Systems Solutions

For information on changes resulting from the first-time application of the IFRS 16 “Leases” accounting standard, please refer to the section “Group organization, strategy, and management.”

Order entry

Development of business

The first half of 2019 was dominated by efforts to establish our realigned Systems Solutions business. Investments in growth areas and innovation fields (such as the public cloud, the Internet of Things, digital solutions, security) create the basis for us to continue to focus our segment strategy on a sustainable shift into strategic growth areas. In parallel, we are working to strengthen our telecommunications operations and successfully manage the decline in traditional IT business.

With this in mind, we are executing a comprehensive transformation program, launched in 2018, under which we realigned our organization and workflows, adjusted capacities, developed a new strategy for our portfolio, and created three offering clusters. Ten portfolio units and one emerging business unit look after not only our traditional IT and telecommunications businesses, but also our growth areas (public cloud, Internet of Things, digital solutions, security, SAP, classified ICT, health, and toll collection systems).

Order entry in our Systems Solutions operating segment was up by 4.4 percent in the first half of 2019, marking a consistently positive development compared with the already strong prior year. This growth is primarily due to a positive trend in our growth areas digital solutions, classified ICT, public cloud, and SAP.

Development of operations

Total revenue

Total revenue in our Systems Solutions operating segment in the first half of 2019 amounted to EUR 3.3 billion, putting it more or less on a par with the prior-year level. In our growth areas – in particular public cloud and security – we recorded a positive revenue trend which almost fully offset the decline in traditional ICT business. What is more, the decline in traditional IT operations was smaller than expected: The general downward trend is attributable in particular to the decline in our international corporate customer operations and the market contraction in our core market of Western Europe, as well as to deliberate portfolio decisions (such as the termination of Desktop Services).

EBITDA AL, adjusted EBITDA AL

In the first half of 2019, adjusted EBITDA AL at our Systems Solutions operating segment increased by EUR 35 million year-on-year to EUR 219 million, mainly due to effects from our transformation program, a positive development in the Open Telekom Cloud, and enhanced efficiency in traditional IT operations. EBITDA AL decreased by EUR 52 million year-on-year to EUR 43 million, mainly due to portfolio streamlining activities. As a result of both this and ongoing restructuring measures, special factors were up EUR 87 million year-on-year.

EBIT, adjusted EBIT

Adjusted EBIT in our Systems Solutions operating segment in the first half of 2019 increased by EUR 43 million year-on-year, coming in at EUR 28 million. The effects described under adjusted EBITDA AL were the main drivers of this decrease. Whereas previously expenses had been recognized in connection with operating leases, the right-of-use assets recognized in this context since the application of accounting standard IFRS 16 as of January 1, 2019 result in particular in higher depreciation charges. EBIT decreased by EUR 71 million compared with the first six months of the prior year to EUR -175 million, also due to the effects described under EBITDA AL.

Cash capex

Cash capex in the Systems Solutions operating segment stood at EUR 167 million in the first half of 2019, compared with EUR 265 million in the prior year. This decrease was a result of high investments in a new ERP system in 2018. Capital expenditures remain focused on developing our operations in growth areas, such as digital solutions, the Internet of Things, and toll collection systems.