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Deutsche Telekom counting on debt reduction and growth

Bonn, November 14, 2023  
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High nonscheduled write-downs decreased the net loss to EUR 24.5 billion in the first nine months of 2002 — net debt decreased to EUR 64 billion despite the acquisition in the Netherlands — Group revenue increased by approximately 12 percent to EUR 39.2 billion — Group EBITDA adjusted for special influences increased by 5.6 percent to EUR 12 billion — sale of VoiceStream to safeguard de-leveraging targets not necessary — reduction of a total of 43,400 jobs net or 54,700 gross by 2005 planned — Supervisory Board and Board of Management recommend to the 2003 Shareholders' Meeting to suspend the dividend — new Chairman of the Board of Management, Kai-Uwe Ricke, wants to considerably improve the individual divisions' efficiency 
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Deutsche Telekom increased its revenue in the first nine months of 2002 by 12 percent from EUR 35 billion to EUR 39.2 billion compared to the same period last year. In the same period, Group EBITDA excluding special influences increased by 5.6 percent from EUR 11.3 billion to EUR 12 billion. In addition to a slight reduction in net debt to EUR 64 billion, this strong operational development is offset by a net loss of approximately 
EUR 24.5 billion — which was mainly due to nonscheduled write-downs. 

Against this backdrop, the departing Chairman of Deutsche Telekom AG's Board of Management, Prof. Helmut Sihler, presented the results of the strategic review which are designed to strengthen the company's financial scope for action in the long term. " On the basis of the measures adopted, there will be a sustained improvement of Deutsche Telekom's situation" , 
Mr. Sihler said with reference to the need to reorient the company. 

" One thing is clear: The level of the Group's debt, the trends that we are seeing in the stock markets and the current valuation of the telecommunications sector at a time when the economic climate is deteriorating, all force us to take urgent action. Our future lies with debt reduction and growth. This is the only way for us to bring about a sustained improvement in our results" , the newly elected Chairman of the Board of Management, Kai-Uwe Ricke, emphasized. " A properly-managed Deutsche Telekom should be a cash machine. This is an area where I see considerable room for improvement." According to Ricke, the four-pillar strategy remains the right approach for realizing growth potential. " At the same time, however, individual divisions must also become much more efficient." To achieve this goal, he will devolve even more responsibility to the divisions and give them greater authority to take their own decisions. At the same time, this ensures that Deutsche Telekom will stay as close as possible to its customers. And vice versa, this means that the strategic management holding will be clearly streamlined. 


Results of the strategic review 
Deutsche Telekom is aiming to achieve a level of net debt by the end of 2003 which equates to roughly three times the EBITDA expected for the full 2003 financial year. Based on the forecast EBITDA of EUR 16.7 to 
EUR 17.7 billion, this generates a target corridor of EUR 49.5 to 
EUR 52.3 billion net debt. In order to achieve this target, Deutsche Telekom, among other things, will withdraw from non-strategic business areas such as real estate, the remainder of the cable business and other shareholdings and business units. These sales are to generate proceeds of EUR 6.2 to EUR 8.5 billion. In addition, Deutsche Telekom intends to reduce its capital expenditure in 2003 to between EUR 6.7 billion and EUR 7.7 billion. 

Within the framework of the strategic review, Deutsche Telekom decided to take into account the changed economic environment and to test all assets for impairment. Consequently, the following valuation adjustments were necessary in the third quarter: 

In billions of EUR

T-Mobile USA
  • of which goodwill
  • of which licenses
18.0 8.4 9.6
BEN NL 1.1
UMTS U.K. 2.2
Others (incl. Comdirect, Siris, Multilink) 0.7
TOTAL 22.0
Restructuring expenses T-Systems: 0.4
Tax effects from amortization of US mobile communications licenses (3.1)
Net effect 19.3

Additional special influences amounting to EUR 1 billion, of which around EUR 0.3 billion are attributable to valuation adjustments for investments in noncurrent assets in the third quarter of 2002, are not related to the strategic review. 

