Statement of the Board of Management on business development in 2021

Bonn, February 15, 2022

We continued our growth course in all segments in 2021, such that we can look back on a successful financial year. Measured in terms of customer numbers, we further consolidated our position on the U.S. mobile market, adding 6.7 million customers in the reporting year. We have reached key milestones to secure control of T‑Mobile US in the long term and, on this side of the Atlantic too, significant transactions have been closed and reorganizations completed. The synergies arising from the business combination of T‑Mobile US and Sprint are impacting on our results faster and with greater effect than previously expected. In Europe, our integrated products are enjoying strong demand and we are making good progress in the network build-out, especially in 5G and optical fiber. In our home market, too, we have received great recognition for our performance in terms of service, network build-out, and our integrated products. It is and remains important to us to fulfill our responsibility to society at all times and in all places – especially during the coronavirus pandemic or the catastrophic flooding in summer 2021.

We also kept an eye on our ambitious climate goals. Since 2021, our customers have been surfing on Deutsche Telekom’s green network, and our own energy consumption for all Group units has been covered entirely by electricity from renewable energy sources. To underscore the major significance of our sustainability targets in the Group, a performance management and incentivization system was introduced in 2021 using annual variable remuneration for members of the Board of Management.

We achieved our most important corporate targets in 2021 and even exceeded some of them, as can be seen from our key financial figures and our customer development. We raised our full-year guidance for 2021 three times in the course of the year, despite the coronavirus pandemic. Net revenue increased by 7.7 % to EUR 108.8 billion. Service revenue was up 6.5 % to EUR 84.1 billion. This is the result of the high popularity of our mobile and broadband offerings in particular. In the U.S. business, T‑Mobile US once again recorded strong customer additions, especially in postpaid business, which is also reflected in revenue development. In Systems Solutions, however, order entry fell short of expectations. Declines in both traditional IT infrastructure business and SAP business were only partially offset by the strong upward trends in our growth areas.

Adjusted EBITDA AL grew by 6.6 % to EUR 37.3 billion. The main reason for this increase is a sound operational development, driven by revenue growth and further enhanced cost efficiency. Excluding the effect from the planned withdrawal from the terminal equipment lease model in the United States, adjusted core EBITDA AL increased by 10.1 % year-on-year. EBIT increased by 2.0 % to EUR 13.1 billion, despite significant 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, lower expenses for staff restructuring and a gain on deconsolidation from the sale of the Dutch cell tower business had a positive effect. Depreciation, amortization, and impairment losses were higher than in the prior year, due in particular to the first-time inclusion of Sprint for the full year.

Loss from financial activities increased by EUR 1.0 billion year-on-year due in part to negative remeasurement effects in connection with derivatives. Net profit remained stable at EUR 4.2 billion. Adjusted net profit increased by 2.6 % to EUR 5.9 billion. Adjusted earnings per share increased to EUR 1.22.

ROCE decreased year-on-year to 4.1 %, largely due to higher integration costs in connection with the business combination of T‑Mobile US and Sprint. Furthermore, the prior-year figure had been positively impacted by the reversal of impairment losses previously recognized for spectrum licenses at T‑Mobile US.

Net debt increased from EUR 120.2 billion to EUR 132.1 billion. This is primarily attributable to the key investments in spectrum licenses, mainly in connection with the C-band auction in the United States segment. But net debt was also increased as a result of additions of lease liabilities, the acquisition of Shentel, and currency transaction effects.

The trends in the industry, in particular on the European telecommunications markets, remain challenging due to ongoing 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 and our technology. In 2021, we made Group-wide investments (before spectrum) of EUR 18.0 billion, with a focus on the parallel build-out of our broadband and mobile infrastructure (optical fiber and 5G). Including the spectrum payments, this figure was EUR 26.4 billion in the reporting year. And, as announced, we are increasing our investment volume again. Despite this, we are still a solid investment-grade company with access to the international capital markets. The rating agency Moody’s even upgraded our rating outlook in June 2021. Our free cash flow AL (before dividend payments and spectrum investment) increased by 40.1 % to EUR 8.8 billion.

At our Capital Markets Day in May 2021, we presented the financial strategy and our targets through 2024, which anticipate constant EPS growth. Through 2024, we want to further accelerate our forecast for growth from the past few years. We pursue a sustainable dividend policy for our shareholders. We intend to pay a dividend of 40 to 60 % of adjusted earnings per share. And we are sticking by a minimum dividend of EUR 0.60 per share: For the 2021 financial year, we will propose a dividend of EUR 0.64 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. After a restrained 2020, the stock markets proved rather strong in 2021, despite the ongoing pandemic situation. The T-Share closed 2021 up 9.0 %. On a total return basis, it was up by as much as 12.9 %.

We aim to transform ourselves from our position as Leading European Telco into the Leading Digital Telco. Our goal is clear: We want to align ourselves long-term with the needs of our customers and systematically transform ourselves into a simple, digital, and in every way agile company to hold our own against new competitors and continue our growth course. Building and operating the best convergent networks remains at the core of our strategy and is an important driver for our growth areas. We realize our aim to lead in technology by investing not only in network infrastructure, but also in establishing cloud-based service platforms. We leverage our international footprint to generate synergies across the Group and to carry weight alongside the global tech giants. We apply our expertise – the Magenta Advantage – to develop new business models.