Results of operations of the Group

Net revenue

In the first half of 2019, we generated net revenue of EUR 39.2 billion, which was up EUR 2.9 billion or 7.9 percent year-on-year. Even adjusted for positive net exchange rate effects of EUR 1.2 billion – mainly from the translation of U.S. dollars into euros – as well as positive effects of changes in the composition of the Group in the net amount of EUR 0.4 billion resulting primarily from the acquisitions of UPC Austria and Tele2 Netherlands, revenue increased by EUR 1.2 billion or 3.2 percent.

Our United States operating segment contributed to the positive revenue trend with an increase of 13.6 percent – or, adjusted for exchange rate effects, of 6.0 percent. This increase was due primarily to higher from the rise in the average branded customer base, triggered in particular by the continued growth in existing and greenfield markets, and the growing success in new customer segments, along with low customer churn. Revenue in our home market of Germany was up slightly on the prior-year level, due in particular to the strong performance in mobile business and higher IT and broadband revenues from fixed-network business. In our Europe operating segment, revenue was up by 2.8 percent year-on-year; adjusted for exchange rate effects and for the inclusion of UPC Austria, it increased marginally by 0.4 percent. Factors in this increase were growth in revenue from our broadband and TV operations and in wholesale business. Mobile revenue remained at a consistently high level. While revenues in growth areas continued to develop positively in our Systems Solutions operating segment, revenues with traditional IT and telecommunications business declined in this segment – although to a lesser extent than expected. Revenue in our Group Development operating segment increased significantly year-on-year on the back of a positive development in operations and in particular due to the revenue contributions from Tele2 Netherlands taken into account since the beginning of 2019.

For detailed information on revenue development in our segments, please refer to the section “Development of business in the operating segments.”

Contribution of the segments to net revenue

millions of €

 

 

 

 

 

 

 

 

 

Q1 2019

Q2 2019

Q2 2018

Change %

H1 2019

H1 2018

Change %

FY 2018

NET REVENUE

19,488

19,664

18,367

7.1

39,152

36,291

7.9

75,656

Germany

5,357

5,388

5,322

1.2

10,745

10,648

0.9

21,700

United States

9,796

9,826

8,821

11.4

19,623

17,277

13.6

36,522

Europe

2,891

2,978

2,896

2.8

5,869

5,707

2.8

11,885

Systems Solutions

1,630

1,673

1,674

(0.1)

3,304

3,339

(1.0)

6,936

Group Development

682

683

535

27.7

1,364

1,063

28.3

2,185

Group Headquarters & Group Services

651

678

767

(11.6)

1,329

1,418

(6.3)

2,735

Intersegment revenue

(1,520)

(1,561)

(1,649)

5.3

(3,081)

(3,161)

2.5

(6,307)

Contribution of the segments to net revenuea

%

Contribution of the segments to net revenue (pie chart)

a For more information on net revenue, please refer to the disclosures under segment reporting in the interim consolidated financial statements.

a For more information on net revenue, please refer to the disclosures under segment reporting in the interim consolidated financial statements.

Breakdown of revenue by region

%

Breakdown of revenue by region (pie chart)

At 50.1 percent, our United States operating segment again provided the largest contribution to net revenue of the Group and was up 2.5 percentage points above the level in the prior-year period. The proportion of net revenue generated internationally increased from 67.1 percent to 69.0 percent.

EBITDA AL, adjusted EBITDA AL

Excluding special factors, adjusted EBITDA AL increased year-on-year by EUR 0.9 billion or 7.7 percent to EUR 12.2 billion in the first half of 2019; this increase was attributable to positive net exchange rate effects of EUR 0.3 billion and slightly positive effects of changes in the composition of the Group. Excluding these effects, adjusted EBITDA AL increased by EUR 0.4 billion or 3.7 percent. All operating segments made a positive contribution to this development: Adjusted EBITDA AL of our United States operating segment had a noticeably positive effect on the back of the higher revenue. Our Germany operating segment contributed to this result thanks to a positive revenue trend, lower personnel costs, and the successful implementation of further efficiency enhancement and digitalization measures with 2.4 percent higher adjusted EBITDA AL. Adjusted EBITDA AL in our Europe operating segment increased by 5.6 percent; even adjusted for the inclusion of UPC Austria and assuming constant exchange rates, an increase of 1.8 percent was recorded. Successfully implemented efficiency enhancement measures are taking effect in our Systems Solutions operating segment in the form of higher adjusted EBITDA AL. The increase in adjusted EBITDA AL in our Group Development operating segment was driven by revenue growth and efficient management of costs as well as by the earnings contributed by Tele2 Netherlands, acquired in early 2019.

