Results of operations of the Group

Net revenue

In the first quarter of 2021, we generated net revenue of EUR 26.4 billion, which was up EUR 6.4 billion or 32.3 % year-on-year. In organic terms, i.e., assuming a comparable composition of the Group in the prior-year period and excluding exchange rate effects, revenue developed positively, with growth of EUR 1.8 billion or 7.1 %. For a comparison on an organic basis, net revenue in the prior-year period was raised by EUR 6.2 billion to account for effects of changes in the composition of the Group – primarily from the acquisition of Sprint and the disposal of Sprint’s prepaid business to DISH in the United States operating segment – and net exchange rate effects of EUR ‑1.5 billion were taken into account.

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 62.3 %. In organic terms, i.e., adjusted for the effect of the acquisition of Sprint and assuming constant exchange rates, revenue increased by 10.5 % year-on-year due to higher service and terminal equipment revenues. Revenue in our home market of Germany was up on the prior-year level, increasing by 1.9 %. This was mainly driven by broadband revenue growth and a rise in terminal equipment sales both in the fixed network and in mobile communications. The coronavirus pandemic had a negative impact on roaming and visitor revenues, and resulted in delays or postponements to current orders in B2B telecommunications business. In our Europe operating segment, revenue decreased by 1.1 %, mainly due to exchange rate effects. In organic terms, i.e., assuming constant exchange rates, revenue increased slightly against the level of the prior-year period, despite the difficult economic situation in consequence of the coronavirus pandemic. Organic growth was driven by the strong performance of the mobile business, especially the increase in revenues from terminal equipment sales and in higher-margin service revenues (excluding roaming and visitors). By contrast, the fixed-network business recorded a decline in revenues. Total revenue in our Systems Solutions operating segment decreased by 4.4 % 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 digital solutions was not sufficient to fully offset the declines in traditional IT infrastructure business. Total revenue in our Group Development operating segment increased by 10.5 % year-on-year. This increase resulted from the operational growth of T‑Mobile Netherlands and GD Towers, which includes DFMG and the Dutch and Austrian cell tower business. Even in organic terms, i.e., adjusted for the reassignment of the Austrian cell tower business as well as the acquisition of the Dutch MVNO and SIM provider Simpel, total revenue increased by 5.0 %.

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 62.5 %, our United States operating segment provided by far the largest contribution to net revenue of the Group and thanks to the acquisition of Sprint was up 11.6 percentage points above the level in the prior-year period. In this connection, the proportion of net revenue generated internationally also increased significantly from 69.7 % to 76.4 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 2.7 billion or 41.3 % to EUR 9.2 billion in the first quarter of 2021. Even in organic terms, adjusted EBITDA AL increased by EUR 0.7 billion or 8.3 %. For a comparison on an organic basis, EBITDA AL in the prior-year period was raised by EUR 2.5 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 made a positive contribution to this development. Adjusted EBITDA AL of our United States operating segment increased significantly as a result of the business combination of T‑Mobile US and Sprint. In organic terms, i.e., adjusted for the effect of the acquisition of Sprint and assuming constant exchange rates, adjusted EBITDA AL increased by 10.7 % 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 positive revenue trend, and improved cost efficiency with 3.4 % higher adjusted EBITDA AL. Adjusted EBITDA AL in our Europe operating segment increased by 1.1 %. In organic terms, i.e., assuming constant exchange rates and adjusted for the reassignment of the Austrian cell tower business, adjusted EBITDA AL increased by 4.1 %. The main factor in this trend was savings in indirect costs. In our Systems Solutions operating segment, adjusted EBITDA AL increased by 3.3 %. Efficiency effects from our transformation program and effects from increased revenue in all of our growth areas exceeded the decline in earnings in the traditional IT infrastructure business. The increase of 17.5 % in adjusted EBITDA AL in our Group Development operating segment was driven by revenue growth at T‑Mobile Netherlands, synergies from the acquisition of Tele2 Netherlands, the acquisition of Simpel, and efficient management of costs at T‑Mobile Netherlands. The GD Towers business posted consistent growth on the back of rising volumes and was further strengthened by the reassignment of the Austrian cell tower business.

