Results of operations of the Group

The GD Towers entity has been recognized in the interim consolidated financial statements as a discontinued operation since the third quarter of 2022. According to the management approach, however, we continue to include the contributions by GD Towers in the Group Development operating segment in the management-relevant financial performance indicators explained here. For the reconciliation to the consolidated income statement, please refer to the relevant table in the section “Group organization, strategy, and management.”

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 decreased in the Europe operating segment, mainly in connection with the sale of the Romanian fixed-network business as of September 30, 2021, and in the Group Development operating segment, in connection with the sale of T‑Mobile Netherlands as of March 31, 2022. 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 three quarters of 2022, we generated net revenue of EUR 84.6 billion, which was up 6.9 % or EUR 5.4 billion year-on-year. In organic terms, revenue increased by EUR 0.5 billion or 0.6 %, including positive net exchange rate effects of EUR 6.2 billion, with the changes in the composition of the Group having the main net reducing effect of EUR 1.3 billion. Service revenue in the Group increased by EUR 6.8 billion or 11.0 % year-on-year to EUR 68.2 billion. In organic terms, service revenue increased by EUR 2.6 billion or 4.0 %.

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 12.4 %, mainly due to exchange rate effects. In organic terms, revenue declined by 0.5 % year-on-year due to lower terminal equipment revenue, partially offset by higher service revenue. Revenue in our home market of Germany was up on the prior-year level, increasing by 2.2 %. This was mainly driven by growth in service revenues, in both the fixed-network core business and in mobile communications. In our Europe operating segment, revenue decreased by 1.7 % year-on-year, mainly due to the sale of the Romanian fixed-network business. In organic terms, however, revenue increased by 4.5 %, primarily attributable to the strong performance of the mobile business, especially the increase in higher-margin mobile service revenues, increases in roaming and visitor revenues, and volume-driven increases in revenues from terminal equipment sales. Fixed-network service revenue also developed better compared with the prior-year period. Revenue in our Systems Solutions operating segment was down 0.2 % year-on-year; in organic terms, it was down 0.4 %. 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, Advisory, and Road Charging portfolio units, did not fully offset this decrease. Revenue in our Group Development operating segment declined by 40.0 % compared with the prior-year period, mainly due to the sale of T‑Mobile Netherlands. In organic terms, it increased by 6.3 %, thanks to the operational and structural growth of the GD Towers business unit.

For further information on revenue development in our segments, please refer to the section “Development of business in the operating segments.”

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

Contribution of the segments to net revenue^a

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Breakdown of revenue by region

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At 65.7 %, our United States operating segment again provided by far the largest contribution to net revenue of the Group, up 3.2 percentage points above the level in the prior-year period. The proportion of net revenue generated internationally also increased from 76.9 % to 77.9 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 1.9 billion or 6.8 % to EUR 30.2 billion in the first three quarters of 2022. In organic terms, adjusted EBITDA AL increased by EUR 0.2 billion or 0.7 %, including positive net exchange rate effects of EUR 2.2 billion, and with changes in the composition of the Group having a net reducing effect of EUR 0.5 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 3.1 billion or 11.7 % to EUR 29.1 billion.

The Germany, United States, and Systems Solutions operating segments made a positive contribution to the development of adjusted EBITDA AL. In our United States operating segment, adjusted EBITDA AL increased by 11.5 %, essentially due to exchange rate effects. In organic terms, adjusted EBITDA AL declined by 1.2 % year-on-year. Adjusted core EBITDA AL increased by EUR 3.1 billion or 20.9 % to EUR 18.1 billion. Our Germany operating segment contributed to the increase thanks to high-value revenue growth and improved cost efficiency with 3.2 % higher adjusted EBITDA AL. In our Systems Solutions operating segment, adjusted EBITDA AL increased by 13.9 % or, in organic terms, by 10.2 %. 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 Europe operating segment decreased by 1.3 %. In organic terms, however, adjusted EBITDA AL grew by 3.9 %, again making a significant positive contribution to earnings, with a positive net margin more than sufficient to offset the higher indirect costs. Adjusted EBITDA AL in our Group Development operating segment declined by 24.1 % year-on-year due to the sale of T‑Mobile Netherlands as of March 31, 2022. In organic terms, it increased by 21.1 %, since the GD Towers business posted consistent growth on the back of a rising number of cell tower sites and was further strengthened by the development of the Austrian cell tower business.

