UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2005
DEUTSCHE TELEKOM AG
(Translation of registrant’s name into English)
Friedrich-Ebert-Allee 140
53113 Bonn
Germany
(Address of principal executive offices)
Indicate by check
mark whether the registrant files or will file annual reports under cover of
Form 20-F or
Form 40-F.
Form 20-F ý Form 40-F o
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation
S-T Rule 101 (b)(1): o
Indicate by check
mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation
S-T Rule 101 (b)(7): o
Indicate by check mark whether the registrant by furnishing the information contained in this form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o No ý
This report is deemed submitted and not filed pursuant to the rules and regulations of the Securities and Exchange Commission.
Selected financial data of the Deutsche Telekom Group.
Financial data of the Group
|
(billions of €) |
|
Change compared |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|
Revenue and earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
3.7 |
|
57.9 |
|
55.8 |
|
53.7 |
|
48.3 |
|
40.9 |
|
|
of which: international revenues (%) |
|
1.4 |
|
39.3 |
|
37.9 |
|
34.3 |
|
27.3 |
|
19.0 |
|
|
Results from ordinary business activities |
|
n.a. |
|
6.5 |
|
1.4 |
|
(27.1 |
) |
(2.5 |
) |
6.4 |
|
|
Net income (loss) |
|
n.a. |
|
4.6 |
|
1.3 |
|
(24.6 |
) |
(3.5 |
) |
5.9 |
|
|
Net income (loss) (adjusted for special factors) |
|
n.a. |
|
2.2 |
|
0.2 |
|
(4.8 |
) |
(4.7 |
) |
(1.5 |
) |
|
EBITDA(a), (b), (c) |
|
20.8 |
|
22.3 |
|
18.5 |
|
16.1 |
|
18.1 |
|
20.7 |
|
|
EBITDA (adjusted to exclude special factors)(a), (b), (c) |
|
5.9 |
|
19.4 |
|
18.3 |
|
16.3 |
|
15.1 |
|
12.9 |
|
|
EBITDA margin (adjusted to exclude special factors) (%)(a) |
|
0.7 |
|
33.5 |
|
32.8 |
|
30.4 |
|
31.3 |
|
31.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet total |
|
(7.1 |
) |
107.8 |
|
116.1 |
|
125.8 |
|
164.5 |
|
124.2 |
|
|
Shareholders’ equity |
|
12.2 |
|
37.9 |
|
33.8 |
|
35.4 |
|
66.3 |
|
42.7 |
|
|
Equity ratio (%)(a), (d) |
|
4.0 |
|
33 |
|
29 |
|
28 |
|
39 |
|
33 |
|
|
Debt (in accordance with consolidated balance sheet) |
|
(23.0 |
) |
42.7 |
|
55.4 |
|
63.0 |
|
67.0 |
|
60.4 |
|
|
Net debt(a), (c) |
|
(24.4 |
) |
35.2 |
|
46.6 |
|
61.1 |
|
62.8 |
|
57.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in intangible assets (excluding goodwill) and property, plant, and equipment |
|
4.8 |
|
(5.9 |
) |
(6.2 |
) |
(7.9 |
) |
(11.2 |
) |
(23.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
13.9 |
|
16.3 |
|
14.3 |
|
12.5 |
|
11.9 |
|
10.0 |
|
|
Cash outflows from investments in intangible assets (excluding goodwill) and property, plant, and equipment (in accordance with statement of cash flows) |
|
(1.6 |
) |
(6.1 |
) |
(6.0 |
) |
(7.6 |
) |
(10.9 |
) |
(23.5 |
) |
|
Free cash flow (before dividend)(a), (c) |
|
22.9 |
|
10.2 |
|
8.3 |
|
4.8 |
|
1.1 |
|
(13.5 |
) |
|
Free cash flow as a percentage of revenue(a) |
|
2.8 |
|
17.6 |
|
14.8 |
|
9.0 |
|
2.2 |
|
(33.0 |
) |
|
Net cash used for investing activities |
|
n.a. |
|
(4.3 |
) |
(2.1 |
) |
(10.0 |
) |
(5.4 |
) |
(27.7 |
) |
|
Net cash (used for) provided by financing activities |
|
n.a. |
|
(12.7 |
) |
(5.2 |
) |
(3.4 |
) |
(4.8 |
) |
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of employees for the year (full-time equivalents, without trainees/student interns) (thousands) |
|
(1.5 |
) |
248 |
|
251 |
|
256 |
|
242 |
|
205 |
|
|
Revenue per employee (thousands of €) |
|
5.2 |
|
234 |
|
222 |
|
210 |
|
199 |
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T-Share – key figures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share/ADS (undiluted) under German GAAP (€)(e) |
|
n.a. |
|
1.10 |
|
0.30 |
|
(5.86 |
) |
(0.93 |
) |
1.96 |
|
|
Average weighted number of outstanding shares (millions)(f) |
|
0.0 |
|
4,195 |
|
4,195 |
|
4,195 |
|
3,715 |
|
3,027 |
|
|
Dividend per share/ADS (€) |
|
n.a. |
|
0.62 |
(g) |
0.00 |
|
0.00 |
|
0.37 |
|
0.62 |
|
|
Dividend yield (%)(h) |
|
3.7 |
|
3.7 |
|
— |
|
— |
|
1.9 |
|
1.9 |
|
|
Total dividend (billions of €) |
|
n.a. |
|
2.6 |
(g) |
— |
|
— |
|
1.5 |
|
1.9 |
|
|
Number of shares carrying dividend rights (millions)(i), (j) |
|
0.05 |
|
4,169 |
|
4,167 |
|
4,162 |
|
4,154 |
|
3,027 |
|
|
Total number of shares of common stock at balance sheet date (millions)(k) |
|
0.0 |
|
4,198 |
|
4,198 |
|
4,198 |
|
4,198 |
|
3,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items in accordance with U.S. GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
(20.7 |
) |
2.3 |
|
2.9 |
|
(22.0 |
) |
0.5 |
|
9.3 |
|
|
Shareholders’ equity |
|
5.6 |
|
47.5 |
|
45.0 |
|
45.4 |
|
73.7 |
|
46.1 |
|
|
Earnings (loss) per share/ADS (basic) (€)(e) |
|
(20.0 |
) |
0.56 |
|
0.70 |
|
(5.30 |
) |
0.14 |
|
3.06 |
|
|
Earnings (loss) per share/ADS (diluted) (€)(e) |
|
(21.4 |
) |
0.55 |
|
0.70 |
|
(5.30 |
) |
0.14 |
|
3.06 |
|
Financial data of the Group by division
|
|
|
T-Com |
|
T-Mobile |
|
T-Systems |
|
T-Online(l) |
|
Group Headquarters & |
|
||||||||||
|
(billions of €) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
27.8 |
|
29.2 |
|
25.0 |
|
22.8 |
|
10.5 |
|
10.6 |
|
2.0 |
|
1.9 |
|
4.5 |
|
4.2 |
|
|
Results from ordinary business activities* |
|
5.5 |
|
4.7 |
|
4.6 |
|
0.8 |
|
(0.2 |
) |
(0.6 |
) |
0.1 |
|
0.1 |
|
(3.8 |
) |
(4.1 |
) |
|
EBITDA(a), (b), (c) |
|
10.2 |
|
10.2 |
|
10.6 |
|
7.0 |
|
1.4 |
|
1.4 |
|
0.4 |
|
0.3 |
|
(0.3 |
) |
(0.3 |
) |
|
EBITDA (adjusted to exclude special factors)(a), (b), (c) |
|
10.5 |
|
10.4 |
|
7.7 |
|
6.7 |
|
1.5 |
|
1.4 |
|
0.4 |
|
0.3 |
|
(0.6 |
) |
(0.3 |
) |
|
EBITDA margin (adjusted to exclude special factors) (in %)(a) |
|
37.6 |
|
35.5 |
|
30.7 |
|
29.3 |
|
14.0 |
|
13.3 |
|
21.2 |
|
16.7 |
|
(13.7 |
) |
(7.4 |
) |
|
Invesments in intangible assets (excluding goodwill) and property, plant, and equipment |
|
(2.3 |
) |
(2.1 |
) |
(2.4 |
) |
(3.0 |
) |
(0.7 |
) |
(0.7 |
) |
(0.1 |
) |
(0.1 |
) |
(0.5 |
) |
(0.4 |
) |
|
Average number of employees for the year (full-time equivalents, without trainees/student interns) (thousands) |
|
126 |
|
139 |
|
44 |
|
42 |
|
40 |
|
42 |
|
3 |
|
3 |
|
35 |
|
25 |
|
|
(a) |
|
Calculated on the basis of millions for the purpose of greater precision. Changes to percentages expressed as percentage points. |
|
(b) |
|
Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation. |
|
(c) |
|
EBITDA and EBITDA adjusted for special factors, net debt, and free cash flow are pro forma figures that are not covered by the provisions of German or U.S. GAAP. They should not be viewed in isolation or as an alternative to net income/loss, results from ordinary business activities, net cash provided by operating activities, debt (in accordance with the consolidated balance sheet), or other Deutsche Telekom figures reported under German or U.S. GAAP. For detailed information and calculations, please refer to the chapter on “Reconciliation to pro forma figures” (page 123). |
|
(d) |
|
Based on shareholders’ equity excluding amounts earmarked for dividend payment, which are treated as short-term debt. |
|
(e) |
|
Net income/loss based on the weighted average of outstanding shares. The share/ADS ratio is 1:1. |
|
(f) |
|
Less the shares held by Deutsche Telekom AG itself. |
|
(g) |
|
Subject to approval by the shareholders’ meeting. More detailed explanations are contained in the management report that is published herein (page 59) or the proposal for appropriation of net income/ loss of Deutsche Telekom AG in the notes to the consolidated financial statements (page 201). |
|
(h) |
|
(Proposed) dividend per share divided by the closing price of the T-Share (Xetra) at the balance sheet date or on the last trading day of the respective financial year. |
|
(i) |
|
Less the shares held by Deutsche Telekom AG itself and those shares held under the scope of the issuance of shares as part of the acquisition of VoiceStream/Powertel on a trust basis for later issue and later trading as registered ordinary shares or ADSs. |
|
(j) |
|
As at balance sheet date. |
|
(k) |
|
Including the shares held by Deutsche Telekom AG itself. |
|
(l) |
|
Amounts are calculated in accordance with German GAAP as specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the separate reports of T-Online International AG, which are calculated in accordance with International Financial Reporting Standards (IFRS). |
|
* |
|
The Toll Collect joint venture has been managed by and reported under the T-Systems segment since April 1, 2004. For segment reporting purposes, the effects on the statement of income and the balance sheet are no longer shown under T-Com, but under T-Systems. To facilitate comparison, prior-year figures have been adjusted accordingly. |
II
As the leading services company in the telecommunications and information technology industry, we network society for a better future. With top quality, efficiency and innovation, to the benefit of our customers. In every respect.
We intend to develop the “T” into a seal of quality, innovation, and efficiency in the eyes of our customers. Excellence of performance will be the most important principle for all levels in our value chain.
III
Generating profitable growth by clearly focusing on two customer segments and three strategic business areas.
IV
Deustche Telekom Group Headquarters
|
1 |
|
Bonn |
|
|
|
|
|
Selected international subsidiaries and associated companies
|
|
|
|
|
Stake (directly/indirectly) |
|
||
|
Europe |
|
|
|
|
|
||
|
2 |
|
Austria |
|
• T-Mobile Austria |
|
100 |
% |
|
|
|
|
|
• T-Online.at |
|
100 |
% |
|
|
|
|
|
|
|
of shares held by |
|
|
|
|
|
|
• T-Systems Austria GesmbH |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
3 |
|
Belgium |
|
• T-Systems Belgium NV |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
4 |
|
Croatia |
|
• T-Hrvatski Telekom |
|
51 |
% |
|
|
|
|
|
• T-Mobile Croatia |
|
100% of shares |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Czech Republic |
|
• T-Mobile Czech Republic |
|
60.77 |
% |
|
|
|
|
|
• T-Systems PragoNet, a.s. |
|
100 |
% |
|
|
|
|
|
• T-Systems Czech s.r.o. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
6 |
|
Denmark |
|
• T-Systems |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
7 |
|
France |
|
• T-Online France |
|
100 |
% |
|
|
|
|
|
|
|
of shares held by |
|
|
|
|
|
|
• T-Systems France SAS |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
8 |
|
Hungary |
|
• MATÁV |
|
59.49 |
% |
|
|
|
|
|
• T-Mobile Hungary |
|
100% of shares |
|
|
|
|
|
|
• T-Systems |
|
|
|
|
|
|
|
|
Hungary Kft. |
|
51% T-Systems, |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Italy |
|
• T-Systems Italia S.p.A. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
10 |
|
Macedonia |
|
• Maktel |
|
51% of shares |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Netherlands |
|
• T-Mobile Netherlands |
|
100 |
% |
|
|
|
|
|
• T-Systems Nederland B.V. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
12 |
|
Poland |
|
• PTC |
|
49 |
% |
|
|
|
|
|
• T-Systems Polska Sp. z o.o |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
13 |
|
Portugal |
|
• Terravista |
|
100 |
% |
|
|
|
|
|
|
|
of shares held by |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Russia |
|
• MTS |
|
10 |
% |
|
|
|
|
|
• T-Systems CIS |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
15 |
|
Slovakia |
|
• Slovak Telecom |
|
51 |
% |
|
|
|
|
|
• EuroTel Bratislava |
|
100% of shares |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Spain |
|
• Ya.com |
|
100 |
% |
|
|
|
|
|
|
|
of shares
held by |
|
|
|
|
|
|
• T-Systems ITC |
|
|
|
|
|
|
|
|
Services Espana, S.A. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
17 |
|
Switzerland |
|
• T-Online.ch |
|
100 |
% |
|
|
|
|
|
|
|
of shares
held by |
|
|
|
|
|
|
• T-Systems Schweiz AG |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
18 |
|
Turkey |
|
• T-Systems Bilisim Tekbolojileri |
|
|
|
|
|
|
|
|
Anonim Sirketi |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
19 |
|
United Kingdom |
|
• T-Mob ile UK |
|
100 |
% |
|
|
|
|
|
• T-Systems Ltd. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
America |
|
|
|
|
|
||
|
20 |
|
USA |
|
• T-Mobile USA |
|
100 |
% |
|
|
|
|
|
• T-Systems North America, Inc. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
21 |
|
Canada |
|
• T-Systems Canada, Inc. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
South America |
|
|
|
|
|
||
|
22 |
|
Brazil |
|
• T-Systems do Brasil Ltda. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Asia |
|
|
|
|
|
||
|
23 |
|
Hong Kong |
|
• T-Systems China Limited |
|
100 |
% |
|
24 |
|
India |
|
• T-Systems India Private Limited |
|
100 |
% |
|
25 |
|
Japan |
|
• T-Systems Japan K.K. |
|
100 |
% |
|
26 |
|
Singapore |
|
• T-Systems Singapore Pte. Ltd. |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Middle East |
|
|
|
|
|
||
|
27 |
|
Israel |
|
• Barak I.T.C |
|
10.52 |
% |
|
|
|
|
|
• VocalTec |
|
19.97 |
% |
|
|
|
|
|
|
|
|
|
|
Africa |
|
|
|
|
|
||
|
28 |
|
South Africa |
|
• T-Systems |
|
|
|
|
|
|
|
|
South Africa (Pty) Limited |
|
74.90 |
% |
As of February 2005
VI
Key data of the Deutsche Telekom Group.
|
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deutsche Telekom Group (millions)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone lines (incl. ISDN channels)(1), (3) |
|
57.2 |
|
57.9 |
|
58.1 |
|
57.5 |
|
54.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile subscribers (majority shareholdings)(2) |
|
77.4 |
|
66.2 |
|
58.6 |
|
48.9 |
|
31.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T-Com (millions)* |
|
|
|
|
|
|
|
|
|
|
|
|
Broadband lines (in operation) |
|
6.1 |
|
4.1 |
|
2.9 |
|
1.4 |
|
0.1 |
|
|
DSL (Germany) |
|
5.8 |
|
4.0 |
|
2.8 |
|
1.4 |
|
0.1 |
|
|
DSL (Central Eastern Europe – CEE) |
|
0.3 |
|
0.1 |
|
0.04 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narrowband lines incl. ISDN channels |
|
54.7 |
|
55.5 |
|
56.1 |
|
56.9 |
|
54.5 |
|
|
Germany(1) |
|
47.9 |
|
48.7 |
|
49.3 |
|
50.2 |
|
49.1 |
|
|
Standard analog lines |
|
26.2 |
|
27.2 |
|
28.6 |
|
30.1 |
|
31.9 |
|
|
ISDN channels |
|
21.7 |
|
21.5 |
|
20.7 |
|
20.0 |
|
17.2 |
|
|
Central Eastern Europe (CEE) |
|
6.8 |
|
6.8 |
|
6.8 |
|
6.7 |
|
5.4 |
|
|
MATÁV group(3) |
|
3.5 |
|
3.5 |
|
3.6 |
|
3.4 |
|
2.9 |
|
|
Slovak Telecom |
|
1.3 |
|
1.4 |
|
1.5 |
|
1.6 |
|
1.6 |
|
|
T-Hrvatski Telekom(4) |
|
1.9 |
|
1.9 |
|
1.8 |
|
1.7 |
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribers to AktivPlus calling plan |
|
12.1 |
|
11.6 |
|
10.7 |
|
8.4 |
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile subscribers |
|
8.2 |
|
5.1 |
|
4.7 |
|
3.4 |
|
1.7 |
|
|
T-Mobile Hungary(5) |
|
4.0 |
|
3.8 |
|
3.4 |
|
2.5 |
|
1.7 |
|
|
T-Mobile Hrvatska (6), (7) |
|
1.5 |
|
1.3 |
|
1.2 |
|
0.9 |
|
— |
|
|
EuroTel Bratislava(7) |
|
1.9 |
|
— |
|
— |
|
— |
|
— |
|
|
Mobimak(8) |
|
0.8 |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T-Mobile (millions)* |
|
|
|
|
|
|
|
|
|
|
|
|
Mobile subscribers of fully consolidated subsidiaries |
|
69.2 |
|
61.1 |
|
53.9 |
|
45.5 |
|
29.5 |
|
|
T-Mobile Deutschland |
|
27.5 |
|
26.3 |
|
24.6 |
|
23.1 |
|
19.1 |
|
|
T-Mobile UK(9) |
|
15.7 |
|
13.6 |
|
12.4 |
|
10.4 |
|
8.3 |
|
|
T-Mobile USA(7) |
|
17.3 |
|
13.1 |
|
9.9 |
|
7.0 |
|
— |
|
|
T-Mobile Austria |
|
2.0 |
|
2.0 |
|
2.0 |
|
2.1 |
|
2.1 |
|
|
T-Mobile Czech Republic(7) |
|
4.4 |
|
3.9 |
|
3.5 |
|
2.9 |
|
— |
|
|
T-Mobile Netherlands(7) |
|
2.3 |
|
2.0 |
|
1.4 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T-Online (millions)* |
|
|
|
|
|
|
|
|
|
|
|
|
Total number of subscribers |
|
13.5 |
|
13.1 |
|
12.2 |
|
10.7 |
|
7.9 |
|
|
T-Online Deutschland |
|
11.4 |
|
10.8 |
|
10.0 |
|
8.8 |
|
6.5 |
|
|
Rest of Europe |
|
2.1 |
|
2.3 |
|
2.3 |
|
1.9 |
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSL subscribers (total) |
|
4.7 |
|
3.6 |
|
2.8 |
|
1.4 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key figures for T-Systems |
|
|
|
|
|
|
|
|
|
|
|
|
Systems Integration |
|
|
|
|
|
|
|
|
|
|
|
|
Hours billed (millions)(10) |
|
11.7 |
|
11.2 |
|
11.3 |
|
11.4 |
|
— |
|
|
Utilization rate (%)(11) |
|
77.8 |
|
74.0 |
|
71.3 |
|
73.1 |
|
— |
|
|
Computing Services |
|
|
|
|
|
|
|
|
|
|
|
|
Overall processor performance (MIPS)(12) |
|
130,786 |
|
113,723 |
|
92,968 |
|
79,122 |
|
59,992 |
|
|
Number of servers managed and serviced |
|
35,418 |
|
28,399 |
|
27,409 |
|
23,852 |
|
— |
|
|
Mainframe utilization (%) |
|
95 |
|
95 |
|
95 |
|
— |
|
— |
|
|
Desktop Services |
|
|
|
|
|
|
|
|
|
|
|
|
Number of workstations managed and serviced(13) |
|
1,219,589 |
|
1,223,532 |
|
1,204,292 |
|
970,000 |
|
— |
|
|
Proportion of support activities, Germany (%) |
|
60.6 |
|
60.6 |
|
58.1 |
|
61.0 |
|
— |
|
|
Proportion of retail, Germany (%) |
|
39.4 |
|
39.4 |
|
41.9 |
|
39.0 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside plant network |
|
|
|
|
|
|
|
|
|
|
|
|
Copper cable (thousands of km) |
|
1,485.4 |
|
1,473.9 |
|
1,460.8 |
|
1,481.1 |
|
1,449.8 |
|
|
Optical fiber cable (thousands of km) |
|
197.0 |
|
195.0 |
|
176.2 |
|
172.9 |
|
167.7 |
|
|
(1) |
|
Telephone lines, including for internal use. |
|
(2) |
|
Number of subscribers of T-Mobile’s fully consolidated mobile communications subsidiaries, plus majority shareholdings of MÁTAV, T-Hrvatski Telekom, and Slovak Telecom. Mobimak and EuroTel subscribers included for the first time in 2004. |
|
(3) |
|
Subscriber-line figures restated including MATÁV’s subsidiary Mak Tel, restrospectively from the 2001 financial year. |
|
(4) |
|
Brand name as of 2004; legal name of the company: HT-Hrvatske telekomunikacije d.d. |
|
(5) |
|
Formerly Westel, rebranded as T-Mobile Hungary in 2004. |
|
(6) |
|
Formerly HT mobilne komunikacije, rebranded as T-Mobile Hrvatska in 2004. |
|
(7) |
|
These companies were fully consolidated as follows: T-Mobile Hrvatska, T-Mobile Czech Republic, T-Mobile USA in 2001; T-Mobile Netherlands in 2002, EuroTel Bratislava in 2004. |
|
(8) |
|
Mobimak is fully consolidated through MakTel as of 2004. |
|
(9) |
|
Including Virgin Mobile. |
|
(10) |
|
Updated figure for the 2002 financial year. |
|
(11) |
|
Restated. Ratio of average number of hours billed to maximum possible hours billed per period. |
|
(12) |
|
Million instructions per second. |
|
(13) |
|
Restated. |
|
* |
|
The total was calculated on the basis of precise figures and rounded to millions. |
VII
Making tomorrow happen.
The world of tomorrow will be completely different. In telecommunications, “tomorrow” is less than ten years away. Technology is becoming more complex, performance levels are rising, and everything is becoming integrated. Customers – with their expectations and their needs – will be the undisputed focal point. And the success of a company will not be determined by technology, but by the customer’s perception of the added value generated by services.
We are already approaching this new era with focus and resolve. We don’t just create products, we develop products our customers want. We don’t sell performance as an abstract concept, we embody it as a culture. We are also gearing our structures to the new era. They, too, will no longer be set in stone. In the future, they will develop continuously in line with market requirements.
As a company of the future, we think and act with our customers in mind. And we are applying this mindset today – at all levels.
|
To our shareholders |
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|
Combined management report of the Deutsche Telekom Group and Deutsche Telekom AG for the 2004 financial year |
|
|
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|
|
Members of the Board of Management of Deutsche Telekom AG in 2004 including seats on the supervisory boards of other companies |
|
|
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|
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|
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|
4
I am pleased that we are able to present a highly successful 2004 financial year in this year’s Annual Report. Following the worst result in our history as a company in 2002, we have continued the course of profitable growth and further stabilized it for the second year in a row. We have increased revenue and earnings, continued to significantly reduce the level of debt and generated a level of net income that will now allow us to pay a dividend again for the 2004 financial year.
We are therefore pleased that we are able to allow you as shareholders to participate in the corporate success of the Group again after two years without a dividend. We promised you this much, and we will keep this promise. We will propose to the shareholder’s meeting a dividend payment of EUR 0.62 per share carrying dividend rights.
Profitable growth is clearly reflected in our financial figures. We increased net revenue by 3.7 percent to EUR 57.9 billion in the year under review. In organic terms, in other words excluding currency translation effects and changes in the composition of the group, this growth was even higher, at 5.8 percent. The increase in adjusted EBITDA was even more pronounced, up 5.9 percent to EUR 19.4 billion. Net income for the 2004 financial year came to EUR 4.6 billion, or EUR 2.2 billion when adjusted for special factors, compared to EUR 1.3 billion and EUR 0.2 billion respectively in the prior year.
We are therefore once again operating at a clear profit. This ultimately shows that our strategy of profitable growth has been successful.
We also made very good progress in reducing our debt in 2004. We have again significantly reduced net debt: to EUR 35.2 billion, an overall reduction of EUR 11.4 billion in the 2004 financial year, or almost EUR 1 billion a month. We have therefore almost halved the level of debt since 2002.
We have worked hard – and it has paid off. We are growing profitably and we are paying a dividend again. We had to ask a lot from the Company and its employees to achieve this. At this point, I would like to thank our employees in particular for their committed contribution and the trade unions and employee representatives for their constructive cooperation.
The changes initiated some two years ago have clearly strengthened us. We have maintained our growth profile and concentrated specifically on our core competencies. And initially we were on the receiving end of skeptical reactions – think back to questions about our activities in the United States, for example. Now, with our results for the 2004 financial year, even the most ardent doubters must see that we took the right course.
We are now paving the way for long-term positive development. Despite our success in the 2004 financial year, we now have to face new challenges – after all, yesterday’s success was yesterday. Our industry is characterized by tremendous technological changes. New markets are developing, traditional business areas are losing importance, barriers to market entry are falling. Technological development in particular and the resulting development of the competitive environment are progressing in a fast and dynamic way. That is why we will also continue to do everything necessary in order to put our business models on a long-term and sustainable footing. This means we will effect a paradigm change – evolving from a technology group to a customer-centric service company.
5
We stand by our responsibility. Continuing to drive forward the necessary change is our corporate responsibility, which consists of striking a balance between the positive growth of our operational business and the long-term security of jobs in the Company. We take both aspects very seriously – generating a reasonable return on capital employed and assuming responsibility for our employees. For us, these go hand in hand, particularly because Deutsche Telekom is a company that relies on the skills and commitment of its employees at the customer interface.
Agenda 2004 was an important first step. Agenda 2004 consisted of the following six initiatives that we had identified as key areas to be tackled in order to push profitable growth: broadband, business customers, human resources, quality, innovation, and efficiency. I would like to highlight the progress we have made in these areas by way of two examples.
The aim of the human resources initiative was to safeguard employment whilst at the same time lowering personnel costs. We defined three major topics: an employment alliance, the further development of Vivento, and a development and motivation campaign. As a result, on the one hand, we managed to reduce considerably the number of employees affected by the necessary job cuts and, on the other, for many employees whose jobs were to be cut, new career prospects opened up with the help of Vivento. We have trodden innovative paths and have achieved excellent results. I believe that Deutsche Telekom has proved with this human resources initiative that it certainly is possible to combine corporate and social responsibility.
One outcome of our quality campaign is the customer promises we published recently. We want to give our customers quality indicators that they can rely on. First experience gained in the T-Punkt shops has been positive. This shows us that we are also on the right track here, and we will continue to pursue this course.
We have drawn up a far-reaching transformation program for Deutsche Telekom. Going way beyond Agenda 2004, we have paved the way for an important new course with the strategic realignment of the Group – in terms of developing into a customer-oriented service company and stimulating sustained profitable growth. Our new business areas – Broadband/Fixed Network (consisting of T-Com and T-Online International AG), Mobile Communications (T-Mobile), and Business Customers (T-Systems) are a reflection in the Group structure of our customer centricity and the three key growth areas in our industry. We have developed the Group’s former 4-pillar structure further step by step in response to the changing markets and requirements. Only in this way can we exploit the growth potential offered by the various sub-markets. Above all, this new structure enables us to better fulfill the needs and expectations of our customers. We want to supply not only products and technologies, but also create significant added value for our customers – and considerably increase customer satisfaction in the process, for this is the crucial success factor. Our new company structure creates an important prerequisite for this.
6
We want to stand out from the competition by delivering superior performance. The new structure of the Group forms the platform from which we will drive forward our profitable growth. And we are tackling this in a systematic way, having launched our Excellence Program that will run for the next three years. With this program we are pursuing the ambitious goal of making Deutsche Telekom the fastest-growing integrated provider in Europe through superior performance.
This three-year program consists of three core elements that, together, will contribute to the achievement of our strategic objectives:
• three growth programs in the individual business areas,
• Group-wide initiatives with which we can leverage the advantages of the Group to generate added value,
• and – also very important: a sustainable realignment of our corporate culture.
The growth programs of the separate business areas form the backbone of our Excellence Program. They ensure profitable growth in the respective areas and initiate a comprehensive transformation of our company. At the same time, they can make use of the potential that results from the strategic realignment of the Group: greater market proximity, bundling of skills, and shorter decision-making paths.
T-Com’s growth initiative is called “re-define.” With this initiative, T-Com aims to re-define itself to a certain extent and to provide its customers in future with the entire world of communication, information, and entertainment at their home; in other words, to become the media and communication center for the customer.
The program therefore has three clear thrusts:
• innovation & growth,
• quality & efficiency,
• and a new customer focus.
The program is accompanied by a change in corporate culture that calls for entrepreneurial thinking from all employees.
T-Mobile has called its program “Save for Growth.” The aim is to generate annual
savings of around EUR 1 billion in the medium term, of which up to EUR 500
million is to be reinvested in realizing the company’s growth objectives –
hence “Save for Growth”.
T-Mobile is thus creating the resources to develop three focal points of
growth. These are:
• the provision of affordable and transparent mobile communications rates,
• the further development of the mobile Internet for leisure time and work,
• and the further development of seamlessly integrated network platforms like GPRS, UMTS, and WLAN.
7
“Focus on Growth” is the motto at T-Systems. The focus is on strict customer
orientation as a lever to achieve profitable growth.
T-Systems wants to become the leading ICT service provider for its customers.
The program provides for five focal points:
• focus on the customer, i.e., improved sales efficiency,
• strengthening the service and product portfolio,
• top operational performance through the optimization of internal processes,
• efficiency through cost management,
• and mobilization of employees through applied value management.
The growth programs of the separate business areas will be supported by general initiatives at Group level. This is intended to ensure on the one hand that the potential resulting from integration in the Group is also exploited and, on the other hand, our goal is for customers to perceive Deutsche Telekom as a single unit. The initiative will focus on different areas of excellence. For example: how to implement the new brand strategy throughout the Group and how to use the advertising budget more efficiently? Or what does the network of the future look like and how much will it cost?
The third cornerstone of the Excellence Program is group-wide cultural change. We have already introduced this change through T-Spirit and will continue to drive it forward as part of the Excellence Program. With this transition, we aim to gear the entire organization to strict customer orientation. One example is that all top managers spend at least five days a year in direct contact with customers.
