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Statement of the Board of Management on business development in 2023

Bonn, February 13, 2024

Deutsche Telekom remained reliable, strong, and successful amid the challenging geopolitical and macro-economic environment in 2023. These attributes are what makes us stand out, since our goal is to bring people together – and that’s why “Connecting your world” has been our worldwide claim since summer 2023. Independent tests confirm that we have the best network and the best service in many of our markets. 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 and continued its upward trend at the start of 2024.

Our T is shining brightly. Deutsche Telekom is part of society. We take our responsibility seriously, well beyond our customer relationships: We provide stability to others, by supporting refugees, rebuilding infrastructure after natural disasters, taking an active stance against online hate speech, or supporting the Special Olympics. Our position at Deutsche Telekom is clear: We are inclusive. We give a voice to everyone. And that is truly the source of our pride as a Company.

We met our key corporate targets in 2023. We closed significant transactions, in particular the sale of GD Towers, and we secured a majority stake in T‑Mobile US. We achieved our annual build-out targets. In the United States, we once again recorded strong growth in customer numbers, especially in postpaid. 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 and free cash flow AL (before spectrum) for the 2023 financial year, for the former, several times over the course of the year. Net revenue decreased by 2.1 % to EUR 112.0 billion, mainly due to exchange rate effects. In organic terms, however, revenue increased slightly. High-value service revenue also increased slightly to EUR 92.9 billion.

Adjusted EBITDA AL grew to EUR 40.5 billion. The main reason for this increase is sound operational development and further enhanced cost efficiency. EBIT increased significantly to EUR 33.8 billion, mainly due to the gain on deconsolidation from the sale of GD Towers.

Loss from financial activities increased, primarily due to a lower share of profit/loss of associates and joint ventures accounted for using the equity method following an impairment loss on our stake in GD Towers. This impairment loss was due entirely to higher discount rates due to macroeconomic developments in the reporting year. By contrast, the business outlook for GD Towers improved slightly. Finance costs were negatively impacted, partly by the sale and leaseback of passive network infrastructure in Germany and Austria in connection with the sale of GD Towers. Adjusted net profit decreased accordingly to EUR 7.9 billion. Adjusted earnings per share fell to EUR 1.60.

ROCE increased significantly year-on-year to 9.0 %. This was due to significant growth in net operating profit after taxes (NOPAT), while the average amount of net operating assets (NOA) remained almost constant over the year. This was mainly down to the sale of GD Towers.

Net debt decreased from EUR 142.4 billion to EUR 132.3 billion. This was in large part due to the strong increase in free cash flow (before dividend payments and spectrum investment) and the cash proceeds resulting from the sale of GD Towers. By contrast, net debt was increased mainly by the share buy-back program at T‑Mobile US, additions of lease liabilities and right-of-use assets, and our dividend payments.

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 2023, we made Group-wide investments (before spectrum) of EUR 16.6 billion. As expected, the largely completed network integration in connection with the business combination with Sprint in the United States in particular had a positive impact on cash capex. In Europe, we remained focused on the parallel build-out of our broadband and mobile infrastructure (optical fiber and 5G). Including the spectrum payments, this figure was EUR 17.9 billion in the reporting year. Our free cash flow AL (before dividend payments and spectrum investment) thus increased by 40.7 % to EUR 16.1 billion. We are therefore still a solid investment-grade company with access to the international capital markets. The rating agency Standard & Poor’s even raised our long-term rating in May 2023, and all three major rating agencies also raised their ratings of T‑Mobile US in spring 2023.

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 will present our plans for the coming years at the Capital Markets Day scheduled for 2024. We pursue a sustainable dividend policy for our shareholders. For the 2023 financial year, we propose a dividend of EUR 0.77 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. We started our announced 2024 share buy-back program with a total volume of up to EUR 2 billion on January 3, 2024.

Following a weak stock market year in 2022, the stock markets were dominated by buoyant share prices in 2023. Growth in the European telecommunications sector was clearly more restrained: The industry’s barometer, the Dow Jones STOXX® Europe 600 Telecommunications, rose just 8.1 % by the end of 2023. By contrast, the T-Share closed 2023 up substantially by 16.6 %. On a total return basis, it was up by as much as 20.3 %.

Our goal is firmly in our sights: We want to become the Leading Digital Telco. To this end, we will continue to systematically transform ourselves into a simple, digital, and in every way agile company, harnessing the synergies within our Group to hold our own against competitors and continue our success of the last few years. 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. In the process, we align ourselves long-term with the needs of our customers and put people at the heart of everything we do. Because we won’t stop until everyone can #takepart.

5G
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.
Glossary
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.
Glossary
Optical fiber
Channel for optical data transmission.
Glossary
Postpaid
Customers who pay for communication services after receiving them (usually on a monthly basis).
Glossary