Results of operations of the Group

Net revenue

In 2018, we generated net revenue of EUR 75.7 billion, which was 0.9 percent or EUR 0.7 billion up on the prior-year level. Adjusted for negative net exchange rate effects of EUR 1.6 billion, and for slightly positive effects of changes in the composition of the Group, revenue increased by EUR 2.3 billion or 3.1 percent.

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 2.2 percent – or, adjusted for exchange rate effects, of a substantial 6.8 percent. This increase was due primarily to higher service revenues from the rise in the average branded customer base, triggered in particular by the continued growth in existing and greenfield markets, the growing success in new customer segments, along with lower customer churn. In our German home market, revenue declined by 1.1 percent compared with the prior year. Adjusted for the effects of IFRS 15, revenue was at a comparable level with the previous year, with revenue from mobile business rising year-on-year. Higher IT and broadband revenues almost compensated for the decrease in fixed-network revenue. In our Europe operating segment, revenue was up by 2.6 percent year-on-year; adjusted for exchange rate effects and without the inclusion of UPC Austria as of July 31, 2018, it increased by 1.5 percent. Revenues in business customer operations and in mobile business had a positive effect. Fixed-network revenue also increased slightly year-on-year, mainly due to the positive revenue effect from TV and broadband business. These increases were partially offset by a decline in wholesale business. In our Systems Solutions operating segment, revenue remained on a par with the prior-year level. Revenues developed positively in our growth business, while declining as expected in our traditional IT business, notably in the international corporate customer business and due to the general market contraction in the core market of Western Europe, as well as to deliberate portfolio decisions. Revenue generated by our Group Development operating segment decreased by 3.4 percent year-on-year, a decline attributable in part to forgone revenue following the deconsolidation of Strato as of March 31, 2017. Positive effects on revenue at T-Mobile Netherlands resulted from high mobile handset sales; however, these were more than offset by negative regulatory effects. For further information on revenue development, please refer to the section “Development of business in the operating segments”.

Contribution of the segments to net revenue

%

For further information, please refer to Note 35 “Segment reporting” in the notes to the consolidated financial statements.

Breakdown of revenue by region

%

At 48.3 percent, our United States operating segment again provided the largest contribution to net revenue of the Group. This was an increase of 0.6 percentage points compared with the prior year, due in particular to ongoing strong customer additions. The proportion of net revenue generated internationally continued to increase, from 67.2 percent to 67.8 percent.

EBITDA, adjusted EBITDA

Excluding special factors, adjusted EBITDA increased year-on-year by EUR 1.1 billion or 5.0 percent to EUR 23.3 billion in 2018. Negative exchange rate effects, primarily from the translation of U.S. dollars into euros, decreased the carrying amount by EUR 0.5 billion. Excluding these effects, adjusted EBITDA increased by as much as EUR 1.6 billion or 7.2 percent.

Adjusted EBITDA in our United States operating segment increased substantially, primarily due to higher revenue – the application of IFRS 15 also had a positive effect. Positive trends were also recorded by our Germany and Europe operating segments thanks to lower personnel costs and the successful implementation of our efficiency and digitalization initiatives – even without taking into account the acquisition of UPC Austria as of July 31, 2018 in the Europe operating segment. The decrease in adjusted EBITDA at our Systems Solutions operating segment was mainly attributable to the higher costs involved in establishing operations in growth areas, especially in the Internet of Things and the healthcare market, and to higher expenses resulting from the ongoing migration to all IP. Adjusted EBITDA in our Group Development operating segment remained stable at the prior-year level.

