Results of operations of the group

Net revenue

In the first half of 2018, we generated net revenue of EUR 36.3 billion, a decrease of 3.3 percent or EUR 1.2 billion year-on-year. The main factor in this decline was the effects from translation of U.S. dollars into euros. Adjusted for these negative exchange rate effects totaling EUR 1.9 billion, and for the slightly negative effect of changes in the composition of the Group, revenue actually increased by EUR 0.8 billion or 2.2 percent.

In our United States operating segment, revenue – adjusted for exchange rate effects – increased by a very positive 6.0 percent. This increase was due primarily to higher service revenues from the rise in the average branded customer base, triggered in particular by the continued growth in existing and greenfield markets, the growing success in new customer segments, along with lower customer churn. In our German home market, revenue contracted by a slight 1.1 percent. Adjusted for the effects of IFRS 15, total revenue was at a comparable level with the previous year, with revenue from mobile business rising marginally. Higher IT and broadband revenues compensated almost entirely for the decrease in fixed-network revenue. In our Europe operating segment, revenue was up by 1.2 percent year-on-year; adjusted for exchange rate effects, it increased by 0.8 percent. Revenue growth in business customer operations and in mobile business had a positive effect. With respect to the lower fixed-network revenue, declines in wholesale business eroded the positive revenue contribution of TV and broadband business. In the Systems Solutions operating segment, revenue decreased slightly by 1.6 percent compared with the prior-year period. While there was a decline in revenue from traditional IT business, notably from international corporate customers and due to the general market contraction in our core market of Western Europe, revenue in our growth areas – in particular cloud computing, the Internet of Things, and digital solutions – increased compared with the first half of the previous year. Revenue generated by our Group Development operating segment decreased by 8.1 percent year-on-year in the first six months of 2018, a decline largely attributable to forgone revenue following the deconsolidation of Strato as of March 31, 2017 and lower revenue at T-Mobile Netherlands.

For detailed 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 47.6 percent, our United States operating segment again provided the largest contribution to net revenue of the Group. This was a decrease of 0.9 percentage points compared with the prior-year period and was mainly due to negative effects from the translation of U.S. dollars into euros. As a result, the proportion of net revenue generated outside Germany decreased from 67.7 percent to 67.1 percent.

EBITDA, adjusted EBITDA

Excluding special factors, first-half adjusted EBITDA was stable year-on-year, coming in at EUR 11.5 billion; negative exchange rate effects of EUR 0.6 billion, particularly from the translation of U.S. dollars into euros, and slightly negative effects of changes in the composition of the Group were a major negative factor in this result. Excluding such effects, adjusted EBITDA actually rose by EUR 0.5 billion or 5.2 percent. Adjusted for exchange rate effects, EBITDA in our United States operating segment developed very positively, due primarily to higher revenues. Our Germany and Europe operating segments also performed well. The decrease in adjusted EBITDA at our Systems Solutions operating segment was mainly attributable to the higher costs involved in establishing operations in growth areas and to higher expenses resulting from the ongoing migration to all IP. In our Group Development operating segment, adjusted EBITDA declined, mainly due to forgone earnings resulting from the deconsolidation of Strato in the first quarter of 2017.

Our EBITDA decreased by EUR 1.1 billion year-on-year to EUR 10.8 billion, with special net negative special factors decreasing by EUR 1.1 billion to EUR 0.7 billion. The decline was attributable to a EUR 0.5 billion rise in expenses for staff-related measures and expenses for non-staff-related restructuring totaling EUR 0.7 billion. The figure for the prior-year period had also included income of EUR 0.5 billion from the deconsolidation of Strato, which was sold as of March 31, 2017, as well as income of EUR 0.2 billion from the sale of further shares in Scout24 AG.

For detailed information on the development of EBITDA/adjusted EBITDA in our segments, please refer to the section Development of business in the operating segments.

EBIT

Group EBIT stood at EUR 4.5 billion, down EUR 1.1 billion against the prior-year period. This decrease is due to the effects described under EBITDA. At EUR 6.3 billion, depreciation, amortization and impairment losses were on a par with the prior-year period.

Profit/loss before income taxes

Profit before income taxes increased by EUR 0.3 billion to EUR 2.9 billion compared with the first half of 2017. This increase was largely attributable the decrease of EUR 1.4 billion in the loss from financial activities to EUR 1.6 billion. The high loss in the previous year was due in particular to the EUR 1.1 billion impairment of our financial stake in BT that was recognized in profit or loss. In March 2018, we transferred our financial stake in BT to Deutsche Telekom Trust e.V., where it will be used as plan assets to cover our pension obligations. With effect from the first quarter of 2018, changes in the value of our stake are recognized directly in equity (other comprehensive income) and no longer as profit/loss from investing activities in the income statement. Nor will future dividend income from the stake in BT be recognized in profit/loss from financial activities. Finance costs decreased by EUR 0.2 billion. This was essentially due to the fact that T-Mobile US has increasingly been financed internally since 2017. The share of profit/loss of associates and joint ventures accounted for using the equity method decreased to EUR -0.5 billion. This was mainly attributable to the settlement agreement reached to end the Toll Collect arbitration proceedings, which had a negative effect of EUR 0.6 billion. By contrast, the profit distribution resolved in March 2018 by the shareholders of the Toll Collect GmbH joint venture – EUR 0.1 billion of which is attributable to Deutsche Telekom – had a positive effect. In the first half of 2018, negative effects from the exercise and remeasurement of embedded derivatives at T-Mobile US increased the loss from financial activities by EUR 0.2 billion. In the prior-year period, this negative effect on the loss from financial activities totaled EUR 0.4 billion.

Net profit

Net profit decreased year-on-year by EUR 0.1 billion to EUR 1.5 billion. Tax expense came to EUR 0.9 billion in the first half of 2018, up EUR 0.3 billion year-on-year. For further information, please refer to the interim consolidated financial statements. Profit attributable to non-controlling interests increased by EUR 0.2 billion year-on-year, mainly in our United States operating segment.

Employees

The Group’s headcount decreased by 0.5 percent compared with the end of 2017. In our Germany operating segment, the total number of employees had decreased by 1.4 percent at the end of the first half of 2018 as a result of efficiency enhancement measures, fewer new hires in the operational units, and the take-up of socially responsible instruments. The total number of employees in our United States operating segment decreased by 0.5 percent at June 30, 2018, compared to December 31, 2017, due primarily to a decrease in customer acquisition employees, partially offset by increases in customer support and network employees. In our Europe operating segment, staff levels grew by 1.3 percent compared with the end of the prior year. Our national companies in Croatia and Poland were the main drivers of this trend, for example, as a result of the expansion of customer support in Croatia and the establishment of new branches in Poland. The number of employees in our Systems Solutions operating segment decreased marginally compared with the end of 2017, due mainly to declining staff levels in our IT Division. In our Group Development operating segment, the number of employees declined slightly compared with the end of 2017. The headcount in the Group Headquarters & Group Services segment was down 1.9 percent compared with the end of 2017. The decline in staff levels caused by ongoing restructuring measures at Vivento was partially offset by the addition of employees at the Technology and Innovation unit.