Good start to 2012 financial year for Deutsche Telekom

• Adjusted EBITDA of EUR 4.5 billion at prior-year level
• 1.1 percent decrease in revenue in first quarter to EUR 14.4 billion
• Free cash flow almost 6 percent higher than prior-year figure at EUR 1.1 billion
• 17 percent decrease in adjusted net profit
• Net debt reduced by more than EUR 3 billion in 12 months
• Strong customer growth for Entertain
• Stabilization in Europe, slight growth in U.S.
• Guidance for the year confirmed

"This was a very satisfying quarter for us," said René Obermann, Chief Executive Officer of Deutsche Telekom. "We have made significant progress in many areas and can now confirm our guidance for the year."

At EUR 2.2 billion, the Group invested a considerable amount in cash capex once again in the first quarter. It also significantly reduced its debt at the same time. At March 31, 2012, net debt stood at EUR 38.6 billion, a year-on-year decrease of EUR 3.2 billion.

Compared with 2011, free cash flow increased by 5.7 percent in the first quarter to EUR 1.1 billion. Adjusted net profit declined 17.1 percent to EUR 581 million. Reported net profit was impacted in the first quarter by special factors affecting EBITDA of EUR 525 million compared with EUR 182 million in the same period of 2011. EUR 464 million of this was attributable to the continuation of the early retirement scheme as part of the Group's socially responsible restructuring measures. Corresponding exceptional expenses in the prior year were only incurred from the second quarter. This change in seasonal influences resulted in reported net profit of EUR 238 million in the first quarter of 2012.

Germany - accelerated customer growth for Entertain
The Germany operating segment saw a clear year-on-year improvement in its revenue. Total revenue decreased by only 2.3 percent compared with the prior-year period to EUR 5.7 billion in the first quarter of 2012. Adjusted EBITDA decreased to a lesser extent by 2.0 percent to EUR 2.3 billion. This results in an adjusted EBITDA margin of 40.7 percent, which represents a further improvement of 0.2 percentage points compared with the same period in 2011.

The decline in revenue was primarily slowed by greater stability in fixed-network business, particularly in the wholesale unit, which saw a decrease of just 3.9 percent compared with a two-digit decline at times during the prior year. In addition, the number of line losses fell further and revenue generated with broadband lines and television services increased. Service revenues in mobile communications, on the other hand, did not perform satisfactorily, decreasing by 1.8 percent. Mobile data revenues increased by 20 percent to EUR 462 million.

Over 1.7 million customers now have Entertain, the television experience of the future. This represents year-on-year growth of 37.2 percent. There were 173,000 new customers in the first quarter of 2012, 71 percent more than from January to March 2011, with 81,000 of them receiving Entertain via satellite. There was also a significant increase of more than 100,000 new customers in the fiercely competitive broadband business. Deutsche Telekom kept its share of existing customers at over 45 percent. At 259,000, the number of line losses resulting from competition and regulation was 24 percent lower than the prior-year level. By contrast, 107,000 mobile contract customers were lost in the first quarter, resulting from the migration of a larger number of customers from one service provider to another network provider. Excluding this effect, the number of mobile contract customers also increased.

U.S. - customer growth with strong profitability
T-Mobile USA performed well, particularly in terms of its profitability. Revenue increased by 2.0 percent to EUR 3.8 billion in the past quarter, with adjusted EBITDA rising by 12.9 percent to EUR 1.0 billion. Nonetheless, the positive trend is due in part to exchange rate gains made by the U.S. dollar. In local currency, revenue decreased by 2.3 percent, while adjusted EBITDA increased by a full 8 percent.

The U.S. subsidiary recorded a strong adjusted EBITDA margin of 25.6 percent, a year-on-year increase of 2.5 percentage points, and gained new customers. Growth in prepay business saw the total number of customers up by 187,000 in the first quarter. The number of branded contract customers (excluding machine-to-machine), on the other hand, was down by 510,000.

T-Mobile USA is well on schedule for implementing the new LTE mobile standard and the comprehensive modernization of its network thanks to the completed transfer of spectrum from AT&T and preparations for refarming existing spectrum. Relaunching the T-Mobile brand on the U.S. market and significantly enlarging the sales network in the country are important steps in implementing the strategy. In addition, initiatives for cutting costs and reducing churn are having a positive impact. There was a 0.1 percentage point improvement year-on-year in branded contract customer churn, representing a 0.5 percentage point improvement on the fourth quarter.

Europe - stabilization continues
European business also continued to stabilize in the first three months of this year. Revenue declined 2.6 percent year-on-year to EUR 3.6 billion. Adjusted EBITDA decreased by 4.3 percent to EUR 1.2 billion. When adjusted for exchange rate effects, however, particularly in Hungary and Poland, and the impact of regulation on mobile communications, revenue actually increased slightly.

As a result, business in Europe showed new strength, although a difficult economic environment continued to prevail in many countries. Once again, virtually all national companies maintained their strong profitability. Positive trends were recorded in the revenues of the mobile communications companies in Greece and Romania.

The number of mobile contract customers and broadband customers also increased by 3 percent each. The number of IPTV customers even grew by 18 percent. The trend toward increased smartphone use also continued unabated at the European national companies. Smartphones still accounted for 40 percent of devices sold one year ago, but this figure increased to 57 percent in the first three months of the current year. This boom was a major factor in the 11 percent increase in mobile data rates in Europe, a 14 percent increase when adjusted for exchange rate effects. More than half of this growth originated in the Netherlands and Austria. Croatia performed best, with growth of over 30 percent when adjusted for exchange rate effects.

Systems Solutions - margin improved, revenue under pressure
Systems Solutions began the first quarter of 2012 with its revenue from international business increasing by 3.5 percent to EUR 758 million. Externally generated revenues also increased year-on-year, albeit only slightly by 0.6 percent, due to sustained price and competitive pressure.

Revenue generated within the Group decreased as planned. This contribution to reducing costs at Deutsche Telekom outweighed the growth in revenue with external customers. Total revenue therefore decreased by 0.7 percent year-on-year in the first three months to EUR 2.2 billion.

The adjusted EBIT margin, the most important indicator of Systems Solutions' profitability, saw a slight improvement of 1.3 percent to 2.0 percent compared with the prior-year period. Adjusted EBITDA amounted to EUR 192 million.

This represents a 1.6-percent year-on-year increase.

T-Systems secured big deals from Old Mutual Group (OMG) and British American Tobacco (BAT) in the first quarter. Overall, there was a 33-percent decrease in orders compared with the first quarter of 2011. It should be noted that the high prior-year figure resulted from the big deal with Everything Everywhere.

T-Systems is offering a new telematics solution in the field of connected cars. Since February 2012, forwarding companies can use cloud-based services to plan their routes more efficiently, thereby cutting maintenance costs and saving up to 20 percent on fuel. With TelematicOne, T-Systems delivers a central control unit for all logistics activities, including accessing the position details of trucks, controlling the temperature of goods, and recording transportation routes, containers, and trailers in real time.

The Deutsche Telekom Group at a glance*: