Deutsche Telekom confirms guidance for the year and dividend statement after solid quarterly figures

Deutsche Telekom recorded stable earnings and a solid growth trend in free cash flow in the second quarter of 2012. On the back of this performance, the Board of Management has confirmed its guidance for the full year 2012: adjusted EBITDA of around EUR 18 billion and free cash flow of around EUR 6 billion. Plans for a minimum dividend payment of EUR 0.70 per share for the 2012 financial year remain unchanged. "We are keeping our word and providing a good deal of reliability to the market with very solid figures," said René Obermann, CEO of Deutsche Telekom. "We do of course continue to face a number of challenges, but we are performing very respectably compared with our competitors." The Group's adjusted EBITDA from April to June remained unchanged year-on-year at EUR 4.7 billion. Revenue also remained practically stable, declining 0.7 percent to EUR 14.4 billion, and this in turn saw the adjusted EBITDA margin improve to 32.7 percent compared with 32.4 percent in the second quarter of 2011. Free cash flow in the second quarter came in at EUR 1.7 billion, a year-on-year decrease of around 5.6 percent. Looking at the first half of the year, adjusted EBITDA stood at EUR 9.2 billion, the exact same level as the prior-year period. This was also the case for free cash flow, which came in at EUR 2.8 billion. Excluding exchange-rate effects, which had a positive impact in the case of the U.S. dollar and a negative impact in the case of the zloty and the forint, there was a slight decline of EUR 0.1 billion in adjusted EBITDA for the first half of the year. Reported net profit increased by 76.4 percent in the second quarter of 2012 to EUR 614 million, benefiting from a year-on-year decline in special factors of around two thirds to EUR 0.2 billion in the second quarter. The largest individual factor was the recognition of provisions in the second quarter of 2011 for the early retirement programs in the Germany segment which the Group is using as a means of carrying out socially-responsible staff restructuring. Adjusted net profit declined 13.9 percent in the second quarter of 2012 to EUR 819 million. This figure was negatively impacted by the charging of regular depreciation and amortization of EUR 0.6 billion again at T-Mobile USA in the second quarter of 2012, in accordance with accounting rules. Due to the planned sale of T-Mobile USA to AT&T and the resulting reclassification of T-Mobile USA as required by the applicable accounting standards, depreciation and amortization was not charged in the second quarter of the previous year, but rather retrospectively in the fourth quarter of that year. At EUR 3.8 billion, the Group invested 5.1 percent less in terms of cash capex in the first half of 2012 than in the prior-year period, representing a slight decline. All key balance sheet ratios remained solid. At the end of the quarter, net debt stood at EUR 41.0 billion, EUR 2.3 billion less than on June 30, 2011. Germany - growth in customer numbers and profitabilit The second quarter in Germany was marked by strong growth with the television service Entertain, with the number of users climbing to 1.8 million, 40.7 percent more than in the prior-year period. Over 100,000 new customers signed up for this future-oriented television service in the second quarter alone. The mobile contract customer base grew by 464,000 customers in the past quarter. Most of these new customers were added in the reseller segment, which generates lower average revenues per user. The number of line losses fell to a record low once again, dropping to 236,000 between April and June. This represents a year-on-year decrease of 20 percent. Turning to financial figures, the Germany operating segment further increased profitability. The adjusted EBITDA margin climbed 0.4 percentage points year-on-year to 42.0 percent in the second quarter of 2012. While revenue declined by 3.1 percent to EUR 5.6 billion, adjusted EBITDA from business in Germany decreased by 2.2 percent to EUR 2.4 billion due to higher investments in the market. Service revenues in mobile communications were once again unsatisfactory, with a 1.0-percent decline. However, the year-on-year decline was smaller than in the first quarter, when it was 1.8 percent. Growth in mobile data revenues continued unabated, with a 19-percent increase to EUR 484 million in the second quarter. Twenty-nine percent of the average revenue per user now comes from mobile data compared with 24 percent one year ago. Europe - further increase in competitiveness The European national companies continued to hold their ground in a difficult environment between April and June 2012, proving to be particularly strong compared with their competitors. However, with further deterioration in the economic situation of many countries, intense competitive pressure, and regulatory intervention, revenue and earnings still suffered. Added to this were the negative exchange rate effects, in particular those of the Polish zloty and the Hungarian forint. Consequently, the Europe operating segment saw revenue decline by 5.9 percent to EUR 3.6 billion and adjusted EBITDA decrease by 8.8 percent to EUR 1.2 billion in the second quarter of 2012 compared with the prior-year period. Excluding the exchange rate effects, the decline in revenue and adjusted EBITDA would have been smaller, at 3.8 percent and 6.7 percent respectively. Turning to the individual national companies, OTE in Greece recorded remarkable efficiency gains, with its adjusted EBITDA margin increasing by 2.2 percentage points year-on-year to 36.4 percent in the second quarter of 2012 thanks to successful cost-cutting measures. Cutting costs also had a positive impact on profitability in the Netherlands. T-Mobile Netherlands achieved an adjusted EBITDA margin of 31.7 percent compared with 29.4 percent the previous year. The number of mobile contract customers across all European companies increased by around 1.0 million to 27.6 million in the space of a year (including T-Systems' customers in Hungary). Smartphones now account for 60 percent of all devices sold, up from 43 percent one year ago. The more widespread use of smartphones also impacted mobile data revenues, which grew by 21.2 percent year-on-year in Europe, or as much as 24.5 percent when adjusted for exchange rate effects. USA - earnings significantly improved T-Mobile USA significantly improved its profitability in the past quarter thanks to considerable efficiency gains. The adjusted EBITDA margin rose 2.3 percentage points year-on-year to 27.7 percent. With a revenue increase of 8.7 percent to EUR 3.8 billion, adjusted EBITDA increased by 18.6 percent year-on-year to EUR 1.1 billion. Measured in dollars, there was a slight decline of 3.1 percent in revenue for the second quarter of 2012 and an increase of 5.7 percent in adjusted EBITDA compared with the prior-year period. Customer figures in the United States continue to present a major challenge. While T-Mobile USA did significantly improve its churn rate for branded contract customers year-on-year from 2.6 percent to 2.1 percent, the industry-wide trend toward fewer gross additions resulted in an overall loss of 205,000 customers in the second quarter. There were 557,000 net losses of branded contract customers. By contrast, the number of branded prepaid customers rose by 227,000, following a loss of 71,000 customers in the second quarter of 2011. Average data revenue per customer for branded contract customers rose by 15 percent year-on-year in the past quarter to USD 19.16. Systems Solutions - growth in order entry The second quarter of 2012 saw a pleasing trend in new orders for T-Systems . The volume of new orders increased by 8.2 percent year-on-year to EUR 2.2 billion. Deals such as those concluded with British energy group BP and Swiss industrial group Georg Fischer show that T-Systems is once again securing an increasing number of major deals. Revenue was hit by sustained competitive pressure and price erosion in the ITC industry. T-Systems saw its total revenue for the second quarter decline by 1.3 percent year-on-year to EUR 2.2 billion, with external revenues decreasing by 1.5 percent. At the same time, there was growth resulting from a strong performance in new business at international level, where external revenues increased by 5.9 percent year-on-year. There was a positive trend in the key earnings indicators. Adjusted EBIT rose by 55.6 percent in the quarter to EUR 70 million, leading to an adjusted EBIT margin of 3.1 percent compared with 2.0 percent the previous year. Adjusted EBIT increased to 54.1 percent and the adjusted EBIT margin to 2.5 percent in the first half of the year. Taking service products from the growth area of cloud computing, T-Systems fended off fierce competition to secure deals with several corporate customers. For example, VW's Spanish subsidiary Seat implemented a major cloud project in the reporting period and will use information and communications technology on a dynamic basis in future, adapted to its current business needs. Further progress was made with intelligent network solutions. For example, energy supplier RWE chose Deutsche Telekom as its service provider for smart metering. The deal involves the installation of 15,000 digital electricity meters in the city of Mühlheim an der Ruhr. The Deutsche Telekom Group at a glance*:

