Results of operations of the Group

The GD Towers business entity has been recognized in the consolidated financial statements as a discontinued operation since the third quarter of 2022. According to the management approach, however, we continue to include the contributions by GD Towers in the Group Development operating segment in the management-relevant financial performance indicators explained here. For the reconciliation to the consolidated income statement, please refer to the relevant table in the section “Management of the Group.”

In order to increase the informative value of the prior-year comparatives based on changes to the Company’s structure or exchange rate effects, we also describe selected figures in organic terms, by adjusting the figures for the prior year for exchange rate effects, changes in the composition of the Group, and other effects. The exchange rate effects were primarily attributable to the translation of U.S. dollars to euros. Due to changes in the composition of the Group, the organic figures for the prior year decreased in the Group Development operating segment, in connection with the sale of T‑Mobile Netherlands as of March 31, 2022, and in the Europe operating segment, mainly in connection with the sale of the Romanian fixed-network business as of September 30, 2021. By contrast, the organic figures in the United States operating segment increased in connection with the acquisition of Shentel as of July 1, 2021.

Net revenue, service revenue

In the reporting year, we generated net revenue of EUR 114.4 billion, which was 6.1 % or EUR 6.6 billion up on the prior-year level. In organic terms, revenue remained on a par with the prior-year level, including positive net exchange rate effects of EUR 8.4 billion, with the changes in the composition of the Group having the net reducing effect of EUR 1.8 billion. Service revenue in the Group increased by EUR 8.8 billion or 10.6 % year-on-year to EUR 91.9 billion. In organic terms, service revenue increased by EUR 3.3 billion or 3.7 %.

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 11.3 %, mainly due to exchange rate effects. In organic terms, revenue declined by 1.3 % year-on-year due to lower terminal equipment revenue, partially offset by higher service revenue. Revenue in our home market of Germany was up on the prior-year level, increasing by 1.9 %. This was primarily driven by growth in service revenues, in both the fixed-network core business, mainly due to broadband, and in mobile communications. In our Europe operating segment, revenue decreased by 1.2 % year-on-year, mainly due to the sale of the Romanian fixed-network business. In organic terms, however, revenue increased by 3.9 %, primarily attributable to the strong performance of the mobile business, especially the increase in higher-margin mobile service revenues, increases in roaming and visitor revenues, and volume-driven increases in revenues from terminal equipment sales. Fixed-network service revenue also developed better compared with the prior-year period. Revenue in our Systems Solutions operating segment was up 1.4 % year-on-year; in organic terms, it was up 1.0 %. This positive development was mainly driven by growth in the Digital Solutions, Road Charging, and Advisory portfolio units, and it more than offset the expected decline in traditional IT infrastructure business. Revenue in our Group Development operating segment declined significantly compared with the prior-year period, mainly due to the sale of T‑Mobile Netherlands. In organic terms, however, revenue increased by 6.5 % thanks to the operational and structural growth of the GD Towers business entity.

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

For information on the extension of the definition of service revenue, please refer to the section “Management of the Group.”

Contribution of the segments to net revenue^a

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Breakdown of revenue by region

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Breakdown of revenue by region

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At 65.9 %, our United States operating segment again provided by far the largest contribution to net revenue of the Group, up 3.1 percentage points above the prior-year level. The proportion of net revenue generated internationally also increased from 77.0 % to 77.9 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 2.9 billion or 7.7 % to EUR 40.2 billion in the reporting year. In organic terms, adjusted EBITDA AL increased by EUR 0.7 billion or 1.7 %, including positive net exchange rate effects of EUR 2.8 billion, and with changes in the composition of the Group having a net reducing effect of EUR 0.6 billion. Adjusted core EBITDA AL, i.e., adjusted EBITDA AL excluding revenue from terminal equipment leases in the United States, thereby presenting operational development undistorted by the strategic withdrawal from the terminal equipment lease business, increased by EUR 4.3 billion or 12.5 % to EUR 38.9 billion.