EBITDA AL increased by EUR 0.8 billion or 2.9 % year-on-year to EUR 27.1 billion, with special factors changing from EUR ‑2.0 billion to EUR ‑3.2 billion. Expenses incurred in connection with staff restructuring totaled EUR 0.9 billion, up EUR 0.5 billion against the prior-year level. Net expenses of EUR 1.6 billion were recorded as special factors under effects of deconsolidations, disposals and acquisitions. EUR 4.0 billion of this related to expenses in connection with integration costs incurred as a result of the business combination of T‑Mobile US and Sprint. 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. 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 connection with the agreement concluded to sell the wireline business, T‑Mobile US recorded expenses totaling EUR 0.7 billion in the third quarter of 2022 on account of payment obligations entered into. Separate from the agreed sale of the wireline business, a gain of EUR 0.1 billion from the consummated sale of IP addresses of the fiber-optic-based wireline network in the United States was recognized in the third quarter of 2022. Income of EUR 1.7 billion resulted from the deconsolidation of GlasfaserPlus, EUR 0.9 billion from the sale of T‑Mobile Netherlands, and another EUR 0.1 billion from the deconsolidation of DIV II. In the prior-year period, net expenses of EUR 1.5 billion were recorded as special factors under effects of deconsolidations, disposals and acquisitions. These expenses also related to the business combination with Sprint and were partially offset by income from the sale of the Dutch cell tower business. The impairment losses recognized as special factors amounted to EUR 0.3 billion and mainly related to right-of-use assets used in connection with the former Sprint’s fiber-optic-based wireline network. Other special factors affecting EBITDA AL amounted to EUR ‑0.3 billion and include net expenses of EUR 0.4 billion in connection with the proceedings pending in consequence of the cyberattack on T‑Mobile US, as well as 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.”

Profit/loss from operations (EBIT)

Group EBIT increased to EUR 12.1 billion, up EUR 1.4 billion or 13.2 % against the level of the prior-year period. This increase is due in particular to the effects described under adjusted EBITDA AL and EBITDA AL. At EUR 21.4 billion, depreciation, amortization and impairment losses were EUR 0.7 billion higher than in the prior-year period, with depreciation and amortization decreasing slightly by EUR 0.1 billion. In the Group Development operating segment, depreciation and amortization 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, and in connection with its subsequent sale. In addition, depreciation and amortization were suspended for the GD Towers entity, which has been held for sale since July 13, 2022. 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. By contrast, 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 1.4 billion. Impairment losses increased year-on-year by EUR 0.8 billion to EUR 0.9 billion. The impairment losses recorded in the reporting period mainly related to the former Sprint’s fiber-optic-based wireline assets and were in part attributable to the sale of the business agreed in September 2022.

For information on the agreement with DigitalBridge and Brookfield on GD Towers, and the presentation of GD Towers according to the management approach, including reconciliation table, please refer to the section “Group organization, strategy, and management.”

Profit before income taxes

Profit before income taxes increased by EUR 2.5 billion to EUR 9.5 billion. Loss from financial activities decreased year-on-year from EUR 3.7 billion to EUR 2.6 billion, with other financial income/expense improving from EUR ‑0.2 billion to EUR 1.3 billion. This was attributable in particular to positive measurement effects from a forward transaction to hedge the price of acquiring T‑Mobile US shares in the future and positive measurement effects from the amortization and subsequent measurement of the stock options received from SoftBank in June 2020 to buy shares in T‑Mobile US. Measurement effects from currency hedges and less pronounced negative measurement effects from derivatives of T‑Mobile US embedded in bonds compared with the prior-year period also contributed to this. The interest component from the measurement of provisions and liabilities increased by EUR 0.5 billion. However, finance costs also increased from EUR 3.5 billion to EUR 3.9 billion.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 3.3 billion to EUR 7.0 billion. Tax expense increased by EUR 0.1 billion to EUR 1.8 billion. Profit attributable to non-controlling interests decreased by EUR 0.9 billion to EUR 0.7 billion, with the decrease being primarily attributable to our United States operating segment. Excluding special factors, which had a negative overall effect of EUR 0.1 billion on net profit, adjusted net profit in the first three quarters of 2022 amounted to EUR 7.1 billion, up EUR 2.5 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.

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 September 30, 2022. This resulted in earnings per share of EUR 1.41, compared with EUR 0.78 in the prior-year period. Earnings per share adjusted for special factors affecting net profit amounted to EUR 1.43 compared with EUR 0.97 in the prior-year period.

Employees

As of September 30, 2022, the Group’s headcount was down by 4.0 % compared with the end of 2021. In our Germany operating segment, the number of employees declined by 2.8 % against year-end 2021, largely due to the take-up of 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 the United States operating segment decreased by 5.9 % from September 30, 2022 compared to December 31, 2021 – primarily due to intentional headcount rationalization to manage costs. In our Europe operating segment, the headcount was down by 2.8 % compared with the end of the prior year, in particular in Greece, Poland, Slovakia, and Croatia. The headcount in our Systems Solutions operating segment was up 2.5 % against the end of 2021. The effect on headcount of our efficiency enhancement measures was more than offset by increased staff requirements in our growth areas. In the Group Development operating segment, the sharp year-on-year decrease in headcount of 69.0 % was mainly due to the sale of T‑Mobile Netherlands as of March 31, 2022. The headcount in the Group Headquarters & Group Services segment was down 2.3 % compared with the end of 2021, mainly due to the ongoing staff restructuring at Vivento and in the Technology and Innovation unit.

Reconciliations of financial performance indicators from the IFRS consolidated financial statements

A reconciliation of net revenue disclosed in the interim consolidated financial statements, including its breakdown into revenue categories, to the service revenue financial performance indicator can be found in the following table:

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: