also seeing light at the end of the tunnel in Southeastern Europe."

Some highlights:

Germany



During Q2, the number of broadband lines overtook the number of conventional telephone lines for the first time.

There were 295,000 line losses, an all-time low during the quarter.

Deutsche Telekom's broadband market share held steady at around 46 percent.

The number of users connected to the Internet-based TV service Entertain increased by 34 percent to 1.3 million within a year.

Mobile Internet revenue increased by over 30 percent year-on-year to EUR 409 million, due in large part to the growth in the use of smartphones.

Smartphones now account for more than 60 percent of all devices sold, a year-on-year increase of 30 percent.

Revenue in the Germany segment fell by 3.4 percent to EUR 6 billion compared to the second quarter of 2010.

Service revenues in mobile communications declined by 3.4 percent to EUR 1.7 billion, most due to the impact of the regulatory decision to drastically cut termination charges.

Europe

Total revenue fell by 5.5 percent to EUR 3.8 billion compared with the same quarter in 2010. The decrease in the first quarter, adjusted to take into account the deconsolidation of T-Mobile UK, had still amounted to 8 percent. The situation is similar for adjusted EBITDA, which fell by 8 percent year-on-year in the second quarter, while the decrease in the first quarter of this year had still stood at 13 percent.

The best performers were Croatia, with an adjusted EBITDA margin of 45.4 percent, and the Magyar Telekom Group, with a margin of 43.9 percent, adjusted for the influence of the special tax in Hungary. A margin of 38.9 percent was achieved for mobile business in Poland, where the T-Mobile brand was launched in the second quarter in a nationwide campaign.

The economic situation in Greece and Romania remains difficult and continues to put noticeable strain on the business of the OTE Group, where revenue and earnings have fallen significantly.

Systems Solutions

Revenue increased by 1.5 percent to EUR 2.3 billion. External revenue growth stood at 1.7 percent while there was a disproportionately significant increase of 3.1 percent in international revenues. The corporate customer segment recorded a 14.7 percent decrease in adjusted EBITDA to EUR 0.2 billion, due primarily to the aforementioned start-up costs.
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