Global Insight Perspective | |
Significance | Deutsche Telekom has posted stable financial results for the third quarter of 2008, with earnings before interest, tax, depreciation and amortisation (EBITDA) decreasing 0.5% year-on-year (y/y). |
Implications | The harsh economic climate has not yet hit the German telco; its diversified revenue base and effective cost-cutting programme are proving their worth. |
Outlook | Deutsche Telekom expects to keep its head above water next year too, forecasting flat or slightly growing EBITDA. |
Deutsche Telekom has remained on track to meet its full-year targets, recording net revenue of 15.454 billion euro (US$19.993 billion), down 1.5% y/y in the third quarter of 2008. On an organic basis—adjusted for exchange rates and excluding the changes in the composition of the company—the decrease was 0.9%.
Reported EBITDA stood at 4.894 billion euro, down 0.5% y/y. Adjusted for special factors, EBITDA was 5.254 billion euro, up 2.4%. Domestic operations contributed 7.158 billion euro (46.3%, down 5.9% y/y) of revenue, and international operations 8.296 billion euro (53.7%, up 2.6% y/y).
Total revenue from mobile services was 9.028 billion euro, up 1.7% y/y. On an operational basis, T-Mobile USA was among the best-performing units with its client base of 32.136 million (up 15.9% y/y); T-Mobile Germany reported 38.8 million subscribers, 12.6% more than a year earlier; and T-Mobile UK 16.802 million, an annual decrease of 1.2%. T-Mobile Netherlands, including the consolidated Orange unit, had 5.327 million clients (up 10.4%) and T-Mobile Austria 3.333 million (up 3.3%).
The branches in Central and Eastern Europe (CEE) continued their solid performance, with T-Mobile Czech Republic recording 5.392 million customers (up 3.6%), Hungary 5.156 million (up 11.4%), Croatia 2.620 million (up 15.0%), Slovakia 2.317 million (up 0.4%), FYR Macedonia up 1.301 million (22.0%) and Montenegro 462,000 (up 18.2%). PTC, Deutsche Telekom's Polish unit expanded its clientele to 13.013 million, up 2.3% y/y. Of the global subscription base of 126.659 million (up 11.4%), 64.7 million subscribers—51.1%, against 50.4% in September 2007—were on price plans.
Of the fixed-line and broadband total revenue of 5.314 billion euro (down 5.5% y/y), 4.709 billion euro (down 5.9%) came from the domestic business and 620 million euro (up 1.9%) from international operations. Following the divestments of T-Online France in June 2007 and T-Online Spain in July 2007, Deutsche Telekom's international fixed-line and broadband operations are represented by the acquired incumbents in Hungary (quarterly revenue of 316 million euro, up 1.6%), Slovakia (119 million euro, up 2.6%) and Croatia (186 million euro, down 3.1%), including their international subsidiaries.
Outlook and Implications
- Coping with the Climate: Deutsche Telekom has managed to weather the economic storm relatively well. While delivering the results, the group's management said that it saw no reason to adjust the guidance on full-year performance.
Based on the current structure—that is, excluding the future contributions of the purchased OTE (see Germany-Greece: 3 October 2008: EU Approves Deutsche Telekom's Control in OTE)—the company expects next year's EBITDA to remain stable or increase slightly. It remains to be seen how realistic this is, given that conditions in some markets, particularly in Central and Eastern Europe, are likely to get worse before they get better. However, Deutsche Telekom's ongoing cost-cutting programme is obviously helping the company cope with the worsening outlook.
- Saving for Service: Over 12 months, the net reductions in the company's headcount totalled 11,500 and resulted in a workforce 4.8% slimmer than in September 2007. The redundancies took place chiefly in the German home market, where personnel expenses fell 6.5% y/y to 2.2 billion euro as the telco continued to trim away at its out-of-date fixed-line unit.
The staff-related costs at the subsidiaries abroad fell by 2.5% to 3.2 billion euro, despite the fact that the international headcount actually increased by 4,700 positions. Most of the jobs were added by the expanding T-Mobile USA, while the former fixed-line monopolies in Hungary, Croatia and Slovakia followed the restructuring programme similar to the one seen in Germany and trimmed their payrolls accordingly (see Germany: 22 August 2008: Deutsche Telekom to Close 39 Call Centres, Planning to Invest 70 mil. Euro in Remaining 24).
Deutsche Telekom estimates that the cost-cutting agenda, dubbed "Save for Service", led to savings of 500 million euro over the last quarter.