Telekom is risking an costly wager for the longer term

Dusseldorf The primary figures for the previous monetary yr put the Deutsche Telekom executives in a superb temper. The group posted file gross sales in 2019 of round 81 billion euros. The outgoing boss of the US subsidiary, John Legere, stated goodbye: “What a Fantastic World.”

CEO Timotheus Höttges also can current sturdy figures on the finish of final yr. Telekom has elevated considerably not solely by way of gross sales, but in addition by way of revenue. Consolidated web revenue rose by 79 p.c to three.9 billion euros.

When asserting the figures, Höttges didn’t skimp on superlatives. He rated the previous yr as the perfect within the firm’s historical past. “This can be a historic day for Deutsche Telekom,” stated the CEO.

Deutsche Telekom is in a superb place. She additionally needs this power to be confirmed on the digital basic assembly on June 19. CEO Höttges additionally plans to current one other technique for the essential US market. However regardless of all of the jubilation, the highest of Telekom wants a solution to the important thing weaknesses: These embody rising debt ranges and troublesome integration in the USA.

Nothing is as essential to Telekom as the way forward for its US enterprise. After two years of typically troublesome negotiations, the workforce round CEO Höttges and CEO Thorsten Langheim have managed to finish the merger with the US rival Dash. The merger was accomplished on April 1 and due to this fact doesn’t but seem within the steadiness sheet for the previous monetary yr.

The figures for 2019 already present how essential the USA is for Deutsche Telekom. Gross sales there rose by virtually eleven p.c to round 40 billion euros, the adjusted working consequence by round ten p.c to eleven billion euros. Telekom is already producing greater than half of its gross sales in North America.

Enterprise is growing solidly within the house market of Germany. Though gross sales elevated solely reasonably by lower than one p.c, the German subsidiary was in a position to enhance its adjusted working revenue by 2.four p.c to eight.7 billion euros. The European nationwide corporations additionally reported stronger figures to the group.

The conversion on the main buyer subsidiary T-Techniques continues. The corporate does present a 17 p.c improve in adjusted working revenue. However at 519 million euros, revenue is at a low degree. Gross sales fell barely by 1.9 p.c to six.Eight billion euros. No less than T-Techniques achieved an 8.2 p.c improve so as consumption, which factors to higher enterprise sooner or later.

Central tax determine improved

The return on funding (ROCE) as a key tax parameter can be significantly essential for Telekom. It exhibits how effectively the group operates with the capital invested. This indicator is predicated on the working revenue after tax (EBIT decreased by tax expense). This worth is to be divided by the whole belongings (much less non-interest bearing liabilities and money and money equivalents).

The purpose of the Telekom administration is that the return on capital is above the price of capital. Telekom exhibits the worth for ROCE, however not that of its personal capital prices. The Handelsblatt used the “weighted common value of capital” (WACC), which the monetary providers supplier Bloomberg calculated. Whereas prices exceeded returns previously yr, Telekom improved within the 2019 monetary yr. With a ROCE of 5.1, the return on funding this time exceeded the price of capital.

CEO Höttges additionally used the great numbers to make essential investments sooner or later. With out spending on cell radio frequencies, Telekom spent 13.1 billion euros final yr – for instance for the modernization of its networks. That could be a file.


When auctioning off the cell radio frequencies in Germany, Telekom provided round 2.2 billion euros in June. However not like earlier auctions, the corporate can stretch its cost to the federal authorities for round a decade. The monetary burden is due to this fact unfold over a protracted interval.

Regardless of the great figures and long-term investments, CEO Höttges has to clarify to shareholders how he needs to unravel some issues. Because of the outbreak of the corona pandemic, the Annual Common Assembly will happen just about for the primary time and in addition three months later than initially deliberate.

When Telekom introduced final November that it might decrease the dividend, there have been protests from shareholders. They’d been used to the truth that the distribution per share continued to climb yearly. As a substitute of 70 cents within the earlier yr, Höttges solely promised 60 cents for the 2019 monetary yr.

After a lot of corporations lower their dividends within the quick time period and even canceled them totally as a result of corona pandemic, Telekom is doing comparatively properly. As a result of it ought to stick with the proposal. If the shareholders agree on Friday, the group will distribute 2.Eight billion euros this yr.

Debt will increase to file ranges

Nevertheless, the cost will assist Telekom’s debt to proceed to rise. Internet monetary liabilities rose 37.2 p.c year-on-year to EUR 76 billion. The rise additionally features a particular impact as a result of new accounting commonplace IFRS 16, via which leasing commitments of 15.6 billion euros are included within the steadiness of debt.

Telekom exhibits a worth for its relative debt. In doing so, it units the web monetary liabilities in relation to the adjusted working consequence. At 2.65, the worth was by no means as unhealthy as in 2019, however continues to be throughout the self-defined hall. From this, it’s calculated that Telekom would wish 2.65 years to repay its money owed if earnings remained the identical.

One other unsolved downside for Höttges is integration in the USA. With the takeover of the rival Dash, the variety of cell operators is decreased from 4 to a few. The Telekom subsidiary T-Cellular US can straight problem the trade leaders AT&T and Verizon. On the similar time, CFO Christian Illek admitted when presenting the quarterly figures that not all information in regards to the financial state of affairs of the Dash firm to be built-in was accessible prematurely. “Solely within the subsequent few months will we discover out what our bodies Dash had within the basement,” stated an insider.

Telekom is assuming integration prices of $ 15 billion. After deducting all prices, nonetheless, the group expects synergies of $ 43 billion. It is as much as the brand new boss of T-Cellular US, Mike Sievert, to elevate it.

In Germany, the group has thus far largely come via the outbreak of the corona pandemic. “Telekom is one thing like the sector horse pulling the plow via the sector,” stated Höttges in a dialog with the Handelsblatt lately.

Difficulties within the US

In the USA, nonetheless, the state of affairs is unsure. Integrating two corporations in occasions of a worldwide pandemic with short-term contact restrictions is a selected problem. On the similar time, T-Cellular has challenged the competitors with aggressive costs within the USA. Among the presents from the Telekom subsidiary have been aimed toward prospects who should not have a excessive month-to-month revenue.

Greater than 40 million folks in the USA have reported unemployment because the pandemic broke out. Cell phone corporations have been requested to not cancel connections from prospects who may not pay their invoice. CFO Illek admitted that it’s not but clear how a lot the group could possibly be affected by cost defaults in the long run.

With the acquisition of Dash, Telekom has not solely created higher alternatives in the USA, but in addition new money owed. No less than the capital market appears to belief the group that it’ll grasp the mixing properly.

A number of days after the acquisition, a $ 19 billion bond was issued. “We did not want the bridge financing that had been negotiated for safety lengthy earlier than,” stated Höttges. The CEO has all the pieces in hand to steer Telekom to a brand new dimension – if he succeeds in integrating in the USA.

Extra: Each fifth German needs to alter the cell phone contract.

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