Half-Year Financial Report Deutsche Telekom AG
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H1 08 Interim Group Report January 1 to June 30, 2008 Deutsche Telekom at a glance. At a glance Second quarter of 2008 First half of 2008 Q2 Q2 Change H1 H1 Change FY 2008 2007 2008 2007 2007 millions millions millions millions millions of € of €a % of € of €a % of €a Net revenue 15,125 15,575 (2.9) 30,103 31,028 (3.0) 62,516 Domestic 7,184 7,624 (5.8) 14,438 15,417 (6.4) 30,694 International 7,941 7,951 (0.1) 15,665 15,611 0.3 31,822 EBIT (profit from operations) 1,868 2,043 (8.6) 4,166 3,838 8.5 5,286 Special factors affecting EBITb (294) (89) n.a. (25) (228) 89.0 (2,801) Adjusted EBITb 2,162 2,132 1.4 4,191 4,066 3.1 8,087 Adjusted EBIT marginb (%) 14.3 13.7 13.9 13.1 12.9 Profit (loss) from financial activities (976) (789) (23.7) (1,653) (1,534) (7.8) (2,833) Profit before income taxes 892 1,254 (28.9) 2,513 2,304 9.1 2,453 Depreciation, amortization and impairment losses (2,698) (2,770) 2.6 (5,355) (5,518) 3.0 (11,611) EBITDAc 4,566 4,813 (5.1) 9,521 9,356 1.8 16,897 Special factors affecting EBITDAb,c (284) (89) n.a. (15) (228) 93.4 (2,429) Adjusted EBITDAb,c 4,850 4,902 (1.1) 9,536 9,584 (0.5) 19,326 Adjusted EBITDA marginb,c (%) 32.1 31.5 31.7 30.9 30.9 Net profit 394 604 (34.8) 1,318 1,065 23.8 571 Special factorsb (239) 34 n.a. (65) (70) 7.1 (2,434) Adjusted net profitb 633 570 11.1 1,383 1,135 21.9 3,005 Earnings per share/ADSd basic/diluted (€) 0.09 0.14 (35.7) 0.30 0.25 20.0 0.13 Cash capexe (1,837) (1,584) (16.0) (3,629) (3,607) (0.6) (8,015) Net cash from operating activities 3,682 3,150 16.9 7,013 5,215 34.5 13,714 Free cash flow (before dividend payments) 1,963 1,751 12.1 3,592 2,271 58.2 6,581 Equity ratiof (%) - - 35.1 36.6 34.7 Net debtg - - 40,559 40,357 0.5 37,236 June 30, Mar. 31, Change Dec. 31, Change June 30, Change 2008 2008 June 30, 2007 June 30, 2007 June 30, 2008/ 2008/ 2008/ Mar. 31, Dec. 31, June 30, 2008 2007 2007 % % % Number of Deutsche Telekom Group 235,794 237,757 (0.8) 241,426 (2.3) 242,703 (2.8) employees at Non-civil servants 202,151 202,586 (0.2) 205,867 (1.8) 204,108 (1.0) bal ance sheet Civil servants 33,643 35,171 (4.3) 35,559 (5.4) 38,595 (12.8) date Number of fixed- Fixed network linesh (millions) 35.2 35.9 (1.9) 36.6 (3.8) 37.7 (6.6) network and Broadband linesi (millions) 14.6 14.4 1.4 13.9 5.0 12.7 15.0 mobile customers Mobile customersj (millions) 125.0 123.1 1.5 120.8 3.5 115.0 8.7 a Comparative periods adjusted. Accounting change in accordance with IFRIC 12. For explanations, please refer to “Selected explanatory notes/ Accounting policies.” b For a detailed explanation of the special factors affecting EBIT, adjusted EBIT, the adjusted EBIT margin, and the special factors affecting EBITDA, adjusted EBITDA, the adjusted EBITDA margin and special factors affecting net profit/loss after income taxes and the adjusted net profit, please refer to “Reconciliation of pro forma figures,” page 77 et seq. c Deutsche Telekom defines EBITDA as profit/loss from operations excluding depreciation, amortization and impairment losses. d One ADS (American Depositary Share) corresponds to one ordinary share of Deutsche Telekom AG. e Investments in property, plant and equipment, and intangible assets (excluding goodwill) as shown in the cash flow statement. In the first half of 2007 and in the full year 2007 these include investments totaling EUR 112 million for parts of Centrica PLC taken over by T-Systems UK in connection with an asset deal. f Based on shareholders’ equity excluding amounts earmarked for dividend payments, which are treated as current liabilities. g For detailed information and calculations, please refer to “Reconciliation of pro forma figures,” page 82. h Fixed-network lines in operation. Telephone lines excluding internal use and public telecommunications, including wholesale services. i Broadband lines in operation, including Germany and Eastern Europe. The prior-year figures were adjusted to reflect the deconsolidation of T-Online France S.A.S. and T-Online Spain S.A.U. j Number of customers of the fully consolidated mobile communications companies of the Mobile Communications Europe (including Virgin Mobile) and Mobile Communications USA segments. Orange Nederland and SunCom customers were