Deutsche Telekom Q3/2017 Results

Deutsche Telekom Q3/2017 Results

DISCLAIMER This presentation contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. These forwardlooking statements include statements with regard to the expected development of revenue, earnings, profits from operations, depreciation and amortization, cash flows and personnel-related measures. You should consider them with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom s control. Among the factors that might influence our ability to achieve our objectives are the progress of our workforce reduction initiative and other cost-saving measures, and the impact of other significant strategic, labor or business initiatives, including acquisitions, dispositions and business combinations, and our network upgrade and expansion initiatives. In addition, stronger than expected competition, technological change, legal proceedings and regulatory developments, among other factors, may have a material adverse effect on our costs and revenue development. Further, the economic downturn in our markets, and changes in interest and currency exchange rates, may also have an impact on our business development and the availability of financing on favorable conditions. Changes to our expectations concerning future cash flows may lead to impairment write downs of assets carried at historical cost, which may materially affect our results at the group and operating segment levels. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, our actual performance may materially differ from the performance expressed or implied by forward-looking statements. We can offer no assurance that our estimates or expectations will be achieved. Without prejudice to existing obligations under capital market law, we do not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise. In addition to figures prepared in accordance with IFRS, Deutsche Telekom also presents alternative performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net income, free cash flow, gross debt and net debt. These alternative performance measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Alternative performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways. 2

REVIEW 9M/2017

9M/2017 Highlights: strong growth and raised guidance Investments and innovations 2/3 of customer base in GER and EU migrated to IP FTTH roll-out for business parks in Germany started Cash capex +12.2% to 9.2 billion 300Mbit/s Customers Demand for fiber in Germany unabated 8.9 million German homes with fiber (+45% yoy) 2.1 million net adds year to date Continued strong US growth 3.8 million net adds Financial results Strong growth continues Revenue up 4.2% yoy Adj. EBITDA up 6.6% yoy FCF up 8.8% yoy Net debt/adj. EBITDA at 2.3x EBITDA-Guidance raised 4

customers: Strong demand drives momentum MagentaEINS (Germany + EU) 1 US Mobile mn +1.6 mn +5.9 2 3.9 5.5 69.4 70.7 Fiber in Germany Cloud revenues mn +2.8 bn +14% 6.1 8.9 1.1 1.3 9M/16 9M/17 1) FMC RGUs may also appear under other brand name outside of Germany 2) Adj. for 4,528m wholesale customers no longer reported since 5

Innovations: Focus on customer experience Hybrid Access 1 Innovation/Network Service App subs 265k +34% 354k First 5G sites with 2GBit/s launched in Berlin 1 st network product launched on ngena platform visits 2.9m +24% 3.6m Smart Home 2 IT-Support 3 subs 109k +94% 211k StreamOn tariffs launched across Europe T-Mobile US launches Netflix on us subs 619k +4% 645k 1) +5 per customer/month 2) +10 per customer/month 3) +8 per customer/month 6

Financials and GUIDANCE 2017: growth again ahead of mid-term targets bn Revenue Adj. EBITDA FCF 2014 2018 CAGR 1 +1 2% +2 4% +10% Initial 2017 Guidance ($/ : 1.11) Increase Around 22.2 bn 2 Around 5.5 bn Revised Guidance per H1/17 ($/ : 1.11) Increase Around 22.3 bn 2 Around 5.5 bn NEW 2017 Guidance ($/ : 1.11) Increase Around 22.4 22.5 bn 2 Around 5.5 bn 9M/2017 performance +4.2% +6.6% +8.8% 1) 14-18 CAGRs as per CMD 2015 guidance 2) Handset lease and data stash $0.8 to 0.9 billion as per old guidance. $0.85 0.95 billion as per new guidance 7

