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 describe selected 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 prior-year period presented on an organic basis were reduced in the Group Development operating segment in connection with the sale of T‑Mobile Netherlands as of March 31, 2022, and of GD Towers as of February 1, 2023. The net positive exchange rate effects were primarily attributable to the translation of U.S. dollars to euros.

Revenue, service revenue

In the first quarter of 2023, we generated net revenue of EUR 27.8 billion, which was up EUR 0.1 billion or 0.3 % year-on-year. In organic terms, revenue decreased slightly by EUR 0.1 billion or 0.5 %, including positive net exchange rate effects of EUR 0.8 billion, with changes in the composition of the Group having a reducing effect of EUR 0.6 billion. Service revenue in the Group increased by EUR 0.8 billion or 3.5 % year-on-year to EUR 22.8 billion. In organic terms, service revenue increased by EUR 0.6 billion or 2.6 %.

All of our operating segments with the exception of Group Development contributed to the positive revenue trend. Revenue in our home market of Germany was up on the prior-year level, increasing by 3.0 %. In organic terms, revenue grew by 2.3 % year-on-year. This increase was primarily driven by growth in service revenues, in both the fixed-network core business, mainly due to broadband, and in mobile communications. Our United States operating segment contributed revenue growth of 2.1 % to this trend, mainly due to exchange rate effects. In organic terms, revenue declined by 2.3 % year-on-year due to lower terminal equipment revenue, partially offset by higher service revenue. In our Europe operating segment, revenue increased by 3.8 % year-on-year. In organic terms, revenue increased by 4.9 %, primarily attributable to the increase in high-margin services revenues in the mobile business. Revenue in our Systems Solutions operating segment was up 2.0 % year-on-year; in organic terms, it was up 4.5 %. This positive revenue trend was mainly driven by growth in the Digital, Road Charging, and Advisory portfolio areas, which more than offset the expected decline in traditional IT infrastructure business. Revenue in our Group Development operating segment declined by 87.6 % compared with the prior-year period, due to the sales of T‑Mobile Netherlands and GD Towers. In organic terms, it increased by 4.2 %.

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, b}

%

Breakdown of revenue by region^b

%

At 65.6 %, our United States operating segment again provided by far the largest contribution to net revenue of the Group, up 1.2 percentage points above the level in the prior-year period. The proportion of net revenue generated internationally also increased from 76.8 % to 77.4 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 0.1 billion or 0.9 % to EUR 10.0 billion in the first quarter of 2023. In organic terms, adjusted EBITDA AL increased by EUR 0.1 billion or 1.0 %, including positive net exchange rate effects of EUR 0.3 billion, and with changes in the composition of the Group having a net reducing effect of EUR 0.3 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 0.4 billion or 4.1 % to EUR 9.8 billion.

All operating segments with the exception of Group Development also made a positive contribution to the adjusted EBITDA AL trend. Our Germany operating segment contributed to the increase thanks to high-value revenue growth and improved cost efficiency with 4.0 % higher adjusted EBITDA AL; in organic terms, it increased by 3.1 %. In our United States operating segment, adjusted EBITDA AL increased by 5.9 %, essentially due to exchange rate effects. In organic terms, adjusted EBITDA AL grew by 1.3 % year-on-year. Adjusted core EBITDA AL at T‑Mobile US increased by EUR 0.7 billion or 11.5 % to EUR 6.4 billion. Adjusted EBITDA AL in our Europe operating segment increased by 0.7 %. In organic terms, adjusted EBITDA AL grew by 1.2 %, again making a positive contribution to earnings, with a positive net margin more than sufficient to offset the higher indirect costs. In our Systems Solutions operating segment, adjusted EBITDA AL increased by 10.3 % or, in organic terms, by 4.6 %. Efficiency effects from our transformation program and increased revenue in our Digital and Road Charging portfolio areas exceeded the decline in earnings in the traditional IT infrastructure business. Adjusted EBITDA AL in our Group Development operating segment declined by 81.7 % year-on-year due to the sale of T‑Mobile Netherlands and GD Towers. In organic terms, it increased by 32.0 %.

EBITDA AL increased by EUR 11.3 billion year-on-year to EUR 22.4 billion, with special factors affecting EBITDA AL changing by EUR 11.2 billion to EUR 12.4 billion. Net income of EUR 12.6 billion was recorded as special factors under effects of deconsolidations, disposals, and acquisitions. The deconsolidation of GD Towers as of February 1, 2023 gave rise to income of EUR 12.9 billion. Net expenses of EUR 0.3 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 include in particular expenses from the integration of IT systems, expenses in connection with the decommissioning of Sprint’s wireless network and additional depreciation 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 income of EUR 1.3 billion had been 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. Expenses incurred in connection with staff restructuring were on a par with the prior-year level at EUR 0.2 billion. No other special factors affecting EBITDA AL were recognized in the reporting period. The prior-year figure included payments on account received from insurance companies in connection with damage sustained in the catastrophic flooding 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.”

