BONN, Germany -- Deutsche Telekom continued its course of earnings-oriented growth and pushed ahead with its debt reduction in the first half of the year. The Deutsche Telekom Group's new focus is showing clear results.

Group revenue increased by EUR 1.5 billion, 5.7 percent, year-on-year to EUR 27.2 billion. Adjusted Group EBITDA increased by around 17 percent year-on-year to approximately EUR 9.1 billion, primarily as a result of the implementation of the Triple-E program.

Net income improved by EUR 5 billion year-on-year to a positive EUR 1.1 billion in the first half of 2003, mainly as a consequence of the improvement in results from ordinary business activities. Net debt decreased by around EUR 8.1 billion since December 31, 2002 to EUR 53.0 billion at June 30, 2003. Compared with EUR 64.3 billion at September 30, 2002, net debt has decreased by EUR 11.3 billion.

"We have further increased revenue and EBITDA and have made rapid progress in reducing debt. Our programs for improving efficiency are generating better and better results. We are growing - and our growth is increasingly profitable. And this is against the background of a weak economy in the first six months of the year," said Kai-Uwe Ricke in Bonn on Thursday.

Increased efficiency and reduced costs

The T-Mobile and T-Online divisions were the major contributors to revenue growth in the second quarter and the first half of 2003. Group revenue increased by 4.7 percent in the second quarter to EUR 13.6 billion. The impact of the deconsolidation of the cable business, sold effective March 1, 2003, and the strength of the euro - against the U.S. dollar and the pound sterling in particular - which has the effect of reducing revenue figures when translated, should be taken into consideration. Revenue growth in the first six months of 2003 was 5.7 percent, bringing the figure up to EUR 27.2 billion. Organic growth (after deconsolidation of the remaining cable companies, assuming constant foreign currency exchange rates and excluding T-Mobile Netherlands) would have amounted to 9.1 percent to EUR 27.8 billion in the first half of 2003.

Deutsche Telekom's international business also developed positively, with a plus of 15.4 percent to almost EUR 5 billion in the quarter and almost 18 percent to EUR 10.1 billion in the half-year. Despite the negative foreign currency translation effects from the conversion of revenue figures into euros, the proportion of international revenue in the first half of 2003 increased considerably to 37.0 percent from 33.2 percent in the first half of 2002.

Group EBITDA improved by 27.2 percent in the first half of 2003 to EUR 9.6 billion, compared with EUR 7.6 billion in the same period last year. Adjusted EBITDA in the first half of 2003 increased by 17 percent to EUR 9.1 billion. The adjusted EBITDA margin improved considerably from 30.1 percent to 33.3 percent at the same time.

All the divisions of the Group contributed to the EBITDA increase. Special factors amounting to a net total of around EUR 0.1 billion had a positive effect on EBITDA in the second quarter. These special factors were primarily a result of the income from the sale of financial assets (principally from T-Mobile's disposal of interests in MTS). This was offset by expenses from higher additions to pension accruals occasioned by changes in discount rates (additional minimum liability, AML), particularly at T-Com.

Group EBITDA in the second quarter of 2003 increased by almost 25 percent year-on-year to EUR 4.7 billion; adjusted for special influences, EBITDA increased by almost 16 percent to EUR 4.6 billion. Adjusted EBITDA also increased by approximately 2.7 percent compared with the first quarter of 2003 (EUR 4.5 billion).

The EBITDA growth clearly shows that the massive range of measures to increase efficiency are having a positive effect. Thanks to its Triple-E program, the Group has been able to generate an extra contribution to earnings of approximately EUR 800 million, mainly as a result of cost savings and economies of scale. Both T-Com and T-Systems saved slightly over EUR 0.4 billion in the cost of materials. T-Mobile and T-Online generated considerable economies of scale of around EUR 0.4 billion while increasing their revenues and thus further expanded the EBITDA margin.

Net income

The year-on-year improvement of EUR 5 billion in the Group's net income to EUR 1.1 billion in the first half of 2003 is attributable primarily to the improvement in results from ordinary business activities, but also, to a lesser extent, to the favorable tax effects, recorded in the first quarter. Adjusted for the relevant special effects, relating to sales of interests, the adjustment of pension accruals, write-downs and tax effects, net income for the first half of 2003 amounted to EUR 275 million, as compared with a net loss of approximately EUR 3.1 billion in the same period last year.

Reduction of net debt

Since debt reduction measures were initiated in the third quarter of 2002, net debt has decreased by EUR 11.3 billion by June 30, 2003. With just half the year gone, therefore, the debt reduction target announced in November last year as part of the 6+6 program has practically been achieved. Net debt was reduced to EUR 53.0 billion at June 30, 2003. This represents a further reduction of EUR 3.3 billion in the second quarter in addition to the EUR 4.8 billion already achieved in the first quarter of this year. The reduction is primarily attributable to cash inflows from the disposal of shareholdings (in particular the sale of shares in MTS for around EUR 0.5 billion and the stake in the Malaysian company Celcom for approximately EUR 0.1 billion in the second quarter). Net cash provided by operating activities and foreign currency translation effects also contributed to debt reduction.

Free cash flow

Free cash flow before dividend amounted to EUR 4.0 billion in the first half of 2003, approximately 40 percent higher than in the first half of 2002 (EUR 2.8 billion). In addition, the fact that a dividend was paid in 2002 for the 2001 financial year, but not in 2003 for the 2002 financial year, improved 'free cash flow after dividend payment' in the first half of 2003 in a year-on-year comparison from EUR 1.3 billion to EUR 3.9 billion.

Outlook

Although 2003 started well for Deutsche Telekom, a recovery of the national economy is not yet in sight. Deutsche Telekom's goal is therefore still to maintain stable business development and to achieve its planned Group EBITDA of between EUR 17.2 and 17.7 billion for the full financial year. The priorities for 2004 remain: to optimize cash generated from operations and to continue with the reduction of debt. The medium-term goal is to reduce debt to a figure that is between twice and three times adjusted EBITDA in order to guarantee continued, unhampered access to capital markets. The Board of Management also aims to reinstate the dividend for the 2004 financial year, payable in 2005.

This underscores the Board of Management's confidence in the positive medium-term earnings development of the Group and, at the same time, represents a commitment by the Board towards the company's shareholders.

In addition to the results prepared in accordance with German GAAP provided throughout this press release, Deutsche Telekom has presented non-GAAP financial measures, such as EBITDA, EBITDA adjusted, net debt and free cash flow. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. To interpret these non-GAAP financial measures, please refer to the "Reconciliation to pro forma figures". To view these and other reconciliations visit our 'Investor Relations' link under www.telekom.de.

Deutsche Telekom AG