Expectations for the Group

Expectations up to 2021. We expect profitable growth to continue over the next two years. Revenue and adjusted EBITDA AL are expected to rise at the Group level in 2020 – providing a good basis to achieve our financial ambitions through 2021 as communicated at our 2018 Capital Markets Day.

We expect our financial performance indicators to develop as follows in 2020 and 2021:

• Revenue should increase year-on-year in 2020 and also continue to rise slightly in 2021. This forecast is based on a slight increase in revenue in the Germany operating segment and on rigorous implementation of the Un-carrier strategy in our United States operating segment. Our other operating segments will also contribute to revenue growth in 2020 and 2021.
• Adjusted EBITDA AL is expected to come in at around EUR 25.5 billion in 2020 and to rise further in 2021 due to the expected upward trend in revenue and planned cost savings. All operating segments will contribute to growth in both years of the forecast.
• EBITDA AL is likely to increase in 2020 compared with the prior year, and expected to rise further in 2021. EBIT is also expected to increase in 2020 and 2021 on account of the above-mentioned expected upward trend in revenue and planned cost savings.
• The return on capital employed (ROCE) is likely to increase slightly in 2020. This confirms that we are well on track for ROCE to be higher than the expected weighted average cost of capital (WACC) and hence to fulfill the promise we made at the 2018 Capital Markets Day.
• Our investments – measured in terms of cash capex (before spectrum investment) – are expected to amount to around EUR 13.0 billion in 2020. We want to continue investing heavily in building out our network infrastructure in Germany, the United States, and Europe in order to safeguard our technology leadership in the long term. Consequently, our cash capex is likely to remain stable relative to 2019.
• Free cash flow AL³¹ (before dividend payments and spectrum investment) is expected to reach around EUR 8.0 billion in 2020 and to rise further in 2021. Free cash flow should make a contribution toward keeping our relative debt – expressed as the ratio of net debt to adjusted EBITDA – within the target corridor of 2.25 to 2.75x in 2020 and 2021. In the reporting year, the target corridor shifted from 2.00 to 2.50x to 2.25 to 2.75x due to application of the IFRS 16 accounting standard.
• At the end of 2019, we had the following ratings: BBB+ (Standard & Poor’s – S&P); negative (CreditWatch); BBB+ with a stable outlook (Fitch); and Baa1 with a negative outlook (Moody’s). We therefore continue to be a solid investment-grade company. S&P also announced that it would likely lower Deutsche Telekom AG’s rating to BBB in the event of a business combination between T‑Mobile US and Sprint. Maintaining an investment grade rating within the A– to BBB range will enable us to retain unrestricted access to the international capital markets and is thus a key component of our finance strategy.

¹ Free cash flow AL for 2020, excluding the interest component from the repayment of Deutsche Bundespost treasury notes (zero-coupon bonds) falling due and the potential market value realization of interest rate swaps entered into by T‑Mobile US to hedge interest rates.

Our debt issuance program puts us in a position to place issues in the international capital markets at short notice, while our commercial paper program enables us to issue short-term papers in the money market. Our finance strategy continues to include a liquidity reserve that, at any given time, covers at least our capital market maturities over the next 24 months.

Bonds and loans in the amount of EUR 4.5 billion and EUR 5.1 billion will fall due for repayment in 2020 and 2021, respectively. In order to refinance our maturities and maintain the liquidity reserve, we plan to issue new bonds in various currencies. In January 2020, for example, we issued a U.S. dollar bond with a volume of USD 1.25 billion and a term of 30 years. The business combination between T‑Mobile US and Sprint would result in the early repayment of intragroup loans of USD 8 billion by T‑Mobile US to Deutsche Telekom AG, which would significantly influence refinancing requirements. Further financing transactions are thus dependent firstly on the approval of the business combination of T‑Mobile US and Sprint, and secondly on trends in the international financial markets. We also intend to cover part of our liquidity requirements by issuing commercial paper.

We want to continue leveraging economies of scale and synergies through suitable partnerships or appropriate acquisitions in our footprint markets. There are no plans, however, to expand into emerging markets. We will continue to subject our existing partnerships and equity investments to regular strategic reassessments with a view to maximizing the value of our Company.

Our expectations for the period until 2021 for the Group and the operating segments as regards our financial and non-financial performance indicators are shown in the following tables. They assume a comparable consolidated group and constant exchange rates. If the economic situation should deteriorate or any unforeseen state or regulatory interventions arise, the expectations expressed here may change accordingly. All trends denote year-on-year changes. To indicate the intensity and trends of our forecasts, we apply the following assessment matrix: strong decrease, decrease, slight decrease, stable trend, slight increase, increase, strong increase.

For further information on the development of the non-financial performance indicators of our operating segments, please refer to the section “Expectations for the operating segments.”

In both 2020 and 2021, we intend to achieve a moderate improvement in customer loyalty/satisfaction – which is measured using the TRI*M index performance indicator.

Having achieved a high level of 4.0 – on a scale of 1.0 to 5.0 – on the commitment index in the 2019 employee survey, and in view of the results of the pulse surveys conducted in 2019, we expect the positive response of our employees regarding our Company to remain stable in the next employee survey in 2021.

For further information on our ESG KPIs and our expectations, please refer to the section “Corporate responsibility and non-financial statement.”

Our planning is based on the following exchange rates:

Expectations for Deutsche Telekom AG. The development of business at Deutsche Telekom AG, the Group’s parent company, is reflected particularly in its service relationships with its subsidiaries, the results of the subsidiaries’ domestic reporting units, and other income from subsidiaries, and from associated and related companies. In other words, our subsidiaries’ results from operations and the opportunities and challenges they face are key factors shaping the future development of Deutsche Telekom AG’s figures. Accordingly, in addition to our expectations for the Group, the expectations described on the following pages concerning the operating segments’ revenue and earnings – such as strong competition, regulatory intervention, market and economic expectations, etc. – have an impact on our expectations concerning the development of Deutsche Telekom AG’s future income after taxes.

For the 2019 financial year, we will propose a dividend of EUR 0.60 per dividend-bearing share, which will also serve as a baseline for the dividend going forward. Since the 2019 financial year, the dividend has reflected relative growth in adjusted earnings per share. Based on the aforementioned expectations for our operating segments and the resulting effects, and taking existing retained earnings into account, Deutsche Telekom AG expects to distribute a dividend of at least EUR 0.60 per dividend-bearing share for each of the coming financial years, subject to approval by the relevant bodies and the fulfillment of other legal requirements. This applies irrespective of the successful closing of the business combination of T‑Mobile US and Sprint.

³ Free cash flow AL for 2020, excluding the interest component from the repayment of Deutsche Bundespost treasury notes (zero-coupon bonds) falling due and the potential market value realization of interest rate swaps entered into by T‑Mobile US to hedge interest rates.