Expectations for the Group

Expectations up to 2024. We expect profitable growth to continue over the next two years. This will provide a sound basis for achieving our financial ambitions – as communicated at our Capital Markets Day in May 2021.

We expect our financial performance indicators to develop as follows in 2023 and 2024 on an organic basis, i.e., on a like-for-like basis with the prior year:

• We expect revenue to increase slightly both in 2023 and in 2024 on the back of the positive development of service revenue. The United States operating segment will be the primary driver of this trend, and we likewise expect revenue in this segment to grow slightly in both 2023 and 2024. In our Germany operating segment, we expect revenue to increase slightly in 2023 and to increase in 2024.
• Service revenue is projected to increase year-on-year in both 2023 and 2024. This trend will be influenced by the growth expected in the United States operating segment for 2023 and 2024.
• Adjusted EBITDA AL is expected to increase to around EUR 40.8 billion in 2023 and to increase substantially in 2024. Revenue and the realization of synergies from the business combination of T‑Mobile US and Sprint will have a positive impact. Adjusted EBITDA AL will be negatively affected in particular in 2023 by the gradual withdrawal from the business model of terminal equipment leases in the United States, with revenues from terminal equipment leases being offset primarily by the depreciation of the capitalized terminal devices on the expenses side. Terminal equipment leases were a major pillar, in particular, at Sprint. In its place, marketing activities are set to shift increasingly toward the Equipment Installment Plan.
• We expect adjusted core EBITDA AL to increase substantially year-on-year in both 2023 and 2024, driven by the realization of synergies from the business combination of T‑Mobile US and Sprint. Adjusted core EBITDA AL is distinguished by excluding revenues from terminal equipment leases in the United States from adjusted EBITDA AL, thereby presenting operational development undistorted by the withdrawal from the terminal equipment lease business. For this reason, we are adding adjusted core EBITDA AL to our financial performance indicators for the years of the withdrawal from the business model of terminal equipment leases in the United States for explanatory purposes.
• Profit/loss from operations (EBIT) is expected to increase substantially year-on-year in 2023 and to decline year-on-year in 2024. This development is attributable to the income from the sale of shares in GD Towers to be recognized as a special factor in 2023. At the same time, the figures for 2023 will also show the positive effects arising from the reduction in integration costs in connection with the business combination of T‑Mobile US and Sprint. EBIT expected for 2024 will benefit from the positive trend in adjusted core EBITDA AL, but will decline year-on-year on account of the large positive special factor recorded in 2023.
• ROCE is expected to increase significantly in 2023 and decrease in 2024 due to the effects described for the development of EBIT. Hence, we expect to achieve our target for ROCE to be higher than the expected weighted average cost of capital (WACC) again from 2023, following an increased burden until 2022 from the integration costs arising from the business combination of T‑Mobile US and Sprint.
• Our investments – measured in terms of cash capex (before spectrum investments) – are expected to decline to around EUR 16.8 billion in 2023 on account of the largely completed network integration in connection with the business combination with Sprint in the United States. For 2024 we expect to report a stable cash capex development (before spectrum investment). We want to continue investing heavily in building out our network infrastructure in Germany, the United States, and Europe in order to safeguard our technology leadership in the long term.
• Free cash flow AL (before dividend payments and spectrum investment) is expected to increase significantly to over EUR 16 billion in 2023. We also expect a strong increase in free cash flow AL in 2024 due to sound operational development.
• At the end of 2022, we had the following ratings: BBB with a positive outlook (Standard & Poor’s – S&P); BBB+ with a stable outlook (Fitch); and Baa1 with a stable outlook (Moody’s). Maintaining an investment grade rating within the A– to BBB range will enable us to retain access to the international capital markets and is thus a key component of our finance strategy.
• We expect earnings per share (adjusted for special factors) of over EUR 1.60 in 2023, after positive factors had been recorded in 2022, including measurement effects from the forward transaction to hedge the price of acquiring T‑Mobile US shares in the future, and the amortization and subsequent measurement of stock options to buy shares in T‑Mobile US, as well as income from the measurement of provisions due to the significant rise in the interest rates. We expect to see adjusted earnings per share increase sharply in 2024.

Our debt issuance program puts us in a position to place issues in the international capital markets at short notice, while our commercial paper program enables us to issue short-term papers in the money market. T‑Mobile US is being refinanced primarily in the form of senior unsecured notes.

