Letter from the Chairman of the Board of Management
Dear shareholders,
Dear friends of the Company,
2020 was a complicated, stressful, and demanding year to say the least. Even now, we must continue to physically distance from other people where once we sought social togetherness. We wear masks as we go about our daily activities, limit our contact with other people to the bare minimum, and many of us are working from home. Week after week, the situation is putting enormous strain on us all.
But while the effects of the coronavirus pandemic are causing many businesses to feel the pinch, Deutsche Telekom is prospering. Even better: 2020 was a record-breaking year for us, with the highest revenue in our Company’s history. I believe there are two main reasons for this:
- We help in the crisis. Because people want to stay in touch and businesses want to keep working. Without our stable networks, many businesses would have struggled with the transition to remote working.
- Our employees. Our tech teams, who are out in the field visiting customers at home, looking into their lines or activating fast internet in the street cabinets. The people in the shops serving our customers. And everyone else also working for our success, whether from home or the office. To them, I would like to say a huge thank you for their valuable contribution under such difficult circumstances. Because it is all thanks to them that we remain an anchor of stability throughout the pandemic with infrastructure that society can rely on, day in, day out.
Let’s take a look at the situation at our Company right now. After all, the past twelve months were game-changing for Deutsche Telekom, irrespective of coronavirus.
Our net revenue took on a whole new dimension. That is no exaggeration. For the first time ever, we broke the 100-billion-euro revenue barrier in a single financial year. This is an historic achievement. The additional revenue from the business combination with mobile carrier Sprint in the United States was a decisive factor. But we are also growing organically. Our earnings were also up, both in the United States and in business on this side of the Atlantic. Adjusted EBITDA AL (i.e., adjusted EBITDA taking account of depreciation of right-of-use assets and interest expenses on lease liabilities) was right on the mark for 2020. Free cash flow AL was well above our guidance. The figures now presented demonstrate very clearly that Deutsche Telekom is still on a growth course. And we want to keep it that way.
In the United States, the underpinnings are already in place: following the business combination with Sprint, our U.S. subsidiary T‑Mobile US is now well-positioned to capture the #1 spot on the most important mobile communications market worldwide. The new T‑Mobile US joins the two major rivals Verizon and AT&T in the big league, shattering the duopoly previously enjoyed by these two companies. Not only are we quickly closing the gap to our competitors, but we have already outstripped AT&T in terms of customer numbers and mobile service revenues. The business combination has significantly improved our spectrum holding. Today, we already cover more than 100 million people in the United States with super-fast Ultra Capacity 5G alone. We are set to reach up to 200 million U.S. citizens with coverage in this spectrum band by the end of 2021 and thus offer them exactly what they expect of us: the best 5G network nationwide. That is THE basis for taking forward our successful Un-carrier strategy.
Offering the best-quality networks is and remains our ambition – both in the United States and in Europe. And we are willing to invest record amounts every year to make this happen, pouring EUR 17 billion primarily into our global networks in the year just ended, and EUR 5.5 billion of this in Germany alone.
For a long time, our stated goal was to become the Leading European Telco. We have now not only achieved this goal, but were able to further consolidate and extend our position even given the difficult market environment and the negative impact of coronavirus in 2020. Against this backdrop, we are particularly proud to have enhanced the value of our brand, too. Our Magenta T is worth almost 30 % more today than it was just one year ago. A brand value of USD 51.1 billion puts us ahead of other venerable companies, such as Volkswagen and BMW, and 23rd in a global ranking – directly behind Disney.
Our results of operations also reveal encouraging growth: overall, net revenue increased to EUR 101.0 billion in the year just ended. This represents an increase of 25.4 % on the previous year. In organic terms – in other words, assuming constant exchange rates and the same Group structure – revenue grew by 3.0 %. Adjusted EBITDA AL increased by 41.6 % to EUR 35.0 billion compared with the prior year, while in organic terms growth came in at 7.9 %.
These are all excellent figures. And the decline in one of our financial KPIs does nothing to detract from this: free cash flow AL was down 10.3 % to EUR 6.3 billion (organically the decrease was just 0.6 %). This was due to the costs incurred in the wake of our business combination with Sprint. The synergy effects calculated into our long-term planning, however, are already beginning to materialize. And we anticipated the negative effects, which is why we exceeded our free cash flow AL guidance for 2020 of EUR 6.0 billion. It goes to show once again that we are operating viably and laying the foundation for growth that will safeguard our Company’s future. And that is THE basis for taking forward our successful Group strategy.
However, none of this would be possible without our customers’ trust in Deutsche Telekom. The confidence you place in us was evident once again in 2020. In mobile communications, we won more than 650,000 customers in Germany under our Telekom and congstar brands. In our other European markets, 670,000 customers subscribed to a new mobile contract with us in the last twelve months. And in the United States, the larger T‑Mobile US recorded 5.5 million postpaid net customer additions – more than ever before in its history.
