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 primarily in the Group Development operating segment in connection with the sale of T‑Mobile Netherlands as of March 31, 2022, of GD Towers as of February 1, 2023, and of the wireline business at T‑Mobile US as of May 1, 2023. The net negative exchange rate effects were primarily attributable to the translation of U.S. dollars to euros.

Revenue, service revenue

In the first three quarters of 2023, we generated net revenue of EUR 82.6 billion, which was down 2.4 % or EUR 2.0 billion year-on-year. In organic terms, revenue remained more or less on a par with the prior-year level, including negative net exchange rate effects of EUR 1.0 billion, with the changes in the composition of the Group having the net reducing effect of EUR 0.9 billion. High-value service revenue in the Group increased by EUR 0.8 billion or 1.1 % year-on-year to EUR 69.0 billion. In organic terms, service revenue increased by EUR 2.2 billion or 3.3 %.

In our United States operating segment, revenue was down 3.9 % against the prior-year level, due in part to exchange rate effects. In organic terms, it declined by 1.7 %. This was attributable to lower terminal equipment revenue, as expected. First of all, the migration of former Sprint customers to the T‑Mobile US network is complete, such that fewer compatible devices were issued. Furthermore, customers use their devices longer. In addition, T‑Mobile US continued its strategic withdrawal from the terminal equipment lease business. The decline in terminal equipment revenues was only partially offset by an increase in service revenue. In the Group Development operating segment, year-on-year revenue development was dominated by the loss of the value contributions of the sold entities T‑Mobile Netherlands and GD Towers. In organic terms, revenue remained stable. The other operating segments recorded positive revenue trends. Revenue in our home market of Germany was up on the prior-year level, increasing by 2.5 %. In organic terms, revenue grew by 1.8 % year-on-year. This was mainly driven by growth in service revenues in the fixed-network core business and in mobile communications. Another revenue driver was the partnership business. In our Europe operating segment, revenue increased by 5.1 % year-on-year. In organic terms, revenue increased by 4.5 %, primarily attributable to the increase in high-margin services revenues in the mobile business. Contract customer additions also had positive effects on terminal equipment revenues. Revenue in our Systems Solutions operating segment was up 2.5 % year-on-year; in organic terms, it was up 5.5 %. This positive revenue trend was mainly driven by growth in the Digital, Road Charging, and Advisory portfolio areas.

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

%

Breakdown of revenue by region

%

^a For further information on net revenue, please refer to the section “Segment reporting” in the interim consolidated financial statements.

At 64.7 %, our United States operating segment provided by far the largest contribution to net revenue of the Group. This was 1.0 percentage points below the level in the prior-year period. The proportion of net revenue generated internationally decreased from 77.9 % to 77.1 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 0.2 billion or 0.8 % to EUR 30.5 billion in the first three quarters of 2023. In organic terms, adjusted EBITDA AL increased by EUR 1.1 billion or 3.7 %, including negative 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 0.5 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 1.1 billion or 3.8 % to EUR 30.2 billion.

All operating segments – with the exception of Group Development, due to the aforementioned loss of the value contributions of the sold units – made a positive contribution to the development of adjusted EBITDA AL. 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 %. Adjusted EBITDA AL in our United States operating segment increased by 3.6 %. In organic terms, adjusted EBITDA AL grew by 4.9 % year-on-year, mainly due to lower costs. Adjusted core EBITDA AL at T‑Mobile US increased by EUR 1.5 billion or 8.5 % to EUR 19.6 billion. Adjusted EBITDA AL in our Europe operating segment increased by 3.2 %. In organic terms, it increased by 2.4 %, 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 6.5 % or, in organic terms, by 2.5 %. Efficiency effects from the transformation program and increased revenue in the Road Charging portfolio area exceeded the decline in earnings in the Cloud portfolio area.

