Deutsche Telekom expects 2 to 4 percent below the prior-year figure and free cash flow of around EUR

Deutsche Telekom expects adjusted EBITDA in 2009 to be 2 to 4 percent below the prior-year figure and free cash flow of around EUR 6.4 billion

In a tough economic environment, Deutsche Telekom increased revenue by around 6 percent to approximately EUR 15.9 billion in the first quarter of 2009 with the Greek company OTE consolidated for the first time. Adjusted EBITDA increased by some 3 percent to EUR 4.8 billion. Excluding the consolidation of OTE, Group revenue was stable at EUR 15.0 billion, with adjusted EBITDA dropping by 5 percent to EUR 4.5 billion. Free cash flow was between EUR 0.2 billion and EUR 0.3 billion in the first quarter of 2009, compared with EUR 1.6 billion in the same period last year and EUR 0.5 billion in the first three months of 2007. Higher capital expenditure, the deviation in adjusted EBITDA and increased expenses for staff-related measures had an impact in the first quarter of 2009.

Overall, Deutsche Telekom's figures were slightly above forecast in Germany, in both fixed-network and mobile business. T-Systems also increased its contribution to results.

On the other hand, the Group felt the impact of the economic slowdown and the more intense competitive environment, particularly in the United States and the United Kingdom. In Poland and the United Kingdom, fluctuations in the local currency exchange rates also had a negative effect on revenue and adjusted EBITDA.

Disregarding the growth effect of the Greek company OTE that has been consolidated since February 1, 2009, Deutsche Telekom expects adjusted Group EBITDA in these unfavorable conditions to be between 2 and 4 percent lower for the full year, compared with EUR 19.5 billion in the prior year. The Board of Management today initiated a package of measures to safeguard the expected results. Free cash flow is expected to reach around EUR 6.4 billion, compared with EUR 7.0 in the prior year, on the back of these measures. This will also lay the foundation for a shareholder-friendly dividend policy.

 

Notes to the of ad hoc notification

Revenues of national companies in the United States, the United Kingdom and Poland in particular were impacted by the marked downturn in the economic environment, for example with lower roaming revenues as a result of the lower level of traveling. In addition, there were dramatic movements in the exchange rates with the United Kingdom and Poland. European mobile communications business in the prior consolidation group - i.e., excluding OTE - recorded a decrease in revenue of EUR 0.4 billion. Of this, exchange rate effects accounted for around EUR 0.3 billion. These exchange rate effects had a negative impact of around EUR 0.1 billion on adjusted EBITDA. In total, adjusted EBITDA fell by around EUR 0.3 billion. In addition, high levels of expenditure for customer acquisition and retention led to increases on the cost side.

In the United States, the 3G network will be rolled out much further as part of the package of measures passed by the Board of Management, and the portfolio of 3G-enabled handsets will be expanded to reinforce the competitive position of T-Mobile USA. The overlay of the proprietary 2G network is being accelerated to reduce the amount of roaming charges that have to be paid. In addition, agreements on interconnection charges and data business are to be renegotiated. A reduction in non-usage-driven variable costs is planned and overarching costs such as marketing expenses and travel costs are to be cut, while increases in wages and salaries are on hold.

Strict controls on costs in the areas of administration, advertising and systems are scheduled for T-Mobile UK. The main task for the new management team is to reposition the company. In addition, prepay and contract customer offers are to be improved.

Expenditures for new customer acquisition and retention are to be reduced in Poland. In addition, PTC will cut overarching costs such as advertising and staff costs. The timing of the distribution of operating costs and expenditures will be tied more closely to the development of business in order to avoid phases of higher ongoing costs in coming quarters.

These new expectations are based on the assumption that the economic environment will not decline significantly further and that exchange rates will remain approximately at current levels.

All statements are based on preliminary calculations prior to conclusive consolidation and review. As such, these figures may deviate from the finalized quarterly figures to be published on May 7.