The write-downs of goodwill and the mobile communications licenses are the result of the strategic review throughout the Group, implemented by the Board of Management in the past months. These nonscheduled write-downs, which have no impact on the cash situation, take into particular consideration the changed expectations regarding the medium and long-term prospects of the mobile communications industry and the changed view of the possible consolidation on the U.S. mobile communications market. 

It is not necessary to sell VoiceStream to ensure that Deutsche Telekom's deleveraging targets will be met. " It would be wrong to sell it in view of the positive development of this company. A merger with another company with partial deleveraging still remains an option that we would definitely not want to rule out under the right circumstances" , the departing Chairman of the Board of Management, Prof. Helmut Sihler, stressed as another result of the strategic review. Along the same lines, he announced that the Board of Management and the Supervisory Board will recommend to the 2003 Shareholders' Meeting that no dividend be paid for the financial year, thus contributing to debt reduction on the order of EUR 1.6 billion. 

In addition, the Board of Management recently adopted a package of measures that will improve results by EUR 1.5 billion by the end of 
2003. Specifically, these measures are aimed at improving results by 
EUR 0.6 billion from staff reductions, a reduction of EUR 0.3 billion in marketing expenses, EUR 0.3 billion of improvements in efficiency resulting from the optimization of receivables and a further EUR 0.3 billion from reduced expenditure on other cost items such as travel and consulting costs. 

In addition, Deutsche Telekom is aiming to cut a total of 54,700 jobs gross or 43,400 jobs net by the end of 2005. 42,500 jobs are to be cut in Germany and 12,200 at subsidiaries abroad. In the same period, 11,300 new jobs are to be created through restructuring and expansions. The main method for this staff reduction is to be the transfer for employees to the newly created Human Resources Services Agency (PSA), which is mandated to find new jobs within and outside the Group for the employees concerned. This programme still need to be a greet upon with the various intrest groups. Talks on this matter have already begun.

Dr. Karl-Gerhard Eick, CFO, pointed out the significantly improved operating performance of Deutsche Telekom: " I am firmly convinced that the cash flow and not the loss shown in the books is the best indicator of a company's financial health. In this context, I would like to especially stress the slight reduction in net debt to EUR 64 billion in the third quarter. We achieved this reduction despite the acquisition of BEN which reflects our operating performance in the third quarter with a free cash flow of EUR 1.8 billion." He said further that the debt reduction " gap" identified in August of 
EUR 4 billion to EUR 7 billion had already been narrowed by EUR 2.3 billion. " Moreover, we are now convinced that we can achieve a free cash flow of EUR 5.5 billion to EUR 6 billion in the fourth quarter 2002 and 2003, which is higher than the EUR 4 billion to EUR 5 billion in our old scenario."  


T-Com increased revenue and kept EBITDA stable 
T-Com's total revenue in the period under review increased by around 
1 percent from EUR 22.1 billion in the first nine months of 2001 to 
EUR 22.3 billion. Thus, for two quarters in a row, T-Com succeeded in increasing its revenue compared with the same periods in the previous year. Domestic business accounted for around 87 percent of T-Com's total revenue in the first three quarters of 2002. The Eastern European companies MATÁV (including Maktel), Slovenské Telekomunikácie and Hrvatske telekomunikacije shown under T-Com made a contribution to revenue of around 13 percent. 

EBITDA in the T-Com division amounted to around EUR 7.5 billion in the first nine months of 2002, and was thus at approximately the same level as in the same period last year, EUR 7.6 billion, which was adjusted to exclude the book profit from the sale of the cable company in Baden-Württemberg amounting to EUR 908 million. 

Adjusted EBITDA at T-Systems increased considerably 
Revenue in the T-Systems division decreased by 3.4 percent in the first three quarters of 2002 to EUR 8.3 billion, compared with the first three quarters of 2001 with EUR 8.6 billion. Adjusted EBITDA increased in the first three quarters of 2002 by around 34 percent to EUR 0.8 billion from 
EUR 0.6 billion in the same period last year. T-Systems also succeeded in increasing the EBITDA margin considerably in all three quarters of the 2002 financial year in comparison with the previous year. 