We are at the dawn of a new era. With the strategic realignment on the three business areas and the Excellence Program, the year 2005 will be another milestone. This does not represent an overhaul of our previous strategy; rather it is a consistent further development under dynamically changing framework conditions. We do not expect the individual programs to take full effect until 2006; we do, however, expect to see initial results this year.
Our aim is long-term operational success. The more successful a company is, the better it can respond to the social responsibility that comes with the significance of its position. This is why it is certainly not only in our own interests that we take all the measures necessary to ensure the positive development of business. We want to satisfy the interests of all our stakeholders in order to ensure our success in the long term.
8
We are convinced: We can only satisfy the interests of our shareholders if we satisfy our customers’ needs and requirements in full and if our employees are motivated and committed. And if we enjoy a reputation in society as a company that takes its social responsibility seriously – a good corporate citizen.
We will continue to work on this. The progress achieved up to now is an incentive for us to continue along our current path with commitment and courage, and to achieve our goals. I would again like to thank you as the Company’s owners for standing by us even in difficult times. We will do all we can to keep on reaffirming your trust in us in the future.
|
Bonn, March 2005 |
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|
|
/s/ Kai-Uwe Ricke |
|
|
Kai-Uwe Ricke |
|
|
Chairman of the Board of Management |
|
9
10
The Board of Management of Deutsche Telekom AG in 2004/2005.
Kai-Uwe Ricke. Chairman of
the Board of Management of Deutsche Telekom AG. Born in 1961. Kai-Uwe Ricke was
appointed Chairman of the Board of Management of Deutsche Telekom AG
effective from November 15, 2002. Following an apprenticeship at a bank
and studies at the Schloss Reichartshausen European Business School, he started his career as
assistant to the board of Bertelsmann AG in Gütersloh. He then took up the position as head of
sales and marketing of its subsidiary Scandinavian Music Club AG in Malmö,
Sweden. Between 1990 and June 1995, Kai-Uwe Ricke was managing
director of Talkline Verwaltungsgesellschaft mbH and of Talkline PS Phone Service
GmbH, both located in Elmshorn. From July 1995 to December 1997, he
was chairman and managing director of Talkline GmbH. In January 1998, he took
over as
Chairman of the Managing Board of DeTeMobil Deutsche Telekom Mobilnet GmbH.
In February 2000, he was appointed Chairman of the Board of Management of the newly
founded
T-Mobile International AG. In May 2001, he was appointed to the
Board of Management of Deutsche Telekom. Before taking over as Chairman, he
was responsible for Deutsche Telekom’s mobile communications and online
business as Chief Operating Officer (CCO).
Dr. Karl-Gerhard Eick. Board member responsible for Finance, Deputy Chairman of the Board of Management. Born in 1954. He studied business administration in Augsburg, where he earned his doctorate in 1982. Until 1988, he worked in various positions at BMW AG in Munich, most recently as head of controlling in the department of the chairman of the board of management. From 1989 to 1991, Dr. Eick was responsible for controlling at WMF AG in Geislingen, and then took over the controlling, planning and IT unit at the Carl Zeiss group in Oberkochen (until 1993). From 1993 to 1998, Dr. Eick was chief financial officer at Gehe AG in Stuttgart, which is part of the Haniel group. In 1999, he moved to the group’s strategic management holding company, Franz Haniel & Cie GmbH in Duisburg, and as member of the managing board assumed responsibility for controlling, business administration and IT. Since January 2000, he has been Member of the Deutsche Telekom Board of Management responsible for Finance.
Dr. Heinz Klinkhammer. Board member responsible for Human Resources. Born in 1946. He studied law and business administration, and received his legal doctorate in 1977 at Freie Universität Berlin. He began his career at the Institute for German and European Labor, Social and Economic Law in Berlin, and then moved on to be a labor court judge in Krefeld and Oberhausen. Between 1979 and 1990, Dr. Klinkhammer worked at the Ministry for Labor, Health and Social Affairs of the regional state of North-Rhine/Westphalia in various management functions, ultimately as the head of Central Matters. In 1991 he was appointed Arbeitsdirektor (Director of Industrial Relations) at the Krupp Mannesmann GmbH Iron and Steel Works. From April 1992, he performed the same function as member of the board of management of Mannesmann Röhrenwerke AG. In February 1996, the Supervisory Board of Deutsche Telekom AG appointed Dr. Klinkhammer as Member of the Board of Management responsible for Human Resources and Arbeitsdirektor (Director of Industrial Relations). He is also in charge of Group Organization.
René Obermann. Board member responsible for T-Mobile. Born in 1963. After training to become an industrial business administrator at BMW AG in Munich, René Obermann established the trading company ABC Telekom based in Münster in 1986. He was managing partner of the successor company Hutchison Mobilfunk GmbH from 1991 and chairman of the managing board from 1994 to 1998. He was also chairman of the former German Association of Mobile Communication Service Providers (VAM) in 1995 and 1996. From April 1998 to March 2000, René Obermann was Managing Director of T-Mobile Deutschland responsible for Sales, and then assumed the position of Chairman of the Managing Board (until March 2002). From June 2001 to December 2002, he was Member of the Board of Management of T-Mobile International AG, responsible for European Operations and Group Synergies. René Obermann has been Member of the Deutsche Telekom Board of Management responsible for T-Mobile since November 2002, and was also appointed Chairman of the Board of Management of T-Mobile International AG in December 2002. He heads the strategic business area for Mobile Communications (T-Mobile).
Walter Raizner. Board member responsible for T-Com. Born in 1954. Following studies in economics and business informatics, Walter Raizner initially worked for Nixdorf before joining IBM Deutschland in 1984. After holding a number of positions in sales, marketing and general management in Germany and the UK, he moved to the company’s Corporate Headquarters in the U.S., where he took over as Vice President, Marketing and Strategy, IBM Technology Group with overall responsibility for the fields of marketing, business line management for OEM sales, business operations and strategy. In December 1999, Walter Raizner joined the Storage Systems Group where he was General Manager of the Storage Products Division in Somers, Connecticut (U.S.), with responsibility for IBM’s worldwide storage business. In January 2003, he took over as chairman of the management of IBM Deutschland. Walter Raizner is responsible for the newly created strategic business area Broadband/ Fixed Network at Deutsche Telekom’s Group Board of Management which also includes responsibility for T-Com and the duties of the Group Board of Management vis-à-vis T-Online International AG. Walter Raizner is also Chairman of the T-Com Board of Management.
Konrad F. Reiss. Board member responsible for T-Systems. Born in 1957. Following studies in business administration in Berlin and Erlangen-Nuremberg and initial career steps, he became founding managing director of two consultancy firms in 1986. After selling these companies to Cap Gemini, Konrad F. Reiss held various management positions within the Cap Gemini group: From 1993 he was global head of LMR Discipline (Leadership, Mobilization & Renewal), from 1994 European head of the DI/DS Market Team (Diversified Industries/Diversified Services), from 1995 head of the Central Region and member of the Global Executive Board of the Gemini Consulting group. He was also Managing Director of Cap Gemini Deutschland from 1998. In 2000 he moved to join the board of management of DaimlerChrysler Services AG where he was responsible for debis IT Services (CEO debis Systemhaus). In 2001 he established BlueChip-Business Laboratories. In January 2003, he was appointed Member of the Board of Management of Deutsche Telekom AG and Chairman of the T-Systems Board of Management. Konrad F. Reiss is responsible for the newly created strategic business area for Business Customers (T-Systems).
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Supervisory Board’s report to the 2005 shareholders’ meeting.
The 2004 financial year was a very successful year for Deutsche Telekom AG and was marked as well by preparations for the Group’s strategic realignment. At the same time, it was possible to press ahead with the further reduction of debt. The Supervisory Board intensively pursued its responsibilities of overseeing and advising the Board of Management in the management of business activities in compliance with statutory requirements.
Supervisory Board activities in the 2004 financial year. As a legal requirement, the Board of Management regularly informed the Supervisory Board in written and oral form about management planning, business developments, and individual transactions of major importance to theCompany and its principal subsidiaries and associated companies. Decisions of strategic importance were submitted to the Supervisory Board for approval. In particular, business development was discussed regularly in the Supervisory Board meetings. Furthermore, the Chairman of the Supervisory Board was informed by the Board of Management, and especially its Chairman,about results of business activities and significant events as part of their continuous dialog.
In addition to regular reports, the following issues were discussed in greater detail by the Supervisory Board:
• The strategic realignment of the Group on the business areas of Broadband/Fixed Network (T-Com), Mobile Communications (T-Mobile), and Business Customers (T-Systems), and the resulting distribution of Board of Management responsibilities;
• The merger of T-Online International AG into Deutsche Telekom AG;
• The status of major projects in the Deutsche Telekom Group, particularly developments of the Toll Collect project and the Federal Employment Agency project (where Deutsche Telekom employees help with the introduction of restructured benefits for the long-term unemployed);
• Development of the regulatory and competitive environment;
• Corporate governance, particularly with a view to the recommendations and suggestions as outlined in the German Corporate Governance Code and as required by U.S. law (Sarbanes Oxley Act);
• The launch of UMTS by T-Mobile;
• Business at T-Mobile USA, including development of the network infrastructure and the competitive environment in the United States;
• Results of the impairment tests according to FAS 141, 142 that must be carried out in regular intervals under the American accounting standards U.S. GAAP, and review of the accounting method used for intangible assets in accordance with German GAAP;
• Development of staff requirements and workforce levels in the Deutsche Telekom Group;
• Changes in the shareholdings portfolio of the Deutsche Telekom Group.
Organization of the Supervisory Board’s activities. To increase the efficiency of its work, and taking into consideration the specific requirements made of the Supervisory Board of Deutsche Telekom AG, the Supervisory Board established the following committees (which all have equal representation of shareholders’ and employees’ interests):
The General Committee is responsible for the preparation of the meetings and major decisions of the Supervisory Board as well as for all matters relating to the individual members of the Board of Management. Its members are Volker Halsch (from October 9, 2004), Dr. Manfred Overhaus (until September 30, 2004), Franz Treml, Wilhelm Wegner, and Dr. Klaus Zumwinkel (committee chairman).
The Finance Committee deals with complex corporate activities in the areas of finance and business management, which are assigned to it by the Chairman of the Supervisory Board or the Supervisory Board as a whole for review and advice. The members of the Finance Committee are Volker Halsch (from October 9, 2004), Dr. Manfred Overhaus (until September 30, 2004), Dr. Klaus G. Schlede (committee chairman), Wolfgang Schmitt, Franz Treml, Bernhard Walter, and Wilhelm Wegner.
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The Audit Committee deals with issues relating to accounting and risk management, the requisite independence of auditors, the awarding of the audit contract, the stipulation of the mainfocuses of the audit and the agreement on fees as well as, within the scope of mandatory German law, with all tasks assigned to the Audit Committee under existing U.S. law for listed companies headquartered outside the United States of America. The members of the Audit Committee are Volker Halsch (from October 9, 2004), Dr. Manfred Overhaus (until September 30, 2004), Dr. Klaus G. Schlede (committee chairman) Wolfgang Schmitt, Franz Treml, Bernhard Walter, and Wilhelm Wegner.
The Staff Committee deals with personnel matters of Deutsche Telekom AG, in particular the Company’s staff structure and human resources development and planning. The members ofthe committee are Dr. Dieter Hundt, Franz Treml (committee chairman), Wilhelm Wegner and Dr. Klaus Zumwinkel.
A Joint General and Audit Committee was set up in 2004 to handle the Supervisory Board’s oversight responsibilities in connection with the Toll Collect project and the Federal Employment Agency project. Its members are Dr. Hubertus von Grünberg, Dr. Klaus G. Schlede, WolfgangSchmitt, Franz Treml, Wilhelm Wegner, and Dr. Klaus Zumwinkel (committee chairman).
The Mediation Committee required pursuant to § 27 (3) of the German Codetermination Act performs the duties incumbent on it under the law. Its members are Dr. Dieter Hundt, Franz Treml, Wilhelm Wegner and Dr. Klaus Zumwinkel (committee chairman).
The chairman of each committee regularly informed the Supervisory Board of the content and results of committee meetings.
Meetings of the Supervisory Board. In the 2004 financial year, the Supervisory Board held four regular meetings and one extraordinary meeting. Furthermore, the Supervisory Board met for an in-depth conference with the Board of Management in order to discuss the Group’s strategic realignment. The General Committee of the Supervisory Board met eleven times during the year under review, thus supporting the Supervisory Board’s activities. The Audit Committee held six, and the Finance Committee two meetings in the 2004 financial year. The Supervisory Board’s Staff Committee met twice. The Joint General and Audit Committee held seven meetings. The Mediation Committee did not meet during the 2004 financial year. There are no events subject to reporting with regard to the frequency of the Board members’ participation in Supervisory Board meetings.
Conflicts of interest. In order to avoid a conflict of interests, Dr. Overhaus or Mr. Halsch – state secretaries in the German Ministry of Finance – and Mr. Walter – who at the same time is a member of the Supervisory Board of Daimler Chrysler AG, a consortium partner in the Toll Collect project – are not members of the joint General and Audit Committee responsible for handling the Toll Collect project. In addition, the gentlemen did not participate in Supervisory Board meetings dealing with aspects of Toll Collect that could pose a conflict for them.
Corporate governance. The Supervisory Board and Board of Management are aware that good corporate governance in the interests of the Company’s shareholders and capital markets is an essential precondition for corporate success. The German Corporate Governance Code and a number of relevant provisions under U.S. law have therefore been integrated in the Company’s statutes. In December 2004, the Board of Management and Supervisory Board issued the Declaration of Compliance with the Corporate Governance Code as amended. In addition, the Company’s corporate governance policy is also being presented in a separate chapter of the Annual Report.
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Changes in the composition of the Board of Management. Josef Brauner, responsible for T-Com on the Board of Management, retired from office on April 30, 2004. On September 3,2004, Thomas Holtrop resigned as member of the Group Board of Management and as Chairman of T-Online International AG’s Board of Management with effect from September 30, 2004. On September 3, 2004, the Supervisory Board appointed Walter Raizner as a member of the Company’s Board of Management with effect from November 1, 2004. Mr. Raizner is in charge of the business area for Broadband/Fixed Network (T-Com). At the same time, the strategic realignment of the Deutsche Telekom Group was manifested in a redistribution of the responsibilities on the Board of Management. In addition to Mr. Raizner (Broadband/Fixed Network), responsibility for the other strategic business areas was given to Mr. Obermann (Mobile Communications (T-Mobile)) and Mr. Reiss (Business Customers (T-Systems)).
Changes in the composition of the Supervisory Board. Shareholders’ representatives: Dr. Manfred Overhaus resigned from the Supervisory Board with effect from September 30, 2004. He was replaced by Volker Halsch who was appointed to the Supervisory Board by order of court in accordance with § 104 (1) of the German Stock Corporation Act (AktG) on October 1, 2004.
Dr. Wendelin Wiedeking resigned from the Supervisory Board with effect from February 9, 2004. He was replaced by Dr. Wolfgang Reitzle who was appointed to the Supervisory Board by order of court in accordance with § 104 (1) of the German Stock Corporation Act (AktG) on February 10, 2005.
Employees’ representatives: There were no changes amongst the members of the Supervisory Board representing employees during the 2004 financial year.
The Supervisory Board would like to thank the former members of the board for the effort they committed to the good of the Company over many years.
Review of annual financial statements of the parent company and consolidated financial statements for the 2004 financial year. The annual financial statements, the consolidated financial statements, the management report of Deutsche Telekom AG and the Deutsche Telekom Group, and the Board of Management’s proposal for appropriation of net income, which were all prepared and duly submitted by the Board of Management, together with the appropriateauditors’ reports were presented to all members of the Supervisory Board. The Supervisory Board reviewed the documents submitted to it.
