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Statement of the Board of Management on business development in 2022

Bonn, February 14, 2023

Deutsche Telekom is an anchor of stability in uncertain times: We can look back on a successful financial year in which we continued our growth course in a challenging macroeconomic environment. Independent tests confirm that we have the best network and the best service in many of our markets. We achieved our annual build-out targets and were therefore also able to delight our customers. It is not by accident that Brand Finance ranks us as the most valuable brand in Europe in its brand ranking. And our strategy of sustainable corporate governance is also paying off on the capital market: our share price rose to more than EUR 20 at the start of 2023.

It is and remains important to us to fulfill our social responsibility – especially with offers of help and specific support for those affected by the war in Ukraine. We also keep 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. At the Group’s first Sustainability Day in October 2022, we announced further measures, such as the decision not to order any new company vehicles with combustion engines in Germany, and the exclusive use of sustainable packaging from 2025.

We met our key corporate targets in 2022. We closed significant transactions, completed reorganizations, and took further steps to secure control of T‑Mobile US. In the United States, we once again recorded strong growth in customer numbers, especially in postpaid. But the high-speed internet offering was also very well received. In Europe and Germany, our integrated offers continue to enjoy strong demand. This is also reflected in our key financials: We raised our guidance for adjusted EBITDA AL, free cash flow AL (before spectrum), and adjusted earnings per share for the 2022 financial year several times over the course of the year. Net revenue increased by 6.1 % to EUR 114.4 billion, mainly due to exchange rate effects. Service revenue was up 10.6 % to EUR 91.9 billion.

Adjusted EBITDA AL grew by 7.7 % to EUR 40.2 billion. The main reason for this increase is a sound operational development, driven by revenue growth and further enhanced cost efficiency. EBIT increased by 23.8 % to EUR 16.2 billion, despite significant negative special factors that affected it. These primarily comprised integration costs incurred in connection with the business combination of T‑Mobile US and Sprint as well as impairment losses recorded in the United States, mainly in connection with the agreed sale of the former Sprint’s fiber-optic-based wireline business. By contrast, income from the deconsolidation of GlasfaserPlus and T‑Mobile Netherlands had a positive effect. The suspension of depreciation and amortization as a result of the business entities T‑Mobile Netherlands and GD Towers being held for sale on account of the sales agreements also increased EBIT.

Loss from financial activities decreased thanks in part to a large number of positive effects from the measurement of derivatives – in particular from the forward transaction to hedge the price of acquiring shares in T‑Mobile US in the future, and the stock options to purchase shares in T‑Mobile US – as well as income from the measurement of provisions resulting from the sharp rise in interest rates. By contrast, negative trends were recorded for finance costs and the share of profit/loss of associates and joint ventures included in the consolidated financial statements using the equity method, the latter on account of an impairment loss recognized on our stake in GlasfaserPlus. Ultimately, net profit increased significantly to EUR 8.0 billion. Adjusted net profit increased to as much as EUR 9.1 billion. As a consequence, adjusted earnings per share increased to EUR 1.83.

ROCE increased by 0.4 percentage points year-on-year to 4.5 %, driven in particular by the increase in adjusted EBITDA AL.

Net debt increased from EUR 132.1 billion to EUR 142.4 billion. This increase is largely attributable to the modification of the arrangements between T‑Mobile US and Crown Castle. The resulting increase in right-of-use assets and property, plant and equipment was reflected in the increase in net debt by EUR 7.4 billion in total. But exchange rate effects and further additions of lease liabilities and right-of-use assets also had an increasing effect. In the United States, the acquisition of spectrum, the share buy-back program, and our increase of the stake in T‑Mobile US contributed to the increase.

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 2022, we made Group-wide investments (before spectrum) of EUR 21.0 billion, EUR 3.0 billion more than in the prior year, 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 24.1 billion in the reporting year. Our free cash flow AL (before dividend payments and spectrum investment) increased by 30.2 % to EUR 11.5 billion. We are therefore a solid investment-grade company with access to the international capital markets. The rating agency Standard & Poor’s even raised our rating outlook in April 2022, and, for the first time, our U.S. subsidiary has also had a full investment-grade rating from all three major rating agencies since August 2022.

As communicated at our Capital Markets Day in May 2021, we want to underpin our strong starting position going forwards with solid financial growth rates. We pursue a sustainable dividend policy for our shareholders. For the 2022 financial year, we will propose a dividend of EUR 0.70 for each 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. Following a very strong year in 2021, the stock markets showed a much weaker performance in 2022. By contrast, the T-Share closed 2022 up 14.0 %. On a total return basis, it was up by as much as 18.6 %.

Our goal is clear: We want to become the Leading Digital Telco. To this end, we will 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 the competition and continue our growth course. The aim of building and operating the best convergent networks remains at the core of our strategy and is an important driver for our growth areas. Deutsche Telekom will not rest on its laurels, we will remain ready and willing to change. And we will not waver: we remain an anchor of stability.

Refers to the mobile communications standard launched in 2020, which offers data rates in the gigabit range, mainly over the 3.6 GHz and 2.1 GHz bands, converges fixed-network and mobile communications, and supports the Internet of Things.
AL – After Leases
Since the start of the 2019 financial year, we have taken the effects of the first-time application of IFRS 16 “Leases” into account when determining our financial performance indicators. “EBITDA after leases” (EBITDA AL) is calculated by adjusting EBITDA for depreciation of the right-of-use assets and for interest expenses on recognized lease liabilities. When determining “free cash flow after leases” (free cash flow AL), free cash flow is adjusted for the repayment of lease liabilities.
Optical fiber
Channel for optical data transmission.
Customers who pay for communication services after receiving them (usually on a monthly basis).