EBITDA AL increased by EUR 0.5 billion or 4.9 percent year-on-year to EUR 11.2 billion, with special factors decreasing from EUR -0.7 billion to EUR -1.0 billion. Expenses incurred in connection with staff-related measures and non-staff-related restructuring expenses decreased by EUR 0.1 billion compared with the prior-year period to EUR 0.6 billion. In addition, expenses incurred in particular in connection with the approval process for the business combination of T-Mobile US and Sprint were recorded as special factors.

For detailed information on the development of EBITDA AL/adjusted EBITDA AL in our segments, please refer to the section “Development of business in the operating segments.”

Contribution of the segments to adjusted Group EBITDA AL

millions of €

 

 

 

 

 

 

 

 

 

Q1 2019

Q2 2019

Q2 2018

Change %

H1 2019

H1 2018

Change %

FY 2018

a

Prior-year comparatives were calculated on a pro forma basis for the redefined key performance indicators resulting from the introduction of the IFRS 16 accounting standard.

EBITDA AL (ADJUSTED FOR SPECIAL FACTORS) IN THE GROUPa

5,940

6,283

5,866

7.1

12,223

11,353

7.7

23,074

Germany

2,108

2,153

2,103

2.4

4,261

4,161

2.4

8,516

United States

2,679

2,872

2,552

12.5

5,551

4,883

13.7

10,084

Europe

945

991

936

5.9

1,937

1,834

5.6

3,813

Systems Solutions

92

127

124

2.4

219

184

19.0

442

Group Development

255

250

227

10.1

506

452

11.9

892

Group Headquarters & Group Services

(137)

(82)

23

n.a.

(219)

(69)

n.a.

(601)

Reconciliation

(2)

(29)

(100)

71.0

(31)

(94)

67.0

(72)

EBIT

Group EBIT stood at EUR 4.6 billion, up EUR 0.1 billion or 1.9 percent against the prior-year period. This increase is partly due to the effects described under EBITDA AL. At EUR 8.6 billion, depreciation, amortization and impairment losses were EUR 2.3 billion higher than in the prior-year period, due in particular to the depreciation charge for right-of-use assets required to be recognized for the first time in accordance with IFRS 16. In the prior-year period, expenses had been recognized in EBITDA in connection with operating leases. Depreciation of property, plant and equipment and amortization of intangible assets were EUR 0.5 billion higher than in the prior year, mainly due to the consistently high investment volume in past years – the prior-year period had included depreciation, amortization and impairment losses on finance lease assets.

Profit before income taxes

At EUR 3.7 billion, profit before income taxes was EUR 0.8 billion higher than in the first half of 2018, with loss from financial activities decreased from EUR -1.6 billion in the first half of 2018 to EUR -0.9 billion. While the finance cost increased by EUR 0.2 billion, due in particular to increased lease liabilities since the application of IFRS 16, other financial income/expense improved by EUR 0.3 billion, mainly due to positive measurement effects from embedded derivatives at T-Mobile US. The share of profit/loss of associates and joint ventures accounted for using the equity method also improved – by EUR 0.6 billion. This item had been negatively impacted by an effect of EUR 0.6 billion in the first half of 2018 due to the settlement agreed in connection with ending the Toll Collect arbitration proceedings.