The audit firms, PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (Frankfurt/Main) and Ernst & Young Deutsche Wirtschaftsprüfungsgesellschaft (Stuttgart), audited the annual financial statements of Deutsche Telekom AG, the consolidated financial statements and the combined management report of the parent company and the Group as of December 31, 2004, together with the bookkeeping system, in accordance with statutory provisions, and issued unrestricted audit certificates. In addition, the auditors reported personally on the above issues, as well as the U.S. financial statements prepared in accordance with 20-F, during the Supervisory Board meeting held on March 8, 2005 and the preparatory meeting of the Audit Committee on March 2, 2005.
During its March meeting the Supervisory Board was also informed about the results of the audit and raised no objections. In compliance with § 171 of the German Stock Corporation Act, the Supervisory Board examined the annual financial statements of the parent company and the consolidated financial statements of the Deutsche Telekom Group, the management
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report of Deutsche Telekom AG and the Deutsche Telekom Group, the proposal on appropriation of net income, and the risk report, and approved the annual financial statements of the parent company and the consolidated financial statements. The annual financial statements are thereby approved. The Supervisory Board agrees to the Board of Management’s proposalon the appropriation of net income.
PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft and Ernst & Young Wirtschaftsprüfungsgesellschaft also audited the report disclosing relations with affiliated companies (“Dependent Company Report”) that was prepared by the Board of Management in compliance with § 312 of the German Stock Corporation Act. The auditors reported on the results of their audit and issued the following audit certificate:
“Based on the results of our statutory audit and our judgment we confirm that:
1 the actual information included in the report is correct;
2. the Company’s compensation with respect to the transactions listed in the report was not inappropriately high based on the circumstances known at the time the transactions were entered into.”
The Supervisory Board examined the Board of Management’s report disclosing relations with affiliated companies. It did not raise any objections to the Board of Management’s final statement contained in the report or to the results of the audits conducted by PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft and Ernst & Young Wirtschaftsprüfungsgesellschaft.
The Supervisory Board would like to thank the members of the Board of Management and all the men and women who work for Deutsche Telekom for their dedicated commitment in the 2004 financial year.
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Bonn, March 8, 2005 |
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The Supervisory Board |
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/s/ Dr. Klaus Zumwinkel |
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Dr. Klaus Zumwinkel |
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Chairman |
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Members of the Supervisory Board of Deutsche Telekom AG in 2004.
Dr. Klaus Zumwinkel. Member of the Supervisory Board since March 7, 2003. Chairman of the Supervisory Board since March 14, 2003. Chairman of the Board of Management of Deutsche Post AG, Bonn.
Franz Treml. Member of the Supervisory Board since July 8, 2003. Deputy Chairman of the Supervisory Board since August 21, 2003. Deputy Chairman of ver.di trade union, Berlin.
Monika Brandl. Member of the Supervisory Board since November 6, 2002. Member of the Central Works Council at Deutsche Telekom AG, Bonn.
Josef Falbisoner. Member of the Supervisory Board since October 2, 1997. Head of ver.di District of Bavaria.
Dr. Hubertus von Grünberg. Member of the Supervisory Board since May 25, 2000. Member of the Supervisory Board at Continental Aktiengesellschaft, Hanover, et al.
Volker Halsch. Member of the Supervisory Board sinceOctober 1, 2004. State Secretary, Federal Ministry of Finance, Berlin.
Lothar Holzwarth. Member of the Supervisory Board since November 6, 2002. Chairman of the Works Council at Deutsche Telekom AG, Business Customer Branch Office, Southwestern District, Stuttgart.
Dr. sc. techn. Dieter Hundt. Member of the Supervisory Board since January 1, 1995. Managing Shareholder of Allgaier Werke GmbH, Uhingen, and President of the Confederation of German Employers’ Associations (BDA), Berlin.
Waltraud Litzenberger. Member of the Supervisory Board since June 1, 1999. Member of the Works Council at Deutsche Telekom AG, Technical Customer Service Branch Office, Central District, Mainz.
Michael Löffler. Member of the Supervisory Board since January 1, 1995. Member of the Works Council at Deutsche Telekom AG, Networks Branch Office, Dresden.
Dr. Manfred Overhaus. Member of the Supervisory Board from November 28, 2002 to September 30, 2004. Former State Secretary, Federal Ministry of Finance, Berlin.
Hans W. Reich. Member of the Supervisory Board since May 27, 1999. Chairman of the Board of Managing Directors, KfW Bankengruppe, Frankfurt/Main.
Dr.-Ing. Wolfgang Reitzle. Member of the Supervisory Board since February 10, 2005. Chairman of the Executive Board of Linde AG, Wiesbaden.
Dr. jur. Hans-Jürgen Schinzler. Member of the Supervisory Board since May 20, 2003. Chairman of the Supervisory Board of Münchener Rückversicherungs-Gesellschaft AG, Munich.
Dr. Klaus G. Schlede. Member of the Supervisory Board since May 20, 2003. Member of the Supervisory Board of Deutsche Lufthansa AG, Cologne.
Wolfgang Schmitt. Member of the Supervisory Board since October 2, 1997. Head of Liaison Office, T-Com Headquarters, Bonn.
Michael Sommer. Member of the Supervisory Board since April 15, 2000. Chairman of the German Trade Union Federation (DGB), Berlin.
Ursula Steinke. Member of the Supervisory Board since January 1, 1995. Chairwoman of the Works Council at T-Systems CDS GmbH, Northern District Branch Office, Kiel.
Prof. Dr. h.c. Dieter Stolte. Member of the Supervisory Board since January 1, 1995. Publisher of the “Welt” and “Berliner Morgenpost” newspapers, Berlin.
Bernhard Walter. Member of the Supervisory Board since May 27, 1999. Former Chairman of the Board of Managing Directors at Dresdner Bank AG, Frankfurt/Main.
Wilhelm Wegner. Member of the Supervisory Board since July 1, 1996. Chairman of the Central Works Council at Deutsche Telekom AG, Bonn.
Dr. Wendelin Wiedeking. Member of the Supervisory Board from May 20, 2003 to February 9, 2005. Chairman of the Board of Management of Dr.-Ing. h.c. F. Porsche AG, Stuttgart.
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Sound, systematic corporate governance is particularly important for an international group such as Deutsche Telekom with its numerous subsidiaries and associated companies. Therefore, the Company complies not only with German national regulations (such as the Corporate Governance Code), but also with international standards as applicable to companies listed on international stock exchanges such as the New York Stock Exchange. The regulations of theUnited States, including the Sarbanes Oxley Act which also applies to Deutsche Telekom, are of particular relevance in this context. The Supervisory Board and the Board of Management are convinced that sound corporate governance, taking company and industry-specific issues into account, is an important building block for the future success of Deutsche Telekom. Accordingly, responsibility for compliance with the principles of sound corporate governance is vested in senior management.
In accordance with item 3.10 of the German Corporate Governance Code, Deutsche Telekom reports on its corporate governance activities as follows:
In the 2004 financial year, the Board of Management and Supervisory Board once again carefully examined the corporate governance of Deutsche Telekom AG and the Deutsche Telekom Group as well as the content of the Corporate Governance Code. On May 18, 2004, the shareholders’ meeting adopted a resolution, effective January 1, 2004, amending the Supervisory Board compensation provided for in § 13 of the Articles of Incorporation to comply with the Code, so that as of January 1, 2004 Deutsche Telekom AG has been fulfilling all of the Code’s recommendations.
The Supervisory Board and Board of Management of Deutsche Telekom AG therefore released the following Declaration of Conformity with the German Corporate Governance Code on December 16, 2004:
Declaration of Conformity pursuant to § 161 of the German Stock Corporation Act
I. “The Supervisory Board and Board of Management hereby declare that, in the period since submission of last year’s declaration of conformity pursuant to § 161 of the German Stock Corporation Act on December 16, 2003, Deutsche Telekom AG has complied with the recommendations of the ‘Government Commission for a German Corporate Governance Code,’ published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette (Bundesanzeiger) on July 4, 2003, with the following exceptions:
Up to December 31, 2003, members of the Supervisory Board did not receive any performance-related compensation. Membership in committees was acknowledged by granting an attendance fee; up to December 31, 2003, committee chairpersons did not receive separate compensation (item 5.4.5 of the Code).
On May 18, 2004, the shareholders’ meeting adopted a resolution, effective from January 1, 2004, to amend the compensation of the Supervisory Board as prescribed in § 13 of the Articles of Incorporation to comply with the Code.
II. The Supervisory Board and Board of Management of Deutsche Telekom AG hereby declarefurther that Deutsche Telekom AG has complied with the recommendations of the ‘Government Commission for a German Corporate Governance Code,’ published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette (Bundesanzeiger) on July 4, 2003, without exception.”
This Declaration of Conformity can be found on the Deutsche Telekom website (www.telekom.de) via the following path: English/Investor Relations/Corporate Governance/Declaration of Conformity.
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Deutsche Telekom AG and its shareholders. Deutsche Telekom AG has over three million shareholders worldwide. Due to the wide distribution of shares, the Company makes every effort to keep its shareholders up to date on company developments. To enable a continuous flow of information, the Company created the T-Share forum (Forum T-Aktie) which gives shareholdersnews on current developments and events on a regular basis. Furthermore, the Deutsche Telekom AG website www.telekom.de contains extensive information for retail and institutional investors. The company newsletter, which appears at regular intervals, is another source of useful information for shareholders. This newsletter can be ordered online at the site indicatedabove. Non-classified company information is published on the Deutsche Telekom website in German and English.
Deutsche Telekom AG shareholders exercise their voting rights at the shareholders’ meeting either by casting votes themselves or by having their votes cast by a proxy of their choice or by an official proxy voter from the Company. Deutsche Telekom AG was one of the first German companies to offer its shareholders the option of participating in the shareholders’ meeting and casting votes over the Internet. The Company provides proxy voters who are empowered to receive changes to the shareholder’s vote via e-mail even during the shareholders’ meeting.
Cooperation between the Supervisory Board and the Board of Management. The Board of Management and the Supervisory Board are in regular contact. The Supervisory Board of Deutsche Telekom AG holds four regular meetings a year. There was also one extraordinary meeting, which is detailed in the Supervisory Board’s report to the 2004 shareholders’ meeting on pages 13–16. The Board of Management keeps the Supervisory Board fully informed of all relevant business developments, plans, and potential risk as well as of any deviations from original business plans. The Board of Management regularly submits written reports. The reporting obligations of the Board of Management have been specified by the SupervisoryBoard beyond statutory requirements. The work of the Board of Management and the Supervisory Board is specified in Rules of Procedure. The Chairman of the Board of Management regularly exchanges information with the Chairman of the Supervisory Board.
The areas of responsibility assigned to individual Board of Management members have been redefined as part of the Company’s new strategic focus. There are now six Board departments. In addition to the departments with centralized management responsibilities that are concentrated in the Board departments of the Chairman of the Board, the Board member responsible for Finance and Controlling, and the Board member responsible for Human Resources, there are three departments for the new strategic business areas of Broadband/Fixed Network, Mobile Communications, and Business Customers. As a rule, members of the Board of Management should not be older than 62 years of age.
Avoiding conflicts of interest. Board of Management members and Supervisory Board members are obliged to immediately disclose any conflicts of interest to the Supervisory Board. Anyfunctions assumed by members of the Board of Management that are not covered by the Board of Management mandate are subject to approval by the General Committee of the Supervisory Board.
Instances in which actual conflicts of interest involving Supervisory Board members have occurred are dealt with in the Supervisory Board’s report to the shareholders’ meeting (pp. 13–16). In addition to the regulation laid out in § 15a of the German Securities Trading Act, the Company has issued Guidelines on Insider Trading which regulate trading of Deutsche Telekom Group securities by Board members, executive officers and employees, and ensure the necessary degree of transparency. Deutsche Telekom AG publishes details of any transactions subject to reporting obligations on the Internet at www.telekom.de under: English/Investor Relations/Corporate Governance/Directors’ dealings.
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Compensation of the Board of Management and the Supervisory Board. Under the terms of their service contracts, the members of the Group Board of Management are entitled to fixed and variable, performance-related compensation components. The compensation of the members of the Board of Management is in line with market levels.
Performance-related compensation is determined on the basis of the targets agreed between the Supervisory Board General Committee and the members of the Board of Management, and the level of target achievement as determined by the General Committee at the end of the financial year.
In addition, the General Committee of the Supervisory Board may decide that the Board of Management should be granted variable compensation components linked to the long-term performance of the Company. These long-term incentives depend on the achievement of defined performance targets.
The basic principles of the compensation system and details of the long term incentive components containing risk elements can be found on the Deutsche Telekom website www.telekom.de via the following path: English/Investor Relations/Corporate Governance/Incentive plans, and in this Annual Report starting on page 198. The compensation of the members of the Board of Management for the 2004 financial year is reported individually in the notes to the financial statements in the Annual Report, in accordance with the recommendations of the German Corporate Governance Code.
Remuneration accruing to Supervisory Board members was last determined by virtue of a resolution passed at the shareholders’ meeting on May 18, 2004 and is described in § 13 of the Articles of Incorporation. This means that with effect from the 2004 financial year, the compensation of the members of the Supervisory Board is in line with the recommendations of the German Corporate Governance Code.
In addition to fixed compensation, the members of the Supervisory Board receive performance-related compensation based on the development of net income per share. Performance-related compensation also includes variable components linked to the long-term performance of the Company. Special functions such as that of chairperson or deputy chairperson of the Supervisory Board and chairperson or member of its committees are taken into account in the remuneration system.
The compensation of the members of the Supervisory Board is reported individually in the notes to the financial statements in the Annual Report, broken down according to the various components.
Composition of the Supervisory Board. The Supervisory Board of Deutsche Telekom AG consists of twenty members, specifically ten representatives of the shareholders and ten of the employees. The Supervisory Board members representing the shareholders are elected bysimple majority at the shareholders’ meeting. The Board members representing employees are elected by the employees according to the provisions of the German Codetermination Act. The terms of office of the individual members of the Supervisory Board end on different dates. This makes it possible to adjust the composition of the Supervisory Board of Deutsche Telekom AG to respond rapidly to changes in requirements. For details about replacements of Supervisory Board members during the 2004 financial year please refer to the Supervisory Board’s report to the 2004 shareholders’ meeting on pages 13–16 of this Annual Report.
Tasks assigned to the Supervisory Board. The Supervisory Board advises the Board of Management in issues concerning the governing of the Company and supervises its activities. The Supervisory Board is directly involved in all decisions of strategic importance to the Company.
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The work of the Supervisory Board is specified in Rules of Procedure. To clarify the submission requirements on the part of the Board of Management, the Supervisory Board has defined a catalogue of transactions subject to approval. This catalogue forms an integral part of the Rules of Procedure for the Supervisory Board and the Board of Management, respectively.
In order to perform its tasks more effectively, the Supervisory Board has formed various committees: the Mediation Committee as required under § 27 (3) of the German Codetermination Act, the General Committee to prepare Supervisory Board meetings and deal with personnel matters at Board of Management level for final decision by the general assembly of the Supervisory Board, the Staff Committee to advise the Board of Management on personnel questions not connected with the Board of Management, the Finance Committee to deal with complex financial issues and with budgets, and an Audit Committee that performs the tasks of an audit committee in accordance with the German Corporate Governance Code as well as, within the scope of mandatory German law, the tasks of an audit committee under U.S. law, and deals with annual financial statements before they are discussed by the full Supervisory Board. Furthermore, a Joint General and Audit Committee was set up in May 2004 to handle the Supervisory Board’s oversight responsibilities in connection with the Toll Collect project. Details can be found in the Supervisory Board’s report to the 2004 shareholders’ meeting on pages 13–16of this Annual Report.
