Outlook & Financial strategy

Outlook
Forecast

For 2019, we expect the following year-on-year growth – based on a comparable scope of consolidation and constant exchange rates:
- Our sales are expected to continue to increase slightly in 2019.
- Adjusted EBITDA in 2019 is expected to be around €23.9 billion, compared with €23.2 billion in 2018.
- Free cash flow is expected to grow to around €6.7 billion in 2019, compared with €6.0 billion in 2018.

Dividend
For the fiscal year 2019 (to be paid out in 2020) the dividend will be based on the development of earnings per share. The earnings per share was € 0.96 in 2018 and is expected to be € 1.2 in 2021. The final dividend proposal will be made in February 2020 together with the financial figures for 2019. As in previous years, the dividend distribution is tax-free.

^{2 Subject to the approval of the Annual General Meeting}

Operations:

Germany: We continue to work on out comprehensive transformation program with the goal to secure our position on the market as the leading integrated telecommunications provider. In our Germany operating segment, we continue to work on our comprehensive transformation program and aim to secure our market position as the leading integrated telecommunications provider in Germany through innovative, competitive offers. We plan to largely complete the IP migration in Germany by the end of 2019 and to continue the infrastructure build-out of our high-performance networks. We will increasingly reduce the complexity of our products and processes through automation and digitalization initiatives and ensure greater end-to-end responsibility so as to offer the best service and best customer experience.

USA: In 2019, T-Mobile US will continue to execute on its Un-carrier promise to deliver the best value experience in the U.S. wireless industry. Key elements of the Un-carrier promise include delivering distinctive value for consumers in all customer segments by eliminating customer pain points and providing excellent 4G/LTE services as well as continuing to build out its 5G network. Additionally, the Un-carrier initiatives focus on attracting and retaining a loyal customer base by offering devices when and how customers want them, and plans that are simple, affordable, and without unnecessary restrictions to deliver the best value in wireless..

Europe: Over the next two years, we want to become the leading provider of convergent product offers and services based on fixed-network and mobile communications (FMC). We also plan to play a decisive role in shaping the digital transformation by offering intelligent solutions for households, our business customers, and municipalities on the basis of an integrated IP network comprising a range of technologies.

System Solutions: Under the program to transform our Systems Solutions business launched at the start of 2018, we have realigned our organization and processes, developed a new strategy for our portfolio, and created three product clusters. Overall, ten portfolio units and an emerging business unit will now be responsible for both our traditional IT and telecommunications business and our growth areas.

Financial strategy
Deutsche Telekom’s corporate strategy is supported by a financial strategy, which focuses on three key aspects.

1. Attractive Payout-Policy for Shareholders
In recent years we have continuously increased the dividend (2018: € 0.70; 2017 € 0.65; 2016 € 0.60; 2015 € 0.55ct; 2014 € 0.50ct). In the coming years, the dividend trend will be based on the development of adjusted earnings per share. The starting point for this is the 2018 fiscal year, in which we generated adjusted earnings per share of € 0.96. The dividend will be paid out in the form of a dividend. Our target for adjusted earnings per share is € 1.2 for fiscal year 2021, with a garanteed minimum dividend of € 0.50 per share.  The continuous growth of the dividend in recent years demonstrates Deutsche Telekom's high level of reliability.

^{* Subject to the resolution of the Annual General Meeting}

2. Security for providers of debt capital
Deutsche Telekom seeks to have undisputed access to the debt capital markets at any time. Solid balance sheet ratios are meant to guarantee this access. Therefore Deutsche Telekom sets itself the following comfort zone targets/ratios:

Rating: A-/BBB

Ratio net debt/adj. EBITDA: 2.25 – 2.75x

Equity ratio: 25-35%

Liquidity reserve covering maturities of coming 24 months

3. Increase of Return on Capital Employed
The Finance Strategy supports the group wide transformation project to become the Leading European Telco. We want to become quality leader in our domestic market both in terms of mobile communication and fixed networks. The financial strategy, which supports the sustainable increase in value has a focus on the following three aspects:

Return on Capital Employed: We aim to increase return on capital employed in the long-term. For the fiscal year 2018 we recorded a ROCE of 4.7 percent. Our ambition for 2021 is a return on capital employed that exceeds the cost of capital (ROCE>WACC).

Portfolio Management: We continue to focus on our core business, but at the same time, retain a presence in growth areas with strong partners.

Equity ratio: 25-35%

Liquidity reserve covering maturities of coming 24 months