Comments on the table: a   Before dividend payments and investments in spectrum, and before the effects of the PTC and AT&T transactions. b   Cash outflows for investments in property, plant, and equipment, and intangible assets (excluding goodwill).

Germanyoperating segment*:

Comments on the table: The activities and functions of the Digital Services growth area and of the Internet service provider STRATO (Consumers) that were previously reported under the Germany operating segment, have been consolidated under Group Headquarters & Shared Services from January 1, 2012, and reported as part of the DBU (Digital Business Unit). The prior-year figures have been adjusted for better comparability.

Europeoperating segment*:

Comments on the table: The contributions of the national companies generally correspond to their respective unconsolidated financial statements and do not take consolidation effects at operating segment level into consideration. a Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro, as well as ICSS and Europe Headquarters.

United Statesoperating segment*:

Systems Solutions operating segment*:

Comment on the table: a   Non-core activities and consolidation.

Group Headquarters & Shared Services*:

Comments on the table: The activities and functions of the Digital Services growth area and of the Internet service provider STRATO (Consumers) that were previously reported under the Germany operating segment, have been consolidated under Group Headquarters & Shared Services from January 1, 2012, and reported as part of the DBU (Digital Business Unit). The prior-year figures have been adjusted for better comparability.

*   Deutsche Telekom defines EBITDA as profit/loss from operations before depreciation, amortization, and impairment losses.

Development of customer numbers in the second quarter of 2012 Germanyoperating segment:

Europeoperating segment:

Comment on the table: a Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro.

United Statesoperating segment:

This media information contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. These forward-looking statements include statements with regard to the expected development of revenue, earnings, profits from operations, depreciation and amortization, cash flows, and personnel-related measures. They should therefore be considered 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, 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 non-GAAP financial 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 non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.