The United States, Germany, and Systems Solutions operating segments made a positive contribution to the development of adjusted EBITDA AL. In our United States operating segment, adjusted EBITDA AL increased by 12.9 %, essentially due to exchange rate effects. In organic terms, adjusted EBITDA AL grew by 0.1 % year-on-year. Adjusted core EBITDA AL increased by EUR 4.4 billion or 21.9 % to EUR 24.3 billion. Our Germany operating segment contributed to the increase thanks to high-value revenue growth and improved cost efficiency with 3.2 % higher adjusted EBITDA AL. In our Systems Solutions operating segment, adjusted EBITDA AL increased by 4.8 % or, in organic terms, by 0.9 %. Efficiency effects from our transformation program and increased revenue in our Digital Solutions and Road Charging portfolio units exceeded the decline in earnings in the traditional IT infrastructure business. Adjusted EBITDA AL in our Europe operating segment decreased by 1.1 %. In organic terms, however, adjusted EBITDA AL grew by 3.1 %, again making a significant positive contribution to earnings, with a positive net margin more than sufficient to offset the higher indirect costs. Adjusted EBITDA AL in our Group Development operating segment declined by 26.2 % year-on-year due to the sale of T‑Mobile Netherlands as of March 31, 2022. In organic terms, it increased by 26.4 %, since the GD Towers business posted consistent growth on the back of a rising number of cell tower sites and was further strengthened by the development of the Austrian cell tower business.

EBITDA AL increased by EUR 2.1 billion or 6.2 % year-on-year to EUR 36.0 billion, with special factors changing from EUR ‑3.4 billion to EUR ‑4.2 billion. Expenses incurred in connection with staff-related measures, especially in the United States operating segment, increased by EUR 0.5 billion, and in connection with non-staff-related restructuring by EUR 0.2 billion against the prior year. Net expenses of EUR 2.3 billion were recorded as special factors under effects of deconsolidations, disposals and acquisitions. EUR 4.6 billion of this primarily related to expenses in connection with integration costs incurred as a result of the business combination of T‑Mobile US and Sprint. These expenses included in particular discounts on terminal equipment for former Sprint customers whose devices can no longer be used in the T‑Mobile US mobile network, and expenses arising in connection with the decommissioning of the former Sprint mobile network. The latter primarily comprise additional depreciation, amortization and impairment losses from reductions in the useful lives of leased network technology for cell sites in the United States. In connection with the agreement to sell the fiber-optic-based wireline business, T‑Mobile US recorded expenses totaling EUR 0.7 billion in the third quarter of 2022 on account of payment obligations entered into. In addition to the agreed sale of the wireline business, a gain of EUR 0.1 billion from the consummated sale of IP addresses of the fiber-optic-based wireline network in the United States was recognized. Income of EUR 1.7 billion resulted from the deconsolidation of GlasfaserPlus, EUR 0.9 billion from the sale of T‑Mobile Netherlands, and another EUR 0.1 billion from the deconsolidation of DIV II. In the prior year, net expenses of EUR 2.5 billion had been recorded as special factors under effects of deconsolidations, disposals and acquisitions. These expenses also primarily relate to the business combination of T‑Mobile US and Sprint. The impairment losses recognized as special factors amounted to EUR 0.3 billion in the reporting year and mainly related to right-of-use assets used in connection with the former Sprint’s fiber-optic-based wireline network. Other special factors affecting EBITDA AL amounted to EUR ‑0.3 billion and include net expenses (including insurance compensation) of EUR 0.4 billion in connection with the proceedings pending in consequence of the cyberattack on T‑Mobile US in August 2021, as well as insurance compensation of EUR 0.2 billion in connection with damage sustained in the catastrophic flooding in North Rhine-Westphalia and Rhineland-Palatinate in July 2021.

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.”

Profit/loss from operations (EBIT)

Group EBIT increased to EUR 16.2 billion, up EUR 3.1 billion or 23.8 % against the prior-year level. This increase is due in particular to the effects described under adjusted EBITDA AL and EBITDA AL. At EUR 27.8 billion, depreciation, amortization and impairment losses were EUR 0.3 billion higher than in the prior year.

Impairment losses increased by EUR 0.9 billion to EUR 1.2 billion, of which EUR 0.9 billion related to the United States operating segment, mainly in connection with assets of the former Sprint’s fiber-optic-based fixed network. These impairment losses arose in part in connection with the sale of the business agreed in September 2022. Further impairment losses of EUR 0.1 billion related to the Systems Solutions operating segment and the Group Headquarters & Group Services segment. These related to follow-up investments in connection with assets previously impaired in the 2020 and 2021 financial years. Furthermore, despite the business outlook remaining positive, the substantial increase in the cost of capital in the reporting year prompted further impairment losses to be recognized on non-current assets at the end of 2022. In addition, impairment losses of EUR 0.1 billion related to the Europe operating segment in connection with non-current assets in the Romanian fixed-network business. The national company continues to operate in the structurally challenging and highly competitive Romanian market at prices that are low compared with other countries. In addition, high energy prices and sharp rises in interest rates had a negative impact on the enterprise value. The impairment losses recognized in the prior year amounted to EUR 0.3 billion and related primarily to the Systems Solutions operating segment and the Group Headquarters & Group Services segment.

