Statement of the Board of Management on business development in 2020

Bonn, February 16, 2021

Although the coronavirus pandemic and its impact have not left us unscathed, we had a successful financial year in 2020 with very strong results. The business combination of T‑Mobile US and Sprint is a fantastic success. The inclusion of Sprint for the first time took us to a whole new dimension: we are now a corporation with revenue of more than EUR 100 billion. We continued our success story in Europe – with its integrated offerings, Deutsche Telekom is the market leader in the majority of countries. In Germany, we have received great recognition for our performance in terms of service, network build-out, and our integrated products. We are living up to our responsibility to society during the coronavirus pandemic, through stable networks, strong customer focus, and best service, and we remain a dependable partner to German industry with a product portfolio of international communications solutions.

Furthermore, we did not lose sight of our ambitious climate targets in the reporting year. Since early 2020, our customers in Germany have been surfing on Deutsche Telekom’s green network, which is powered solely by electricity from renewable sources. Since the start of 2021, this applies to all our customer worldwide.

We achieved our most important corporate targets in 2020 and even exceeded some of them, despite the impact of the coronavirus pandemic. Net revenue increased by 25.4 % to EUR 101.0 billion. In organic terms, net revenue increased by 3.0 %, i.e., adjusted in particular for the acquisitions of Sprint, the sale of the prepaid business of Sprint to DISH, and currency translation effects. Given the general environment, the business performed well in the Germany, Europe, and Group Development operating segments. This is the result of the great popularity of our mobile and broadband offerings in particular. In the U.S. business, T‑Mobile US recorded the highest customer growth in the company’s history: on a like-for-like basis, the number of postpaid customers increased by 5.5 million. The systems solutions business, by contrast, was impacted by the coronavirus pandemic: in addition to the development in traditional IT business, which fell short of expectations during the year, the coronavirus crisis resulted in the recognition of an impairment loss on non-current assets in the third quarter of 2020.

Adjusted EBITDA AL grew by 41.6 % to EUR 35.0 billion; in organic terms, it grew by 7.9 %. The main reason for this increase is a sound operational development, driven by revenue growth and further enhanced cost efficiency. EBIT increased by EUR 3.3 billion to EUR 12.8 billion, despite negative special factors that affected it. These mainly related to acquisition and integration costs as well as restructuring costs to realize cost efficiencies from the business combination with Sprint. By contrast, the partial reversal of impairment losses on spectrum licenses at T‑Mobile US had a positive impact. Depreciation and amortization were much higher than in the prior year due to the acquisition of Sprint.

The strong operational development is also reflected in net profit, which increased by EUR 0.3 billion to EUR 4.2 billion, despite the negative impact on our finance costs due to the financial liabilities acquired in connection with the acquisition of Sprint and the related restructuring of financing. Measurement effects in connection with the stock options to buy shares in T‑Mobile US received from SoftBank had a positive effect. Adjusted net profit increased by EUR 0.8 billion to EUR 5.7 billion. Adjusted earnings per share increased to EUR 1.20 in the reporting year.

ROCE decreased year-on-year to 4.6 % due largely to the substantial increase in average net operating assets (NOA). This is attributable in particular to the spectrum licenses acquired as part of the Sprint transaction and to the modification of existing agreements with American Tower on the lease and use of cell sites in the United States.

Net debt increased from EUR 76.0 billion to EUR 120.2 billion. The vast majority of this increase is attributable to the business combination of T‑Mobile US and Sprint, and the modification of leases signed with American Tower in the United States. Key investments in spectrum licenses also had an increasing effect.

The trends in the industry, in particular on the European telecommunications markets, remain challenging due to competitive pressure and strict regulatory requirements. In order to succeed in the future, we continue to invest heavily in the key to our success: our network infrastructure. In 2020, we made global investments (before spectrum) of EUR 17.0 billion, with a focus on the parallel build-out of broadband and mobile infrastructure (optical fiber and 5G). Including spectrum payments, this figure was EUR 18.7 billion in the reporting year. Despite this high level of investment, we are still a solid investment-grade company with access to the international capital markets. Our free cash flow AL (before dividend payments and spectrum investment) came in at EUR 6.3 billion.

There is a sustainable dividend policy for our shareholders, which is subject to approval by the relevant bodies and the fulfillment of other legal requirements. For the 2020 financial year, we will propose a dividend of EUR 0.60 for each dividend-bearing share. Starting from the 2021 financial year, the dividend is to continue 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.

The T-Share closed the year 2020 up 2.6 %. Deutsche Telekom AG’s share price development outpaced that of the European telecommunications sector (Dow Jones STOXX® Europe 600 Telecommunications) in 2020, which lost 12.7 % by the end of the year.

Although the past financial year was a successful one, that does not mean that next year will be automatically develop in the same way. The challenges that lie ahead in 2021 are great: In the United States, an important spectrum auction ended on January 15, 2021, but the actual spectrum assignment phase is still ongoing. The competitive pressure in Europe remains high. The fiber-optic build-out will be a big topic for us in Germany over the next few years. And at the same time, T‑Systems will need to continue developing the business unit in the right direction.

Thanks to our strong starting position, 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 with what we do. We help bridge distances – something that is more important than ever before at the moment. Because we bring people and companies together digitally. This is what we believe in and what we are working to achieve.