The Supervisory Board has set an age limit. In future, no person shall be proposed at the shareholders’ meeting for election to the Supervisory Board if, during the term of office for which he or she would have been elected, that person would have reached his/her 72nd birthday. To the extent permitted by law, the Supervisory Board makes use of modern communication media to expedite its work and accelerate the decision-making process in the interests of the Company.
The chairperson of the Supervisory Board coordinates the work of the Supervisory Board and presides over its meetings. Over and above his/her organizational duties in the Supervisory Board, the chairperson of the Supervisory Board maintains regular contact with the chairperson of the Board of Management and with the Board of Management as a whole, in order to stay informed about the Company’s strategy, business developments, and risk management policy,and to discuss these with the Board of Management. In this context, the chairperson of the Board of Management advises the chairperson of the Supervisory Board of all events that are significant to the situation, development, and governance of the Company.
Risk management. Appropriate management of risks arising in connection with the Company’s business activities is of vital importance to the Board of Management and the Supervisory Board. Both the Board of Management and the Supervisory Board receive regular reports from the Risk Management department of the Company concerning current risks and their development.The risk management system in place at Deutsche Telekom AG is evaluated by the external auditors and is constantly being expanded and improved. Details on the topic of risk management can be found in the appropriate chapter of this Annual Report.
Accounting and audit of financial statements. An agreement has been reached with the company auditors that the chairperson of the Supervisory Board/Audit Committee shall be advised immediately of any issues uncovered during the audit that might give rise to statements ofexclusion or reservation in the auditors’ report, unless these issues can be resolved forthwith. Moreover it has been agreed that the auditors shall immediately report any findings and issues which emerge during the audit and which have a direct bearing upon the tasks of the Supervisory Board. In addition, the auditing firms undertake to inform the Supervisory Board or make a note in their report of any facts discovered during the audit which might indicate a discrepancyin the Declaration of Conformity with the German Corporate Governance Code submitted by the Board of Management and Supervisory Board.
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The T-Share. Above-average increase in share price.
• Share price rises by 14.8 percent year-on-year, DAX by 7.8 percent
• Forthcoming dividends and economic development received positively by the market
• Percentage of free float increased from 57 percent to around 62 percent
T-Share information
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2004 |
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2003 |
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Xetra closing prices (€) |
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Share price at Dec. 31 |
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16.65 |
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14.51 |
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Year high |
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16.78 |
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14.51 |
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Year low |
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13.14 |
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9.13 |
|
||
|
|
|
|
|
|
|
||
|
Trading volume (number of shares) |
|
|
|
|
|
||
|
German exchanges |
|
5.3 billion |
|
5.9 billion |
|
||
|
New York Stock Exchange (ADRs) |
|
149 million |
|
169 million |
|
||
|
Tokyo Stock Exchange |
|
1.1 million |
|
1.2 million |
|
||
|
|
|
|
|
|
|
||
|
Market capitalization at Dec. 31 (€) |
|
69.9 billion |
|
60.9 billion |
|
||
|
|
|
|
|
|
|
||
|
Weighting of the T-Share in major stock indices |
|
|
|
|
|
||
|
DAX 30 |
|
9.2 |
% |
8.8 |
% |
||
|
Dow Jones Euro STOXX 50© |
|
2.7 |
% |
2.7 |
% |
||
|
|
|
|
|
|
|
||
|
T-Share – key figures |
|
|
|
|
|
||
|
Net cash provided by operating activities per share |
|
€ |
3.89 |
|
€ |
3.41 |
|
|
Earnings per share (German GAAP) |
|
€ |
1.10 |
|
€ |
0.30 |
|
|
Earnings per share (U.S. GAAP – basic) |
|
€ |
0.56 |
|
€ |
0.70 |
|
|
Earnings per share (U.S. GAAP – diluted) |
|
€ |
0.55 |
|
€ |
0.70 |
|
|
Dividend proposal |
|
€ |
0.62 |
|
— |
|
|
|
Shares issued (millions) |
|
4,197.85 |
|
4,197.75 |
|
||
Capital markets. International stock markets continued the positive trend of the previous year in 2004, albeit sluggishly. After the German and international stock markets recorded positive annual results for the first time in three years in 2003, the DAX increased by around 7.3 percent in 2004 and closed trading at 4,256 points. Although the trading environment was impacted by a series of negative economic factors, such as the price of raw materials, and was also influenced by developments on the foreign exchange markets, at the beginning of 2004, the DAX rose above the 4,000-point mark for the first time since mid-2002. This overall positive trend on the international markets experienced a setback following the terror attack in Madrid on March 11. During the rest of the year, economic factors such as the rising price of oil and weakness of the dollar repeatedly slowed down any economic upswing.
Development of international indices. Like the DAX, the Euro STOXX 50© also recorded growth in the year under review. At year-end, the index was 6.9 percent up on the rate at the beginning of 2004. In the U.S., the gains on blue-chip stock were down considerably: the Dow Jones Industrial improved by 3.2 percent. In Japan, the Nikkei 225 was up 7.6 percent.
Development of the T-Share. The T-Share ended the year at EUR 16.65, up 14.8 percent, thus significantly outperforming the DAX, which recorded a year-on-year increase of 7.3 percent. The market responded positively to the subscriber figures announced at the end of January, and the T-Share consequently closed trading at a high for the year of EUR 16.78 on February 19, 2004. A shadow was however cast over the upbeat atmosphere on international markets as a result of uncertainly following the attacks in Madrid. Fear of terror attacks and the ever-increasing oil price put a dampener on stock markets. Against this backdrop, the DAX fell below the 4,000 mark and on May 17, the T-Share recorded its low of the year at EUR 13.14. The DAX closed at its lowest value for the year (3,646 points) in August.
22
Although the market remained predominantly sluggish, the T-Share developed better than the DAX during the rest of the year. The announcement of the Group’s realignment to the three growth areas of Mobile Communications, Broadband/Fixed Network, and Business Customers was welcomed unanimously by market observers. At the same time, some market players were irritated by speculation surrounding the sale of shares owned by the Federal Republic in the second half of the year and feared losses as a result of major block sales. This led to short-term share price reductions. As of October 2004, the T-Share benefited from rumors regarding the forthcoming dividend payment and from the markets’ reaction to the quarterly figures announced on November 11. The T-Share subsequently recorded a marked upswing of 11.5 percent in the fourth quarter.
Dividend. After two years of no dividend, the Board ofManagement and Supervisory Board of Deutsche Telekom resolved, against the backdrop of positive net income, to propose a dividend payment of EUR 0.62 for the 2004 financial year to the shareholders’ meeting.
T-Share as compared to DAX and Euro STOXX 50© (January 1 through December 31, 2004)
T-Share as compared to other telecommunications companies
(January 1 through December 31, 2004)
23
Shareholder structure
Geographical distribution of free float
Shareholder structure. Transactions by the Federal Republic and KfW banking group (formerly: Kreditanstalt für Wiederaufbau) in 2004 resulted in changes to the shareholder structure. In October 2004, KfW sold shares in Deutsche Telekom AG as part of a combined transaction involving the direct placement of around EUR 3 billion and the issuance of warrants with a share value of approximately EUR 1 billion. The warrants certify the purchaser the right to acquire around 63 million T–Shares from KfW. KfW’s interest in Deutsche Telekom’s capital stock initially decreased from 16.7 percent to 12 percent as a result of the direct placement of shares on the market. This caused the percentage of free float to increase from 57 percent to roughly 62 percent. In December 2004, KfW acquired shares of Deutsche Telekom AG held by the Federal Republic under an additional holding agreement. Around138.3 million shares were acquired – 3.3 percent of Deutsche Telekom’s share capital, thus increasing the stake held by KfW from 12 percent to approximately 15.3 percent (around 641.7 million shares.) The stake held by the Federal Republic decreased correspondingly to 22.7 percent.
Investor relations. In the 2004 financial year, Deutsche Telekom continued dialog with institutional investors, retail investors and financial analysts on an ongoing basis in order to achieve a fair valuation of the T-Share. During eight roadshows in Europe, Asia and the U.S., the Deutsche Telekom management personally presented the quarterly and annual results, as well as information on the Group’s strategic realignment, at some 250 individual and group sessions in 2004. Furthermore, management took part in twelve major international investment conferences. The “Investors’ Day” at CeBIT in Hanover and analysts’ conferences held at company headquarters, which everyone can follow on the Internet, are a permanent integral part of communication with the capital market.
Service has been further improved on the Investor Relations website. Starting this financial year, user-friendly online versions of the annual and quarterly reports have been available on the Internet. The German-language IR newsletter, “direct,” provides regular information on the quarterly figures and annual financial statements of the Deutsche Telekom Group; it also deals with topics such as Group strategy and the development of the Company’s shareholdings. The newsletter can be downloaded from the IR website under the menu item “Service Privatanleger” (in German only) and can also be sent out in printed form subject to free subscription.
Many retail investors also took advantage of the opportunity to enter into dialog with company representatives via the T-Share Forum (Forum T-Aktie – FTA) call center in the year under review. The FTA call center team, which handled around 90,000 requests in 2004, is available weekdays from 8 a.m. through 6 p.m. at the toll-free number 0800 330 2100 (fax 0800 330 1100) to answer any questions from retail investors relating to Deutsche Telekom.
24
In a wide-ranging study entitled “Living tomorrow,” the highly reputed market research company RAND examined the impact IT and telecommunications will have on our lives in the future. The RAND scientists focused on the year 2015, or more precisely, the most significant social trends they expect to emerge in the next ten years, and the changes IT and telecommunications will bring about in important areas of our lives. The study included interviews with more than 50 global experts and leading figures, as well as many citizens from various age groups. They were asked what they believe the future holds.
25
Living tomorrow.
Germany and Information and Communication Technology in 2015. Deutsche Telekom AG has asked RAND to provide an independent view of how information and communication technology (ICT) developments will affect Germany over the next decade. The study starts by highlighting three key social trends that are to emerge by 2015 due to the pervasive nature of ICT. It goes on to describe how ICT will affect family and social life in Germany, as well as education, health, work, government and political life at all levels. It concludes by examining the main social challenges that Germany is likely to face if it is to reap the benefits that ICT developments will offer by 2015. (1)
(1) The text on the following pages is an excerpt from the short version of a comprehensive, independent study prepared by RAND Corporation. The report provides a possible picture of how information and communication technology developments may affect Germany in the next ten years, highlighting the topics of family and private life, health and the health sector, education, work, and government and public life.
The full study can be downloaded from Deutsche Telekom’s website.
In capturing the complex issues presented in this report, RAND has applied the analytical and research experiences developed over its long history of thinking about the future. Following a detailed literature review, RAND interviewed over 50 global thinkers and leaders in the field of ICT. It has also sounded out how the public feels about a more ICT-enabled Germany, inviting citizens of different ages, educational backgrounds and professions to twelve workshops across the country to discuss one of two scenarios (“Life in a glass world” and “Life behind digital fences”) for an ICT-enabled Germany in 2015. This report brings together the ideas, expectations, hopes and fears of global experts and German citizens to present a comprehensive vision of the way Germany will live, study and work in 2015. It provides a vision of how ICT will affect family and social life, health, education, work and interaction with government. It concludes by examining the major challenges posed by the options and choices that the ICT world of 2015 offers. There are no prescriptions for the future – the goal of the report is to paint a picture of what life in the Germany of 2015 might be like, and foster an informed debate about the future of the country and its society.
New way to look at life. In 2005, daily life was becoming unthinkable without mobile telephones and the Internet, technologies which ten years before were still strange and new to many. Today in 2015, new technologies have entered mainstream use with similarly dramatic effect.
Fixed line broadband is ubiquitous, while high speed wireless communications enable ever more intelligent mobile personal digital assistants (PDAs)(2) to help us manage our lives on the move. Equally widespread is low-cost high-capacity storage, of which 2005’s MP3 players, digital cameras and television recording technologies (e.g. TiVo)(3) were the precursor. Meanwhile, at home or in the office, new large digital screens, data storage and data management are changing the way people work and interact. New life- styles, that make use of all the features and functions that the technologies of 2015 deliver, can be summarized in the following three major social trends:
• Always Together
• A Beautiful View
• Always Informed
Always Together. In 2015 information and communication technology (ICT) is bringing family and friends closer together again, reversing trends which in 2005 were having profound effects on traditional family models and care structures. Then people were living and working further apart, and family relationships and duties were becoming more individualized and less implicit. With both parents often working to support not only their children but also their own parents, they had less time to take personal care of them, leading to more homes for the elderly and childcare centers. At the same, work mobility and family commitments left little or no time to keep up with friends.
In 2015, the situation has started to change. At home, family and friends far away appear on a very large screen and 3d hologram picture(4) in the living room, as if they were only in the next room on the other side of a glass wall. On the move, people are continuously in touch with their partners, family or friends through instant video connects on portable devices. Location based services(5), by showing where various family members are, make it easier to physically meet up.
26
A Beautiful View. In 2015, Germans have enhanced their view of the world with windows into other locations and times by integrating them with advanced display screens. The more technologically-minded are even trying out the advanced functionalities of the first major commercial 3D and virtual reality applications.
The onboard navigation computer that put a simple map of the neighbourhood onto a little screen on the dashboard of a vehicle was a reality in 2005. The next step was to show the surrounding environment in 3D: a driver approaching an intersection saw a picture, not a map. With the next technological step forward, this picture was projected through a holographic image onto the windshield of the car so it blended with reality. Without distracting the driver, these images emphasize points of interest like the restaurant she is trying to find, hidden down a side street.
In 2015, Germans are interacting differently with their surrounding environment with the arrival of the first fully commercial virtual reality and 3D technologies (beyond online gaming). In 2005, advertising billboards at sports events were already showing different messages to different audiences watching the match. In 2015 this capability has expanded and made it possible to adjust pictures of the world surrounding the individual through virtual overlays and video glasses. The real world is more transparent today as objects of all kinds are tagged with tiny radio frequency identification (RFID) tags(6). Goods tell shoppers where they can be found. Buildings describe their role, history, opening hours and contact details to tourists as they pass by.
Always Informed. In 2015 individuals communicate constantly and through different means. Some examples were already evident in 2005 by just taking a look at children in Silicon Valley, London, Seoul, Berlin and Hamburg. After school, they routinely switched on their screens and logged onto half a dozen different online chat rooms, while also exchanging text and picture messages with their friends or even playing online games.
In 2015, these youngsters have become adults with an effortless ability to multitask, picking and choosing the information that they can use. They participate when interested, drop out when bored, like inhabitants of an electronic village strolling down the main street, going into shops they need or just popping into a friendly cafe for a chat.
In 2015, individuals do not only converse more, they talk with better information. Thanks to inexpensive, high capacity memory and communications, Germans have access to a vast and ever expanding common good of information, using innovative search engines and smart agents that, like well-trained librarians, know exactly what the user’s preferences and needs are. In fact, access is so easy that it is common to pause in a conversation to check some detail over their PDAs. Communication, therefore, can be more relaxed. In 2015, the ability to remember is less important than the ability to select, validate and prioritize, translating data and information into knowledge and action.
In 2015 these information and communication solutions are above all providing Germans with choices: new ways of living, new ways of managing their lives, and new ways to hold on to core traditional values.
(2) Digital assistants
Handheld computers with multiple functions such as diary, task manager, address box, calendars, notebook, telephony and Internet connections.
(3) TiVo
A “set top box” that allows digital storage of TV programs so that users can fast-forward through advertising breaks or unwanted material.
(4) Hologram
An advanced form of photography that allows an image to be recorded in 3 dimensions.
(5) Location based services
Services that allow users to access through their mobile phone information based on their geographical location.
