Performance management system

We use a specific set of performance indicators to reliably and transparently measure success. Owing to the particular importance of some of these performance indicators, the performance of Board of Management members is also tracked and incentivized by means of remuneration. The remuneration system for the members of the Board of Management provides for basic remuneration in addition to one-year and multi-year variable remuneration components, with target achievement depending on both financial and non-financial performance indicators.

There were no material changes to our management system, in particular to the selection of our most important performance indicators, in the reporting year. In the 2025 financial year, the sale of spectrum and the acquisition of customer bases were not included on an ad hoc basis when calculating our free cash flow AL (before dividend payments and spectrum investment) and cash capex (before spectrum investment) financial performance indicators.

The Shareholders’ Meeting of Deutsche Telekom AG on April 9, 2025 authorized a new Board of Management remuneration system effective from the 2025 financial year. Since then, the non-financial social performance indicators of customer retention/satisfaction and employee satisfaction have both counted towards the one-year variable remuneration (Short-Term Incentive Plan, STI), rather than the long-term variable remuneration (Long-Term Incentive Plan, LTI) under which they previously fell. Changes in the social target parameters that are critical to the Company’s success are now reflected much faster in the remuneration of the Board of Management members. By contrast, the two non-financial ecological performance indicators of energy consumption and CO₂ emissions (Scope 1 and 2) were moved from the STI to the LTI. This lends appropriate weight to the long-term environmental target parameters derived from the sustainability strategy. From 2026, these changes will additionally be applied to the STI and LTI of eligible managers and the STI of employees in Germany not covered by collective agreements.

Further information on the Board of Management remuneration system is available on our remuneration website.

The expected results for the 2025 financial year are contrasted with the actual figures in the section “Comparison of the Group’s expectations with actual figures.” We also report on the actual results in the section “Development of business in the Group.” For our expectations through 2027, please refer to the “Forecast.” We provide an in-depth look at our sustainability strategy and targets in the “Combined sustainability statement.”

The following tables and information provide an overview of our key financial and non-financial performance indicators.

Financial performance indicators

Revenue and earnings

Revenue corresponds to the value of our operating activities. Absolute revenue depends on how well we are able to sell our products and services on the market. The development of our revenue is an essential indicator for measuring the Company’s success. New products and services as well as additional sales activities are only successful if they increase revenue. Service revenue essentially comprises high-value – i.e., predictable and/or recurring – revenues from Deutsche Telekom’s core activities. Service revenue is the revenues that are generated through customers’ use of our services (i.e., revenue from fixed and mobile network voice calls – incoming and outgoing calls – as well as data services) plus roaming revenue, monthly basic charges and visitor revenue, as well as revenue generated from the ICT business. Service revenues also include revenues earned in connection with premium services for customers, such as reinsurance for device insurance policies and extended warranties. Service revenue is an important indicator for the successful implementation of the growth strategy of the Group.

We measure our operating earnings performance on the basis of adjusted EBITDA AL, i.e., EBITDA adjusted for depreciation of right-of-use assets, for interest expenses on recognized lease liabilities, and for special factors. And EBITDA is calculated as EBIT (profit/loss from operations) before depreciation, amortization and impairment losses on intangible assets, property, plant and equipment, and right-of-use assets. Both metrics indicate the short-term operational performance and the success of individual business areas. Special factors have an impact on the presentation of operations, making it more difficult to compare performance indicators with corresponding figures for prior periods. For this reason, we adjust our performance indicators to provide transparency. Without this adjustment, statements about the future development of earnings are only possible to a limited extent. The further inclusion of unadjusted EBIT/EBITDA AL as performance indicators means special factors are also taken into account. This promotes a holistic view of our expenses. In addition to these absolute indicators, we also use the EBIT and EBITDA AL margins to show how these indicators develop in relation to revenue. This makes it possible to compare the earnings performance of profit-oriented units of different sizes.

For the calculation of EBITDA AL, EBIT, and net profit/loss adjusted for special factors, please refer to the section “Development of business in the Group.”

Adjusted earnings per share is calculated as adjusted net profit divided by the time-weighted number of all ordinary shares outstanding, which is determined by deducting the weighted average number of treasury shares held by Deutsche Telekom AG.

Profitability

We have incorporated sustainable growth in enterprise value into our medium-term aims and implemented it as a separate key performance indicator (KPI) for the entire Group. Return on capital employed (ROCE) is a key performance indicator at Group level. ROCE is the ratio of operating result after depreciation, amortization and impairment losses plus imputed taxes (net operating profit after taxes, NOPAT) to the average value of the assets tied up in the course of the year (net operating assets, NOA).

Our goal is to achieve or exceed the return targets imposed on us by providers of debt capital and equity on the basis of capital market requirements. We measure return targets using the weighted average cost of capital (WACC).

NOPAT is an earnings indicator derived from the consolidated income statement, taking an imputed tax expense into consideration. It does not include cost of capital.

NOA includes all assets that make a direct contribution to revenue generation. These include all elements on the asset side of the consolidated statement of financial position that are essential to the rendering of services. To this is added operating working capital, calculated from trade receivables, inventories, and trade and other payables. The figure for other provisions is deducted as no return target exists for this.

Financial flexibility

Free cash flow AL (before dividend payments and spectrum investment) is calculated as net cash from operating activities less net cash outflows for investments in intangible assets (excluding goodwill) and property, plant and equipment, as well as the principal portion of repayment of lease liabilities (excluding finance leases at T‑Mobile US). Free cash flow AL is a key yardstick for providers of debt capital and equity. It measures the potential for further developing our Company, for generating organic growth, and for the ability to pay dividends and repay debt.

Cash capex (before spectrum investment) relates to cash outflows for investments in intangible assets (excluding goodwill) and property, plant and equipment, which are relevant for cash outflows as a component of free cash flow.

A rating is an assessment or classification of the creditworthiness of debt securities and their issuer according to uniform criteria. The assessment of creditworthiness by rating agencies affects access to the capital markets and to the international finance markets, and refinancing costs. As part of our finance policy, we have defined a target range for our ratings. We believe that with a rating between A- and BBB (Standard & Poor’s, Fitch) or between A3 and Baa2 (Moody’s) we essentially have the necessary entry to the capital markets to generate the required financing.

Non-financial performance indicators

Sustainability

We believe that satisfied customers act as multipliers for our Company’s success. As a responsible, service-oriented company, the needs of our customers are front and center of our actions, and we want them to stay with our Company in the long term. For this reason, we measure customer retention/satisfaction in our companies using the globally recognized TRI*M method. The results of systematic surveys are expressed by an indicator known as the TRI*M index. To underscore the significance of customer retention/satisfaction for our operating business, the tracking and incentivization of the performance of the Board of Management members has been moved to the one-year variable remuneration (Short-Term Incentive Plan). We take the TRI*M indexes calculated for the operating entities (Deutsche Telekom excluding T‑Mobile US) as an approximation of the respective entities’ percentage of total revenue to create an aggregate TRI*M value. This ensures Board members participate faster in the development of customer retention/satisfaction.

For further information on our customer service, please refer to the section “Group strategy.”

Our employees want to contribute to the further development of the Company and identify with it. We want to pursue open dialogue and productive exchange with our employees. New working models, state-of-the-art communication options, and regular employee surveys help us accomplish this. The main feedback tools which the Group uses to assess employee satisfaction are the employee survey, carried out every two years, and the half-yearly pulse survey (both Deutsche Telekom excluding T‑Mobile US). In our Company, we measure the employee satisfaction performance indicator using the annual average of the engagement score – derived from the results of each survey for the four engagement questions on mood, brand identity, employer attractiveness, and inspiration. In view of the major significance of employee satisfaction for the success of the Company, the tracking and incentivization of the performance of the Board of Management members has been moved to the one-year variable remuneration (Short-Term Incentive Plan). This ensures Board members participate faster in the development of employee satisfaction.

For further information on our HR activities, please refer to the section “Combined sustainability statement – Social.”

In an age of climate change and the destruction of the environment, companies are under pressure to significantly increase their energy and resource efficiency and restrict their absolute energy consumption. There is a general expectation on the ICT sector to continue building out the telecommunications network while, at the very least, keeping basic consumption stable in the medium term or even reducing it going forward. We use the energy consumption non-financial performance indicator to record the energy consumed in our own business operations. In living up to our responsibility to conserve resources and protect the climate, we also run various initiatives that aim to reduce the CO₂ emissions generated as part of our business activities. These initiatives include the long-term use of green electricity, optimizing power consumption in our buildings, and gradually transitioning our Group fleet vehicles from fossil fuels to zero- or low-emission power sources. We measure our progress with reducing our carbon footprint on the basis of the CO₂ emissions (Scope 1 and 2) non-financial performance indicator. Given the significance of these two sustainability-related goals in the medium and long term, the tracking and incentivization of the performance of the Board of Management members has been moved to the long-term variable remuneration. The level of ambition and the target achievement for both performance indicators were calculated excluding T‑Mobile US. We also report on a Group-wide ambition level including T‑Mobile US.

For further information on these and other ESG KPIs, please refer to the section “Combined sustainability statement.”

Customers

As one of the leading providers of telecommunications and information technology worldwide, the development of our Group – and thus also our financial performance indicators – is closely linked to the development of customer figures. Acquiring and retaining customers is thus essential to the success of our Company. We have different ways of measuring the development of our customer figures according to the business activity in our operating segments: Depending on the activities of each segment, we measure the number of mobile customers (one SIM card equals one customer) as well as the number of fixed-network lines and broadband customers/lines.

Systems Solutions

In our Systems Solutions operating segment, we use order entry as a non-financial performance indicator. We define and calculate order entry as the total of all amounts resulting from customer orders received in the financial year. Order entry in the form of long-term contracts is of great significance to the Group in order to estimate revenue potential. In other words, order entry is an indicator that provides a high degree of planning reliability.

Performance indicators at Deutsche Telekom AG

Net income is the financial performance indicator of greatest relevance for Deutsche Telekom AG and is used to pay out the dividend to shareholders.