Results of operations of the Group

NET REVENUE

In the first three months of the 2017 financial year, we generated net revenue of EUR 18.6 billion, a substantial increase of EUR 1.0 billion or 5.8 percent compared with the same period in the prior year. The business development of our United States operating segment contributed substantially to this positive trend: T-Mobile US’ successful Un-carrier initiatives gave a strong boost to the number of new customers and thus also to service revenues. Terminal equipment revenue also grew. On the one hand, this was due to an increase in the number of devices sold. On the other hand, it was attributable to higher average revenue per handset sold as a result of the focus on offering terminal equipment under an installment plan. In our German home market, revenue was stable. This development was mainly positively influenced by non-contract terminal equipment revenue in the mobile business. The revenue trend in the fixed-network business had a reducing effect. In our Europe operating segment, revenue was up slightly by 0.7 percent compared with the first quarter of 2016. Revenue development in our strategic growth areas and an increase in terminal equipment revenue had a positive effect. By contrast, lower roaming charges in most of the countries in which the national companies of our operating segment operate and ongoing intense competition in the telecommunications footprint markets put further pressure on revenue. In the Systems Solutions operating segment, revenue decreased by 8.3 percent against the prior-year period. This decline was primarily attributable to the completion in the first quarter of 2016 of the set-up phase for the toll collection system in Belgium. In general, the downward price trend in ICT business had a negative effect on net revenue. Revenue in our Group Development operating segment grew by 3.5 percent in the first quarter of 2017 compared with the prior-year quarter, a trend resulting from the positive revenue development at T-Mobile Netherlands.

Excluding the positive exchange rate effects of EUR 0.3 billion in total – in particular from the translation of U.S. dollars into euros – revenue increased by EUR 0.7 billion or 3.9 percent. For details on the revenue trends in our Germany, United States, Europe, Systems Solutions, and Group Development operating segments as well as in the Group Headquarters & Group Services segment, please refer to the section “Development of business in the operating segments”.

Contribution of the segments to net revenue
millions of €
  Q1 2017 Q1 2016 Change Change % FY 2016
Net revenue 18,646 17,630 1,016 5.8 % 73,095
Germany a 5,397 5,385 12 0.2 % 21,774
United States 8,982 7,816 1,166 14.9 % 33,738
Europe a 2,781 2,763 18 0.7 % 11,454
Systems Solutions a 1,704 1,859 (155) (8.3) % 6,993
Group Development a 595 575 20 3.5 % 2,347
Group Headquarters & Group Services a 737 781 (44) (5.6) % 3,467
Intersegment revenue (1,549) (1,549) 0 0.0 % (6,678)
 
a Since January 1, 2017, we have reported on the Group Development operating segment and within the Group Headquarters & Group Services segment on the Board of Management department Technology and Innovation. Comparative figures have been adjusted retrospectively. For more information, please refer to the section “Group structure, strategy, and management,” and the disclosures under segment reporting in the interim consolidated financial statements.
Graphic: Breakdown of revenue by regions
Graphic: Contribution of the segments to net revenue
a For more information on net revenue, please refer to the disclosures under
segment reporting in the interim consolidated financial statements.

At 48.2 percent, our United States operating segment again provided the largest contribution to net revenue of the Group. This was an increase of 3.9 percentage points compared with the prior-year period, due in particular to ongoing strong customer additions. The proportion of net revenue generated internationally increased year-on-year, from 65.5 percent to 67.3 percent.

EBITDA, ADJUSTED EBITDA

Excluding special factors, adjusted EBITDA increased year-on-year by EUR 0.4 billion or 7.5 percent to EUR 5.6 billion in the first quarter of 2017. This development was primarily driven by our United States operating segment, which recorded an increase in its adjusted EBITDA contribution of EUR 0.5 billion, mainly as a result of the continued success of the Un-carrier initiatives. In the first quarter of 2017, EBITDA adjusted for special factors in our Germany operating segment increased slightly, driven mainly by efficiency enhancement in all functions while the revenue trend remained stable. Adjusted EBITDA in our Europe operating segment decreased due to factors including higher direct costs resulting from a rise in interconnection costs and increased market investment expenditure. Adjusted EBITDA in our Systems Solutions operating segment was also down. In the previous year, this segment had benefited from a positive one-time effect. The positive revenue development at T-Mobile Netherlands increased the adjusted EBITDA of our Group Development operating segment. Excluding the positive exchange rate effects totaling EUR 0.1 billion – in particular from the translation of U.S. dollars into euros – adjusted EBITDA increased by EUR 0.3 billion or 6.1 percent.