EBITDA AL increased by EUR 14.4 billion year-on-year to EUR 41.5 billion, with special factors affecting EBITDA AL increasing by EUR 14.2 billion to EUR 11.0 billion. Net income of EUR 12.3 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 0.7 billion, mainly in connection with integration costs as a result of the merger of T‑Mobile US and Sprint, had an offsetting effect. In the prior-year period, net expenses of EUR 1.6 billion had been recorded as special factors under effects of deconsolidations, disposals, and acquisitions. These effects included income of EUR 1.7 billion from the deconsolidation of GlasfaserPlus and a further EUR 0.9 billion from the sale of T‑Mobile Netherlands. In the prior-year period, net expenses in the United States operating segment of EUR 4.4 billion had an offsetting effect. These were mainly incurred in connection with integration costs as a result of the merger of T‑Mobile US and Sprint and in connection with payment obligations relating to the agreement concluded at that time to sell the fiber-optic-based wireline network. Expenses incurred in connection with staff restructuring totaled EUR 1.2 billion, up EUR 0.3 billion against the prior-year level. In August 2023, T‑Mobile US began with the implementation of a workforce reduction program. The expenses recognized as special factors in this connection amounted to EUR 0.4 billion. No significant impairment losses or other special factors affecting EBITDA AL were recognized in the reporting period. In the prior year, the impairment losses classified 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. In the prior year, other special factors affecting EBITDA AL included expenses of EUR 0.4 billion incurred in connection with the proceedings pending in consequence of the cyberattack on T‑Mobile US in August 2021, offset by payments on account from insurance companies of EUR 0.1 billion 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 28.7 billion, up EUR 16.6 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 17.8 billion, depreciation, amortization and impairment losses on intangible assets, property, plant and equipment, and right-of-use assets were EUR 3.6 billion lower in the first three quarters of 2023 than in the prior-year period, with the decrease being mainly 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 following the business combination of T‑Mobile US and Sprint increased depreciation of the corresponding right-of-use assets by EUR 0.2 billion. In the Germany operating segment, depreciation and amortization increased, partly as a result of the sale and leaseback of passive network infrastructure in Germany and Austria in connection with the sale of GD Towers and the associated recognition of retained right-of-use assets. Impairment losses amounted to EUR 0.1 billion in the reporting period. The impairment losses recorded in the prior-year period of EUR 0.9 billion were mainly attributable to the former Sprint’s fiber-optic-based wireline assets in the United States operating segment and related in part to the sale of the business to Cogent agreed in September 2022.

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 14.7 billion to EUR 24.2 billion. Loss from financial activities increased year-on-year by EUR 1.9 billion to EUR 4.4 billion, with other financial income declining from EUR 1.3 billion to a financial expense of EUR 0.2 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. In the prior year, the measurement was affected by the significant increase in the interest rate level in that period. Gains/losses from financial instruments also declined, partly due to less pronounced positive measurement effects compared with the prior-year period. Finance costs increased from EUR 3.9 billion to EUR 4.3 billion, mainly due to the sale and leaseback of passive network infrastructure in Germany and Austria in connection with the sale of GD Towers, which resulted in an increase in the carrying amounts of the lease liabilities, and due to an increase in the average interest rates of our financial liabilities.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 11.8 billion to EUR 18.8 billion. Tax expense increased by EUR 0.4 billion to EUR 2.2 billion. The tax rate was significantly reduced in the first three quarters 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 2.4 billion to EUR 3.1 billion. This increase was almost entirely attributable to our United States operating segment. Excluding special factors, which had a positive overall effect of EUR 12.7 billion on net profit, adjusted net profit amounted to EUR 6.1 billion in the first three quarters of 2023, compared with EUR 7.1 billion in the prior-year period. The increase in loss from financial activities in particular had a decreasing effect.

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 4,975 million as of September 30, 2023. This resulted in earnings per share of EUR 3.78, which was mainly affected by the gain on the sale of GD Towers. In the prior-year period, earnings per share had been EUR 1.41. Earnings per share adjusted for special factors affecting net profit amounted to EUR 1.23 compared with EUR 1.43 in the prior-year period.

Employees

As of September 30, 2023, the Group’s headcount was down by 1.2 % compared with the end of 2022. In our Germany operating segment, the number of employees increased by 2.2 % against year-end 2022, mainly due to the transfer of employees of Multimedia Solutions (MMS) from the Systems Solutions operating segment. The total number of full-time equivalent employees in the United States operating segment decreased by 1.3 % compared to year-end 2022 – primarily due to headcount rationalization to manage costs. In connection with the implementation of the workforce reduction program, which began in August 2023, a further decrease in the total employee base of just under 7 % is expected in the next three quarters. In our Europe operating segment, the headcount was down by 3.0 % compared with the end of the prior year, in particular in Slovakia, Poland, and Greece. The headcount in our Systems Solutions operating segment was down 4.4 % against year-end 2022, mainly due to the transfer of MMS into the Germany operating segment. In the Group Development operating segment, the sharp year-on-year decrease in headcount of 87.3 % was mainly due to the sale of GD Towers as of February 1, 2023. The headcount in the Group Headquarters & Group Services segment as of September 30, 2023 was at the same level as at year-end 2022. The continued staff restructuring at Vivento offset the increase in the number of employees in the Technology and Innovation Board of Management department.

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: