Deutsche Telekom : Earnings Document

Deutsche Telekom

The

2020

financial year

Contents

4	Letter from the Chairman of the Board of Management
7	Supervisory Board's report to the 2021 shareholders' meeting
15	The T-Share
17	Highlights in the 2020 financial year

26	Deutsche Telekom at a glance
28	Group organization
31	Group strategy
37	Management of the Group
40	The economic environment
46	Development of business in the Group
61	Development of business in the operating segments
75	Development of business at Deutsche Telekom AG
79	Corporate responsibility and non-financial statement
94	Innovation and product development
100	Employees
107	Forecast
118	Risk and opportunity management
134	Other disclosures

150	Consolidated statement of financial position
151	Consolidated income statement
152	Consolidated statement of comprehensive income
153	Consolidated statement of changes in equity
155	Consolidated statement of cash flows

158	Summary of accounting policies
188	Notes to the consolidated statement of financial position
219	Notes to the consolidated income statement
230	Other disclosures

2
283	Members of the Supervisory Board of Deutsche Telekom AG in 2020
286	Members of the Board of Management of Deutsche Telekom AG in 2020
288	Glossary
291	Disclaimer
292	Financial calendar
Deutsche Telekom. The 2020 financial year.

Selected financial data of the Group

To our shareholders

Sustainable Development Goals

Combined management reportConsolidated financial statementsNotes to the consolidated financial statementsResponsibility statement

Independent auditor's report

Boards, seats, and further information

Selected financial data of the Group

billions of €

Change compared to prior year %

Revenue and earnings

Net revenue

25.4

Of which: domestic

Of which: international

% %

Profit (loss) from operations (EBIT) Net profit (loss)

35.4

7.5

Net profit (loss) (adjusted for special factors) EBITDA

15.5

42.5

EBITDA ALa

43.4

EBITDA (adjusted for special factors) EBITDA AL (adjusted for special factors)a EBITDA AL margin (adjusted for special factors)a

40.6

41.6

Profitability

ROCE

% %

Statement of financial position

Total assets

Shareholders' equity Equity ratio

55.2 56.9

%

Net debt Relative debt

58.1

(Net debt/EBITDA (adjusted for special factors))

Cash flows

Net cash from operating activities Cash capex

Cash capex (before spectrum investment) Free cash flow (before dividend payments and spectrum investment)b

2.9 30.2 29.4

6.1

Free cash flow AL (before dividend payments and spectrum investment)a, b

Net cash used in investing activities

Net cash from (used in) financing activities

(10.3) 59.2 n.a.

Employees

Average number of employees (full-time equivalents, without trainees) Revenue per employee

thousands thousands of €

5.0 19.4

T-Share - key figures

Earnings per share Adjusted earnings per share Dividend per sharec

Total dividendd

€ € € billions of €

7.3 15.4 0.0 0.0

Total number of ordinary shares at the reporting datee

millions

0.0

a	Comparatives for 2018 were calculated on a pro forma basis for the key performance indicators redefined as of January 1, 2019 following the introduction of the IFRS 16 accounting
standard.
b	And before interest payments for zero-coupon bonds and termination of forward-payer swaps at T‑Mobile US (both in 2020), as well as before AT&T transaction and compensation
payments for MetroPCS employees (both in 2013).
c	Subject to approval by the relevant bodies and the fulfillment of other legal requirements.
d	Subject to approval by the 2021 shareholders' meeting concerning the dividend payments for the 2020 financial year. For further information, please refer to Note 34 "Dividend per share" in
the notes to the consolidated financial statements.
e	Including treasury shares held by Deutsche Telekom AG.

millions

• a Including T‑Mobile US wholesale customers.

• b Excluding wholesale.

The figures shown in this report were rounded in accordance with standard business rounding principles. As a result, the total indicated may not be equal to the precise sum of the individual figures. Changes were calculated on the basis of millions for greater precision.