REVIEW

Q3/2017: Financial Highlights mn Q3 9M 2016 2017 Change 2016 2017 Change Revenue 18,105 18,251 +0.8% 53,552 55,787 +4.2% Adj. EBITDA 5,535 5,720 +3.3% 16,155 17,215 +6.6% Adj. Net profit 1,040 1,244 +19.6% 3,141 3,382 +7.7% Net profit 1,053 507-51.9% 4,799 2,129-55.6% Adj. EPS (in ) 0.23 0.26 +13.0% 0.68 0.72 +5.9% Free cash flow 1 1,904 1,873-1.6% 4,046 4,403 +8.8% Cash capex 2 2,739 3,002 +9.6% 8,234 9,241 +12.2% Net debt 48,484 52,635 +8.6% 48,484 52,635 +8.6% 1) Free cash flow before dividend payments and spectrum investment 2) Excl. Spectrum: : 1,146 million; : 19 million; 9M/16: 2,250 million; 9M/17: 7,300 million 9

GERMANY: Strong growth in adj. ebitda Revenue reported mn Retail fixed 1 Wholesale services 5,485 5,565 Mobile Service Mobile handsets & other +0.1% 5,397 5,371 5,488 Others Adj. EBITDA and margin (in %) mn 38.2 36.2 38.4 39.1 39.9 +4.5% 2,095 2,013 2,070 2,100 2,190 2,394 2,434 2,392 2,385 2,379-0.6% Adj. OPEX 850 855 848 852 874 1,697 1,667 1,635 1,669 1,713 357 186 405 203 337 185 281 183 340 183 +2.8% +0.9% -4.8% -1.6% mn 3,448 3,630-2.5% 3,402 3,328 3,361 1) Fixed network core business 10

germany: turn-around in service revenues Mobile service revenue Fixed line service revenue 1 Total service revenue 1 0.2% -1.4% 2-0.8% 2-0.3% -0.8% 0.8% -1.2% 3-0.3% -0.6% -0.3% -0.7% -0.6% 3 0.9% 0.3% 0.5% 1) Total service revenue is a sum of fixed line and mobile service revenue. We define fixed line service revenue as fixed network core business revenue less fixed hardware revenue plus wholesale services fixed network revenue. From Q2/16 onwards we classify CPEs recurring rent revenue as fixed service revenue, and thus also part of total service revenue. Without this reclassification fixed line service revenue growth rate would be -0.1% in, whereas TSR growth rate would be +0.3% in. Old growth rates have not been restated 2) Revenue in Q3/15 impacted by a positive one-off effect in wholesale. Adjusted for this effect fixed line service revenue trend would have been -0.6%, total service revenue trend in would have been -0.3% 3) Revenue in Q2/16 impacted by a negative special factor related to a settlement agreement. Adjusted growth rate at -1.5% for fixed service revenue, resp. -0.8% for total service revenue 11

GERMANY mobile: steady commercial momentum German mobile market service revenue 1 Contract net adds 2 mn Telefonica Vodafone Telekom 000 4,636 1,394 4,532 1,349 4,426 1,292 4,479 1,318 ~4.6bn 1,344 1,545 1,516 1,499 1,492 1,697 1,667 1,635 1,669 1,713 609 514 464 334 145 180-3.6% X.X% Smartphone penetration 3 % +3pp 87 +0.9% 84 51 5 89-39 228-414 -186 368 231 137 LTE customers 4 000 8.7 +20.7% SPs/MVNOs (incl. Lebara) Own branded 10.5 1) Management estimate 2) Figures may not add up due to rounding 3) Of own branded retail customers 4) Own customers using a LTE-device and tariff plan including LTE 5) Contract net adds under own brand impacted by disconnections (minus 41k) 12

Germany: good progress with convergence and data Mobile contract customers in MagentaEINS bundles 1 Average Consumer Data Usage 3 40% 31% Growth yoy % MB 81% 87% 82% 61% 55% 1,360 1,554 1,000 1,200 1,244 Households in MagentaEINS bundles 2 Average LTE usage uplift 3 18% 14% MB x3.5 more 2,025 590 1) as % of B2C T-branded contract customers 2) as % of B2C broadband access lines 3) per month of B2C T-branded contract customers Non-LTE LTE handset & tariff 13

