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T-Systems Announces 2015+ Plan, Aiming for Higher Profitability and Revenue Growth

T-Systems' parent company, Deutsche Telekom, has announced its T-Systems 2015+ strategic plan. T-Systems 2015+ aims to increase the EBIT profitability of the company and help it resume organic growth by 2017. 

Principles of T-Systems 2015+ rely on a change in it service portfolio mix:

  • Stopping of unprofitable offerings
  • Adoption of more standardized service offerings, which will be platform-based and scalable. T-Systems is to derive 50% of revenues from standard IT services by 2017
  • Emphasis on select offerings e.g. M2M, cloud computing, big data and security services. High-growth offering are to represent “nearly half” of revenues by 2017, up from “one third” currently.

Guidance for Market Unit is:

  • 2014: revenues: ~€6.7bn, of which
    - “Scalable IT and TC services; transformation and integration”: 35% of revenues (2013: 34%)
    - “Classical ICT services (MAKE)”: 45% of revenues (44%)
    - “Classical ICT services (BUY)”: 13% of revenues (12%)
    - “Stop offerings”: 7% (10%)
  • 2017: revenues: ~€7.7bn, of which
    - “Scalable IT and TC services; transformation and integration”: 46% of revenues
    - “Classical ICT services (MAKE)”: 37% of revenues
    - “Classical ICT services (BUY)”: 17% of revenues
     “Stop offerings”: 0%.

Deutsche Telekom's new CEO, Tim Höttges, is determined, among other things, to increase the profitability of T-Systems. Mr. Höttges has wasted no time, unveiling a plan initially focused on personnel restructuring (Reuters reported redundancies of ~4k, out of a total headcount of ~51k) and on an improved service mix. And indeed T-Systems, after years of restructuring remains a loss-making business, with a negative 2.9% EBIT margin in 2013. From an operating point of view, T-Systems year after year gradually improves its profitability. But the company remains impacted by the high level of restructuring expenses (2013: ~€431m: 2012: ~€417m). By comparaison, Capgemini had in 2013 €68m in restructuring costs and Atos, a NelsonHall estimated ~€150m in 2013.

T-Systems continues to incur very large restructuring expenses, where Atos, a vendor also with a large IT infrastructure management business, seems to have put this behind it.  T-Systems' business model, which relies on large IT outsourcing contracts is very capital intensive. The company probably needs to diversify very significantly its business model towards project services and overall professional services that are less capital-intensive. The problem is that project services are becoming in T-Systems' core markets very India-centric. This latest phase in the reinvention of T-Systems is only starting. 

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