Annual Report 2013

Statement by the Company’s management on the expected development of the Group.

The future at a glance. At our Capital Markets Day in Bonn at the end of 2012, we announced our goal of returning to growth from 2014. On a like-for-like basis, we have already achieved that goal one year ahead of schedule. This positive development is largely due to the revenue growth in our United States operating segment where we changed the business model following the merger of T-Mobile USA and MetroPCS – with great success. The launch of what we call the Un-carrier strategy in combination with the expansion of the handset portfolio to include Apple products already had a noticeable effect on the number of branded postpaid customers in 2013. This improvement in the customer base is expected to have a significant effect on revenues and earnings in subsequent years. We expect to see the following developments in the individual operating segments by 2015:

  • We will maintain our position as market leader in our mobile communications and broadband business areas in Germany and stabilize our revenues by 2015.
  • In our Europe operating segment, we aim to defend our strong market position in almost all countries and to stabilize our revenues – despite tough regulatory policies and the possibility of state intervention.
  • In the United States, we aim to considerably increase our revenue and adjusted EBITDA on the back of our very positive image among customers.
  • Our Systems Solutions operating segment is developing a new business model and will build up and expand digital innovation areas. We expect that to lead to increased productivity while revenue is likely to fall initially.

These positive expectations overall are the result of a consistent strategic focus. We are driving ahead the transformation of the Deutsche Telekom Group from a traditional telecommunications company to the first port of call for consumers and business customers as well as for innovation partners in Europe, including Germany. We want to excite our customers with intelligent solutions for home and on the move by combining the quality of our networks, for which we have won several prizes, with innovative internally developed applications or integrating products from partners. We will continue to invest massively in our networks and build out our broadband infrastructure to achieve this. In Germany, we will be investing considerable amounts in optical fiber and vectoring technology in particular, as well as in the high-speed mobile communications standard LTE, to safeguard our leadership in terms of network technology. In the United States, we will also invest a great deal in the quality and coverage of the mobile communications network. Overall, we aim for a total investment volume (excluding spectrum investments) of around EUR 9.3 billion Group-wide in 2014, followed by a slight increase in 2015. However, our investments require a reliable, innovation-friendly regulatory environment in Europe.

To make our growth as profitable as possible, we will implement more cost-cutting measures and initiatives – focusing particularly on indirect costs. Overall, we expect to see the following development in our financial performance indicators:

  • We expect revenue to grow slightly year-on-year in 2014, largely as a result of the positive development of revenues in the United States. We expect revenue to grow again in 2015 relative to 2014.
  • We expect adjusted EBITDA of around EUR 17.6 billion in 2014 and an increase in adjusted EBITDA in 2015 compared with 2014.
  • We expect strong increases in EBITDA and EBIT in 2014 compared with 2013. Book profits from the sale of shares in the Scout24 group and from the agreement on the acquisition of spectrum licenses with Verizon Wireless in the United States will lead to this strong increase in 2014. In addition, we expect the level of our depreciation and amortization to decrease further. In 2015, we expect the non-recurrence of the positive special factors to lead to a marked decrease in EBITDA and EBIT compared with 2014.
  • The Group’s free cash flow is expected to amount to approximately EUR 4.2 billion in 2014 and to increase slightly in 2015.
  • We expect to see an increase in return on capital employed (ROCE) in 2014 and are aiming for a figure of 5.5 percent in 2015.

All year-on-year estimates are based on the assumption of a comparable consolidated group structure and comparable exchange rates.

We intend to continue leveraging economies of scale and synergies in the future, through partnerships or appropriate acquisitions in our footprint markets. There are no plans, however, for major acquisitions or expansion in emerging markets. We will continue to subject our existing cooperation activities and investments to strategic review with the focus on maximizing the value of our Company.

Despite substantial capital expenditure, we want to continue to compensate our shareholders appropriately. Subject to approval by the relevant bodies and the fulfillment of other legal requirements, we intend to pay a dividend of EUR 0.50 per dividend-bearing share for the 2014 financial year. We are considering offering our shareholders the choice once again of having their dividend paid out in cash or converting it into Deutsche Telekom AG shares. We will review our shareholder remuneration strategy again for 2015.