GERMANY Fixed: upselling drives broadband growth German broadband market 1 Entertain customers mn +65k +87k +67k +46k +70k Cable +41 +61 +76 +69 +65 31.9 32.2 32.6 32.7 33.0 2,818 2,879 2,955 3,024 3,089 7.1 12.0 12.8 7.3 12.0 12.9 7.4 12.1 13.0 7.5 12.2 13.0 7.6 12.3 13.1 Telco Competitors DT DT net adds 000 Line losses Fiber customers 2 000-98 -87-138 -171-125 000 +526 +674 +775 +622 +700 7,580 8,202 8,902 6,131 6,805 3,857 4,250 4,693 5,033 2,274 2,555 2,887 3,169 1,799 5,417 3,485 Retail Wholesale 1) Based on management estimates 2) Sum of all FTTx accesses (e.g. FTTC/VDSL, Vectoring and FTTH) 14

GERMANY fixed: fixed retail close to stable Fixed network revenue retail Broadband revenue mn Broadband revenues -0.6% Single play revenues Other revenues mn 1,306 1,310 +0.6% 1,314 1,313 1,314 312 317 328 334 342 Broadband 3P Broadband 2P 2,394 2,434 2,392 2,385 2,379 994 993 986 979 972 1,306 1,310 1,314 1,313 1,314 439 429 420 409 402 649 695 658 664 663 +0.6% Retail upsell strategy 1 +40% mn accesses +10% +2% 12.8 13.1 +2.2% 2.8 3.9 3.1 Broadband -8.4% Entertain 5.4 Fiber 1) Percentages calculated on exact figures 15

germany: network transformation on track INS Status LTE rollout POP Coverage in % 1 92% +1pp 93% INS Status fiber rollout 2 Coverage in % and millions of households 59% 25.1 +15% 28.8 68% Status IP accesses (retail & wholesale) mn +4.1 +3.6 16.1 12.0 8.6 Status IP accesses (retail & wholesale) % of lines 100 50 37 49 65 Q3/15 0 Q3/15 1) Outdoor coverage 2) In % of households within fixed network coverage in Germany 16

TMUS: continued industry leading growth Revenue and service revenue Net adds US-$ bn +6.5% +7.5% Total revenue Service revenue 000 Total net adds 1,970 2,101 1,142 1,333 1,329 9.2 7.0 10.2 7.1 9.6 7.2 10.2 7.3 9.9 7.4 Branded: Postpaid 969 1,197 914 817 817 Prepay 684 541 386 94 226 Wholesale 1 317 363-158 422 286 Adj. EBITDA and margin (in %) Branded customers: Postpaid phone and prepay ARPU US-$ bn 26.0 24.6 26.6 28.6 27.0 +11.4% 2.4 2.5 2.5 2.9 2.7 US-$ (US GAAP) 48.2 48.4 47.5 47.1 38.0 38.2 38.5 38.7 46.9 38.9 Phone Prepay 1) Wholesale includes MVNO and machine-to-machine (M2M). Amounts may not add up due to rounding 17

TMUS: executing on key drivers Branded postpaid phone churn Bad debt expenses & losses from sale of receivables % i% of total revenue 1.46 1.32 1.23 1.9 1.9 2.0 1.6 1.9 Q3/15 Branded postpaid phone churn further decreased Underlying trend of improvement unchanged 0.2pp of Q3 result driven by hurricanes Average 4G LTE speeds (in Mbps) Download 23.8 Verizon 22.8 AT&T 19.8 Sprint 29.3 T-Mobile Upload 8.6 Verizon AT&T Sprint 11.8 T-Mobile Based on T-Mobile s analysis of national LTE results from Ookla Speedtest data 7.1 4.2 Cost of service % of service revenue 22 21 21.9 20.1 20.9 0 Q3/15 Excl. hurricanes impact cost of service declined 20bps yoy 18

europe: positive commercial momentum Contract Net Adds BB Net Adds 000 165 310 225 1 372 265 000 54 69 2 56 81 47 FMC Net Adds TV Net Adds 000 144 180 130 3 175 167 000 49 61 2 51 56 44 1) Organic view adjusted for re-classifications in Austria and Slovakia. Change in customer base is 167k 2) Organic view: adjusted for 19k re-classifications in Hungary. Change in base is 50k. Q4 TV net adds adjusted for 22k re-classifications in Hungary. Change in base is 39k 3) organic view: adjusted for 137k re-classifications in Greece. Change in base is 267k 19

