Deutsche Telekom increases speed of growth

• Revenue increased 4.2 percent to EUR 62.7 billion in 2014 and 8.5 percent in the fourth quarter
• Adjusted EBITDA up 0.8 percent to EUR 17.6 billion in 2014; strong growth of 9.5 percent in the fourth quarter
• Adjusted net profit up 12.4 percent, unadjusted up more than 85 percent in the fourth quarter
• Proposed dividend of 50 eurocents per share
• Mobile service revenues in Germany up 1.8 percent in the fourth quarter compared with the prior-year period
• Adjusted EBITDA at T-Mobile US increased 27.5 percent in the fourth quarter

Deutsche Telekom recorded strong growth in the fourth quarter of 2014. Net revenue increased 8.5 percent year-on-year to EUR 17.0 billion. In organic terms, i.e., excluding exchange rate effects and changes in the composition of the Group, growth was also significant at 5.6 percent. In the full 2014 financial year, Deutsche Telekom recorded revenue growth of 4.2 percent to EUR 62.7 billion. Adjusted EBITDA increased 0.8 percent to EUR 17.6 billion, reaching the target for 2014. In the fourth quarter of 2014, adjusted EBITDA rose by as much as 9.5 percent to EUR 4.4 billion. Organic growth stood at 6.9 percent.

"It was a strong quarter to close a successful year," said Tim Höttges, CEO of Deutsche Telekom. "We have put the Group back on course for growth and will continue rigorously to forge ahead with this path."

Deutsche Telekom invested in its networks even more heavily than in the prior year. In 2014, the Group spent EUR 9.5 billion in terms of cash capex before expenses for mobile spectrum. That was 7.6 percent more than in 2013. Consequently, free cash flow declined as expected by 10.1 percent to around EUR 4.1 billion, which was in line with the target for the full year.

As a result of the increase in EBITDA, adjusted net profit increased by 12.4 percent to EUR 399 million in the fourth quarter. Unadjusted, it increased year-on-year by more than 85 percent due to negative special factors in the fourth quarter of 2013. For the full year, Deutsche Telekom recorded a decrease in adjusted profit of 12.1 percent to EUR 2.4 billion due to increased depreciation and amortization as a result of higher network investments and the inclusion of MetroPCS for twelve months. Unadjusted net profit tripled year-on-year in the full year to EUR 2.9 billion, mainly due to the partial sale of the Scout group.

Based on the results, the Board of Management and Supervisory Board will be proposing to the shareholders' meeting on May 21 an unchanged dividend of EUR 0.50 per share. As in the previous two years, this dividend can be received in cash or, if desired, in the form of shares.

Germany - Revenue increase in the fourth quarter

For the first time since the Germany operating segment was established, Deutsche Telekom has generated quarterly revenue growth on its home market. At EUR 5.7 billion in the fourth quarter, revenue was up 1.6 percent against the same quarter in 2013. Adjusted EBITDA decreased by 1.3 percent to EUR 2.0 billion due to market investments for the launch of the MagentaMobil and MagentaEINS rate plans and the high level of smartphone sales.

Deutsche Telekom recorded strong growth in the German mobile business. In the fourth quarter, mobile service revenues increased by 1.8 percent year-on-year. Deutsche Telekom therefore not only clearly outperformed the trend on the market as a whole, but also once again substantially extended its lead on the market number two. The number of mobile contract customers under the Telekom and Congstar brands grew by 277,000 between October and December. Smartphone sales boomed in the fourth quarter. The Group sold more than 1.5 million devices, thereby recording its best ever quarter in this regard. Around three quarters of the smartphones sold in the 2014 financial year were LTE-enabled devices. The number of customers who use an LTE-enabled device and have subscribed to an LTE rate plan doubled during the year to more than 5.6 million.

Demand for fiber-optic products FTTH and VDSL increased again. In the fourth quarter, 323,000 customers opted for a fiber-optic-based line, 143 percent more than in the prior year. The total number of these lines increased by 66 percent within one year to more than 2.5 million. Deutsche Telekom recorded particularly strong customer additions in the VDSL roll-out areas, triggered by the market launch of 1.3 million vectoring households in the fourth quarter. Among the positive developments in the quarter was the increase in the number of Entertain customers to more than 2.4 million, with more than 40 percent of new VDSL customers also opting for Entertain. In the VDSL roll-out areas, this value is even higher. In the broadband market, Deutsche Telekom further strengthened the positive trend, recording 20,000 net broadband additions.