Net profit, adjusted net profit

Net profit increased year-on-year from EUR 1.5 billion to EUR 1.8 billion. Tax expense came to EUR 1.0 billion in the first half of 2019 compared with EUR 0.9 billion for the prior-year period. For further information, please refer to the section “Income taxes” in the interim consolidated financial statements. Profit attributable to non-controlling interests increased from EUR 0.6 billion to EUR 0.9 billion, mainly in our United States operating segment. Excluding special factors, which had an effect of EUR 0.7 billion on net profit, adjusted net profit in the first half of 2019 amounted to EUR 2.5 billion or EUR 0.1 billion higher than in the prior-year period.

millions of €

 

 

 

 

 

 

 

 

 

Q1 2019

Q2 2019

Q2 2018

Change %

H1 2019

H1 2018

Change %

FY 2018

NET PROFIT (LOSS)

900

944

495

90.7

1,845

1,487

24.1

2,166

Special factors affecting EBITDA

(440)

(562)

(371)

(51.5)

(1,002)

(652)

(53.7)

(1,497)

Staff-related measures

(290)

(304)

(360)

15.6

(594)

(630)

5.7

(1,159)

Non-staff-related restructuring

(19)

(30)

(33)

9.1

(49)

(55)

10.9

(109)

Effects of deconsolidations, disposals and acquisitions

(111)

(174)

(37)

n.a.

(285)

(9)

n.a.

(223)

Other

(20)

(54)

59

n.a.

(74)

42

n.a.

(6)

Special factors affecting net profit

158

178

(370)

n.a.

335

(288)

n.a.

(882)

Impairment losses

0

(50)

0

n.a.

(50)

0

n.a.

(707)

Profit (loss) from financial activities

0

(1)

(705)

99.9

(1)

(703)

99.9

(757)

Income taxes

122

173

276

(37.3)

295

366

(19.4)

401

Non-controlling interests

36

56

59

(5.1)

91

49

85.7

181

TOTAL SPECIAL FACTORS

(282)

(385)

(743)

48.2

(667)

(941)

29.1

(2,379)

ADJUSTED NET PROFIT (LOSS)

1,183

1,329

1,238

7.4

2,512

2,428

3.5

4,545

Adjusted earnings per share

From the 2019 financial year onward, the dividend amount is to reflect the relative growth of adjusted earnings per share. Adjusted earnings per share is calculated as the profit attributable to the owners of the parent adjusted for special factors divided by the adjusted weighted average number of ordinary shares outstanding which totaled 4,743 million as of June 30, 2019. With adjusted net profit attributable to the owners of the parent in the amount of EUR 2.5 billion, this gives adjusted earnings per share of EUR 0.53. Adjusted earnings per share in the first half of 2018 had amounted to EUR 0.51.

Employees

Headcount development

 

 

 

 

 

June 30, 2019

Dec. 31, 2018

Change %

NUMBER OF FTEs IN THE GROUP

212,762

215,675

(1.4)

Of which: civil servants (in Germany, with an active service relationship)

12,595

13,507

(6.8)

Germany

61,552

62,621

(1.7)

United States

46,600

46,871

(0.6)

Europe

46,017

48,133

(4.4)

Systems Solutions

37,803

37,467

0.9

Group Development

2,739

1,976

38.6

Group Headquarters & Group Services

18,050

18,606

(3.0)

The Group’s headcount decreased by 1.4 percent compared with the end of 2018. In our Germany operating segment, the total number of employees had decreased by 1.7 percent at the end of the first half of 2019 as a result of efficiency enhancement measures and the take-up of socially responsible instruments in connection with the staff restructuring. The total number of employees in our United States operating segment decreased by 0.6 percent at June 30, 2019 compared with December 31, 2018, primarily due to seasonal effects. In our Europe operating segment, the headcount was down 4.4 percent compared with the end of the prior year. This was due in part to the sale of Telekom Albania. The headcount also decreased in Romania and Hungary in particular. The number of employees in our Systems Solutions operating segment increased by 0.9 percent compared with the end of 2018, mainly due to the first-time inclusion and expansion of a service unit in India. The remaining headcount in this segment decreased by 2.2 percent on account of restructuring measures. In our Group Development operating segment, the number of employees rose by 38.6 percent compared with the end of 2018. The increase is attributable to the inclusion of Tele2 Netherlands in the Netherlands. The headcount in the Group Headquarters & Group Services segment was down 3.0 percent compared with the end of 2018, mainly due to the ongoing staff restructuring at Vivento and the lower headcount in the Technology and Innovation unit.

Service revenues
Revenues generated with mobile customers from services (i.e., revenues from voice services – incoming and outgoing calls – and data services), plus roaming revenues, monthly charges, and visitor revenues.