(6) RFID
(Radio Frequency Identification) tags: small radio transmitters, which often appear as labels with a barcode, that transmit information relating to the device they are attached to.
27
28
29
Work and business.
By 2015 Germany has once again established itself as a leading knowledge-based country, building on its strong academic, creative and entrepreneurial traditions.
The concept of work is different and the role of the worker has evolved and for more reasons than just ICT. The aging of the German workforce, the rise in immigration and competition from Eastern Europe and the Far East have each had their impact. In 2015 employees expect to express their individuality; they join professional environments that suit their objectives and move on when their objectives change and the organization no longer meets them.
Inside organizations, employees communicate from wherever they are with colleagues and clients intensively and continuously using multiple channels and instruments: instant messaging, wireless and video-enhanced PDAs, traditional email. Yet although these technologies allow workers to be productive while constantly on the move around the world, working from home is also normal. They have access (secured by digital identity systems with combined biometric and voice recognition) to the same advanced configurations as at work: large digital flat screens and fast connection to IT infrastructures. This helps balance family, friends and work commitments. It also provides them with more time to get additional advanced training through online classes and meetings in locations nearby. Courses are based on strict international criteria backed by large consortia of like-minded academic training organizations and industry associations.
Working from home has also made it easier to engage older employees. They are able to work better or get retrained more easily. They can be productive with less physical effort. In 2015, as Germany is increasingly becoming a nation of old people, the contribution of elderly employees is fundamental to the preservation of social systems and the growth of the economy. Companies and institutions also want to retain the experience of these employees and pass it to the younger and often more restless knowledge worker of 2015.
Similar to the university, the office continues to be the place where colleagues can meet, help each other, share experiences and understanding about what is going on around them. Teamwork is the primary work method inside many service-based organizations. People, however, are not permanent members of teams but constantly change according to expertise and domain knowledge. Teams also increasingly incorporate members in different locations and often seamlessly include external experts. At the core of this team approach to work are advanced knowledge management solutions. Sharing documents electronically is the standard way to exchange comments and ideas – exchanges enhanced by IT platforms allowing the visualization of how individual workers share documents by representing them as figures standing on a document or a project block. At the same time, electronic documents and electronic messages are automatically organized and stored based on their content or regulatory and legal rules. With every document assigned a digital object identifier(1), it is easy to retrieve it and associate, if required, with similar and relevant data and information. The paperless office is however still a distant prospect.
(1) Digital identifier
A common framework for assigning names to content collected and distributed online.
30
Teamwork is also supported by the fact that people are increasingly working on projects, which allow them to face constant new professional challenges through more flexible employment contracts. Companies benefit from the trend towards work based on team and projects. This increases their organizational flexibility and different forms of professional networking.
Together with all these benefits, ICT-empowered workers also pose new challenges to the German company of 2015. Assessing their performance is a challenge. As teams work together, often from distant locations, it is increasingly difficult to monitor and assign merit for a successful project or initiative to a specific individual. New ICT solutions help monitor the effort put in and the value added by workers, in particular external members of the team.
Companies are working very hard on ways to keep their workers constantly trained in the latest technologies and to stop them from being poached by competitors. Training activities increasingly involve elderly employees whose professional and human experience is seen as extremely beneficial for the continuous success of an organization.
Importance of eBusiness
Age structure of labor population
31
32
33
Education and knowledge.
In 2015 Germany has regained its role as a leading player in the global knowledge society. At the heart of this transformation is the fact that Germans see school and university as just two milestones along the road of life-long learning.
It is generally accepted that individuals need to continuously devote their own time, effort and money to keep pace with the economic and commercial world surrounding them. Information and communication technology play a pivotal role in how people think about education.
Learning is more fun. Children use smart interactive systems, which put information and data literally at their fingertips. They work together electronically to solve problems or explore new areas of knowledge. Older students are invited to develop research projects with pupils from similar schools in other countries. Communication is not a problem since they started learning foreign languages at an early age.
The contribution of well-trained teachers is of course still vital, but in 2015, teachers are coaches more than instructors. They assist students in developing more comprehensive intellectual tools for critical thinking, including search technologies and information management. Teachers are also more like coaches because school is where the children of busy professionals spend an even larger part of their weekdays. Parents, aware of the pivotal role of teachers, use their PDAs to keep in close touch with how their children are doing; teachers send parents weekly or even daily reports about their children’s academic performance and discuss these and broader educational issues with them electronically. Parents who find themselves distracted by their professional lives are regularly prodded electronically by teachers to be more active in the academic progress of their children and new learning tools and methodologies
In 2015 the role of teachers receives greater financial recognition and schools get larger infrastructure investments. Better pay is needed to attract teachers in technical subjects; many of them are not sourced from traditional teaching training colleges but come on secondment from companies. The best teachers are invited to provide live lectures online to students from other schools. In 2015, in fact, companies are keen to forge direct links with schools to give themselves an edge in recruiting the best technically trained school leavers.
The university world has also changed. Elite universities are an established reality. They are able to compete with the top institutions in the world, thanks to the increasing financial support of industry. Elite universities, therefore, have the best facilities and top academic staff. They use advanced information and communication solutions to allow students to put together highly individualized study programs that provide them with the best skills and tools to compete internationally. They apply strict international standards to the quality of their facilities and coursework and constantly benchmark themselves against their domestic and international competitors. In 2015, these elite universities are constantly striving to preserve their brand – the key to attracting more and better students, faculty and financial supporters. In parallel other academic institutions focus on the needs of individuals with low professional skills, including immigrants; in 2015 it is too expensive for Germany not to address the needs of those without the necessary professional and technical skills to contribute to the knowledge-based society.
34
Despite these changes, the university as a physical place where students meet and develop life-long friendships and professional networks still exists, but IT plays an important role here too. Students use multimedia interactive groupware solutions to complete projects. They have constant access (via a range of electronic channels and devices) to large, free, digital libraries, catalogued according to internationally recognized digital object identifiers that automatically index any form of content: newspaper articles, official reports, photographs and illustrations, statistics, videos and sounds. Traditional teaching still takes place, but is more interactive. Students take online courses provided by other leading academic institutions with which their home university has established strategic alliances – in Poland, Hungary, China and India as well as North America and Western Europe. With access to the best specialist training and academic thinking available anywhere in the world, these courses equip German university students to compete in the international knowledge economy.
As with teachers, the role of the university professor has evolved. In addition to providing specialized knowledge, the professor is also a mentor and main point of contact with the private sector. In 2015, industry is involved in the daily life of all universities by providing essential financial support, guidance and training places as an integral part of the curriculum. They have access (under strict privacy and security controls) to the academic results of the best students, among whom they will compete to attract new recruits. This does not mean however that universities have dropped subjects with limited industry interest. University is still where students can go to explore traditional knowledge. However, they can also acquire skills that provide them with a larger set of options when deciding their future professional life.
As the world gets steadily more complex, industry increasingly values subjects like humanities and social sciences as the basis for critical thinking. Science students, therefore, are encouraged to take courses in these areas so that they have the tools to think out of the box, outside their own specific subjects.
In 2015 research groups tend to be more dispersed, and more eclectic: they work together on projects from remote locations using continuous video, voice and datalinks; and they have become increasingly multi-disciplinary and tend to include members from international think-tanks, publicly-funded research centers, government institutions and industry. Binding these disparate groups together into productive working teams requires levels of trust and respect that can only be built up face to face, and therefore even in a more globalised and IT-enabled R&D context, the university more than ever plays its traditional role as the geographic focus for physical experiments and the hub for regular meetings where teams stay updated about their research projects.
Changes in professional qualifications
35
36
37
Health and wellbeing.
In 2015 Germans have more control of their own health. They can access more and better information and discover more about how their body is working and the associated risks. There is more transparency in the medical sector allowing comparison of clinics and doctors based on patient reviews and rankings, though this did not come about automatically.
e-Health activity by Internet usage
Thanks to a concerted effort by doctors and other healthcare practitioners, as well as insurance firms, IT providers and government agencies, today people are living healthier, more active lives, while receiving improved and individualized healthcare at declining costs.
Access to information, nevertheless, is just one side of the coin. Diseases have not disappeared and information alone is not enough to cure them. Still, patients are given regular updates about their conditions via text messages (which today have more pictures than text) to their mobile devices or their home computers. They also regularly access online healthcare sites where they interact with a doctor via a digital camera attached to their computer. Especially with chronic or geriatric diseases, information and communication technologies (ICT) let patients live better lives as only the most serious cases are confined to care centers. Patients do much of the healthmonitoring and diagnostics themselves with the help of sophisticated ICT tools. Sensors embedded in clothes or implanted inside the body collect data that patients themselves download regularly into healthcare IT appliances for immediate automatic diagnosis. If the patient or the machine recognizes an anomaly, they are patched through immediately to a doctor for a second opinion. Although this process may seem time-consuming, doctors are able to react to smaller risks and problems by providing immediate information. Surgery visits have become less relevant. In the rapidly aging German society of 2015, remote healthcare monitoring is considered extremely beneficial.
In 2015, it is normal to collect and exchange large amounts of patients’ health data between specialists from different countries. This process is significantly assisted by the fact that every European patient has a comprehensive electronic health record of their entire medical history, protected by access controls that guarantee their privacy.
When surgical operations are required, new technology tools and instruments make the entire process less intrusive and, hopefully, less painful. In the case of orthopaedic and reconstructive surgery, the intensive use of GRID technology (1) model the outcome and long-term results of the operation and engage the patient in the overall decision-making process. In case of complex health cases, teams of specialists from around the world come together and undertake remote surgical procedures. X-ray and other diagnostic techniques, finally, have become more precise and effective thanks to improvements in data management and data extraction.
38
Groundbreaking solutions are bringing significant benefits to individuals who are physically or mentally impaired. Significant improvements in voice- and gaze-recognition technologies allow patients with severe speech disorders to communicate better. Similarly, patients with severe sight and hearing limitations use special implants to improve their faculties. New information and communication solutions improve the sense of independence and social involvement of people with genetic diseases like Down’s Syndrome (2) by providing them with easy-to-use IT appliances through which they can better interact and operate in different social environments such an office.
The overall healthcare sector is deeply affected by ICT. Remote monitoring relieves doctors of routine tasks and bureaucratic duties, so they can specialize even more and, at the same time, focus on assisting patients. Moreover, more detailed and comprehensive data about patient illnesses (once the necessary security and privacy controls were implemented) saw a dramatic speeding up of the development of better and more specialized drugs.
Drugs companies, therefore, have increasingly moved away from blockbuster drugs to focus more on individualized and targeted medicine. Makers of healthcare equipment have developed better instruments – less intrusive and more effective. Similarly, prosthetics has significantly improved in quality and precision as virtual reality and 3D technologies start to get the computing power they need for full maturity. Healthcare institutions are better able to exploit the new functionalities provided by the ICT world of 2015 to provide a better and more cost-effective service to their patients. As patients are admitted for emergency treatment, they are issued with RFID sensors and an intelligent electronic record with their basic health data. This record is accessed by doctors using their PDAs and links automatically to other databases or hospital services such as in-house pharmacies or laboratory testing centers.
Demographic pyramid in Germany, 1950–2015
(1) GRID Computing
The use of large computers arranged as clusters and connected through distributed telecommunication infrastructures.
(2) Down’s Syndrome
A congenital abnormality caused by a mutation of the DNA, commonly resulting in 47, not 46 chromosomes in each cell; people affected by Down’s Syndrome suffer from mental retardation, learning difficulties, loss of hearing and speech impediment.
39
40
41
Family and social life.
In 2015, life has become easier with new information and communication technology (ICT) solutions and services, and people have more time for their education, work, hobbies and fun. The traditional German family is still the dominant social unit, but other models have become increasingly common.
Internet subscribers per 100 inhabitants
Couples have fewer children, as more women postpone motherhood to achieve professional and personal objectives. More people live alone or with partners outside marriage, and there are more single parent families.
Family life is also different in 2015. The professional pressures resulting from a more service-based German economy mean more couples living separately much of the time. On the other hand many people are also working from home and are much closer to their families. But sheer physical proximity need not be an absolute prerequisite for family cohesion. Parents can interact with their children and provide help and support, for example with their school homework, by linking up electronically to the screen at home or through mobile PDAs.
In 2015 elderly people continue to live at a distance from their children. They are able, nevertheless, to talk constantly to their children and grandchildren while taking care of themselves with a set of new privately funded support networks and services. Similarly, information and communication technologies are giving Germans lots of new ways to strengthen and preserve their circles of friends, as well as making new ones online, where it is increasingly normal for individuals with similar interests to meet and share experiences.
Interaction among family members and friends is not the only thing to change. Home life is different in 2015, as some of 2005’s innovative ideas have become standard issue. Home entertainment has shifted away from the passive, such as watching films on television, listening to music or playing with games, towards the interactive. Each household member personalizes the way they entertain themselves by choosing content according to their own needs, tastes and schedules from the large amount available. The early signs were already there in 2005 with the rapid penetration of digital TV by hard disk recorders such as TiVo, but by 2015 this has become commonplace. Now family members express their creativity by making their own electronic music, plays and movies using gaming software. Homes are also more secure through new sensor systems and remote monitoring services that offer protection from both physical and electronic intrusions.
Traditional forms of entertainment, like going to the movies or the theatre, have not disappeared in 2015. Instead, people today have more choices. A group of sports fans in 2005 might have decided to go to the local stadium to feel the excitement of seeing the match live, or they might have decided to watch the game at home and get the commentary and match statistics on television.
42
Evolution of mobile communications
Today in 2015 they can opt for the best of both worlds and rent goggles at the stadium that zoom in on the live action, toggle through overlays of match statistics, or replay any moment of the game from any point of view in the stadium. They can also immediately send pictures of the game to friends and family.
At home, family and friends can play an increased set of online games together, based on almost-human animation figures. Parents restrict their children’s access to undesirable games by choosing sophisticated options (e.g. automated age-checking). Dynamic multimedia electronic albums have replaced holiday photo albums. Meanwhile, children organize the music for their parties by mixing music tracks or video stories using videogame technologies. They also organize online parties with friends from other towns by streaming live videos and music to each other’s venues. Finally, reading a newspaper is a not the way it used to be; Germans publish their own personal newspapers by automatically downloading news articles into an electronic page.
In 2015 information and communication technologies are making domestic life easier. Networked kitchens and the diffusion of RFIDs take care of many of the simpler domestic chores. Refrigerators scan the RFIDs on groceries as they arrive, keep a list of what is running out, and either print a shopping list on demand or place an order with the local supermarket online. In 2015, food shopping is a more efficient and enjoyable experience. Meanwhile, washing machines read RFIDs embedded in clothes and automatically adjust their programs. Automated vacuum cleaners crawl across the floor before returning to their docking stations to recharge their batteries.
Imprint
Copyright
2005, RAND
Authors
Lorenzo Valeri, Martin van der Mandele, Constantijn van Oranje
The study shows the prospective development of information and communications technology for the year 2015 and, as is natural for a future-oriented statement, involves uncertainties. It does not contain any statements whatsoever about the future business development of Deutsche Telekom AG or any other company.
43
Making tomorrow happen . . .
44
Setting the course.
The results of the RAND study clearly show that information technology and telecommunications will play a major role in our lives – both private and professional – in the future:
• Broadband communication, via both the fixed network and mobile communications, will be the norm for most people in Germany. Furthermore, IT and telecommunications applications will, to a large extent, be tailored to the personal requirements of each user.
• People will make greater use of our services in order to stay in contact with each other. Families, partners and friends living far apart will be able to see each other anytime via video calls.
• The availability of crucial information whenever and wherever needed will be a matter of course. High-performance search engines and highly intelligent digital agents will ensure direct access to the required information.
