Results of operations of the Group

Net revenue

In the first half of 2021, we generated net revenue of EUR 53.0 billion, which was up EUR 6.0 billion or 12.8 % 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 3.4 billion or 6.9 %. For a comparison on an organic basis, net revenue in the prior-year period was raised by EUR 5.5 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 ‑2.9 billion were taken into account.

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 20.7 %. In organic terms, i.e., adjusted for the effect of the acquisition of Sprint and assuming constant exchange rates, revenue increased by 10.1 % 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 1.4 %. 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, although this trend flattened out in the second quarter as the situation eased. In the first half of 2021, the Europe operating segment recorded a revenue increase of 1.6 %. In organic terms, i.e., assuming constant exchange rates, revenue increased by 2.4 %. Organic growth was driven by the strong performance of the mobile business, especially the increase in higher-margin service revenues, despite slight losses in roaming and visitor revenues, and higher revenues from terminal equipment sales. By contrast, the fixed-network business recorded stable revenues. Revenue in our Systems Solutions operating segment was down 5.0 % year-on-year. This decrease was mainly driven by the expected decline in traditional IT infrastructure business, due in part to targeted business decisions such as the reduction in end-user services. By contrast, our growth areas grew significantly, especially public cloud, road charging, and digital solutions. Revenue in our Group Development operating segment increased by 9.8 %. In organic terms, i.e., adjusted for the sale of the Dutch cell tower business, the reassignment of the Austrian cell tower business, as well as the acquisition of the Dutch MVNO and SIM provider Simpel, revenue increased by 4.4 %. This revenue increase resulted from the operational and structural growth of our two business units T‑Mobile Netherlands and GD Towers, which includes DFMG and the Austrian cell tower business.

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 4.1 percentage points against the level in the prior-year period. In this connection, the proportion of net revenue generated internationally also increased significantly from 74.2 % to 76.5 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 2.3 billion or 14.0 % to EUR 18.7 billion in the first half of 2021. In organic terms, adjusted EBITDA AL increased by EUR 0.8 billion or 4.6 %. For a comparison on an organic basis, adjusted 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 – 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 ‑1.0 billion were taken into account.

All operating 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 4.6 % year-on-year. These positive trends were offset by negative effects of the initiated withdrawal from the terminal equipment lease model in the United States and higher operational expenses – primarily in connection with the acquisition of Sprint. Our Germany operating segment contributed to this result thanks to high-value revenue growth and improved cost efficiency with 3.5 % higher adjusted EBITDA AL. Adjusted EBITDA AL in our Europe operating segment increased by 2.8 %. In organic terms, i.e., assuming constant exchange rates and adjusted for the transfer of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased by 4.7 %. In addition to the positive revenue effects, savings in indirect costs also contributed to this development. In our Systems Solutions operating segment, adjusted EBITDA AL increased by 3.1 %. Efficiency effects from our transformation program and effects from increased revenue in all growth areas exceeded the decline in earnings in the traditional IT infrastructure business. Adjusted EBITDA AL in our Group Development operating segment increased by 14.9 % year-on-year; in organic terms, it grew by 8.1 %. This growth was attributable to the positive revenue trend at T‑Mobile Netherlands, synergies from the takeover of Tele2 Netherlands, the acquisition of Simpel, 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 transfer of the Austrian cell tower business.

EBITDA AL increased by EUR 3.1 billion or 21.3 % year-on-year to EUR 17.6 billion, with special factors changing from EUR ‑1.9 billion to EUR ‑1.1 billion. Expenses incurred in connection with staff-related measures decreased year-on-year from EUR 0.6 billion to EUR 0.4 billion. Net expenses of EUR 0.6 billion were recorded as special factors under effects of deconsolidations, disposals, and acquisitions. EUR 0.7 billion of the expenses 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. The Group figure for the prior-year period included expenses totaling EUR 0.8 billion incurred in connection with the approval process for the business combination of T‑Mobile US and Sprint, and acquisition and integration costs. In addition, in the Group Development operating segment, EBITDA AL was influenced by net positive special factors of EUR 0.2 billion, which mainly related to the gain on deconsolidation due to the sale of the Dutch cell tower business. In the prior year, expenses of EUR 0.4 billion in connection with the coronavirus pandemic were recorded under other special factors affecting EBITDA in the United States operating segment.

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 5.6 billion to EUR 7.2 billion, up EUR 1.6 billion or 28.8 % against the prior-year period. This increase is partly due to the effects described under adjusted EBITDA AL and EBITDA AL. At EUR 13.6 billion, depreciation, amortization and impairment losses were EUR 2.3 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 1.7 billion to EUR 5.0 billion for the aforementioned reasons. The loss from financial activities remained unchanged against the first half of 2020 at EUR 2.2 billion, with finance costs increasing by EUR 0.3 billion to EUR 2.3 billion, mainly due to the financial liabilities acquired in connection with the acquisition of Sprint and the related restructuring and increase of financing. By contrast, other financial expense decreased by EUR 0.4 billion year-on-year to income of EUR 0.2 billion, mainly due to higher interest income from the measurement of provisions and liabilities, especially in the Group Headquarters & Group Services segment. Gains/losses from financial instruments remained more or less stable. Positive measurement effects resulted from the subsequent measurement of the stock options to buy shares in T‑Mobile US received from SoftBank in June 2020. By contrast, negative measurement effects resulted, among other factors, from embedded derivatives at T‑Mobile US.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 1.1 billion to EUR 2.8 billion. The tax expense increased by EUR 0.3 billion to EUR 1.3 billion. Profit attributable to non-controlling interests increased by EUR 0.2 billion to EUR 1.0 billion, mainly in our United States operating segment. Excluding special factors, which had a negative overall effect of EUR 0.5 billion on net profit, adjusted net profit in the first half of 2021 amounted to EUR 3.3 billion, up EUR 0.8 billion against the prior-year period.

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 4,744 million as of June 30, 2021. This resulted in earnings per share of EUR 0.59, compared with EUR 0.35 in the prior-year period. Earnings per share adjusted for special factors affecting net profit amounted to EUR 0.70 compared with EUR 0.54 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 1.9 % compared with the end of 2020. The number of employees in our Germany operating segment decreased by 6.9 % 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 full-time equivalent employees in our United States operating segment decreased by 0.7 % compared to December 31, 2020 due to seasonality. In our Europe operating segment, the headcount was down 3.9 % compared with the end of the prior year, with staff levels decreasing in Greece, Hungary, Croatia, and Romania in particular. The headcount in our Systems Solutions operating segment was down 3.4 % against year-end 2020, primarily as a result of efficiency enhancement measures (-1.9 %) and the sale of a business operation (-1.5 %). In the Group Development operating segment, the 0.7 % 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 19.6 % compared with the end of 2020, mainly due to the aforementioned reassignment of employees from the Germany operating segment.