EUROPE: financials on track Revenue Organic revenue development mn 2,900 2,996 +1.6% 2,781 2,860 2,945 mn 2,900 0 25 2,925-68 +0.7% 104-16 2,945 Adj. EBITDA Cons./ Decons. Organic adj. EBITDA development FX Trad. Telco & Other Growth areas 1 Mobile regulation mn 1,037 930-2.9% 889 947 1,007 mn 1,037-27 10 1,020-75 -1.3% 62 1,007 1) Mobile Data, Pay TV & fixed broadband, B2B/ICT, adjacent industries (online consumer services, energy and other) 2) Total Revenue Direct Cost Cons./ Decons. FX Contribution Margin 2 Indirect cost savings and other 20

EUROPE: ongoing investments in network leadership IP migration LTE rollout IP share of fixed network access lines % +11pp LTE outdoor pop coverage mn and % 85 105 55 66 75% 93% Customer base 1 Fiber rollout 1 mn 4.0 +4.6% +4.3% +4.5% 24.0 5.7 4.2 5.9 25.1 TV Broadband Mobile Contract Fiber household coverage % 24 +6pp 30 1) 100Mbit/s -coverage: FTTH, FTTB, FTTC (with Vectoring), cable/ed3. Broadband also incl. wholesale customers 21

SYSTEMS SOLUTIONS: results remain mixed T-Systems financials Revenue mn Total revenue Adj. EBITDA mn 1,674 1,741 +2.0% 1,704 1,688 1,707 +2.0% -5.8% 1,674 1,707 139 131 Adj. EBIT and margin in % mn 2.2 37-1.5-0.1 2.4 2.2 41 38-26 -2 22

Segment Group development: towers in transition, dutch commercial performance remains strong Revenue Mobile service revenue trend yoy (NL) mn 557 579-2.2% 564 562 332 356 341 345 327 221 4 218 5 217 6 213 4 217 NL Towers 545 Other 1 1 % -9.7-1.3-0.9 0.9-5.2 Adj. EBITDA Contract net adds (NL) mn -7.9% 000 239 201 230 236 220 91 77 110 119 98 54 71 69 61 66 156 133 124 126 126-8 -9-4 -9-4 1) Strato was deconsolidated in. Historic figures are also adjusted for Strato 23

FINANCIALs: FCF, Net debt, and net income Free cash flow 1 Adj. net income mn mn -1.6% 1,904 1,873 47-263 185 1,040 185 41 +19.6% 188-121 -90 1,244 Cash gen. from operations Net debt development Capex (excl. spectrum) Interest & Other Adj. EBITDA Financial result D&A Taxes Minorities bn 55.2-1.9 0.1 0.1-0.9 52.6 Free cash flow 1 Dividends Derivatives Others (incl. F/X) 1) Free cash flow before dividend payments and excl. Spectrum (: 1,145 million; : 19 million) 24

FINANCIALS: balance sheet ratios in target corridor bn 30/09/2016 31/12/2016 31/03/2017 30/06/2017 30/09/2017 Balance sheet total 143.1 148.5 148.6 141.5 139.8 Shareholders equity 37.6 38.8 39.8 38.6 39.1 Net debt 48.5 50.0 50.0 55.2 52.6 Net debt/adj. EBITDA 1 2.3 2.3 2.3 2.5 2.3 Equity ratio 26.3% 26.2% 26.8% 27.3% 27.9% Comfort zone ratios Rating: A-/BBB 2 2.5x net debt/adj. EBITDA 25 35% equity ratio Current rating Fitch: BBB+ stable outlook Moody s: Baa1 stable outlook S&P: BBB+ stable outlook Liquidity reserve covers redemption of the next 24 months 1) Ratios for the interim quarters calculated on the basis of previous 4 quarters 25