By contrast, depreciation and amortization decreased by EUR 0.5 billion. In the Group Development operating segment, depreciation and amortization were down on the prior-year level in connection with the fact that T‑Mobile Netherlands had been held for sale until it was sold and accordingly the related depreciation and amortization had been suspended, and in connection with its subsequent sale. In addition, depreciation and amortization were suspended for the GD Towers business entity, which has been held for sale since July 13, 2022. Depreciation on property, plant and equipment in the United States operating segment declined due to the ongoing strategic withdrawal from the terminal equipment lease business. By contrast, in the United States operating segment a reduction in the useful life of leased network technology for cell sites in connection with the business combination of T‑Mobile US and Sprint, as well as the modification of existing arrangements between T‑Mobile US and Crown Castle, mainly relating to the lease of cell sites from Crown Castle, resulted in higher depreciation of the corresponding right-of-use assets.

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.

For information on the agreement with DigitalBridge and Brookfield on GD Towers, and the presentation of GD Towers according to the management approach, including reconciliation table, please refer to the section “Management of the Group.”

Profit before income taxes

Profit before income taxes increased by EUR 3.8 billion to EUR 11.7 billion. The loss from financial activities decreased year-on-year from EUR 5.1 billion to EUR 4.5 billion, with other financial income/expense improving from EUR ‑0.4 billion to EUR 1.4 billion. This was attributable in particular to positive measurement effects from a forward transaction to hedge the price of acquiring shares in T‑Mobile US in the future and positive measurement effects from the amortization and subsequent measurement of the stock options received from SoftBank in June 2020 to buy shares in T‑Mobile US. Less pronounced negative measurement effects from derivatives of T‑Mobile US embedded in bonds compared with the prior-year period also contributed to this. The interest component from the measurement of provisions and liabilities increased by EUR 0.4 billion. This increase was mainly attributable to the subsequent measurement using actuarial principles of the present value of the provision recognized for the Civil Service Health Insurance Fund. However, finance costs also increased from EUR 4.6 billion to EUR 5.3 billion. This was primarily due to the modification of the arrangements between T‑Mobile US and Crown Castle, which resulted in an increase in the carrying amounts of lease liabilities, as well as to variable-interest financial liabilities in connection with the rise in interest rates in the reporting year. The share of profit/loss of associates and joint ventures included in the consolidated financial statements using the equity method declined from EUR ‑0.1 billion to EUR ‑0.5 billion. This was due to an impairment loss of EUR 0.5 billion recognized in the reporting year on the carrying amount of the stake in GlasfaserPlus. The impairment loss was triggered by the current macroeconomic developments and the associated sharp rise in interest rates.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 3.8 billion to EUR 8.0 billion. The tax expense from continuing operations and the discontinued operation increased by EUR 0.4 billion to EUR 2.2 billion. Profit attributable to non-controlling interests decreased from EUR 1.9 billion to EUR 1.5 billion, with the decrease being primarily attributable to our United States operating segment. Excluding special factors, which had a negative overall effect of EUR 1.1 billion on net profit, adjusted net profit amounted to EUR 9.1 billion, up EUR 3.2 billion against the prior year.

For further information on tax expense, please refer to Note 32 “Income taxes” in the notes to the consolidated financial statements.

Earnings per share, adjusted earnings per share

Earnings per share is calculated as net profit divided by the weighted average number of ordinary shares outstanding, which totaled 4,972 million as of December 31, 2022. This resulted in earnings per share of EUR 1.61, compared with EUR 0.87 in the prior year. Earnings per share adjusted for special factors affecting net profit amounted to EUR 1.83 compared with EUR 1.22 in the prior year.

Reconciliations of financial performance indicators from the IFRS consolidated financial statements

A reconciliation of revenues disclosed in the consolidated financial statements, including their breakdown into revenue categories, to the “service revenue” financial performance indicator can be found in the following table:

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

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

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