deutsche telekom. the 2015 financial year.€¦ · deutsche telekom. the 2015 financial year. 3 2...

Deutsche Telekom. The 2015 financial year.

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3 2 Letter from the Chairman of the Board of Management 4 The 2015 Board of Management of Deutsche Telekom AG 8 Ten questions from investors and

financial analysts to Timotheus Höttges

12 Social change and customer needs20 Innovation and partnerships30 Internal culture and employees

ANSWERS FOR THE DIGITAL FUTURE

2015 was a good year for Deutsche Telekom: Our company is growing strongly again, and we are delivering what we promised you.

In 2015, we didn’t just achieve our most important corporate goals, we actually exceeded them. Group revenue grew significantly, by 10.5 percent, to reach EUR 69.2 billion. Adjusted EBITDA reached EUR 19.9 billion, up 13.3 percent from the previous year. Even with constant exchange rates and taking into account several positive one-off effects, revenue increased by about three percent and adjusted EBITDA exceeded our forecast of EUR 18.3 billion by a clear margin.

As shareholders, you benefit directly from this positive business development, as our share price also rose last year – by about 26 percent. Including the dividend payment of EUR 0.50 per share for the 2014 financial year, the total yield reached around 30 percent in 2015. This put our share well ahead of the DAX once again.

I want to thank you most sincerely for the trust you place in our company and its stock as shareholders: With almost 49 percent of shares entitled to dividend, you have opted for our dividend in kind. This is of great help to the implemen-tation of our strategy and the investments associated with it.

We are implementing this strategy consistently, and have been doing so for three years now – that is the basis of our success. We want to become the leading European telecommunications provider. To that end, we are investing in our networks and developing new products that our customers appreciate. In addition, we are collaborating with partners in many different areas. This allows us to offer our customers solutions that we cannot develop on our own, because we lack either the knowledge or the necessary agility in certain fields. That applies especially to the business customer segment, the fourth priority of our strategy. As you can see, our customers are clearly at the heart of every-thing we do.






In Germany, for example, we have strengthened our position as market leader – not least because we invested in the right trends early on. Our customers value our good networks and our broad product range, because we offer them exactly what they need.

Take MagentaEins, for instance: We were the first operator in Germany to offer a com-bination product of fixed-line and mobile communications in the fall of 2014 – with great success. Since its launch, we have gained around 2.9 million customers in Germany and Europe. We are so successful with our combination products that our competitors are starting to copy us. Is there any greater compliment for the work we do?

However, the best products don’t mean much without the networks to support them. That’s why we are not making any compromises here. We are investing heavily – over EUR 4 billion just in the past year, more than any other telecommunications firm in Germany. We have been investing in fast fiber-optic lines in particular, with which we have already reached about 23 million households to date. This represents 55 percent of all German households, an 11-point increase from the end of 2014. The rollout is also making good progress in our European national companies.

We are not just expanding, however, but also modernizing – the keyword here is IP technology. In Germany alone, we had already migrated 9.5 million landlines, or roughly 40 percent of the total, by the end of 2015. That percentage is even higher in our European subsidiaries. Four of our national companies have already completed the migration to IP. With Hungary, the fifth and biggest national company so far will follow in their footsteps this year. This brings us a huge step closer to our goal of creating an international European network. No one else in Europe is further along than Deutsche Telekom when it comes to IP migration, and this is a competitive advantage that should not be underestimated.






The fixed network is not the only area in which we invest in the best quality. You know this. You are benefiting from the full speed of our mobile networks, too. Our fast LTE network now covers 90 percent of the population in Germany alone. In Europe around 92 million people. In addition to their reach, we also increased the speed of our networks in 2015. Among other things, we already offer data transfer speeds of up to 300 megabits per second in Germany, Greece, and Hungary – and we are already working on even higher speeds. With 5G, the next technological leap is just around the corner.