State-of-the-art networks are essential if we are to keep garnering customers with our attractive products and services going forward. We have been busy building these in Germany, adding 1,500 new cell sites to the mobile network alone. Today, we already cover two thirds of the German population with 5G, but we won’t stop until everyone is connected. Because enabling digital participation for everyone is our top priority. We are also working to fill mobile coverage gaps – for home and on the move, along freeways and rail routes. In pursuit of this goal, we are venturing into uncharted territory and collaborating directly with our competitors Telefónica and Vodafone to close over 10,000 “gray spots” and “white spots” in the German network.
At the same time, we are modernizing our fixed network: our lines throughout Germany have now all been migrated to the Internet Protocol – marking both a huge technological milestone for us and the conclusion of a mammoth-scale project in 2020. We can now offer broadband lines to more people than ever and much faster than ever, thanks to the new technology. Another plus: it’s now also far easier for us to perform remote maintenance on customer lines in the event of issues.
Our efforts are paying off: in 2020 some 400,000 new customers in Germany signed up for a Telekom broadband product. That is the highest figure since 2016. Added to that are another 300,000 customer additions at our European subsidiaries.
And we are not letting up: we continue to plow ahead with our most important project for Germany’s future – making gigabit-capable fiber-optic lines available across our fixed network to achieve nationwide FTTH coverage. We ramped up our efforts substantially in 2020 and doubled the pace of the build-out year-on-year to connect around 600,000 households to our FTTH network – more than twice as many as in the previous year. That brings the total up to 2.2 million lines. Our plans for 2021 are ambitious: we want to double the pace yet again and work our way up to a rate of 2 million lines added per year on average. Because we stand by our target: by 2030, every single one of Germany’s 43.5 million households should have access to a fiber-optic line. Much of this work will be done by us. We are and will continue to be the driving force behind Germany’s digitalization. But we cannot rise to this task alone. Building a full-coverage FTTH network is the challenge of the century. Our competitors need to do their bit, too. We already have trusting partnerships in place with many of them.
Before I finish, I’d like to say a few words about a topic that has faded somewhat from the public eye in recent years: service. We have often been criticized for our service in the past. Today, we are winning multiple awards for it. Why is that? Because we listened closely to our customers’ concerns and poured time and money into making the necessary improvements. And the people in our Service team can be counted on: for the first time ever, we won the service equivalent of the Grand Slam in Germany – both our mobile and fixed networks were rated #1 in the service tests of two of the industry’s top magazines, Chip and Connect. Our goal for 2021 is to defend this title.
Dear shareholders,
I firmly believe that large companies carry special responsibility, particularly in times of crisis. Deutsche Telekom is growing and today has a global workforce of 226,000 employees. We are prospering, despite the coronavirus crisis. And Deutsche Telekom has always been a company with a keen awareness of its responsibility. We will stay that way.
Our commitment throughout the pandemic reveals just how deeply rooted in our society Deutsche Telekom is. And that we engage above all in those areas where people are at risk of losing some or even all of the ability to participate digitally. Our support initiatives for care homes for the elderly, private households, and schools during the lockdown validate our efforts. As does our dedication to combating discrimination and online hate speech.
In many ways our keen commitment to societal responsibility is a product of an eventful history. At the start of 2020, we celebrated our 25th year of “life” as an AG – a stock corporation under German law. As we reflected on our past, we realized on how many occasions our support has been needed. It helped me see that one of Deutsche Telekom’s roles is to get actively involved. This was the case when it came to tackling the Development Program for Eastern Germany launched after reunification. This was the case after the Oder/Odra flood in 1997. This was the case after the 2004 enlargement of the European Union. And this is also the case during the coronavirus pandemic. It is why I have a personal interest in ensuring our employees are aware of the great responsibility which rests on all our shoulders. Because the adage “There is no future without a past” applies to every single person here at Deutsche Telekom.
Our guidance for the coming years still stands. On average, revenue is expected to increase by one to two percent per year through 2021, adjusted EBITDA by two to four percent, and free cash flow by around ten percent. 2020 was without doubt a successful year. Our Company is doing well even during the crisis. That should not be taken for granted. And it makes me optimistic that we will continue to meet our ambitious targets in the coming years.
We want you to benefit from this success. That’s why we are proposing a dividend of EUR 0.60 per dividend-bearing share for the 2020 financial year – subject, as always, to approval by the relevant bodies and the fulfillment of other legal requirements. Even during the coronavirus crisis we remain firmly on course. Because Deutsche Telekom is a partner you can rely on anytime, anywhere.
Best regards,
Tim Höttges