• Information technology and telecommunications will enable us to improve the balance between our working and private lives –technology will be an important element of personal decision-making.
• IT and telecommunications will lead to process optimization in many areas of life, for example healthcare, with further improvements in preventative care and treatment while, at the same time, enhancing efficiency in terms of cost management.
• In the education and training sector, IT and telecommunications will open up new horizons for schools, universities, on-the-job training, and life-long learning. Networked working in the scientific field will reach a new level of quality and will enrich both scientific teaching and research.
• The working environment will be more flexible overall – information and communication will have an even more decisive competitive impact as factors of production.
Deutsche Telekom initiates a paradigm shift. We believe that one of the most significant trends in the IT and telecommunications market will be the fact that the various forms of technology will become implicit integral parts of our lives. In terms of customer perception, the technology itself is fading further and further into the background. Customers are above all interested in the benefits of an application. The telecommunications industry is therefore evolving from a technological to a service industry.
We have laid the foundations for this change: in our company structure, our corporate culture, and in our day-to-day business activities.
Our starting point: the strategic realignment. The market of the future will be driven by customer requirements. They are the yardstick by which our actions and structures must be evaluated. This is why the work of Deutsche Telekom has been reorganized since the start of the year to concentrate on three strategic business areas and two customer segments:
• Broadband/Fixed Network covered by the T-Com and T-Online business units for the consumer segment;
• Mobile Communications by T-Mobile, also for the consumer segment;
• Business Customers by T-Systems Business Services for medium-sized and large businesses and T-Systems Enterprise Services for multinational corporations.
Our new Group structure allows us to focus clearly on the major growth areas in our industry, and thus to lay the foundations for profitable growth. At the same time, we are increasingly gearing our individual strategic business areas to our defined customer segments. This is the course we have set to achieve comprehensive customer centricity, which we have made our yardstick throughout the Group. It is neither the product nor the technology, but the added value for our customers and their various needs that determines our thoughts and actions in the development of products and services, in sales, public relations and all market communications.
Our strategy: to develop the markets of the future with an eye on the customer. We have already derived important measures on the basis of our strategic realignment. Our goal: to create added value for our customers and to cultivate profitable growth for our company.
45
Broadband. In the past four years, Deutsche Telekom has developed broadband communication into a mass market in Germany. In the future, we will be able to offer our customers an even broader portfolio of information, communication and entertainment services for the home. The selection ranges from personalized Internet services to movies and TV programs via broadband access. In this area too, the focus is no longer on the technology.
Mobile communications. We have set a similar trend in mobile communications. In this market, there is often too much talk about different networks – about GSM, UMTS, WLAN and the like. For the customer, this debate is essentially meaningless. What customers want is high-quality, value-for-money mobile communications services. T-Mobile will therefore focus its activities to an even greater extent on providing excellent services that are straightforward and easy to use, but nonetheless create considerable added value for the customer.
IP-based services. The development of telecommunications from a technology-based to a service industry will be given a decisive boost as IP technology, the transmission technology of the Internet, continues to evolve. In the future, broadband access at home will serve as a gateway to a personalized multimedia service portfolio for information and communication. We consider an integrated broadband strategy with combined voice, Internet and TV services an essential prerequisite for future growth and are working towards bringing so-called triple-play offerings to the market this year.
Business customers. Our new structure enables T-Systems, the Group unit responsible for business customers, to take a coordinated approach to marketing, and thus refine customer support. In the extremely complex business customer segment, we ensure customer proximity with the principle of one-stop shopping: one contact person, regardless of whether the customer requires information technology or telecommunications services. With its service portfolio, T-Systems can provide the full spectrum of ICT products and services on an integrated basis under the “business flexibility” performance promise. Our business customers are therefore able to tap added value as a result of being able to shape their business activities more flexibly and efficiently.
Research and development. We entered into an extensive cooperation project with the Technische Universität Berlin and established Deutsche Telekom Laboratories, which is now part of our central Innovation department and an integral part of our innovation management activities. Deutsche Telekom Laboratories are an associated scientific institute of the TU Berlin, organized according to private law. The strength of this approach lies in the close interlinking of science and industry, and thus in the target-oriented combination of knowledge and application. We want to make Deutsche Telekom Laboratories one of the leading research institutes in the world. As a first step towards this goal, 25 Deutsche Telekom researchers and 50 scientists from around the world will officially start work in April 2005 with the aim of developing innovations that will lead to simpler, faster and better telecommunication in the future.
Our driving force: a strong corporate culture. We have one clear goal: “As the leading services company in our industry, we network society for a better future. With top quality, efficiency and innovation, to the benefit of our customers. In every respect.”
Our customers should be able to expect – and receive – top quality from all Deutsche Telekom employees at all times. We want our customers to be satisfied and able to rely on excellent services. To guarantee this, we will consistently further develop processes and cooperation in the Group.
Our goal is to be an excellent service provider, and this is our commitment to our customers: For the first time, we are formulating customer promises that our customers can hold us to. We are thereby giving our customers a quality yardstick by which they – and we – can measure the quality of our services.
Making tomorrow happen. Our customer promises, our development work, and our uncompromising focus on the customer needs of today and tomorrow all reflect the fundamental change in our corporate culture as a central element of our strategic realignment. For us, innovation means more than just technological improvements – it also includes innovative organizational structures, processes and workflows in our company. Making tomorrow happen. As a company of the future, we think and act with our customers in mind. And we are applying this mindset today – at all levels.
46
47
48
49
Deutsche Telekom. Combined management report of the Deutsche Telekom Group and Deutsche Telekom AG for the 2004 financial year.
• Net revenue increased by 3.7 percent to EUR 57.9 billion; adjusted to exclude exchange rate effects and changes in the composition of the Group, the increase was 5.8 percent
• Operating results increased by over 80 percent to EUR 9.9 billion
• Net income increased to EUR 4.6 billion
• Further sharp rise in net cash provided by operating activities to EUR 16.3 billion, free cash flow increased to EUR 10.2 billion
• Net debt reduced by EUR 11.4 billion to EUR 35.2 billion
• Broadband initiative leading to strong new customer growth at T-Com and T-Online
• Number of mobile communications customers served by the Group increased to 77.4 million
• T-Systems increased order book by 6.3 percent to EUR 13.4 billion
• Strategic realignment of the Group on three key growth sectors as of 2005
• Dividend of EUR 0.62 proposed for 2004
Growth path continues in 2004; profitability up significantly. The 2004 financial year was extremely successful for Deutsche Telekom. The Group achieved its goal of continuing profitable growth. In addition to the divisions’ positive development, the successful implementation of the centrally managed, cross-divisional “Agenda 2004” program played a key role in this. The focus was on intensified cooperation between the T-Com and T-Online divisions on the Group’s broadband initiative, and between T-Systems and T-Com on the business customer initiative. The divisions and the Group’s headquarters also cooperated closely to implement the goals of Deutsche Telekom’s efficiency, innovation, human resources, and quality initiatives.
The Group’s continued growth path is reflected in the 3.7 percent increase in net revenue to EUR 57.9 billion. Revenue was negatively impacted in the year under review by exchange rate effects amounting to EUR 0.8 billion, in particular relating to the translation of U.S. dollars, and by changes in the composition of the Group amounting to EUR 0.3 billion. Adjusted for these effects, revenue growth amounted to 5.8 percent. The main contribution to this increase was made by its mobile communications and broadband business.
Operating results rose by more than 80 percent year-on year to EUR 9.9 billion. This was mainly due to revenue growth and efficiency improvements as well as a write-up of U.S. mobile communications licenses.
The Group clearly achieved its goal of increasing net income in 2004, generating EUR 4.6 billion compared with EUR 1.3 billion in 2003. Besides the particularly positive development of the operating results, this was also driven by a EUR 0.7 billion improvement in net financial expense, mainly as a result of the continued debt reduction and the corresponding improvement in net interest expense. This was offset by an increase of EUR 1.8 billion in income taxes, particularly as a result of the high level of income before taxes and the restriction on the use of loss carry forwards introduced in 2004.
As a result of this encouraging performance in the 2004 financial year, the Board of Management and the Supervisory Board of Deutsche Telekom will propose to the shareholders’ meeting to pay a dividend of EUR 0.62 per share carrying dividend rights, which brings the dividend back to the level of 1997 to 2000.
50
Net cash provided by operating activities increased by EUR 2.0 billion year-on-year to EUR 16.3 billion. This sharp rise relates mainly to the substantial improvement in operational business and working capital. After deduction of cash outflows for investments in intangible assets (excluding goodwill), and property, plant, and equipment, free cash flow amounted to EUR 10.2 billion.
Net debt was again reduced significantly by EUR 11.4 billion year-on-year to EUR 35.2 billion, primarily using free cash flow.
T-Com develops key growth potential with T-DSL. In 2004, the T-Com division provided major impetus for increased use of high-speed Internet communication via T-DSL by continuing to differentiate its range of mass market broadband services and through concerted market development, in particular with T-Online as part of its broadband initiative. In Germany alone, the number of DSL lines used by T-Com customers for high-speed Internet communication rose from around 4 million to 5.8 million during the 2004 financial year. This also includes 246,000 DSL lines that T-Com sold to competitors under resale agreements. Deutsche Telekom’s subsidiaries in Hungary, Croatia, and Slovakia that are managed by T-Com also increased their number of DSL lines by 140 percent year-on-year to 265,000. In total, T-Com increased the number of DSL subscribers it serves with broadband lines in Germany and abroad by 2.0 million to 6.1 million. Another key element of T-Com’s broadband strategy is Wireless Local Area Network (WLAN) – the most important wireless technology for broadband Internet access via T-DSL. This provides customers with wireless online access using WLANs both from home and via public WLANs (HotSpots). T-Com sold 658,000 WLAN terminal devices in 2004 and concluded over 4,000 agreements to establish its own HotSpots in Germany.
The number of narrowband lines (including ISDN channels and lines for internal use) in Germany and abroad fell by 1.4 percent to 54.7 million channels. The number of ISDN channels increased by 0.8 percent over the course of the year to 21.7 million. In Germany, substitution effects by mobile communications and customer churn led to a drop in the number of narrowband lines by 1.6 percent compared with the prior year.
Key financial figures for the Deutsche Telekom Group
|
(billions of €) |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
57.9 |
|
55.8 |
|
53.7 |
|
48.3 |
|
40.9 |
|
|
of which: international revenue |
|
22.7 |
|
21.1 |
|
18.4 |
|
13.2 |
|
7.8 |
|
|
Operating results |
|
9.9 |
|
5.4 |
|
(21.1 |
) |
2.8 |
|
7.6 |
|
|
Net income (loss) |
|
4.6 |
|
1.3 |
|
(24.6 |
) |
(3.5 |
) |
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
16.3 |
|
14.3 |
|
12.5 |
|
11.9 |
|
10.0 |
|
|
Cash outflows for investments in intangible assets (excluding goodwill) and property, plant, and equipment |
|
(6.1 |
) |
(6.0 |
) |
(7.6 |
) |
(10.9 |
) |
(23.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow (before dividend payments) |
|
10.2 |
|
8.3 |
|
4.8 |
|
1.1 |
|
(13.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees at year-end |
|
244,645 |
|
248,519 |
|
255,969 |
|
257,058 |
|
227,015 |
|
Continued high growth in mobile communications. T-Mobile substantially increased revenue and its subscriber base. T-Mobile USA was again the most successful T-Mobile company with almost 4.2 million new customers, 3.6 million of whom are fixed-term contract subscribers. The U.S. subsidiary had a total of 17.3 million customers at the end of 2004. T-Mobile Deutschland acquired 1.1 million new customers in the 2004 financial year, bringing the total number of customers to 27.5 million. The main growth here was in terms of quality, with over 80 percent of new customers being fixed-term contract subscribers. The company’s focused subscriber acquisition strategy – for example the marketing of calling plans with packages of inclusive minutes and no monthly charge (Relax rates) – played a key role in this success. In Great Britain, T-Mobile UK (including Virgin Mobile) recorded around 2.1 million new customers, up 75 percent year-on-year. Subscriber numbers at T-Mobile Czech Republic and T-Mobile Netherlands developed particularly encouragingly in 2004, while in Austria they remained stable despite intense competition. Together with the Eastern European mobile communications companies that were still assigned to T-Com in 2004, the total number of mobile communications customers served by the Group amounted to 77.4 million.
51
An important milestone in 2004 was the conclusion of the agreement for T-Mobile USA to acquire the GSM mobile communications network from Cingular Wireless in California/ Nevada. Previously, this network had been managed together with Cingular as a joint venture. Another significant event in 2004 was the launch of the UMTS mobile communications networks in Germany and the United Kingdom.
Industry-specific marketing helps T-Systems make its mark in competition. The systematic implementation of the Focus & Execution strategy helped T-Systems to increase new orders in 2004 by a total of 6.7 percent year-on-year. At the end of 2004, order levels, having increased by 6.3 percent, amounted to EUR 13.4 billion. T-Systems improved its performance once again despite the continued pressure on margins and the dynamic structural changes in its market environment. It achieved this primarily through continued improvements in efficiency and active cost management. The division increased its revenue from external customers as a result of industry-specific marketing. Overall, the positive development of T-Systems’ revenue was driven by significant growth in revenue from the Information Technology unit. Business from telecommunications services continued to fall due to the strong price and competitive pressure in many areas of the market – especially in international carrier services.
T-Online again increases subscriber numbers. T-Online successfully maintained its healthy market position primarily thanks to the broadband initiative implemented together with T-Com. Subscriber growth was also driven by a new, attractive rate system and the expansion of the division’s range of online content. T-Online recorded around 1.2 million new DSL subscribers in 2004, i.e., around
0.6 million more new additions than in the previous year.
The strategic realignment allows us to continue tackling the challenges of a new era in 2005. In 2005, we want to continue to build on the Group’s successes in the 2004 financial year with a clear focus on sustained profitable growth. For this reason, the Group will concentrate on its three key growth markets: broadband/fixed network, mobile communications, and business customers, and will focus squarely on customer needs. The Group is therefore replacing its existing four-pillar structure with three strategic business areas: Broadband/Fixed Network covered by the T-Com and T-Online business units; Mobile Communications by T-Mobile; and Business Customers by T-Systems Enterprise Services for multinational business customers and T-Systems Business Services for medium-sized and large business customers. Walter Raizner, who was appointed to the Group Board of Management as of November 1, 2004, is responsible for the newly created board of management department Broadband/Fixed Network. A core element of our strategic realignment is the process launched in 2004 of merging T-Online International AG (“T-Online”) into Deutsche Telekom AG (“Deutsche Telekom”). When the merger takes effect, the (outstanding) shareholders of T-Online will become Deutsche Telekom shareholders. In view of the fact that some T-Online shareholders may prefer to sell their shares for a known cash purchase price well before the merger becomes effective, Deutsche Telekom announced on October 9, 2004 its decision to make a voluntary tender offer to purchase all shares in T-Online. The purchase price offered corresponded to the closing price of the T-Online share in Xetra trading on October 8, 2004 (EUR 8.99), the last day before publication of the decision to make the offer. T-Online shareholders had the opportunity to accept this offer from publication of the offer documentation on November 26, 2004 until midnight on February 4, 2005. As a result of this offer, Deutsche Telekom acquired a further 172,440,023 shares in T-Online, thus increasing its total
shareholding to 88.02 percent of the capital stock and voting rights.
To successfully transform the Group’s structures so that they are integrated in the eyes of our customers, and to secure sustained profitable growth, we have launched a so-called Excellence Program that will run for three years. This program covers three business area-specific growth programs actively supported by centrally managed, Group-wide projects.
