Results of operations of the Group

Net revenue

In 2020, we generated net revenue of EUR 101.0 billion, which was 25.4 % or EUR 20.5 billion up on the prior-year level. In organic terms, i.e., assuming a comparable composition of the Group in the prior year and excluding exchange rate effects, revenue developed positively, with growth of EUR 2.9 billion or 3.0 %. For a comparison on an organic basis, net revenue in the 2019 financial year was raised by EUR 19.2 billion to account for effects of changes in the composition of the Group – primarily from the acquisition of Sprint in the United States operating segment – and net exchange rate effects of EUR -1.6 billion were taken into account.

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 51.4 %. Adjusted for the acquisition of Sprint and exchange rate effects, revenue was up 5.0 % against the prior-year level. Revenue in our home market of Germany was slightly up on the prior-year level, increasing by 0.2 %. This slight increase was mainly due to the positive trend in our fixed-network business on the back of revenue growth in the broadband business and in variable call charges. This offset the decline in revenue in the mobile business. The coronavirus pandemic had a negative impact on roaming, visitor, and terminal equipment revenues, and resulted in delays or postponements to current orders in B2B telecommunications business. In our Europe operating segment, revenue decreased by 2.2 %, mainly due to exchange rate effects. In organic terms, revenue remained stable at the prior-year level, despite the deterioration in economic conditions due to the coronavirus pandemic. The fixed-network business performed well, recording increases in broadband and TV revenues. Revenues from mobile business decreased slightly, primarily driven by declines in roaming and visitor revenues as a result of travel restrictions, some of which are still in place or have been reimposed, and in low-margin terminal equipment business. These negative effects have been partially offset by increases in higher-margin service revenues. Total revenue in our Systems Solutions operating segment decreased by 5.6 % year-on-year, reflecting the coronavirus-induced decline of the IT market in Western Europe. The upward revenue trend in our growth areas public cloud and security was not sufficient to offset the declines in traditional IT and project business. The development of our growth area digital solutions was particularly affected by the impact of the coronavirus pandemic on the automotive industry. Total revenue in our Group Development operating segment increased by 3.1 % year-on-year, thanks to the operational growth of our two subsidiaries, T‑Mobile Netherlands and DFMG.

For further 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^a

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Breakdown of revenue by region

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At 60.6 %, our United States operating segment provided by far the largest contribution to net revenue of the Group and in particular thanks to the acquisition of Sprint was up 10.4 percentage points above the level in the prior year. In this connection, the proportion of net revenue generated internationally also increased significantly from 69.5 % to 75.5 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 10.3 billion or 41.6 % to EUR 35.0 billion in 2020. But even in organic terms, adjusted EBITDA AL increased by EUR 2.6 billion or 7.9 %. For a comparison on an organic basis, adjusted EBITDA AL in the 2019 financial year was raised by EUR 8.2 billion to account for effects of changes in the composition of the Group and net exchange rate effects of EUR -0.5 billion were taken into account.

All segments, with the exception of the Systems Solutions operating segment, made a positive contribution to this development: Adjusted EBITDA AL of our United States operating segment increased significantly, particularly on the back of higher service and terminal equipment revenues in connection with the acquisition of Sprint. In organic terms, adjusted EBITDA AL grew by 10.8 % year-on-year. These increases were offset by higher operating expenses, primarily in connection with the acquisition of Sprint. Our Germany operating segment contributed to this result thanks to a slightly positive revenue trend, and improved cost efficiency with 1.6 % higher adjusted EBITDA AL. Adjusted EBITDA AL in our Europe operating segment remained stable. In organic terms, it increased by as much as 2.1 %. The main factor in this trend was savings in indirect costs. In our Systems Solutions operating segment, adjusted EBITDA AL declined by 6.0 %; excluding negative exchange rate effects the decline would have been 1.8 %. The decline was mainly caused by the decrease in earnings in traditional IT and project business, partly due to the effects of the coronavirus pandemic. The increase of 6.6 % in adjusted EBITDA AL in our Group Development operating segment was driven by revenue growth, synergies from the acquisition of Tele2 Netherlands, and efficient management of costs at T‑Mobile Netherlands. The GD Towers business also continued to post consistent growth on the back of rising volumes.

