Deutsche Telekom AG - The 2009 financial year

Connected life and work with innovative products and network infrastructure. Deutsche Telekom intends to add further convergence products to its product portfolio in the context of connected life and work and increase the number of high-value customer relationships over the long term. Investment priorities in Germany are growth and innovation, particularly the further integrated and value-enhanced broadband expansion in fixed-network and mobile communications as well as quality and service initiatives. The Germany operating segment is affected by continuing intense compe- tition and regulatory measures. Packages consisting of fixed-network and mobile communications products for business customers were presented for the first time at CeBIT 2009. These Business Bundles enable seamless, efficient interaction between mobile and fixed-network information and communication and are aimed at the self-employed, small companies, and medium-sized and large enter- prises. Fixed network. Since 2006, Deutsche Telekom’s fixed-network operations have offered products that combine telephony with Web surfing and tele- vision. The individual packages have been continuously refined, geared towards customers’ needs, and their bandwidths increased. Deutsche Telekom launched its new LIGA total! product range in the 2009 financial year. With Entertain, the Deutsche Telekom Group’s German IPTV product, customers can now watch all first- and second-division Bundesliga soccer matches on television for an additional charge. The Entertain Pur package, which was launched in late 2009, consists purely of TV and voice services. The product range is complemented by the Scout group’s and Load family’s download portals such as Gamesload, Softwareload, Videoload and Musicload which, according to the market research company Gesellschaft für Konsumforschung (GfK), ranked very highly in German customer evaluation surveys. Since April 2009, customers have been able to use the new terminal equip- ment service package. For a low monthly flat rate, customers receive the latest terminal devices and a comprehensive package of services including software updates, remote maintenance and installation support, plus a lifelong equipment warranty. Stable results in a challenging economic environment. In the 2009 financial year, despite the difficult economic environment Deutsche Telekom achieved its guidance for adjusted EBITDA (excluding OTE), which it had revised in April 2009, of between 2 and 4 percent below prior-year level. Deutsche Telekom generated a year-on-year net revenue increase of EUR 2.9 billion or 4.8 percent. The first-time full consolidation of the Greek company Hellenic Telecommunications S.A., Athens, Greece (OTE) was the primary driver behind this increase, contributing EUR 5.4 billion. Adjusted for the effects of changes in the consolidated group (EUR 5.5 bil- lion) and negative exchange rate effects (EUR 0.4 billion), net revenue decreased compared with the prior year in the face of a challenging economic environment. The proportion of net revenue generated outside Germany increased to 56.6 percent (2008: 53.2 percent). While the Group’s revenue in the United States and Southern and Eastern Europe operating segments increased, revenue in the Germany, Europe and Systems Solutions operating seg- ments declined. Group EBITDA generated by Deutsche Telekom in the 2009 financial year totaled EUR 19.9 billion (2008: EUR 18.0 billion). Adjusted EBITDA totaled EUR 20.7 billion in the 2009 financial year (2008: EUR 19.5 billion). OTE, which was fully consolidated for the first time, contributed EUR 2.0 billion to both EBITDA and adjusted EBITDA. In the 2009 financial year, EBITDA was negatively affected by special factors totaling EUR 0.8 billion. These special factors primarily consisted of expenses for staff-related measures and non-staff-related restructuring in the Germany and Systems Solutions operating segments. Deutsche Telekom generated a net profit of EUR 0.4 billion in the 2009 financial year, compared with EUR 1.5 billion in the prior-year period. This decrease is mainly attributable to higher levels of depreciation, amortiza- tion and impairment losses, primarily as a result of impairment losses on goodwill. Adjusted net profit amounted to EUR 3.4 billion. Free cash flow (before dividend payments and including OTE) of EUR 7.0 bil- lion remained at prior-year level. While cash generated from operations increased slightly, cash outflows for intangible assets and property, plant and equipment also increased. Deutsche Telekom Group management report. 52