52
• Global economy grows dynamically
• Sluggish economic recovery in Germany
• Mobile communications once again the growth driver
• Broadband market drives forward the Internet as a mass medium
• Amendment to the German Telecommunications Act
Global economy grows dynamically in 2004. The upturn in the global economy continued in the course of 2004, with all the world’s regions contributing to economic growth. However, the expansion was depressed by the tailing off of economic policy initiatives and rocketing oil prices. Given this environment, economic growth in the United States continued to be driven by high consumer and investment demand. The emerging economies in Asia also developed positively, as did Japan and the United Kingdom. The economic development in these regions was driven by strong export and domestic demand. The euro zone also profited from the global economic upturn and continued to recover.
According to estimates by the Institut für Weltwirtschaft (Institute for World Economics), the United States and the United Kingdom increased their real gross domestic product (GDP; the value of all products and services generated within a country) by 4.4 percent and 3.2 percent respectively. By contrast, development in the euro zone economies was weaker, with growth of 1.8 percent. The new member states of the European Union continued to show high economic growth, recording real GDP growth of 4.9 percent.
The exchange rates of major currencies were again subject to strong fluctuations in 2004. The U.S. dollar lost ground against the euro and the Japanese yen, particularly in the second half of the year. If this exchange rate trend continues to intensify, it could impede an upturn in the economies whose currencies are appreciating.
Gross domestic product
Modest economic recovery in Germany. The economic recovery also gained ground in Germany in the course of the year, but remained modest, with real GDP up by 1.6 percent in 2004. This increase is primarily due to the substantial rise in exports. By contrast, growth in Germany’s domestic demand was muted. Although the German economy is no longer stagnating, there are still no signs of improvement on the labor market.
53
Telecommunications market continues to grow. According to the European Information Technology Observatory, “EITO 2004”, the German telecommunications market grew by 3.4 percent in 2004 to around EUR 64.7 billion. The size of the market in the prior year was adjusted to EUR 62.6 billion. Deutsche Telekom’s domestic revenue increased by 1.3 percent year-on-year to EUR 35.1 billion at the end of 2004. With an imputed market share of 54.3 percent in 2004, Deutsche Telekom’s share of the German market was thus down slightly from the level of 55.4 percent recorded in the previous year. This decline is due to continuing strong competitive pressure, as the German telecommunications market continues to be characterized by a large number of providers. The licensing requirement for telecommunications companies was lifted in mid-2003. At the time, the number of licensees was 875 (2002: 850). The number of telecommunications companies that had reported their activities to the German Regulatory Authority for Telecommunications and Posts (Regulierungsbehörde für Telekommunikation und Post – RegTP) in mid-2004 was around 2,200 (2003: 2,069). Deutsche Telekom is not only subject to regulation in Germany; some of its subsidiaries abroad are also subject to local regulation. In the fixed-network area, this applies to subsidiaries in Hungary, Slovakia, Croatia, and Macedonia in particular. In mobile communications, Deutsche Telekom subsidiaries are also subject to country-specific regulation in the United States, the UK, the Netherlands, the Czech Republic, Croatia, and Austria.
The mobile communications market remains the growth driver. T-Mobile is one of the world’s leading providers of mobile communications services, with activities in Europe’s most important and dynamic markets as well as in the United States. Although some markets have already achieved a high degree of saturation, all mobile communications subsidiaries again increased customer numbers in 2004. T-Mobile USA acquired over 4 million new customers over the course of the year and had over 17 million customers in total at the end of 2004. With around 28 million customers, T-Mobile Deutschland is the leading provider on the German market. In the United Kingdom, more than 15 million customers have now chosen T-Mobile UK (including Virgin Mobile), making it the company with the most mobile communications customers on this market. T-Mobile is the largest mobile communications company on the Central and Eastern European markets, where it has just under 20 million customers.
Restrained positive development on the business customer market. After its weak performance in recent years, the business customer market for information technology and telecommunications (ICT) services showed signs of a slight recovery in Western Europe and Germany from mid-2004. The key drivers were the upturn in corporate domestic investment and the clear trend among business customers to focus on their core business and outsource their IT services. Nevertheless, development in the individual ICT market segments was extremely varied: In the IT sector, the Outsourcing and Systems Integration units again showed stable growth, while Desktop Services continued to be subject to substantial price pressure. In the telecommunications sector, Internet Protocol (IP) Solutions and Hosted Services recorded strong positive growth. By contrast, the clearly declining fixed-network market suffered from ongoing price pressure and substitution by IP-based technologies. T-Systems maintained its leading position on the German market in all sub-segments and even expanded it in the area of IT Services. T-Systems retained its good position in international competition.
Broadband lines drive forward growth in the online market. The Internet has firmly established itself in Germany and in Europe as a comprehensive medium for information, communication, transactions, and entertainment. According to Jupiter Research, the number of users in Western Europe who access the Internet from home, work, or elsewhere increased from 163 million in the previous year to over 177 million in 2004. This represents an increase of around 9 percent. Overall, around 45 percent of people in Western Europe have their own Internet access. The proportion of Internet users in Germany has increased by around 5 percent to around 52 percent of the population. Competition on the provider side further intensified in 2004, with broadband Internet being the clear growth driver. In Western Europe, the proportion of households with broadband Internet access out of the total number overall increased from approximately 13 percent in the previous year to about 19 percent in 2004. This means that around 38 percent of online households now have a broadband Internet connection. Broadband technology further increases the intensity and quality of Internet usage; it enables and promotes usage scenarios for on-demand entertainment services such as films, music, and online games. At the same time, it increases time spent online.
54
New Telecommunications Act comes into force. Deutsche Telekom’s business activities are strongly affected by the regulation of the telecommunications market. The revised German Telecommunications Act (Telekommunikationsgesetz – TKG) came into force on June 26, 2004. The amendment was required as new European telecommunications directives had to be translated into German law. The amended TKG continues to require the regulation of many areas of telecommunications services and will also form the basis for additional new regulations in 2005, for example in the area of customer protection.
In future, the new TKG requires the Regulatory Authority to comprehensively analyze the market at the beginning of the regulatory process. The Act no longer specifies the markets that are subject to regulation. Instead, the market analysis process will be used to determine which telecommunications markets require sector-specific regulation as a matter of principle and to what extent a company has significant market power. This suggests potential for a reduction in the scope of regulation. Every two years, the European Union publishes a recommendation on the markets to be analyzed; this recommendation currently focuses primarily on the markets for fixed-network telephone lines and relevant outgoing national and international calls, including the associated upstream markets. These relate to line sharing and interconnection services as well as the upstream market for broadband Internet access in fixed networks and transmission paths. Other upstream markets relate to mobile communications and broadcasting.
Under the new TKG, the Regulatory Authority can continue to impose certain obligations on companies that have significant power on individual markets regarding the services they offer on the market in question. For example, a company with significant market power may be obliged to offer certain upstream products, the prices of which are subject to the prior approval of the Regulatory Authority. Regulation therefore continues to substantially encroach on the entrepreneurial freedom of the company concerned.
The new TKG provides for the relaxation of the fiercely competitive end-user markets. In future, for example, fees for end-user services will only be subject to ex post regulation. However, the Act redefined upstream services regulation and the control of anti-competitive practises, and tightened them overall. The specific effects of the amendment on Deutsche Telekom’s business activities will depend on the interpretation and application of the Act by the Regulatory Authority.
In 2004, the Regulatory Authority took various key decisions on the basis of the old and new Acts. In chronological order, these include in particular:
• the launch of a consultation process involving both the German regulator and the European Commission on Voice over Internet Protocol (VoIP), to examine the future regulatory treatment of VoIP;
• the establishment of the obligation to obtain approval for packages in which T-Com sells its lines and rate options in combination with various features;
• the establishment of revised one-time activation and cancellation charges for subscriber lines for competitors;
• the extension of rate approvals for leased lines (analog leased lines as well as digital leased lines and carrier leased lines);
• the establishment of revised monthly rates and revised one-time activation and cancellation charges for line sharing;
• the approval of the “country select” option;
• the establishment of revised charges for the origination of T-DSL users’ online data traffic to Internet service providers;
• the decision that around 30 city carriers may receive higher fees for routing calls through their networks than T-Com is permitted to charge for the same type of services. This decision will result in higher costs, which is why T-Com will levy a surcharge for calls into the networks of the respective city carriers from May 2005;
• the launch of the new “032” number range for providers of VoIP services;
• the establishment of revised charges for co-location and ventilation technology relating to interconnection and the subscriber line.
55
Development of business in 2004.
• Net revenue increased by 3.7 percent to EUR 57.9 billion; adjusted to exclude exchange rate effects and changes in the composition of the Group, the increase was 5.8 percent
• Operating results increased by over 80 percent to EUR 9.9 billion
• Net income increased to EUR 4.6 billion
• Further sharp rise in net cash provided by operating activities to EUR 16.3 billion, free cash flow increased to EUR 10.2 billion
• Net debt reduced by EUR 11.4 billion to EUR 35.2 billion
• Deutsche Telekom’s rating upgraded
• Continuous expansion of position in Central and Eastern Europe
• Conversion to IFRS will be completed in 2005
Net revenue increased continuously
Net revenue continues to grow. Deutsche Telekom’s revenue continued to develop positively in the 2004 financial year with growth of 3.7 percent year-on-year to EUR 57.9 billion. Revenue was reduced in the period under review by exchange rate effects amounting to EUR 0.8 billion, in particular relating to the translation of U.S. dollars. This was accompanied by consolidation effects totaling EUR 0.3 billion that relate, for example, to the deconsolidation of T-Com’s remaining cable companies and T-Systems’ companies. Adjusted for these effects, the Deutsche Telekom Group generated revenue growth of 5.8 percent.
As in the prior year, the increase is again due to growth in the T-Mobile, T-Systems, and T-Online divisions. The Group’s main growth and revenue driver was again the T-Mobile division, which increased revenue by around 12 percent despite unfavorable exchange rate trends. The key factor in this growth was the further increase in customer numbers, particularly at T-Mobile USA. The division also achieved its goal of qualitative growth by increasing its proportion of fixed-term contract subscribers from around 49 percent of its customer base in the previous year to around 51 percent. In a market that is slowly recovering, T-Systems increased its revenue slightly compared with the previous year despite negative deconsolidation effects. The growth was mainly driven by information technology, which offset the decline in business from telecommunications services. T-Online’s ongoing strong growth in customer numbers and revenue was mainly due to its continuing active development of the DSL broadband market together with T-Com, combined with stronger demand for content and services and the resulting increase in time spent online, as well as the first-time consolidation of the Scout24 group.
56
T-Com’s business was once again affected by regulatory and competitive factors. In particular, the lower number of call minutes as a result of the introduction of call-by-call and carrier preselection offers by competitors and the resulting loss of market share, combined with negative deconsolidation effects, led to a decrease in revenue in Germany that was not offset by T-Com’s fast-growing broadband business. The drop in revenue was compounded in particular by the continued trend of direct interconnection between other carriers and the reduction in interconnection charges at the end of 2003.
Substantial increase in profitability thanks to strict cost management. Deutsche Telekom generated net income amounting to EUR 4.6 billion in the 2004 financial year compared with EUR 1.3 billion in the prior year.
This marked increase is primarily attributable to the particularly positive development of operating results, which increased from EUR 5.4 billion in the prior year to EUR 9.9 billion. Besides the continued growth in revenue, consistent and comprehensive cost management also contributed to this development. Despite the increase in revenue, the cost of sales (EUR 31.4 billion) was kept on a par with the previous year, particularly as a result of the successful implementation of measures to improve efficiency. In addition, selling and administrative costs decreased by a total of EUR 0.5 billion year-on-year, in particular due to the improvement in cost structures and, in the case of selling costs, more consistent receivables management in sales. The increase in other operating income by EUR 2.4 billion to EUR 6.9 billion also boosted net income in the 2004 financial year. This relates mainly to the write up of U.S. mobile communications licenses by EUR 2.4 billion due to changes in fair value measurements. The development of other operating expenses had an offsetting effect with a year-on-year increase of EUR 0.5 billion. This relates in particular to the recognition of an accrual of EUR 0.5 billion for the winding up of the U.S. mobile communications joint venture.
Net revenue by division
(1) Amounts are calculated in accordance with German GAAP as specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the separate reports of T-Online International AG, which have been calculated in accordance with International Financial Reporting Standards (IFRS) since the beginning of 2003.
(2) GHS: Group Headquarters & Shared Services.
Net financial expense improved by EUR 0.7 billion year-on-year. This was primarily due to the continued reduction of debt and the resulting improvement in net interest expense. In addition, increased income from companies accounted for under the equity method and lower expenses for Toll Collect had a positive impact on the income related to associated and related companies.
This was offset by an increase of EUR 1.8 billion in income taxes, particularly as a result of the high level of income before taxes and the restriction on the use of loss carry-forwards introduced in 2004.
57
Key figures for Group segments
|
|
|
Total revenue (2) |
|
Income (loss) |
|
Employees (4) |
|
||||
|
(billions of €) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T-Com |
|
27.8 |
|
29.2 |
|
5.5 |
|
4.7 |
|
125,395 |
|
|
T-Mobile |
|
25.0 |
|
22.8 |
|
4.6 |
|
0.8 |
|
44,226 |
|
|
T-Systems |
|
10.5 |
|
10.6 |
|
(0.2 |
) |
(0.5 |
) |
39,880 |
|
|
T-Online(5) |
|
2.0 |
|
1.9 |
|
0.1 |
|
0.1 |
|
2,963 |
|
|
Group Headquarters & Shared Services |
|
4.5 |
|
4.2 |
|
(3.8 |
) |
(4.1 |
) |
35,095 |
|
|
Reconciliation(6) |
|
(11.9 |
) |
(12.9 |
) |
0.3 |
|
0.4 |
|
|
|
|
Group |
|
57.9 |
|
55.8 |
|
6.5 |
|
1.4 |
|
247,559 |
|
(1) The Toll Collect joint venture has been assigned to T-Systems since April 1, 2004. For reporting purposes, the equity-accounted investment in Toll Collect is therefore no longer presented under T-Com. To facilitate comparison, prior-year figures have been adjusted accordingly.
(2) Net revenue plus revenue from business with other segments.
(3) Following the change to the cost-of-sales method, this item includes other taxes.
(4) Annual average.
(5) Amounts are calculated in accordance with German GAAP as specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the separate reports of T-Online International AG, which have been calculated in accordance with International Financial Reporting Standards (IFRS) since the beginning of 2003.
(6) Items to be reconciled mainly relate to consolidation entries.
Profitable growth in the divisions. T-Com increased income before income taxes by EUR 0.8 billion to EUR 5.5 billion in the year under review, despite a decrease in revenue. This development was mainly attributable to increases in efficiency that led in particular to reductions in the cost of sales, selling costs, and general and administrative costs. Reasons for this included the lower number of employees and the corresponding reduction in personnel-related operating costs. In addition, depreciation and amortization decreased compared with the previous year, mainly as a result of restrained capital expenditure in prior years.
T-Mobile recorded a considerable increase in its income before income taxes from EUR 3.8 billion to EUR 4.6 billion. This is due in part to the strong increase of EUR 2.5 billion in net revenue, primarily as a result of the growth in subscriber numbers. On the other hand, the write-up of U.S. mobile communications licenses (EUR 2.4 billion), the sale of further shares in the Russian shareholding MTS, and marked economies of scale and synergy effects also had a positive impact on income before income taxes. This was offset primarily by an expense of EUR 0.5 billion relating to the winding up of the U.S. mobile communications joint venture.
T-Systems improved its income before income taxes by EUR 0.4 billion year-on-year. This positive development is mainly attributable to the success of the cost reduction and efficiency enhancement measures implemented as part of the “Focus & Execution” strategic program. This led to a disproportionate reduction in the cost of sales relative to the revenues generated. Furthermore, net financial expense improved in particular as a result of reduced expenses for Toll Collect.