Sprint has been included in Deutsche Telekom's consolidated financial statements as a fully consolidated subsidiary since April 1, 2020. This transaction affects the comparability of the figures for the current financial year with the prior-year figures. For further information on the transaction, please refer to the section "Summary of accounting policies - Changes in the composition of the Group and other transactions" in the notes to the consolidated financial statements.

To our shareholders

To our shareholders

Letter from the Chairman of the Board of Management

Dear shareholders,

Dear friends of the Company,

2020 was a complicated, stressful, and demanding year to say the least. Even now, we must continue to physically distance from other people where once we sought social togetherness. We wear masks as we go about our daily activities, limit our contact with other people to the bare minimum, and many of us are working from home. Week after week, the situation is putting enormous strain on us all.

But while the effects of the coronavirus pandemic are causing many businesses to feel the pinch, Deutsche Telekom is prospering. Even better: 2020 was a record-breaking year for us, with the highest revenue in our Company's history. I believe there are two main reasons for this:

1. We help in the crisis. Because people want to stay in touch and businesses want to keep working. Without our stable networks, many businesses would have struggled with the transition to remote working.

2. Our employees. Our tech teams, who are out in the field visiting customers at home, looking into their lines or activating fast internet in the street cabinets. The people in the shops serving our customers. And everyone else also working for our success, whether from home or the office. To them, I would like to say a huge thank you for their valuable contribution under such difficult circumstances. Because it is all thanks to them that we remain an anchor of stability throughout the pandemic with infrastructure that society can rely on, day in, day out.

Let's take a look at the situation at our Company right now. After all, the past twelve months were game-changing for Deutsche Telekom, irrespective of coronavirus.

Our net revenue took on a whole new dimension. That is no exaggeration. For the first time ever, we broke the 100-billion-euro revenue barrier in a single financial year. This is an historic achievement. The additional revenue from the business combination with mobile carrier Sprint in the United States was a decisive factor. But we are also growing organically. Our earnings were also up, both in the United States and in business on this side of the Atlantic. Adjusted EBITDA AL (i.e., adjusted EBITDA taking account of depreciation of right-of-use assets and interest expenses on lease liabilities) was right on the mark for 2020. Free cash flow AL was well above our guidance. The figures now presented demonstrate very clearly that Deutsche Telekom is still on a growth course. And we want to keep it that way.

In the United States, the underpinnings are already in place: following the business combination with Sprint, our U.S. subsidiary T‑Mobile US is now well-positioned to capture the #1 spot on the most important mobile communications market worldwide. The new T‑Mobile US joins the two major rivals Verizon and AT&T in the big league, shattering the duopoly previously enjoyed by these two companies. Not only are we quickly closing the gap to our competitors, but we have already outstripped AT&T in terms of customer numbers and mobile service revenues. The business combination has significantly improved our spectrum holding. Today, we already cover more than 100 million people in the United States with super-fast Ultra Capacity 5G alone. We are set to reach up to 200 million U.S. citizens with coverage in this spectrum band by the end of 2021 and thus offer them exactly what they expect of us: the best 5G network nationwide. That is THE basis for taking forward our successful Un-carrier strategy.

Offering the best-quality networks is and remains our ambition - both in the United States and in Europe. And we are willing to invest record amounts every year to make this happen, pouring EUR 17 billion primarily into our global networks in the year just ended, and EUR 5.5 billion of this in Germany alone.

For a long time, our stated goal was to become the Leading European Telco. We have now not only achieved this goal, but were able to further consolidate and extend our position even given the difficult market environment and the negative impact of coronavirus in 2020. Against this backdrop, we are particularly proud to have enhanced the value of our brand, too. Our Magenta T is worth almost 30 % more today than it was just one year ago. A brand value of USD 51.1 billion puts us ahead of other venerable companies, such as Volkswagen and BMW, and 23rd in a global ranking - directly behind Disney.