Profit/loss from operations (EBIT)

Group EBIT increased to EUR 18.0 billion, up EUR 11.7 billion against the level of the prior-year period. This change was primarily due to the deconsolidation gain from the sale of GD Towers. At EUR 6.0 billion, depreciation, amortization and impairment losses on intangible assets, property, plant and equipment, and right-of-use assets were EUR 0.7 billion lower in the first quarter of 2023 than in the prior-year period, with the decrease being almost exclusively attributable to the United States and Group Development operating segments. Depreciation and amortization at T‑Mobile US were lower due to the ongoing strategic withdrawal from the terminal equipment lease business. Depreciation and amortization also decreased due to the complete write-off of certain 4G network components, including assets affected by the decommissioning of the former Sprint’s legacy CDMA and LTE networks in 2022. The decrease was offset by increased depreciation and amortization in connection with the further build-out of the nationwide 5G network in the United States. In the Group Development operating segment, depreciation of property, plant and equipment and right-of-use assets were down on the prior-year level in connection with the fact that GD Towers had been held for sale until it was sold and accordingly the related depreciation had been suspended, and in connection with its subsequent sale. By contrast, a further reduction in the useful life of leased network technology for cell sites resulted in an increase in depreciation of the corresponding right-of-use assets of EUR 0.1 billion. No significant impairment losses were recorded either in the reporting period or in the prior-year period.

For information on the sale and the presentation of GD Towers according to the management approach, including a reconciliation for the consolidated income statement, please refer to the section “Group organization, strategy, and management.”

Profit before income taxes

Profit before income taxes increased by EUR 11.2 billion to EUR 16.7 billion. Loss from financial activities increased year-on-year from EUR 0.9 billion to EUR 1.3 billion, with other financial income declining from EUR 0.3 billion to EUR 0.1 billion, in particular in connection with the interest component from the measurement of provisions and liabilities. This decrease 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. Finance costs also increased from EUR 1.2 billion to EUR 1.4 billion, mainly due to the sale and leaseback of sold passive network infrastructure in Germany and Austria in connection with the sale of GD Towers and the modification of the arrangements between T‑Mobile US and Crown Castle in 2022, which resulted in an increase in the carrying amounts of the lease liabilities.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 11.4 billion to EUR 15.4 billion. The tax expense decreased by EUR 0.8 billion to EUR 0.3 billion. The tax rate was significantly reduced in the first quarter of 2023 by the realization of tax-free income from the sale of GD Towers. Taxes were furthermore reduced by deferred tax effects arising in connection with the sale-and-leaseback transaction concluded. Profit attributable to non-controlling interests increased by EUR 0.6 billion to EUR 1.1 billion. This increase was primarily attributable to our United States operating segment. Excluding special factors, which had a positive overall effect of EUR 13.4 billion on net profit, adjusted net profit in the first quarter of 2023 amounted to EUR 2.0 billion, compared with EUR 2.2 billion in the prior-year period.

For further information on tax expense, please refer to the section “Income taxes” in the interim 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 4,974 million as of March 31, 2023. This resulted in earnings per share of EUR 3.09, which was mainly affected by the gain on deconsolidation of GD Towers. In the prior-year period, earnings per share had been EUR 0.79. Earnings per share adjusted for special factors affecting net profit amounted to EUR 0.39 compared with EUR 0.45 in the prior-year period.

Employees

As of March 31, 2023, the Group’s headcount was up slightly compared with the end of 2022, by 0.5 %. In our Germany operating segment, the number of employees increased by 3.0 % against year-end 2022, mainly due to the transfer of employees of Multimedia Solutions GmbH from the Systems Solutions operating segment. The total number of full-time equivalent employees in the United States operating segment increased by 2.7 % against the end of 2022, primarily due to hiring and retention initiatives in sales and customer service. In our Europe operating segment, the headcount was down by 1.0 % compared with the end of the prior year, in particular in Slovakia, Croatia, and Hungary. The headcount in our Systems Solutions operating segment was down 6.2 % year-end 2022, mainly due to the transfer of Multimedia Solutions GmbH into the Germany operating segment. In the Group Development operating segment, the sharp year-on-year decrease in headcount of 86.1 % was mainly due to the sale of GD Towers as of February 1, 2023. The headcount in the Group Headquarters & Group Services segment was up 1.1 % compared with the end of 2022, mainly due to the increase in the number of employees in the Technology and Innovation Board department. The ongoing staff restructuring at Vivento had an offsetting effect.

Reconciliations of financial performance indicators from the IFRS consolidated financial statements

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: