Results of operations of the Group

NET REVENUE

In the first half of the 2017 financial year, we generated net revenue of EUR 37.5 billion, a substantial increase of EUR 2.1 billion or 5.9 percent compared with the same period in the prior year. The development of business in our United States operating segment contributed substantially to this positive trend: T-Mobile USʼ successful Un-carrier initiatives, expansion into new markets, and the success of the MetroPCS brand all gave a strong boost to the number of new customers and thus also to service revenues. Terminal equipment revenues continued to rise as a result of the stronger focus on offering terminal equipment under installment plans. In our German home market, there was a slight upward trend in revenue. 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 the Europe operating segment, revenue also increased slightly against the first half 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 operate and ongoing intense competition in the telecommunications footprint markets put further pressure on revenue. In the Systems Solutions operating segment, revenue decreased by 5.2 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 0.8 percent in the first half of 2017 compared with the same period of last year, a trend resulting mainly from the positive revenue development at T-Mobile Netherlands.

Excluding the positive exchange rate effects of EUR 0.6 billion in total – in particular from the translation of U. S. dollars into euros – revenue increased by EUR 1.5 billion or 4.3 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 Q2 2017 Q2 2016 Change % H1 2017 H1 2016 Change % FY 2016
Net revenue 18,646 18,890 17,817 6.0 % 37,537 35,447 5.9 % 73,095
Germany a 5,397 5,371 5,338 0.6 % 10,768 10,723 0.4 % 21,774
United States 8,982 9,236 8,196 12.7 % 18,218 16,012 13.8 % 33,738
Europe a 2,781 2,860 2,794 2.4 % 5,641 5,558 1.5 % 11,454
Systems Solutions a 1,704 1,688 1,719 (1.8) % 3,392 3,578 (5.2) % 6,993
Group Development a 595 562 573 (1.9) % 1,157 1,148 0.8 % 2,347
Group Headquarters & Group Services a 737 787 910 (13.5) % 1,525 1,691 (9.8) % 3,467
Intersegment revenue (1,549) (1,614) (1,713) 5.8 % (3,164) (3,263) 3.0 % (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 48.5 percent, our United States operating segment again provided the largest contribution to net revenue of the Group. This was an increase of 3.3 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 65.7 percent to 67.7 percent.

EBITDA, ADJUSTED EBITDA

Excluding special factors, adjusted EBITDA increased year-on-year by EUR 0.9 billion or 8.2 percent to EUR 11.5 billion in the first half of 2017. This development was primarily driven by our United States operating segment, which recorded an increase in its adjusted EBITDA contribution of EUR 0.9 billion, mainly as a result of the continued success of the Un-carrier initiatives. In the first half of 2017, EBITDA adjusted for special factors in our Germany operating segment increased slightly. Adjusted EBITDA in our Europe operating segment decreased. Adjusted EBITDA in our Systems Solutions operating segment also declined. 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 0.8 billion or 7.0 percent.

Our EBITDA decreased year-on-year by EUR 0.4 billion to EUR 11.9 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 0.5 billion in the first half of 2017. These largely comprised income from divestitures of EUR 0.5 billion in connection with the sale of Strato completed on March 31, 2017 and income of EUR 0.2 billion from the sale of the remaining stake in Scout24 AG. The prior-year period included a gain of EUR 0.1 billion from the sale of our share package in Scout24 AG, which was concluded on April 18, 2016. Special factors in connection with staff-related measures amounted to EUR 0.2 billion, EUR 0.7 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 Q2 2017 Q2 2016 Change % H1 2017 H1 2016 Change % FY 2016
EBITDA (adjusted for special factors) in the Group 5,550 5,944 5,457 8.9 % 11,495 10,620 8.2 % 21,420
Germany a 2,070 2,100 2,078 1.1 % 4,170 4,129 1.0 % 8,237
United States 2,386 2,640 2,172 21.5 % 5,025 4,080 23.2 % 8,561
Europe a 889 947 968 (2.2) % 1,836 1,899 (3.3) % 3,866
Systems Solutions a 96 136 111 22.5 % 232 307 (24.4) % 530
Group Development a 238 236 256 (7.8) % 475 479 (0.8) % 943
Group Headquarters & Group Services a (128) (90) (89) (1.1) % (218) (236) 7.6 % (670)
Reconciliation (1) (25) (39) 35.9 % (25) (38) 34.2 % (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 5.6 billion, down EUR 0.5 billion against the prior-year period. This change is mainly due to the effects described under EBITDA. Depreciation, amortization and impairment losses on intangible assets and property, plant and equipment were on a par with the prior-year period.

PROFIT BEFORE INCOME TAXES

Profit before income taxes decreased substantially year-on-year by EUR 2.5 billion to EUR 2.6 billion. In addition to the aforementioned effects, the loss from financial activities increased by EUR 2.0 billion, mainly as a result of the EUR 1.1 billion impairment of our financial stake in BT, which was recognized in profit and loss. Negative remeasurement effects from the exercise and subsequent measurement of embedded derivatives in T-Mobile U. S. bonds – mainly relating to the early repayment of external financial liabilities – also increased the loss from financial activities. 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 former EE joint venture.

NET PROFIT

Net profit decreased year-on-year by EUR 2.1 billion to EUR 1.6 billion. The tax expense for the first half of 2017 amounted to EUR 0.6 billion, down EUR 0.4 billion compared with the same period in the prior year. For further information, please refer to the interim consolidated financial statements. Profit attributable to non-controlling interests increased compared with the prior-year period by EUR 0.1 billion. In our United States operating segment, the increase in profit attributable to non-controlling interests was driven in particular by the positive business performance. This was partially offset by the aforementioned remeasurement effect in loss from financial activities.

Number of employees (at the reporting date)
   June 30, 2017 Dec. 31, 2016
Germany a 64,560 65,452
United States 43,566 44,820
Europe a 47,610 46,808
Systems Solutions a 37,801 37,472
Group Development a 1,980 2,572
Group Headquarters & Group Services a 20,618 21,216
Number of employees in the Group 216,135 218,341
Of which: civil servants (in Germany, with an active service relationship) 15,846 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 Groupʼs headcount decreased by 1.0 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 1.4 percent in the first half of the year. The total number of employees in our United States operating segment decreased by 2.8 percent at June 30, 2017 compared to December 31, 2016, due to restructuring with regard to customer acquisition and customer support staff. Headcount in our Europe operating segment rose by 1.7 percent, with increases in particular in Slovakia, Greece, the F.Y.R.O. Macedonia, the Czech Republic, and Hungary, while there was an offsetting effect from the declining headcount in Romania. Headcount in our Systems Solutions operating segment rose by 0.9 percent, largely due to the integration of Telekom Security staff. The number of employees in the Group Development operating segment decreased by 23.0 percent, primarily attributable to the divestiture of Strato effective March 31, 2017. The number of employees in the Group Headquarters & Group Services segment was down 2.8 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 and ongoing staff restructuring at Vivento. In the wake of the reorganization, this decrease was offset by the headcount increase in our Board of Management department Technology and Innovation.