Our EBITDA decreased year-on-year by EUR 1.7 billion to EUR 6.0 billion. The decline was mainly due to the positive special factor included in the prior-period figure, i.e., the income from the sale in early 2016 of our stake in the EE joint venture amounting to EUR 2.5 billion. In addition, income of EUR 0.4 billion was generated from an exchange of spectrum licenses between T-Mobile US and a competitor in March 2016. Positive net special factors amounted to EUR 0.4 billion in the first quarter of 2017. These primarily related to income from divestitures of EUR 0.5 billion in connection with the sale of Strato completed effective midnight March 31, 2017. Expenses incurred in connection with staff-related measures and non-staff-related restructuring expenses amounted to EUR 0.1 billion, EUR 0.2 billion lower than the expenses reported in the prior-year period. 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”.

Contribution of the segments to adjusted Group EBITDA
millions of €
  Q1 2017 Q1 2016 Change Change % FY 2016
EBITDA (adjusted for special factors) in the Group 5,550 5,163 387 7.5 % 21,420
Germany a 2,070 2,052 18 0.9 % 8,237
United States 2,386 1,908 478 25.1 % 8,561
Europe a 889 931 (42) (4.5) % 3,866
Systems Solutions a 96 196 (100) (51.0) % 530
Group Development a 238 223 15 6.7 % 943
Group Headquarters & Group Services a (128) (147) 19 12.9 % (670)
Reconciliation (1) (1) n. a. (47)
 
a Since January 1, 2017, we have reported on the Group Development operating segment and within the Group Headquarters & Group Services segment on the Board of Management department Technology and Innovation. Comparative figures have been adjusted retrospectively. For more information, please refer to the section “Group structure, strategy, and management,” and the disclosures under segment reporting in the interim consolidated financial statements.

EBIT

Group EBIT stood at EUR 2.8 billion, down EUR 1.8 billion against the prior-year period. This change is mainly due to the effects described under EBITDA. Depreciation, amortization and impairment losses were slightly higher than in the prior-year period and related primarily to the continued build-out of the 4G/LTE network in our United States operating segment. Depreciation in connection with the terminal equipment leased as part of the JUMP! On Demand program was lower.

PROFIT BEFORE INCOME TAXES

Profit before income taxes decreased substantially year-on-year by EUR 3.6 billion to EUR 0.7 billion. In addition to the aforementioned effects, the loss from financial activities increased by EUR 1.8 billion. This development was attributable in particular to negative remeasurement effects from the exercise and subsequent measurement of embedded derivatives in T-Mobile US bonds – mainly relating to the early repayment of external financial liabilities – and the EUR 0.7 billion impairment of our financial stake in BT, which was recognized in profit and loss as of March 31, 2017. In the prior-year period, other financial income/expense included a final dividend totaling EUR 0.2 billion in connection with the sale of our stake in the EE joint venture.

NET PROFIT

Net profit decreased year-on-year by EUR 2.4 billion to EUR 0.7 billion. In the first quarter of 2017, we reported a tax benefit of EUR 0.1 billion after a tax expense amounting to EUR 0.9 billion the prior-year period. For further information, please refer to the interim consolidated financial statements, page 39. Profit attributable to non-controlling interests declined compared with the prior-year period by EUR 0.2 billion. In our United States operating segment, the decrease in profit attributable to non-controlling interests was driven in particular by the aforementioned remeasurement effect in profit/loss from financial activities.

Number of employees (at the reporting date)
  Mar. 31, 2017 Dec. 31, 2016
Germany a 64,973 65,452
United States 42,925 44,820
Europe a 47,378 46,808
Systems Solutions a 37,839 37,472
Group Development a 2,549 2,572
Group Headquarters & Group Services a 20,884 21,216
Number of employees in the Group 216,548 218,341
Of which: civil servants (in Germany, with an active service relationship) 15,871 15,999
 
a Since January 1, 2017, we have reported on the Group Development operating segment and within the Group Headquarters & Group Services segment on the Board of Management department Technology and Innovation. Comparative figures have been adjusted retrospectively. For more information, please refer to the section “Group structure, strategy, and management,” and the disclosures under segment reporting in the interim consolidated financial statements.

The Group’s headcount decreased by 0.8 percent compared with the end of 2016. Measures to enhance efficiency, a slowdown in recruitment in the operating units, and the use of socially responsible instruments reduced the headcount in the Germany operating segment by 0.7 percent in the first quarter. The total number of employees in our United States operating segment decreased by 4.2 percent at March 31, 2017 compared to December 31, 2016, due to a decrease in customer acquisition and customer support employees. In our Europe operating segment, the number of employees increased by 1.2 percent, with the largest increases in Slovakia and Greece. Headcount in our Systems Solutions operating segment rose by 1.0 percent, largely due to the integration of Telekom Security staff. The number of employees in the Group Development segment decreased by 0.9 percent. This decrease was mainly driven by a successful and ongoing cost-cutting program at T-Mobile Netherlands. The number of employees in the Group Headquarters & Group Services segment was down 1.6 percent compared with the end of 2016, mainly due to the Group-wide bundling of the Telekom Security unit under our Systems Solutions operating segment. In the wake of the reorganization, this decrease was offset by the headcount increase in our Board of Management department Technology and Innovation.