Overall, it’s fair to say that business is good at Deutsche Telekom – including in the USA, where we now have more than 63 million customers. Our U. S. subsidiary was able to gain more than 8 million (net) additional mobile communications customers for the second time in a row – that’s more than any other company in the USA. T-Mobile US is now the third-biggest mobile communications provider in the USA measured by the number of customers. A few years ago, no one would have thought we were capable of such a success story.

At T-Systems, we have successfully completed the necessary restructuring measures. This gave new momentum especially to the cloud business of storing data in our secure data centers, which grew significantly. In particular, our standard solutions in the growth area of cloud computing have done well amidst stiff competition. In the area of cloud-based services, T-Systems’ revenue increased by 24 percent to reach approximately EUR 1 billion.

Dear shareholders,

Our success proves us right. I am firmly convinced that our strategy puts us on the right path. And we will stick to it. However, I also know that we would not be able to implement all of this if we didn’t have such dedicated employees working for the Group. I also want to take this opportunity to express my special gratitude to all 230,000 colleagues.






Part of our strategy is to share the Group’s success with you, our shareholders. We promised that the dividend would increase along with our free cash flow. That’s why we are proposing a dividend of EUR 0.55 per share entitled to dividend – subject to the required Board resolutions and other statutory conditions – at the annual shareholders’ meeting. In addition, we are once again considering giving our shareholders the possibility to either receive the dividend as a cash payment or convert it into shares.

I can promise you one thing: We will do everything in our power to maintain the dynamic development of this past financial year in 2016 and to continue to grow profitably. We want to increase our revenue, adjusted EBITDA, and free cash flow significantly again. We also want to raise annual revenue by one to two percent on average between 2014 and 2018. Adjusted EBITDA should increase by an average of two to four percent annually during this period, and free cash flow by about 10 percent on average.

With everything we have achieved in the past year, however, we must also mind that we do not become carefree or inattentive. Success doesn’t fall from the sky; it is the result of hard work. That’s why we will go about achieving and successfully implementing our goals for 2016 in the same down-to-earth, serious-minded, and professional manner as before. Nothing will change in this respect – nor will the fact that in the end, the question that matters will be: How can we serve our customers with our products in the best possible way?

Yours sincerely,

Tim Höttges


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Scan picture with the app or watch the video at: www.annualreport.telekom.com

http://www.annualreport.telekom.com



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Niek Jan van DammeBoard member for Germany

Timotheus HöttgesChairman of the Board of Management

“Deutsche Telekom has a big responsibility – we are creating one of the most important conditions for the

future opportunities of Europe.”

“ In Germany, we drove forward the expansion of broadband access with every fiber there is in this company, and we will continue to do so.”

Reinhard ClemensBoard member for T-Systems

“In 2015, Germany clearly gathered momentum in the field of Industry 4.0.”

Scan pictures with the app or watch the videos at: www.annualreport.telekom.com




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Thomas KremerBoard member for Data Privacy, Legal Affairs and Compliance

Christian P. IllekBoard member for Human Resources

“ Digitization can only succeed with people, not against them. The basis for that is trust.”

“In the age of digitization, work will be completely reorganized. It will be important to put the human

being at the center of our thinking.”

“ Our Pan-European network makes IT processes much simpler, and our customers have great advantages, for example faster introduction of new products.”

“We are investing heavily in the future to support our customers’ digitization even better.”

Claudia NematBoard member for Europe and Technology

Thomas DannenfeldtBoard member for Finance

You can find our Board members’ profiles at:www.telekom.com/management-board

2 Letter from the Chairman of the Board of Management 4 The 2015 Board of Management of Deutsche Telekom AG 8 Ten questions from investors and




http://www.telekom.com/management-board

http://www.telekom.com/management-board


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Xavier Lefranc – UBS GLoBAL ASSET MAnAGEMEnT, InvESToR:

What do you find particularly remarkable about Deutsche Telekom as a company?