United States - T-Mobile US continues success story

T-Mobile US closed 2014 with impressive figures. Between October and December, the company again recorded strong customer growth. The total number of customers increased by 2.1 million to more than 55 million. 1.3 million of these were postpaid customer additions. The customer base grew by 8.3 million in the financial year.

As expected, these successes have an increasingly positive impact on the financial figures. Revenue increased by 17.5 percent in the fourth quarter compared with the same period last year to USD 8.1 billion. The growth in adjusted EBITDA was significantly higher, up 27.5 percent to USD 1.7 billion. Translated into euros, the trends were even more pronounced thanks to the appreciation of the U.S. dollar against the euro: On this basis, revenue increased by 28 percent and adjusted EBITDA by 39 percent.

The initiatives of the Un-carrier strategy and investments in the network remain the basis for success. In the last few quarters, T-Mobile US has systematically increased population coverage and improved the quality of the mobile network. As of the end of the year, the company's 4G LTE network covered 265 million people. That is an increase of 56 million compared with 2013 and well above the target for 2014 of 250 million. In the current year, coverage with 4G LTE is to be expanded to 300 million people.

The synergies expected in connection with the merger with MetroPCS are greater than expected. Since the MetroPCS customers are switching to the modern T-Mobile US network at a faster rate than anticipated, the company will now be able to decommission the MetroPCS network earlier than expected and then use the released mobile spectrum for the T-Mobile network. While at the time of the merger in 2013, the present value of the synergies were estimated to be between USD 6 and 7 billion, T-Mobile US now expects a value of between USD 9 and 10 billion.

Europe - Network roll-out on track

Transformation continued: In the fourth quarter of the financial year, the European national companies made clear progress in many areas. In the mobile networks, almost 15,000 LTE base stations had been established by the end of 2014, more than three times as many as at the end of 2013. In the fixed network, the share of IP-based lines rose by 12 percentage points to 39 percent. Following Macedonia, Slovakia was the second country to complete the migration to IP technology.

In the final quarter, segment revenue declined by 3.4 percent year-on-year to EUR 3.4 billion. 26 percent of revenues related to growth areas like mobile Internet or television. At the same time, adjusted EBITDA decreased 3.8 percent to EUR 1.1 billion. In the full year, revenue decreased by 5.3 percent and adjusted EBITDA by 2.6 percent.

Cutting costs had a positive impact on profitability in the financial year. The adjusted EBITDA margin increased to 34.2 percent, from 33.2 percent in the previous year.

Systems Solutions - Continuous increase in earnings

At T-Systems, the deal signed with ThyssenKrupp had a positive impact on order entry in the fourth quarter. In December, Deutsche Telekom's business customer arm announced that ThyssenKrupp will in the future procure 80,000 computer workstations and 10,000 server systems worldwide from the Deutsche Telekom cloud. Order entry in the Market Unit, which mainly comprises T-Systems' external business, increased by 6.7 percent to EUR 2.4 billion.

Revenue in the Market Unit decreased 3.1 percent year-on-year to EUR 1.8 billion in the fourth quarter. The decline in net revenue was attributable to the persistent price pressure as well as the withdrawal from non-profitable business as part of the ongoing restructuring. By contrast, the growth areas recorded a marked increase. T-Systems' cloud revenues increased by around 40 percent in the full year, contributing to the fact that the growth areas accounted for a larger percentage of total revenue in 2014 than in the prior year, as planned.

The company's earnings improved continuously in the course of the year. In the fourth quarter, the Market Unit's adjusted EBIT margin reached 6.4 percent, i.e., up 2.2 percentage points against the previous year. At Telekom IT - which handles Deutsche Telekom's internal IT business in Germany - revenue decreased substantially, as projected, by 20.3 percent. Of the target of EUR 1 billion of IT cost savings in the Group by 2015, EUR 800 million had already been achieved by the end of 2014.

More information at Deutsche Telekom website

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