deutsche telekom 3q 2008 earnings release

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Deutsche Telekom 3Q 2008 earnings release


  • 1. 9M 08 Interim Group Report January 1 to September 30, 2008

2. Deutsche Telekom at a glance. At a glance Third quarter of 2008 First three quarters of 2008Q3 Q3ChangeQ1 Q3 Q1 Q3Change FY2007a2007a2007a 2008 2008millions millionsmillionsmillionsmillionsof of % of of %of Net revenue15,454 15,693(1.5) 45,55746,721 (2.5) 62,516 Domestic 7,1587,609(5.9) 21,59623,026 (6.2) 30,694 International8,2968,0842.6 23,96123,695 1.1 31,822EBIT (profit from operations) 2,3131,91121.06,479 5,74912.75,286 Special factors affecting EBITb(360)(438)17.8(385) (666)42.2(2,801)Adjusted EBITb2,6732,34913.86,864 6,4157.0 8,087Adjusted EBIT marginb (%)17.3 15.0 15.113.7 12.9Profit (loss) from financial activities (679)(704) 3.6(2,332) (2,238)(4.2) (2,833)Profit before income taxes1,6341,20735.44,147 3,51118.12,453 Depreciation, amortization and impairment losses (2,581)(3,009)14.2 (7,936) (8,527) 6.9 (11,611)EBITDAc4,8944,920 (0.5) 14,41514,2761.0 16,897 Special factors affecting EBITDAb,c (360)(212)(69.8) (375) (440)14.8(2,429)Adjusted EBITDAb,c 5,2545,132 2.4 14,79014,7160.5 19,326Adjusted EBITDA marginb,c (%) 34.0 32.732.531.5 30.9Net profit 895256 n.a.2,213 1,32167.5571 Special factorsb(287)(799)64.1 (352) (869)59.5(2,434)Adjusted net profitb 1,1821,05512.0 2,565 2,19017.13,005Earnings per share/ADSd basic/diluted()0.21 0.06 n.a. 0.510.3070.0 0.13Cash capexe(2,137)(1,686)(26.7) (5,766) (5,293)(8.9) (8,015)Net cash from operating activities 4,2855,137(16.6) 11,29810,352 9.113,714Free cash flow (before dividend payments)2,1963,566(38.4) 5,788 5,837(0.8) 6,581Equity ratiof (%) -- 36.336.1 34.7Net debtg --39,44936,502 8.137,236Sept. 30, June 30,ChangeDec. 31, Change Sept. 30,Change20082008Sept. 30,2007Sept. 30,2007 Sept. 30,2008/2008/ 2008/June 30,Dec. 31, Sept. 30, 2008 20072007 %% %Number ofDeutsche Telekom Group 230,079235,794(2.4)241,426(4.7) 241,589(4.8) employees at Non-civil servants 196,940202,151(2.6)205,867(4.3) 204,419(3.7) balance sheetCivil servants33,139 33,643(1.5) 35,559(6.8)37,170 (10.8) dateFixed network linesh Number of fixed- (millions) 34.6 35.2 (1.7)36.6 (5.5) 37.2 (7.0) network andBroadband linesi(millions) 14.8 14.6 1.413.9 6.5 13.3 11.3 mobile customers Mobile customersj (millions)126.7125.0 1.4 120.8 4.9117.0 8.3a Comparative periods adjusted. Accounting change in accordance with IFRIC 12. For explanations, please refer to Selected explanatory notes/Accounting policies.b For a detailed explanation of the special factors affecting EBIT, adjusted EBIT, the EBIT margin, and the special factors affecting EBITDA, adjustedEBITDA, the adjusted EBITDA margin and special factors affecting net profit/loss after income taxes and the adjusted net profit, please refer toReconciliation of pro forma figures, page 75 et seq.c Deutsche Telekom defines EBITDA as profit/loss from operations excluding depreciation, amortization and impairment losses.d One ADS (American Depositary Share) corresponds to one ordinary share of Deutsche Telekom AG.e Investments in property, plant and equipment, and intangible assets (excluding goodwill) as shown in the cash flow statement. In the first nine monthsof 2007 and in the full year 2007 these include investments totaling EUR 112 million for parts of Centrica PLC taken over by T-Systems UK in connec-tion with an asset deal.f Based on shareholders equity excluding amounts earmarked for dividend payments, which are treated as current liabilities.g For detailed information and calculations, please refer to Reconciliation of pro forma figures, page 75 et seq.h Lines in operation. Telephone lines excluding internal use and public telecommunications, including wholesale services.i Broadband lines in operation, including Germany and Eastern Europe. The prior-year figures were adjusted to reflect the deconsolidation of T-OnlineFrance S.A.S. and T-Online Spain S.A.U.j Number of customers of the fully consolidated mobile communications companies of the Mobile Communications Europe (including Virgin Mobile)and Mobile Communications USA segments. Orange Nederland and SunCom customers have been included in the historic customer base. 3. Contents. To our shareholders n Developments in the Group 4 n T-Share price performance 5 n Corporate governance6 Quarterly financial report n Interim Group management report 7 n Highlights 7 n Overall economic situation/industry situation 11 n Group strategy14 n Development of business in the Group17 n Development of business in the operating segments 23 n Risks and opportunities 41 n Outlook 43 n Interim consolidated financial statements50 n Consolidated income statement 50 n Consolidated balance sheet51 n Consolidated cash flow statement52 n Statement of recognized income and expense53 n Selected explanatory notes54 n Review report74 Further information n Reconciliation of pro forma figures75 n Investor Relations calendar81 n Glossary 82 n Disclaimer 84 4. Developments in the Group. nNet revenue for the first nine months of 2008 was EUR 45.6 billion compared with EUR 46.7 billion for the prior- year period and was adversely affected by negative exchange rate effects amounting to EUR 1.5 billion. nDomestic net revenue was EUR 21.6 billion compared with EUR 23.0 billion in the first nine months of 2007. Inter- national net revenue increased year-on-year from EUR 23.7 billion to EUR 24.0 billion despite negative exchange rate effects. nGroup EBITDA increased from EUR 14.3 billion to EUR 14.4 billion. Group EBITDA adjusted for special factors1 increased from EUR 14.7 billion in the first nine months of 2007 to EUR 14.8 billion. nNet profit increased from EUR 1.3 billion to EUR 2.2 billion. Net profit adjusted for special factors1 increased to EUR 2.6 billion, compared with EUR 2.2 billion in the first nine months of 2007. nFree cash flow2 before dividend payments remained at the prior-year level of EUR 5.8 billion. nNet debt3 increased by EUR 2.2 billion compared with the end of 2007 to EUR 39.4 billion. This is primarily attrib- utable to the acquisition of SunCom, the acquisition of shares in Hellenic Telecommunications S.A., Athens, Greece (OTE) and dividend payments. Development of the operating segments in the first nine months of 2008: nThe number of mobile customers4 rose by 4.9 percent since December 31, 2007 to 126.7 million. nThe number of broadband lines increased by 6.5 percent from December 31, 2007 to 14.8 million. The num- ber of fixed lines in the Broadband/Fixed Network segment was 34.6 million compared with 36.6 million as of December 31, 2007. nAdjusted for deconsolidations, new orders in the Business Customers operating segment increased by 10.6 per- cent year-on-year.1 For a detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, special factors affecting net profit/loss after income taxes andadjusted net profit, please refer to Reconciliation of pro forma figures, page 75 et seq.2 For the calculation of free cash flow, please refer to Reconciliation of pro forma figures, page 75 et seq.3 For detailed information and calculations, please refer to Reconciliation of pro forma figures, page 75 et seq.4 Organic customer growth is reported for better comparability: Orange Nederland and SunCom customers were also included in the historic customerbase. 5. T-Share price perfomance4|5 T-Share price performance.% Performance of 10 the T-Share Jan. 2 Sept. 30, 2008 0-10-20Deutsche TelekomDAX-30Dow Jones STOXXTelecommunications-40 Jan. 2, 2008 Feb. 15, 2008 Apr. 1, 2008 May 15, 2008 July 1, 2008 Aug. 15, 2008 Sept. 30, 2008Sept. 30,Sept. 30,Dec. 31, 2008 20072007 Xetra closing prices()Exchange price at the balance sheet date 10.7713.7815.02High (in the first nine months)15.5513.9615.28Low (in the first nine months) 10.0212.4812.18 Weighting of the T-Share in major stock indexesDAX 30(%) Jones STOXX Telecommunications (%) Market capitalization(billions of )47.0 60.165.5Shares issued(millions) 4,361.32 4,361.204,361.29The stock markets continued to slide during the third quar- Europes telecommunications stocks were unable to es- ter of 2008. The worsening of the financial market crisis incape the general downward trend of the stock markets in September 2008 put further pressure on the worlds lead-the first three quarters of the year. The Dow Jones STOXX ing indices. Between the beginning of the year and Sep- Telecommunications index lost 25.8 percent in the first tember 30, 2008, the DAX shed 27.7 percent, the leading nine months of 2008. U.S. Dow Jones Industrial Average 30 retreated by 18.2 per- cent, the Dow Jones Euro STOXX 50 lost 30.9 percent, andIn the third quarter of 2008, the T-Share performed signif- Japans leading index, the Nikkei 225, declined by 26.4 per-icantly better than the DAX, Germanys leading index, and cent. the Dow Jones STOXX Telecommunications sector index. It closed the quarter at EUR 10.77 as of September 30, 2008, up from EUR 10.40 as of June 30, 2008. 6. Corporate governance.In the most recent Declaration of Conformity released on Deutsche Telekom AG shares are listed as American De- December 6, 2007 pursuant to 161 of the German Stock positary Shares (ADSs) on the New York Stock Exchange Corporation Act, the Board of Management and Superviso-(NYSE). As a result, Deutsche Telekom is subject to NYSE ry Board of Deutsche Telekom AG declared that Deutsche listing rules as well as to U.S. capital market legislation, in Telekom AG had complied with the recommendations ofparticular the Sarbanes-Oxley Act of 2002 and associated the Government Commission for a German Corporate Gover-regulations of the Securities and Exchange Commission nance Code, published by the Federal Ministry of Justice (SEC) for listed foreign entities. A general summary of the in the official section of the electronic Federal Gazettemain differences between German corporate governance (Bundesanzeiger) on July 20, 2007, without exception. Therules and those of the NYSE that apply to