EBITDA AL increased by EUR 10.0 billion or 43.4 % year-on-year to EUR 33.2 billion, with special factors changing from EUR -1.6 billion to EUR -1.8 billion. Net expenses incurred in connection with staff-related measures were recorded as special factors and decreased by EUR 0.4 billion year-on-year to EUR -1.3 billion. In addition, expenses of EUR 1.7 billion were recorded as special factors under gains/losses from deconsolidations, disposals, and acquisitions. These expenses were incurred in connection with the approval process for the business combination of T‑Mobile US and Sprint, with acquisition and integration costs, with restructuring costs to realize cost efficiencies from the business combination, and with a reduction in the useful life of leased network technology for cell sites. EUR 0.2 billion related to the derecognition of a billing software for postpaid customers, which was still in development, in the United States operating segment. A transaction fee of EUR 0.3 billion received from SoftBank in return for support in the immediate sale by SoftBank of T‑Mobile US shares had an offsetting effect. In the prior year, expenses of EUR 0.5 billion had been recorded as special factors in connection with gains/losses from deconsolidations, disposals, and acquisitions. Reversals of impairment losses recorded as special factors of EUR 1.6 billion resulted from the partial reversal of impairment losses on spectrum licenses at T‑Mobile US. Furthermore, the agreed sale of the Romanian fixed-network business resulted in a reversal of impairment losses on property, plant and equipment of EUR 50 million recorded in the course of the year. Other special factors affecting EBITDA AL amounted to EUR -0.5 billion and mainly relate to expenses incurred in the United States operating segment in the first half of 2020 in connection with the coronavirus pandemic.

For further information on the development of (adjusted) EBITDA AL in the segments, please refer to the section “Development of business in the operating segments.”

A reconciliation of the definition of EBITDA with the “after leases” indicator (EBITDA AL) can be found in the following table:

EBIT

Group EBIT increased from EUR 9.5 billion to EUR 12.8 billion, up EUR 3.3 billion or 35.4 % against the prior year. This increase is due in particular to the effects described under adjusted EBITDA AL and EBITDA AL. Depreciation and amortization stood at EUR 25.0 billion overall, up EUR 7.8 billion on the prior year. This increase is mainly attributable to Sprint, which has been included since April 1, 2020. Impairment losses on non-current assets reduced EBIT by EUR 0.8 billion. A total of EUR 0.5 billion of this related to the Systems Solutions operating segment and the Group Headquarters & Group Services segment, EUR 0.2 billion to the Europe operating segment, and EUR 0.1 billion to the United States operating segment.

For further information on depreciation, amortization and impairment losses, please refer to Note 27 “Depreciation, amortization and impairment losses” in the notes to the consolidated financial statements.

Profit before income taxes

Profit before income taxes increased by EUR 1.4 billion, mainly for the aforementioned reasons. Our loss from financial activities increased by EUR 1.9 billion to EUR 4.1 billion. This increase is primarily due to a EUR 1.9 billion increase in finance costs to EUR 4.2 billion, mainly due to the financial liabilities recognized and the restructuring begun in connection with the acquisition of Sprint, and the related increase in financing, including the handling charges incurred for a briefly utilized bridge loan facility. Other financial income/expense was unchanged at EUR 0.1 billion. This development was attributable to the year-on-year increase in gains from financial instruments, due, among other factors, to the subsequent measurement of the stock options to buy shares in T‑Mobile US received from SoftBank in June 2020. Lower measurement effects from embedded derivatives at T‑Mobile US compared with the prior year and higher interest expense from the measurement of provisions and liabilities had an offsetting effect.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 0.3 billion to EUR 4.2 billion. Tax expense came to EUR 1.9 billion compared with EUR 2.0 billion in the prior year. Profit attributable to non-controlling interests increased by EUR 1.2 billion to EUR 2.6 billion, mainly in our United States operating segment. This increase related to the positive development in operations and the decrease in T‑Mobile US’ capital share as a result of the Sprint transaction. Excluding special factors, which had a negative overall effect of EUR 1.6 billion on net profit, adjusted net profit amounted to EUR 5.7 billion, up against the level in the prior year of EUR 4.9 billion.

The following table presents a reconciliation of net profit to net profit adjusted for special factors:

Earnings per share, adjusted earnings per share

Earnings per share is calculated as net profit divided by the adjusted weighted average number of ordinary shares outstanding, which totaled 4,743 million as of December 31, 2020. This resulted in adjusted earnings per share of EUR 0.88, compared with EUR 0.82 in the prior year. Adjusted earnings per share, adjusted for special factors affecting net profit, amounted to EUR 1.20 compared with EUR 1.04 as of December 31, 2019.

Special factors

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