T-Mobile recorded strong increases in revenue and adjusted EBITDA 
Total revenue in the T-Mobile division increased by more than 40 percent in comparison with the same period last year to EUR 14.2 billion. Besides the effects of T-Mobile CZ (formerly RadioMobil) and T-Mobile USA (formerly VoiceStream and Powertel), which were not consolidated for the entire first three quarters of 2001, the increased customer base and, in the course of the year, increased average revenues from subsidiaries of T-Mobile International AG also had a positive impact. The adjusted EBITDA of the 
T-Mobile segment increased in the first three quarters of 2002 by around EUR 1.7 billion, 76 percent, compared with September 30, 2001, to around EUR 3.9 billion. 


T-Online recorded higher revenue and adjusted EBITDA 
The 24.4 percent increase in total revenue of the T-Online segment, including DeTeMedien, to EUR 1.3 billion was driven by the revenue growth at T-Online International AG. The adjusted EBITDA of the T-Online division amounted to around EUR 151 million in the first nine months of 2002 compared with minus EUR 67 million in the same period last year. 

Development of the divisions

  Jan.1 to Sept. 30, 2002
in bn of €
Jan.1 to
Sept. 30, 2001
in bn of €
Change
%
Total year 2001
in bn of €
T-Com        
Total revenue 22.3 22.1 +0.9 29.4
Net revenue 18.9 18.7 +1.2 25.0
Adjusted EBITDA 7.5 7.6 -0.5 10.1
Income (loss) before taxes 2.7 3.7 -27.7 4.6

T-Mobile        
Total revenue 14.2 10.2 +40.1 14.6
Net revenue 13.1 9.0 +45.0 13.0
Adjusted EBITDA 1 3.9 2.2 +76.4 3.1
Income (loss) before taxes -23.5 -3.2 -630.0 -6.4

T-Systems        
Total revenue 8.3 8.6 -3.4 11.9
Net revenue 5.8 6.0 -4.0 8.3
Adjusted EBITDA 0.8 0.6 +33.7 0.9
Income (loss) before taxes -1.6 -0.3 -420.5 -0.4

T-Online        
Total revenue 1.3 1.0 +24.4 1.4
Net revenue 1.2 1.0 +22.3 1.3
Adjusted EBITDA 0.2 -0.1 +325.0 -0.1
Income (loss) before taxes -0.0 -0.1 +96.1 -0.2

Other        
Total revenue 3.2 3.6 -11.1 5.1
Net revenue 0.3 0.3 -21.9 0.6
Adjusted EBITDA -0.2 0.9 -119.5 1.1
Income (loss) before taxes -3.9 0.3 n.a. 0.4

Key figures at a glance

  Jan.1 to Sept. 30, 2002
in bn of €.
Jan.1 to Sept. 30, 2001
in bn of €.
Change in bn of € Change in % Total year
2001
bn of €
Total revenue 39.2 35.0 4.2 12.0 48.3
Domestic 26.0 26.1 (0.1) (0.3) 35.1
International 13.2 8.9 4.3 47.6 13.2
Net loss before special influences 4.2 2.8 (1.4) (49.5) 4.7
Net loss 24.5 1.0 (23.5) n.a. 3.5
EBITDA after adjustment for special influencesa 12.0 11.3 0.7 6.2 15.1
EBITDAb 11.4 14.1 (2.7) (19.2) 18.1
Free cash flow before dividends 4.7 0.0 4.7 n.a. 1.1
Capital expenditurec 4.8 6.3 (1.5) (24.0) 9.9
Debt 64.0 65.2 1.2 1.8 62.1
Number of employees at balance sheet date 255,868 246,192 9,676 3.9 257,058
a. For an understanding of adjusted EBITDA, please see the important information contained in the
" Reconciliation to adjusted EBITDA" in the half-year report.
b. EBITDA: Results from ordinary business activities plus the net financial income (expense) net and
amortization and depreciation.
c. Capital expenditure: Investment minus investments in intangible assets minus investments in financial
assets.