EBITDA decreased by EUR 2.1 billion or 8.9 percent compared with the prior year to EUR 21.8 billion due to a EUR 3.2 billion decrease in special factors to EUR -1.5 billion. The decline was attributable to a EUR 0.6 billion rise in expenses for staff-related measures and expenses for non-staff-related restructuring totaling EUR 1.3 billion. The prior year included a partial reversal of impairment losses on spectrum licenses at T-Mobile US, increasing the carrying amount by EUR 1.7 billion. Other positive factors in 2017 were income of EUR 0.5 billion from the divestiture of Strato, EUR 0.2 billion from the sale of further shares in Scout24 AG, and EUR 0.2 billion from the settlement agreement with BT.  For further information on the development of EBITDA/adjusted EBITDA in our segments, please refer to the section “Development of business in the operating segments”. For an overview of the development of special factors, please refer to the table “Consolidated income statement and effects of special factors”.

EBIT

Group EBIT stood at EUR 8.0 billion in the reporting year, down EUR 1.4 billion or 14.7 percent against the prior year. This decrease is partly due to the effects described under EBITDA. Depreciation, amortization and impairment losses stood at EUR 13.8 billion overall, down EUR 0.8 billion on the prior year. Impairment losses on intangible assets and property, plant and equipment – mainly on goodwill in our Europe operating segment in the national companies in Poland and Romania – reduced EBIT by EUR 0.7 billion. In the prior year, impairment losses totaling EUR 2.2 billion were recognized, mainly on goodwill in the Systems Solutions and Europe operating segments. Depreciation and amortization was EUR 0.7 billion higher than in the prior year. For further information, please refer to Note 26 “Depreciation, amortization and impairment losses” in the notes to the consolidated financial statements.

Profit before income taxes

Profit before income taxes increased slightly from EUR 5.0 billion in the prior year to EUR 5.2 billion. At EUR 2.8 billion, the loss from financial activities was EUR 1.5 billion lower than a year earlier, offsetting the effects of the reduction in EBIT. The high loss in the previous year was due in particular to the EUR 1.5 billion impairment of our financial stake in BT that was recognized in profit or loss. In March 2018, we transferred our financial stake in BT to Deutsche Telekom Trust e.V., where it will be used as plan assets to cover our pension obligations. With effect from the beginning of 2018, changes in the value of our stake are recognized directly in equity (other comprehensive income) and no longer as profit/loss from financial activities in the income statement. Nor will future dividend income from the stake in BT be recognized in profit/loss from financial activities. Finance costs decreased by EUR 0.4 billion. This was essentially due to the fact that T-Mobile US has increasingly been financed internally since 2017, and that refinancing terms continue to be favorable. The share of profit/loss of associates and joint ventures accounted for using the equity method decreased to EUR -0.5 billion. This was mainly attributable to the settlement agreement reached to end the Toll Collect arbitration proceedings, which had a negative effect of EUR 0.6 billion. By contrast, the profit distribution of Toll Collect GmbH – EUR 0.1 billion of which is attributable to Deutsche Telekom – had a positive effect. Losses from financial instruments increased losses from financial activities by EUR 0.4 billion, primarily as a result of the remeasurement of derivatives, in particular at T-Mobile US. In the prior year, losses from financial instruments were impacted by negative effects totaling EUR 0.8 billion.

Net profit/loss

Net profit decreased year-on-year by EUR 1.3 billion to EUR 2.2 billion in 2018. After recording a tax benefit of EUR 0.6 billion in the prior year, which was primarily attributable to the reduction in the U.S. federal tax rate from 35 percent to 21 percent and to related non-cash deferred tax benefits of EUR 2.7 billion, we recorded a tax expense of EUR 1.8 billion in 2018. For further information, please refer to Note 30 “Income taxes” in the notes to the consolidated financial statements. Profit attributable to non-controlling interests decreased compared with 2017 by EUR 0.9 billion to EUR 1.2 billion. The recognized deferred tax benefit as well as the partial reversal in the prior year of impairment losses on spectrum licenses in our United States operating segment in particular contributed to this trend. For further information on the development of our results of operations, please refer to the disclosures under “Notes to the consolidated income statement” in the notes to the consolidated financial statements.

The following table presents a reconciliation of EBITDA, EBIT, and net profit/loss to the respective figures adjusted for special factors.