Results of operations 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 consider the figures in organic terms, by adjusting the figures for the prior-year period for changes in the composition of the Group, exchange rate effects, and other effects. Due to changes in the composition of the Group, the figures for the Europe operating segment for the prior-year period presented on an organic basis decreased, mainly in connection with the sale of the Romanian fixed-network business as of September 30, 2021. By contrast, the organic figures for the prior-year period in the United States operating segment increased in connection with the acquisition of Shentel as of July 1, 2021. The currency translation effects were primarily the result of the translation of U.S. dollars to euros.

Net revenue, service revenue

In the first quarter of 2022, we generated net revenue of EUR 28.0 billion, which was up EUR 1.6 billion or 6.2 % year-on-year. In organic terms, revenue increased by EUR 0.5 billion or 1.7 %, with changes in the composition of the Group having a net reducing effect of EUR 0.1 billion and net exchange rate effects increasing it by EUR 1.2 billion. Service revenue in the Group increased by EUR 2.0 billion or 10.0 % year-on-year to EUR 22.3 billion. In organic terms, service revenue increased by EUR 1.0 billion or 4.7 %.

For information on the extension of the definition of service revenue, please refer to the section “Group organization, strategy, and management.”

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 9.5 % mainly due to exchange rate effects. In organic terms, revenue increased by 1.5 % year-on-year due to higher service revenue, partially offset by lower terminal equipment revenues. Revenue in our home market of Germany was up on the prior-year level, increasing by 0.9 %. This was mainly driven by an increase in revenue in the fixed-network core business, primarily due to broadband business, and in mobile service revenues. In the first quarter of 2022, revenue in our Europe operating segment decreased by 0.9 % year-on-year. In organic terms, revenue increased by 4.2 %. Organic growth was mainly driven by the strong performance of the mobile business, especially the increase in higher-margin mobile service revenues, slight increases in roaming and visitor revenues, and higher revenues from terminal equipment sales. There was a slight improvement in the development of fixed-network. Revenue in our Systems Solutions operating segment was down 1.9 %, in organic terms, it was down 0.8 %. This decrease was mainly driven by the expected decline in traditional IT infrastructure business, due in part to deliberate business decisions such as the reduction in end-user services. The positive trends, especially in the Digital Solutions portfolio unit, did not fully offset this decrease. Revenue in our Group Development operating segment increased by 5.5 %. In organic terms, revenue increased by 5.6 %, thanks to the operational and structural growth of our two business entities T‑Mobile Netherlands and GD Towers.

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

%

Breakdown of revenue by region

%

At 64.4 %, our United States operating segment again provided by far the largest contribution to net revenue of the Group, up 2.0 percentage points above the level in the prior-year period. The proportion of net revenue generated internationally also increased slightly from 76.4 % to 76.7 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 0.6 billion or 6.8 % to EUR 9.9 billion in the first quarter of 2022. In organic terms, adjusted EBITDA AL increased by EUR 0.2 billion or 2.4 %, with positive net exchange rate effects of EUR 0.4 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 1.1 billion or 12.8 % to EUR 9.4 billion.

All operating segments made a positive contribution to the development of adjusted EBITDA AL. In our United States operating segment, adjusted EBITDA AL increased by 8.2 %, essentially due to currency translation effects. In organic terms, adjusted EBITDA AL grew by 0.3 % year-on-year. The increase in service revenue and lower operational expenses, with the exception of expenses in connection with corporate transactions, had a positive effect. Adjusted core EBITDA AL increased by EUR 0.9 billion or 18.9 % to EUR 5.7 billion. Our Germany operating segment contributed to the increase thanks to high-value revenue growth and improved cost efficiency with 3.6 % higher adjusted EBITDA AL. In organic terms, too, adjusted EBITDA AL grew by 3.6 % year-on-year. Adjusted EBITDA AL in our Europe operating segment increased by 3.2 %. In organic terms, adjusted EBITDA AL grew by 6.9 %. Positive effects from organic revenue growth more than offset the increase in costs. In our Systems Solutions operating segment, adjusted EBITDA AL increased by 17.7 % or, in organic terms, by 18.1 %. Efficiency effects from our transformation program and increased revenue in our growth areas exceeded the decline in earnings in the traditional IT infrastructure business. Adjusted EBITDA AL in our Group Development operating segment increased by 12.7 % year-on-year; in organic terms, it grew by 19.2 %. This growth was attributable to the positive revenue trend and efficient cost management at T‑Mobile Netherlands. The GD Towers business posted consistent growth on the back of rising volumes and was further strengthened by the Austrian cell tower business.

