Results of operations of the Group

Net revenue

In the first three quarters of 2018, we generated net revenue of EUR 55.4 billion, which was down 0.7 percent or EUR 0.4 billion year-on-year. The main factor in this decline was effects from the 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 1.5 billion or 2.8 percent.

In our United States operating segment, revenue – adjusted for exchange rate effects – increased by a very positive 6.7 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 home market of Germany, revenue declined by 1.0 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. Higher IT and broadband revenues almost compensated for the decrease in fixed-network revenue. In our Europe operating segment, revenue was up by 1.9 percent year-on-year; adjusted for exchange rate effects and without the inclusion of UPC Austria as of July 31, 2018, it increased by 1.3 percent. Revenue growth in business customer operations and in mobile business had a positive effect. Fixed-network revenue also increased slightly year-on-year in the core business, mainly due to the positive revenue effect from TV and broadband business. These increases were partially offset by a decline in wholesale business. In the Systems Solutions operating segment, revenue remained on a par with the prior-year period. Revenues developed positively in our growth business, while declining as expected in our traditional IT business, notably in the international corporate customer segment and due to the general market contraction in the core market of Western Europe. Revenue generated by our Group Development operating segment decreased by 5.6 percent year-on-year, a decline attributable in part to forgone revenue following the deconsolidation of Strato as of March 31, 2017. This was contrasted by positive effects at T-Mobile Netherlands due to rising revenue from mobile handsets and customer growth.

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 47.8 percent, our United States operating segment again provided the largest contribution to net revenue of the Group and was more or less on a par with the prior-year period. The proportion of net revenue generated internationally increased slightly from 67.3 percent to 67.5 percent.

EBITDA, adjusted EBITDA

Excluding special factors, adjusted EBITDA for the first three quarters of 2018 was up by 2.7 percent year-on-year, coming in at EUR 17.7 billion; negative exchange rate effects of EUR 0.5 billion, particularly from the translation of U.S. dollars into euros, and slightly negative net effects of changes in the composition of the Group were the main negative factors in this result. Excluding these effects, adjusted EBITDA increased by as much as EUR 1.0 billion or 6.2 percent. Adjusted for exchange rate effects, EBITDA in our United States operating segment developed very positively, due primarily to higher revenues. Positive trends were also recorded by our Germany and Europe operating segments – even without taking into account the acquisition of UPC Austria as of July 31, 2018 in the Europe operating segment. 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 from the deconsolidation of Strato in the first quarter of 2017.

Our EBITDA decreased by EUR 2.6 billion year-on-year to EUR 16.7 billion, with special factors decreasing by EUR 3.0 billion to EUR -1.0 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 0.9 billion. In addition, the prior-year period included a partial reversal of impairment losses on spectrum licenses at T-Mobile US, increasing the carrying amount by EUR 1.7 billion. Other positive factors in the prior-year period were income of EUR 0.5 billion from the divestiture of Strato, EUR 0.2 billion from the sale of further shares in Scout24 AG, and EUR 0.2 billion from the settlement agreement with BT.

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 7.1 billion, down EUR 1.6 billion against the prior-year period. This decrease was due to the effects described under EBITDA. At EUR 9.6 billion, depreciation, amortization and impairment losses were down EUR 0.9 billion year-on-year, mainly due to the impairment of goodwill in the amount of EUR 1.2 billion recognized in our Systems Solutions operating segment. Depreciation and amortization was EUR 0.3 billion higher than in the prior-year period.

Profit/loss before income taxes

At EUR 5.0 billion, profit before income taxes was at the same level as in the first three quarters of 2017. At EUR 2.1 billion, the loss from financial activities was EUR 1.6 billion smaller than a year earlier, offsetting the effects of the reduction in EBIT. The high loss in the previous year was due in particular to the EUR 1.3 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 0.3 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 three quarters of 2018, negative effects from the exercise and measurement 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 0.5 billion.

Net profit

Net profit increased year-on-year by EUR 0.5 billion to EUR 2.6 billion. Tax expense came to EUR 1.4 billion in the first three quarters of 2018, down EUR 0.5 billion year-on-year. For further information, please refer to the interim consolidated financial statements. Profit attributable to non-controlling interests decreased slightly compared with the prior-year period to EUR 0.9 billion.

Employees

The Group’s headcount decreased by 0.3 percent compared with the end of 2017. In our Germany operating segment, the total number of employees had decreased by 2.1 percent at the end of the third quarter 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 increased by 0.6 percent at September 30, 2018, compared to December 31, 2017, due primarily to increases in customer support, network, and back office employees, partially offset by a decrease in customer acquisition employees. In our Europe operating segment, staff levels grew by 2.4 percent compared with the end of the prior year. This growth was mainly attributable to our national companies in Austria, where we took over employees of UPC Austria, and in Croatia, due in part to the expansion of our service activities there. The number of employees in our Systems Solutions operating segment decreased by 0.5 percent 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 3.3 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.

For further details, please refer to our (PDF:) IR Backup (PDF).