Bonds and loans in the total amount of EUR 8.1 billion and EUR 6.3 billion will fall due for repayment in 2023 and 2024, respectively, of which around EUR 4.7 billion and EUR 3.2 billion, respectively, relate to T‑Mobile US. A number of T‑Mobile US bonds include issuer termination rights. If the premature termination and refinancing of these bonds result in economic gains, this could give rise to further refinancing requirements. We plan to issue new bonds in various currencies. The exact financing transactions will depend on developments in the international finance markets. We also intend to cover part of our liquidity requirements by issuing commercial paper. In early 2023, Deutsche Telekom prematurely bought back own bonds with a volume of EUR 2.7 billion with terms ending between 2023 and 2027. This resulted, among other factors, in a reduction in maturities in 2023 and 2024 by EUR 0.7 billion and EUR 0.6 billion, respectively.

We want to continue leveraging economies of scale and synergies through suitable partnerships or appropriate acquisitions in our footprint markets. There are no plans, however, to expand into emerging markets. We will continue to subject our existing partnerships and equity investments to regular strategic reassessments with a view to maximizing the value of our Company.

If the economic situation should deteriorate or any unforeseen state or regulatory interventions arise, the expectations expressed here may change accordingly. Given the level of macroeconomic uncertainty, we also cannot rule out the possibility of deviations.

The following tables summarize the forecasts for our financial and non-financial performance indicators up to 2024. They assume a comparable consolidated group and constant exchange rates, i.e., an organic basis. In order to create a comparable basis with the forecast period, the results of the 2022 financial year have been adjusted for significant changes in the composition of the Group which have been included in the planning, and for changes in the organizational structure in the pro forma presentation. Thus, the expectations for 2023 are based on the pro forma figures for 2022; expectations for 2024 are based on expectations for 2023. To indicate the intensity and trends of our qualified comparative forecasts, we apply the following aspects: strong decrease, decrease, slight decrease, stable trend, slight increase, increase, strong increase.

For further information on the expected development of the financial performance indicators of our operating segments, please refer to the section “Expectations for the operating segments.”

For further information on the expected development of the non-financial performance indicators of our operating segments, please refer to the section “Expectations for the operating segments.”

Our customer satisfaction – which is measured using the TRI*M index performance indicator – is expected to rise slightly in both 2023 and 2024 against the baseline recalculated for 2023. For the Germany and Systems Solutions operating segments in particular, the values achieved put us in a leading position compared to the relevant benchmark and we intend to maintain this position in 2023. We are aiming for a slight improvement in the Europe segment.

Having achieved a high level of 78 points – on a scale of 0 to 100 – on the engagement score in the 2022 pulse survey, and in view of the results of the surveys conducted in 2021, we expect the positive response of our employees regarding our Company to remain stable in the next surveys in 2023 and 2024.

We expect our energy consumption to increase slightly at Group level in 2023 and to increase in 2024. Excluding T‑Mobile US, we expect a slight increase in both years. In 2023, we expect CO₂ emissions (Scope 1 and 2) to initially increase both at Group level and excluding T‑Mobile US, followed by a decrease. Since 2021, 100 % of the electricity requirements for all Group units have been met from renewable sources. As such, the majority of emissions have been eliminated.

For further information on our ESG KPIs, please refer to the section “Combined non-financial statement.”

Our planning is based on the following exchange rates:

Expectations for Deutsche Telekom AG. The development of business at Deutsche Telekom AG, the Group’s parent company, is reflected particularly in its service relationships with its subsidiaries, the results of the subsidiaries’ domestic reporting units, and other income from subsidiaries, and from associated and related companies. In other words, our subsidiaries’ results from operations and the opportunities and challenges they face are key factors shaping the future development of Deutsche Telekom AG’s figures. Accordingly, in addition to our expectations for the Group, the expectations described on the following pages concerning the operating segments’ revenue and earnings – such as strong competition, regulatory intervention, market and economic expectations, etc. – have an impact on our expectations concerning the development of Deutsche Telekom AG’s future income after taxes.

Since 2021, subject to approval by the relevant bodies and the fulfillment of other legal requirements, the amount of the dividend is based on a dividend payout ratio of 40 to 60 % of adjusted earnings per share, with a lower limit fixed at EUR 0.60 per dividend-bearing share. For the 2022 financial year, we will propose a dividend of EUR 0.70 for each dividend-bearing share.

For the 2023 financial year, we expect an unappropriated net income for Deutsche Telekom AG that will allow the distribution of a dividend of 40 to 60 % of adjusted earnings per share.