EBITDA AL increased by EUR 2.3 billion or 26.0 % year-on-year to EUR 11.1 billion, with special factors changing from EUR -0.4 billion to EUR +1.2 billion. Expenses incurred in connection with staff restructuring totaled EUR 0.2 billion, which was at the prior-year level. Net income of EUR 1.3 billion was recorded as special factors under effects of deconsolidations, disposals, and acquisitions. Of this income, EUR 1.7 billion resulted from the deconsolidation of GlasfaserPlus and a further EUR 0.9 billion from the sale of T‑Mobile Netherlands. Net expenses of EUR 1.2 billion, mainly in connection with integration costs incurred as a result of the merger of T‑Mobile US and Sprint, had an offsetting effect. 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 Sprint mobile network, which is now underway. 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 the prior-year period, net expenses of EUR 0.2 billion were recorded as special factors under effects of deconsolidations, disposals, and acquisitions. These also mainly related to the business combination with Sprint. Other special factors affecting EBITDA AL included payments on account from insurance companies of EUR 0.1 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 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 3.5 billion to EUR 6.3 billion, up EUR 2.8 billion or 79.8 % against the prior-year period. This increase is due in particular to the effects described under adjusted EBITDA AL and EBITDA AL in connection with the gains on deconsolidation. At EUR 6.8 billion, depreciation, amortization and impairment losses were on a par with the prior-year period. In the United States operating segment, a reduction in the useful life of leased network technology for cell sites following the business combination of T‑Mobile US and Sprint increased depreciation of the corresponding right-of-use assets by EUR 0.4 billion. By contrast, 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. In the Group Development operating segment, depreciation, amortization and impairment losses 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.

Profit before income taxes

Profit before income taxes increased by EUR 3.6 billion to EUR 5.4 billion. The loss from financial activities decreased year-on-year from EUR 1.7 billion to EUR 0.9 billion, with finance costs remaining stable at EUR 1.2 billion. Other financial expense improved from EUR 0.5 billion to other financial income of EUR 0.3 billion. This development was driven by a positive measurement effect from the amortization and subsequent measurement of stock options received from SoftBank in June 2021 to purchase shares in T‑Mobile US as well as positive measurement effects from a forward transaction to hedge the price of acquiring T‑Mobile US shares in the future. By contrast, negative measurement effects resulted from derivatives of T‑Mobile US embedded in bonds.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 3.0 billion to EUR 3.9 billion. The tax expense increased by EUR 0.5 billion to EUR 1.1 billion. Profit attributable to non-controlling interests remained stable at EUR 0.4 billion. This mainly relates to our United States operating segment. Excluding special factors, which had a positive overall effect of EUR 1.7 billion on net profit, adjusted net profit in the first quarter of 2022 amounted to EUR 2.2 billion, up EUR 1.0 billion against the prior-year period.

For further information on tax expense, please refer to the section “Income 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 weighted average number of ordinary shares outstanding, which totaled 4,972 million as of March 31, 2022. This resulted in earnings per share of EUR 0.79, compared with EUR 0.20 in the prior-year period. Earnings per share adjusted for special factors affecting net profit amounted to EUR 0.45 compared with EUR 0.25 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 in the reporting period was unchanged from the level at the end of 2021. The total headcount in our Germany, United States, Europe, Systems Solutions, and Group Development operating segments and in the Group Headquarters & Group Services segment remained more or less stable compared with December 31, 2021.