EBITDA AL increased by EUR 2.9 billion or 48.6 % year-on-year to EUR 8.8 billion, with special factors changing from EUR ‑0.6 billion to EUR ‑0.4 billion. Expenses incurred in connection with staff-related measures decreased year-on-year from EUR 0.3 billion to EUR 0.2 billion. In addition, expenses of EUR 0.2 billion were recorded as special factors under effects of deconsolidations, disposals, and acquisitions. These mainly related to acquisition and integration costs as well as restructuring costs to realize cost efficiencies from the business combination of T‑Mobile US and Sprint. In the prior-year period, expenses of EUR 0.1 billion incurred in connection with the approval process for the business combination of T‑Mobile US and Sprint had been recorded as special factors. In addition, in connection with the coronavirus pandemic, expenses of EUR 0.1 billion had been classified as special factors in the United States operating segment in the first quarter of 2020.

For further information on the development of (adjusted) EBITDA AL in our 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 2.5 billion to EUR 3.5 billion, up EUR 1.0 billion or 40.1 % against the prior-year period. This increase is partly due to the effects described under adjusted EBITDA AL and EBITDA AL. At EUR 6.8 billion, depreciation, amortization and impairment losses were EUR 2.4 billion higher than in the prior-year period. This increase is mainly attributable to Sprint, which has been included since April 1, 2020.

Profit before income taxes

Profit before income taxes increased by EUR 0.3 billion to EUR 1.8 billion, with loss from financial activities increasing by EUR 0.7 billion to EUR 1.7 billion. This increase was primarily due to a EUR 0.6 billion increase in finance costs to EUR 1.2 billion, mainly due to the financial liabilities acquired in connection with the acquisition of Sprint and the related restructuring and increase of financing. Other financial expense increased by EUR 0.1 billion year-on-year to EUR 0.5 billion, due in part to the lower gains from financial instruments compared with the prior-year period in connection with effects from the measurement of embedded derivatives at T‑Mobile US and with the subsequent measurement of the stock options to buy shares in T‑Mobile US received from SoftBank in June 2020. An increase in interest income from the measurement of provisions and liabilities had a contrasting effect.

Net profit, adjusted net profit

Net profit remained unchanged compared with the prior-year period at EUR 0.9 billion. Tax expense came to EUR 0.5 billion. Profit attributable to non-controlling interests increased by EUR 0.2 billion to EUR 0.4 billion, mainly in our United States operating segment. Excluding special factors, which had a negative overall effect of EUR 0.3 billion on net profit, adjusted net profit in the first quarter of 2021 amounted to EUR 1.2 billion, slightly down against the level in the prior-year period of EUR 1.3 billion.

For further information on tax expense, please refer to the section “Income taxesIncome taxes” in the interim consolidated financial statements.

The following table presents the 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 March 31, 2021. This resulted in earnings per share of EUR 0.20, compared with EUR 0.19 in the prior-year period. Adjusted earnings per share, adjusted for special factors affecting net profit, amounted to EUR 0.25 compared with EUR 0.27 in the prior-year period.

Special factors

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

Employees

The Group’s headcount decreased by 0.8 % compared with the end of 2020. The number of employees in our Germany operating segment decreased by 6.2 % against year-end 2020, mainly as a result of the reassignment of employees to the Group Headquarters & Group Services segment in connection with reorganization measures at Deutsche Telekom IT. Employees also continued to take up socially responsible instruments as part of staff restructuring activities, such as dedicated retirement and phased retirement. The total number of employees in our United States operating segment remained virtually unchanged compared with December 31, 2020. In our Europe operating segment, the headcount was down 2.8 % compared with the end of the prior year, with staff levels decreasing in Greece, Hungary, and Croatia in particular. The headcount in our Systems Solutions operating segment was down 1.4 % against year-end 2020, primarily as a result of efficiency enhancement measures. In the Group Development operating segment, the 2.9 % increase in the number of employees can be attributed to the insourcing of activities previously carried out externally to achieve cost savings at T‑Mobile Netherlands. The number of employees in the Group Headquarters & Group Services segment was up 21.6 % compared with the end of 2020, mainly due to the aforementioned reassignment of employees from the Germany operating segment.