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

We realigned our strategy for the Systems Solutions operating segment with a focus on establishing sustained growth in this area. Our previous investments in growth areas and innovation fields (such as the public cloud, the Internet of Things, digital solutions, security) along with efforts to scale back the number of risk-prone legacy contracts in our traditional IT operations mark important steps on our transformation journey. On this basis, we continue to realign the segment strategy to focus on consistently moving the business into strategic growth areas while simultaneously strengthening our telecommunications business and successfully managing the decline in traditional IT business.

With this in mind, we are executing a comprehensive transformation program 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 6.8 percent in the reporting period, marking a particularly positive development compared with the already strong prior year. This growth is primarily due to a positive trend in our growth areas SAP, public cloud, and health.

Development of operations

Total revenue

Total revenue in our Systems Solutions operating segment in the reporting period amounted to EUR 1.6 billion, down slightly on the prior-year level. Revenue in our growth areas developed positively (especially in the public cloud, health, security, and the Internet of Things); however, this growth could not yet fully offset the decline in traditional IT and telecommunications businesses. The trend in IT operations was primarily a result of the decline in our international corporate customer operations and the general falling market trend in our core market of Western Europe, as well as of deliberate portfolio decisions (such as the termination of desktop services). In telecommunications business, revenue declined on account of lower volumes at various customers due to seasonal effects.

EBITDA AL, adjusted EBITDA AL

In the reporting period, adjusted EBITDA AL at our Systems Solutions operating segment increased by EUR 32 million to EUR 92 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 increased by EUR 24 million year-on-year to EUR 46 million, mainly due to the effects described under adjusted EBITDA AL. Special factors were up EUR 8 million year-on-year, due to ongoing restructuring measures.

EBIT, adjusted EBIT

Adjusted EBIT in our Systems Solutions operating segment increased by EUR 35 million compared with the prior-year period, coming in at EUR -3 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 increased by EUR 27 million compared with the first three months of the prior year to EUR -49 million, also due to the aforementioned effects.

Cash capex

Cash capex in the Systems Solutions operating segment stood at EUR 93 million in the reporting period, compared with EUR 83 million in the prior-year quarter. Capital expenditures remain focused on developing our operations in growth areas, such as digital solutions, the Internet of Things, and toll collection systems. In parallel, we are investing in the upgrade of our in-house IT systems.