Annual Report 2013

Statement of the Board of Management on business development in 2013.

Corporate targets achieved or slightly exceeded
Adjusted EBITDA of EUR 17.4 billion Free cash flow of EUR 4.6 billion

Bonn, February 18, 2014

We had another successful financial year in 2013. We succeeded in meeting our corporate targets with adjusted EBITDA of EUR 17.4 billion, and with free cash flow of EUR 4.6 billion (before dividend payments and spectrum investment), we even slightly exceeded them. Subject to approval by the relevant bodies and the fulfillment of other legal requirements, we continue to adhere to our shareholder remuneration strategy and will propose to the shareholders’ meeting a dividend of EUR 0.50 per share. As we did for the first time in the prior year, we are once again considering offering our shareholders the option of having their dividend entitlement converted into shares of Deutsche Telekom AG, instead of having it paid out in cash.

On May 1, 2013, we completed the merger of T-Mobile USA and MetroPCS and thus the combination of our business activities in the United States. The new company operates under the name T-Mobile US, Inc. and has been traded on the New York Stock Exchange (NYSE) since May 1, 2013. Due to the improved position in terms of mobile spectrum and the expanded customer base, we are now able to compete more aggressively with the other national mobile carriers in the United States.

Following the loss from operations of EUR 4.0 billion recorded in 2012, due mainly to the impairment loss recognized that year in our United States operating segment, we generated a profit from operations of EUR 4.9 billion in the reporting year. This also had an impact on net profit. While in the prior year, we recorded a net loss of EUR 5.4 billion, we generated a net profit of EUR 0.9 billion in the reporting year.

Our net debt increased from EUR 36.9 billion to EUR 39.1 billion. We achieved a very good result, despite the first-time inclusion of MetroPCS, dividend payments, and the acquisition of spectrum. Factors having a reducing effect included free cash flow, the sale of stakes, and capital transactions at T-Mobile US.

Negative trends in the telecommunications industry such as saturated markets, rising competition, continued severe regulatory intervention, and the resulting continued price erosion impacted negatively on earnings, resulting in a profit decline. Our efforts to respond to these challenges and ensure the continued viability of our Company included investments (before spectrum) of EUR 8.9 billion, most of which went towards the continued broadband build-out and increasing capacities in existing networks. In the fixed network, the focus was on investments in the fiber-optic roll-out, IPTV, and the continued migration to an IP-based network. In mobile communications, we invested in LTE, increased network coverage, and upgraded capacity to meet increasing demand for data volumes. In addition, we acquired spectrum for a total EUR 2.2 billion, primarily in the Netherlands, Austria, and the United States.

We developed our Group strategy further in the reporting year. From 2014, we will focus on this updated “Leading Telco” strategy, which is summed up in our goal of being the leading European telecommunications provider in our markets.