Comparison of quarters

  3. Q. 2002 in bn of € 3. Q. 2001 in bn of € Change in %
Total revenue 13.4 12.5 7.2
Domestic 8.8 8.8 0
International 4.6 3.7 24.3
Net loss before special influences 1.1 1.5 26.7
Net loss 20.6 0.7 n.a.
EBITDA after adjustment for special influencesa 4.2 4.1 2.4
EBITDAb 3.8 5.9 35.0
Free cash flow before dividends 1.8 -0.1 n.a.
Capital expenditurec 1.6 2.5 36.0

Numbers of customers in selected services

  Sept. 30, 200 in millions 7 Sept. 30, 2001
in millions 7
Change
Sept. 30, 2002/
Sept. 31, 2001 %6
Dec. 31, 2001
in millions 7
Change
Sept. 30, 2002/
Dec. 30, 2001 % 6
Telephone lines (incl. ISDN channels) 57.3 56.8 0.9 56.9 0.7
Deutsche Telekom
(incl. public telephones)
51.2 50.5 1.4 50.7 1.0
AktivPlus customers (tariffs used) 10.2 7.5 36.0 8.4 21.4
T-DSL contracts(marketed) 2.7 1.4 92.9 2.2 22.7
ISDN channels 22.0 19.8 11.1 20.4 7.8
MATÁV 2.9 2.9 0.0 2.9 0.0
Slovenské
Telekomunikácie
1.5 1.6 (6.3) 1.6 (6.3)
Hrvatske
telekomunikacije1
1.8 1.8 0.0 1.7 5.9
Mobile communications subscribers          
Majority-owned subsidiaries1,2 55.5 47.4 17.1 50.0 11.0
of which: T-Mobile
Deutschland
23.8 22.6 5.3 23.1 3.0
of which: T-Mobile UK (One 2 One)3 11.8 9.9 19.2 10.4 13.5
of which: T-Mobile USA (VoiceStream/Powertel) 8.9 6.3 41.3 7.0 27.1
of which: T-Mobile
Austria (max.mobil)
2.0 2.1 (4.8) 2.1 (4.8)
of which: T-Mobile CZ (RadioMobil) 3.3 2.5 32.0 2.9 13.8
of which: Westel(via MATÁV) 3.2 2.2 45.5 2.5 28.0
of which: Hrvatske telekomunikacije1 1.2 0.8 50.0 0.9 33.3
BEN 1 1.4 1.1 27.3 1.2 16.7
Proportionate subscribers4 56.8 48.5 17.1 51.2 10.9
Total number of subscribers5 76.2 60.9 25.1 65.2 16.9
T-Online subscribers 11.8 9.8 20.4 10.7 10.3
of which: T-Online
(Deutschland)
9.7 8.0 21.3 8.8 10.2
of which: T-Online
France (Club Internet)
1.0 0.7 42.9 0.8 25.0
of which: Ya.com (Spain) 1.0 0.9 11.1 0.9 11.1
of which: other 0.2 0.2 0.0 0.2 0.0
1 In the first nine months of 2001, Hrvatske telekomunikacije and Ben were not fully consolidated: shown
here to facilitate comparison.
2 Number of subscribers of the fully consolidated mobile communications companies.
3 Including Virgin Mobile.
4 Proportion of subscribers of all associated mobile communications companies pro rata to shareholding.
The 25% shareholding in PT Satelindo was sold in the second quarter of 2002. Historical figures have
been adjusted.
5 Total number of subscribers of the fully consolidated mobile communications companies and total
number of subscribers of minority shareholdings.
6 %ages calculated in millions and rounded off.
7 Rounded figures calculated on the basis of millions. The total was calculated on the basis of precise
figures.

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