also included in the historic customer base. Contents. To our shareholders n Developments in the Group 4 n T-Share price performance 5 n Corporate governance 6 Half-year financial report n Interim Group management report 7 n Highlights 7 n Overall economic situation/industry situation 11 n Group strategy 13 n Development of business in the Group 16 n Development of business in the operating segments 22 n Risks and opportunities 40 n Outlook 42 n Interim consolidated financial statements 48 n Consolidated income statement 48 n Consolidated balance sheet 49 n Consolidated cash flow statement 50 n Statement of recognized income and expense 51 n Selected explanatory notes 52 n Responsibility statement 75 n Review report 76 Further information n Reconciliation of pro forma figures 77 n Investor Relations calendar 83 n Glossary 84 n Disclaimer 86 4| Developments in the Group. n Net revenue for the first half of 2008, impacted by negative exchange rate effects amounting to EUR 1.2 billion, was EUR 30.1 billion compared with EUR 31.0 billion for the first six months of 2007. n Domestic net revenue was EUR 14.4 billion after EUR 15.4 billion in the first half of 2007. International net revenue increased only slightly year-on-year from EUR 15.6 billion to EUR 15.7 billion due to negative exchange rate effects. n Group EBITDA increased by 1.8 percent from EUR 9.4 billion to EUR 9.5 billion. Group EBITDA adjusted for special factors1 in the first six months of 2008 decreased year-on-year by 0.5 percent to EUR 9.5 billion. n Net profit increased from EUR 1.1 billion to EUR 1.3 billion. Net profit adjusted for special factors1 amounted to EUR 1.4 billion compared with EUR 1.1 billion for the first half of 2007. n Free cash flow2 before dividend payments increased to EUR 3.6 billion compared with EUR 2.3 billion in the first half of 2007. n Net debt3 increased by EUR 3.3 billion compared with the end of 2007 to EUR 40.6 billion, predominantly as a result of the acquisition of SunCom and the acquisition of shares in the Hellenic Telecommunications S.A., Athens, Greece (OTE) and dividend payments. Development of the operating segments in the first half of 2008: n The number of mobile customers4 rose by 3.5 percent compared with the end of 2007 from 120.8 million to a total of 125.0 million. n The number of broadband lines rose by 0.7 million compared with the end of 2007, reaching a total of 14.6 mil- lion. The number of fixed lines in the Broadband/Fixed Network segment was 35.2 million compared with around 36.6 million as of December 31, 2007. n The Business Customers operating segment maintained its position as one of Europe’s leading ICT providers. Adjusted for deconsolidations, new orders increased by 9.7 percent year-on-year. 1 For a detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and special factors affecting net profit/loss after income taxes and the adjusted net profit, please refer to “Reconciliation of pro forma figures,” page 77 et seq. 2 For the calculation of free cash flow, please refer to “Reconciliation of pro forma figures,” page 81. 3 For detailed information and calculations, please refer to “Reconciliation of pro forma figures,” page 82. 4 Organic customer growth is reported for better comparability: Orange Nederland and SunCom customers were also included in the historic customer base. T-Share price perfomance 4|5 T-Share price performance. Performance % of the T-Share 5 Jan. 2 – June 30, 0 2008 -5 -10 -15 -20 -25 Deutsche Telekom -30 DAX Dow Jones STOXX -35 Telecommunications© Jan. 2, 2008 Feb. 1, 2008 Mar. 1, 2008 Apr. 1, 2008 May 1, 2008 June 1, 2008 June 30, 2008 June 30, 2008 June 30, 2007 Dec. 31, 2007 Xetra closing prices (€) Exchange price at the balance sheet date 10.40 13.69 15.02 High (in the first six months) 15.55 14.35 15.28 Low (in the first six months) 10.02 12.49 12.18 Weighting of the T-Share in major stock indexes DAX 30 (%) 5.1 4.7 5.3 Dow Jones STOXX Telecommunications© (%) 8.9 9.3 9.4 Market capitalization (billions of €) 45.4 59.7 65.5 Shares issued (millions) 4,361.32 4,361.19 4,361.29 Stock markets continued to lose ground at the end of the European telecommunications stocks were also hit by first half of the year following a short-lived recovery in April the turbulence on the international capital markets.