Executing our strategy 1 Leading European Telco: Integrated market leader with superior margins and returns. 2 We strengthen our differentiation by best customer experience and by continuously investing into leading access networks and our transformation programs. 3 We transform towards a lean and highly agile IP production. 4 We are self-funding DT s transformation by disciplined cost management. 5 We will grow in all relevant financial KPI s (ROCE, Revenue, EBITDA, FCF). 6 Our shareholders will participate with growth of dividends following FCF growth and our prudent debt policy remains unchanged. 26

Conference call with q&a Session The conference call will be held on November 9 at 2:00 PM CET, 1:00 PM GMT, 8 AM ET. DT Participants: Tim Hoettges (CEO), Thomas Dannenfeldt (CFO), Hannes Wittig (Head of IR) Webcast The link to the webcast will be provided here 20 minutes before the call starts: www.telekom.com/17q3 To ask a question, just type your question into the box below the stream. We webcast in HD Voice Quality The recording will be uploaded to YouTube after the call. Dial-in DE 0800 9656288 code 69447490# UK 0800 0515931 + code 69447490# US +1 866 7192729 + code 69447490# Other +49 69 271340801 code 69447490# + + To ask a questions, please press star one on your touchtone telephone. Your name will be announced when it s your turn to ask a question. Should you require to cancel your question, please press star two. 27

FURTHER QUESTIONS PLEASE CONTACT THE IR DEPARTMENT Investor Relations Contact details Phone +49 228 181 8 88 80 E-Mail investor.relations@telekom.de Contact details for all IR representatives: www.telekom.com/ircontacts IR Webpage www.telekom.com/investors IR Twitter Account www.twitter.com/dt_ir IR YouTube Channel http://www.telekom.com/youtube_ir Follow us on @DT_IR 28

Appendix

OUR strategy LEADING EUROPEAN TELCO INTEGRATED IP NETWORKS BEST CUSTOMER EXPERIENCE WIN WITH PARTNERS LEAD IN BUSINESS TRANSFORM PORTFOLIO EVOLVE FINANCIAL TARGETS & EFFICIENCY ENCOURAGE LEADERSHIP & PERFORMANCE DEVELOPMENT 30

germany mobile: service revenue Reported mobile service revenue Impact of mobile regulation 1 Impact of convergent offers 2 0.2% -0.3% -0.8% 0.8% 0.9% 2.3% 1.9% 2.2% 1.7% 2.8% 1.0% 0.9% 0.8% 0.8% 0.7% Medium term guidance (2014 2018 CAGR): Re-iterated +1% (without EU roaming impact) 1) Impact of MTR and EU Roaming regulation 2) Impact of MagentaEINS and Telekom LTE broadband 31

german Fixed: service revenue Growth rates YOY Wholesale revenue Broadband revenue Fixed line service revenue 1 0.5% 2 2.3% 0.0% -0.4% 3 1.7% 1.6% 1.4% 0.8% -1.4% 2-0.3% 3-0.6% -1.2% 3 2.8% 0.6% 0.3% Medium term guidance (2014 2018 CAGR): Re-iterated +0.0% +2.0% 1) Fixed network core business revenue less fixed hardware revenue plus wholesale services fixed network revenue. From Q2/16 onwards we classify CPEs recurring rent revenue as fixed service revenue. Without this reclassification fixed line service revenue growth rate would be -0.1% in. Prior quarters growth rates have not been restated 2) Revenue in Q3/15 impacted by a positive one-off effect in wholesale. Adjusted for this effect wholesale revenue trend would have been +3.5%, fixed line service revenue trend in would have been -0.6% 3) Revenue in impacted by a negative special factor related to a settlement agreement. Adjusted growth rate at -1.5% for wholesale revenue, resp. -1.5% for fixed line service revenue. 32

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