PoLo Tang – UBS, AnALyST:

In Germany and the USa in particular, you are making record-breaking investments – how do you intend to monetize these?

TimoTheUS höTTgeS:I think Deutsche Telekom is a very ambitious company, as we expressed in our goal to be the “leading European telecommunications provider.” We invest in our network and in innovation to provide the market-leading customer experience. At the same time, we are also pragmatic – for example when one of our businesses no longer fits into the strategy and we identify a better owner for it.

TimoTheUS höTTgeS:These are times in which very heavy investments are necessary to give rise to the gigabit society. Among other things, we are investing in spectrum and network capacity in the USA, and connecting 10 additional percentage points of German households to our fiber-optic network each year. We are also migrating our networks across Europe to all-IP, to provide a better and more efficient service to our customers. Despite these investments, we still manage to grow our free cash flow and thereby create the basis for higher dividends. In addition, 2015 has been a good year in terms of improving the capacity utilization of the new networks. In the US, we acquired 8.3 million new customers. In Germany, our landline losses were the lowest in more than a decade and we gained almost 2 million new customers for our fiber-optic network.





heike PaULS – CoMMERzBAnk AG, AnALyST:

What were the strategic reasons for selling t-online.de and InteractiveMedia to Ströer?

anne marie fLeUrbaaij – ToTAL RETURn GLoBAL, GIC (LonDon) PRIvATE LTD., InvESToR:

What is your vision for Europe? Do we need a consolidation of the market, and what will the role of Deutsche Telekom be?

PaUL marSch – BEREnBERG, AnALyST:

What does the future look like for your business in the USa? Is your long-term goal to exit the market due to the intensity

of competition and high investments there?

TimoTheUS höTTgeS:We believe that Ströer, one of Germany’s largest out-of-home and online advertising marketers, is the ideal partner for the long term. The idea is to combine digital content and advertising with the formats of outdoor advertising. This is a new business model in the competition. As the most important German portal, T-Online will become the main distributing brand for this and further strengthen our position on the market. We will benefit from the expected future value creation through our approximately 12-percent shareholding in Ströer. With this transaction, we prove that we are not dogmatic about ownership – especially when we see an opportunity to create value for our shareholders.

TimoTheUS höTTgeS:We believe that the European telecommunications market is too fragmented in a global context, and that a consolidation would also be useful at an international level. Unlike many of its competitors, however, Deutsche Telekom already has a large US operation and a presence in many European countries beyond its home market. Therefore, our priority is to increase the value of our existing businesses and leverage synergies within our existing footprint: with our perennial Pan-Net project in Europe, for instance, through which we want to virtualize, simplify, and centralize our network production. We also work on a standardized IT platform, and have begun to centralize our administrative services.

TimoTheUS höTTgeS:Our goal is to maximize the value of our shares in T-Mobile US for our shareholders. I’m very pleased with the great progress T-Mobile US has made in the last few years. Despite intense competition, 2015 has been another very strong year. We support the company’s plans to participate in the major auction for US broadcast-spectrum licenses. This shows that we strongly believe in the potential of T-Mobile US to achieve organic growth. At the same time, we believe that American consumers would benefit from a consolidation, and we remain open to value-enhancing deals.



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mandeeP Singh – REDBURn, AnALyST:

Do you feel that Deutsche Telekom and bT Group will grow closer together over time, and where do you see the greatest potential for cooperation? Should we interpret the large

shareholding as strategic – as something that could grow over time?

ingo SPeich – UnIon InvESTMEnT, InvESToR:

How significant do you think the issue of sustainable investment is?

TimoTheUS höTTgeS:We are very much looking forward to being the biggest shareholder in one of the best European telecommunications providers. We see many opportunities for enhancing value through the inte-gration of the Uk’s strongest landline operator and leading mobile communications provider to form the country’s largest integrated telecommunications firm. We can benefit from this indirectly through our 12-percent financial participation in BT. In addition, there are many areas in which we could cooperate. As we have demonstrated with our successful purchasing joint venture with Orange, many cooperation benefits can be achieved independently of any cross-shareholdings.

