T-Systems, the IT and network services arm of Deutsche Telekom, has reported a decline in both revenue and profits in full-year 2005, but said that it is making progress in becoming the largest player in the German mid-market sector, or “mittelstand”.
For the 12 months ending December 31, 2005, T-Systems reported a 2.7% decline in adjusted EBITDA to 1.59bn euros ($1.9bn) on total revenue that fell 0.9% to 12.9bn euros ($15.4bn). If sales to other parts of the Deutsche Telekom empire are stripped out, T-Systems’ net revenue fell 2% to 9.1bn euros ($10.9bn).
In the fourth quarter, T-Systems’ adjusted EBITDA fell 8.7% to 325m euros ($388m) on net revenue that fell 6.4% to 2.4bn euros ($2.9bn). The division’s operating margin for the quarter, based on net revenue, was 4%.
T-Systems divides its business into two areas: Enterprise Services, which provides IT and network services to 60 multinational accounts; and Business Services, which sells to some 160,000 large and medium-sized accounts.
Total sales from the Enterprise Services division rose 1.5% to 8.4bn euros ($10bn) in the full-year period. Net revenue reached 4.8bn euros ($5.7bn), and new awards with major clients including Volkswagen and DaimlerChrysler helped to drive new orders up 3% to 13.6bn euros ($16.3bn) across T-Systems as a whole.
Total revenue from Business Services clients fell 5% to 4.5bn euros ($5.4bn), reaching 4.2bn euros ($5bn) at a net level. The company said its strategy of focusing on providing IT services to medium-sized companies is paying off, with revenue in this area increasing 29% to 405m euros ($483m).
T-Systems said it is on the right track to becoming the leading IT service provider for the German SME segment, and expects an additional 300m euros ($358m) from this market in 2006.
T-Systems’ international delivery capability has been recently boosted by the takeover of Gedas AG, the internal IT services unit of automotive manufacturer Volkswagen, which has been given the green light from the European Union Commission.
Financial numbers from Gedas were not included in this set of results, but it is expected to fall under the legal ownership of T-Systems from April 1. Last week, Gedas reported a 45% rise in full-year pre-tax profit to 37m euros ($44m) on revenue that increased 7% to 606m euros ($720m).
T-Systems’ headcount fell by 0.5% to 51,744 employees during 2005. Deutsche Telekom is attempting to reduce T-Systems’ workforce by some 5,500 people over the next three years as part of group-wide restructuring, but its plans have been delayed by a dispute with services workers union Ver.di.