Statement of the Board of Management on business development in 2019

Bonn, February 10, 2020

We successfully closed the 2019 financial year with very strong results. We met our key company targets and made important progress with our innovation fields. Net revenue increased by 6.4 percent to EUR 80.5 billion. In organic terms, net revenue increased by 2.8 percent. In other words, the figure has been adjusted for this year’s positive currency translation effects and the effects from the acquisition of Tele2 Netherlands and UPC Austria. Our business continued to record strong growth across all operational segments. This is the result of the great popularity of our mobile and broadband offerings in particular. The integration of UPC Austria and Tele2 Netherlands further improved our position in Europe, especially with regard to the convergent product offering. We continued to post strong growth in the U.S. business in terms of customer additions. We want to further develop this good position by means of the agreed business combination of T‑Mobile US and Sprint. With regard to the 5G build-out, we got the spectrum that we need and laid important foundations with the launch of the first 5G networks in Germany, the United States, and Austria.

Adjusted EBITDA AL grew by 7.2 percent to EUR 24.7 billion. The main reason for this increase is a sound operational development, driven by revenue growth and further enhanced cost efficiency. All operating segments reported year-on-year increases in their respected adjusted EBITDA AL. Our free cash flow AL (before dividend payments and spectrum investment) came in at EUR 7.0 billion. This represents growth of approximately 15.9 percent year-on-year.

The strong operational development is also reflected in net profit, which increased by EUR 1.7 billion to EUR 3.9 billion. The decrease in the loss from financial activities also had a positive effect; this was mainly attributable to positive measurement effects from embedded derivatives. By contrast, we recorded higher depreciation and amortization in 2019 as a result of the high level of investment in building and expanding our mobile networks and fixed-network infrastructure, as well as for the forward-looking migration to IP as part of our integrated network strategy. Net profit adjusted for special factors increased by EUR 0.4 billion to EUR 4.9 billion. Adjusted earnings per share was EUR 1.04, exactly in line with our expectations.

ROCE increased year-on-year due largely to the substantial growth in net operating profit after taxes.

Net debt increased from EUR 55.4 billion to EUR 76.0 billion, which is attributable to the new accounting standards for leases in 2019. Since the start of 2019, obligations from operating leases must be recognized as liabilities in the statement of financial position. Previously these obligations had been disclosed in the notes to the consolidated financial statements. Key investments in spectrum licenses also had a negative effect.

The trends in the industry, in particular on the European telecommunications markets, remain challenging due to rising competition and strict regulatory requirements. However, the market for information and communications technologies continues to grow. In order to succeed in the future, we continue to invest heavily in the key to our success: our network infrastructure. In 2019, we made global investments (before spectrum) of EUR 13.1 billion. In the fixed network, our investments were focused on building out the fiber-optic network and deploying vectoring technology. In mobile communications, we invested in LTE and 5G, increased network coverage, and upgraded capacity to meet increasing demand for high-speed data transmission rates. Including spectrum payments, this figure was EUR 14.4 billion in the reporting year. Despite this high level of investment, our rating remained solid through 2019, and we had unrestricted access to the capital market at all times.

There is a sustainable dividend policy for shareholders, which is subject to approval by the relevant bodies and the fulfillment of other legal requirements. For the 2019 financial year, in keeping with our dividend policy as updated in November 2019, we plan to propose a dividend of EUR 0.60 per dividend-bearing share, which will also serve as a baseline for the dividend going forward. Starting from the 2020 financial year, the dividend is to reflect relative growth in earnings per share with a lower limit fixed at EUR 0.60 per dividend-bearing share. This year, the dividend will once again be paid out without any deduction of capital gains tax, and we expect this to be also the case in the years to come.

Against this backdrop, we are reasserting our commitment to the strategic goal of being the leading European telecommunications provider. We want to be a leader in terms of customer experience, technology, and the implementation of advances in productivity for our business customers. Because only when we lead can we grow and meet the demands of our customers and, consequently, our investors in the long term. This growth will be made possible by carefully managing our financial resources and systematically transforming the Company to be simple, digital, and agile in every sense. We play a responsible and active role in society. This is what we believe in and what we are working to achieve.