TimoTheUS höTTgeS:Deutsche Telekom has an exceptional societal responsibility and a role model function. This includes social responsibility, conservation of resources, and digital responsibility. For many years now, we have been involved in an intense dialog with investors who base their capital investments on social aspects and environmental criteria. To date, they are still a minority among our investors, but we are seeing a growing interest for these topics among our traditional investors as well. On the one hand, sustainable products and services offer new business opportunities. On the other hand, looking at some of our DAX-30 peers clearly shows that neglecting major sustainability issues can have very negative repercussions on a company and, ultimately, on its stock price. This is why I personally think it makes sense to integrate a sustainability screening into any investment strategy. By the way, Deutsche Telekom is present in the all of the major socially responsible investment (SRI) indices and keeps winning prestigious sustainability awards year after year. We also apply SRI criteria ourselves, for example in the investments of our own pension funds.

dominik kLarmann – HSBC, AnALyST:

Deutsche Telekom is investing heavily in fiber-optic networks and creating the basis for innovation and growth in an increasingly digital economy. What does the company need

from policymakers and regulators to justify those investments to its own investors?

TimoTheUS höTTgeS:If regulation was mainly based on price cuts in the past, it now increasingly takes into account investment incentives as well. This is the right way to go about creating a digital gigabit society as the basis for future prosperity. We will seize this opportunity, and have already begun to build significantly faster mobile and fixed-line communications networks. In 2015, 1.9 million additional homes in Germany benefited from the rollout of our fiber-optic network. Over the next few years, we want to provide high-speed Internet to more than 80 percent of German households. Our market-leading LTE network is almost nationwide and faster than any other mobile communications network. Of course our shareholders expect a fair return on these investments. For this, we need regulation that is consistent and predictable, and which prioritizes risk-taking, innovation, and investment over opportunism and short-term price cuts.





maThieU robiLLiard – BARCLAyS, AnALyST:

What is your strategy for the fiber-optic rollout? Are you successful in this area, and is it even sustainable?

heinrich ey – ALLIAnz GLoBAL InvESToRS, InvESToR:

How do you position yourself in the area of “data security and open platforms”? Do you see it as a risk or as an opportunity?

TimoTheUS höTTgeS:There are no good (“fiber-optic”) or bad (“copper cable”) technologies – there are only good and bad bandwidths! We have outstanding engineers who manage to achieve very high bandwidths with an economic and technological mix, by integrating our copper cable network into a fiber-optic infrastructure. The keyword here is super-vectoring: This enables speeds of over 250 megabits per second. The engineering prowess doesn’t even stop there – we are already achieving technical speeds of up to 11 gigabits per second at this time. Our strategy is to provide the highest speeds to the largest number of homes as quickly as possible, including in rural areas. We announced that we aim to reach four out of every five German households with our fiber-optic network by the end of 2018, but the recently announced public funding scheme should allow us to exceed this goal by a significant margin. With 1.9 million additional German homes in 2015 alone, we have now connected 4.4 million households to our fiber-optic network.

TimoTheUS höTTgeS:Clearly as an opportunity. Firstly, winning with partners is a pillar of our strategy, and open platforms are essential for that. Secondly, Deutsche Telekom is internationally recognized for its high data security and privacy standards. This is an important value we can offer our customers, and hence a business opportunity. Of course, our partners have to commit to a common set of rules – which, in this case, means meeting our high standards. One highlight of 2015 was our agreement with Microsoft, which will see us become the German data trustee for its new Microsoft Cloud offer in Germany. Microsoft will offer Azure, Office 365, and Dynamics CRM Online from two data centers in Germany, under a unique model that uses a data trustee to control access to customer data. The customer data will only be stored in Germany. In addition, we consolidated our activities in the field of data security in a new unit, “Telekom Security”, at the start of 2016.


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