Systems Solutions

ORDER ENTRY

millions of €
  H1 2018 Q1 2018 FY 2017 H1 2017 Change
H1 2018/
H1 2017
 %
ORDER ENTRY 3,348 1,506 5,241 2,569 30.3

Development of business

We realigned our strategy for the Systems Solutions operating segment with a focus on returning to sustained growth in this area. Our previous investments in growth areas and innovation fields (such as cloud computing, the Internet of Things, all IP) along with efforts to scale back the number of risk-prone legacy contracts in our traditional IT operations mark important steps on our transformation journey. On this basis, we continue to realign the segment strategy to focus on consistently moving the business into strategic growth areas while simultaneously strengthening our telecommunications business and successfully managing the decline in traditional IT business.

With this goal in mind, we have rolled out a comprehensive transformation program that specifically includes a clear portfolio strategy as part of our performance management activities. According to this portfolio strategy, we are differentiating between the following portfolios: telecommunications operations, traditional IT business, and growth areas (cloud computing, Internet of Things, SAP, security, digital solutions, toll collection systems).

Order entry in our Systems Solutions operating segment was up by 30.3 percent in the first half of 2018, marking a particularly positive development compared with the prior-year period. A major new contract in the traditional IT business segment was a key factor in this growth. Order entry in our growth areas also developed very well in the first half of 2018.

DEVELOPMENT OF OPERATIONS a

 
millions of €  
    Q1 2018 Q2 2018 Q2 2017 Change % H1 2018 H1 2017 Change % FY 2017
TOTAL REVENUE   1,665 1,674 1,688 (0.8) 3,339 3,392 (1.6) 6,918
External revenue   1,332 1,319 1,349 (2.2) 2,651 2,717 (2.4) 5,504
Loss from operations                  
(EBIT)   (76) (28) 0 n. a. (104) (37) n. a. (1,356)
Special factors affecting EBIT   (38) (51) (42) (21.4) (89) (76) (17.1) (1,477)
EBIT (adjusted for special factors)   (38) 23 41 (43.9) (15) 39 n. a. 121
EBIT margin (adjusted for special factors)  % (2.3) 1.4 2.4   (0.4) 1.1   1.7
Depreciation, amortization and impairment losses   (95) (99) (97) (2.1) (194) (195) 0.5 (1,636)
EBITDA   19 71 97 (26.8) 90 158 (43.0) 280
Special factors affecting EBITDA   (38) (51) (39) (30.8) (89) (74) (20.3) (229)
EBITDA (ADJUSTED FOR SPECIAL FACTORS)   57 121 136 (11.0) 179 232 (22.8) 509
EBITDA margin (adjusted for special factors) % 3.4 7.2 8.1   5.4 6.8   7.4
CASH CAPEX   (83) (182) (91) n. a. (265) (177) (49.7) (383)
a The business of T-Systems Polska Sp. z o.o., which, in organizational terms, was previously assigned to the Systems Solutions operating segment, is now disclosed under the Europe operating segment as of September 1, 2017. Prior-year comparatives were not adjusted.

Total revenue

In the first half of 2018, total revenue in our Systems Solutions operating segment was down slightly year-on-year at EUR 3.3 billion. This was primarily due to declining revenues from our traditional IT portfolio. Compared with the same period last year, there was a noticeable decline in revenue from international corporate customers and also due to the general market contraction in our core market of Western Europe. By contrast, revenue in our growth areas – in particular cloud computing, the Internet of Things, and digital solutions – increased year-on-year.

EBITDA, adjusted EBITDA

In the first half of 2018, adjusted EBITDA at our Systems Solutions operating segment declined by EUR 53 million to EUR 179 million, which was in line with our expectations. The decrease was attributable mainly to the higher costs involved in establishing operations in growth areas and to higher financial burdens in our telecommunications business due to the ongoing migration to all IP. EBITDA decreased by EUR 68 million year-on-year to EUR 90 million, mainly due to the effects described under adjusted EBITDA and to higher special factors.

EBIT, adjusted EBIT

Adjusted EBIT in our Systems Solutions operating segment declined by EUR 54 million compared with the first half of 2017, coming in at EUR -15 million. The effects described under adjusted EBITDA were the main drivers of this decrease. Depreciation, amortization and impairment losses were at the same level as a year earlier. EBIT declined for similar reasons, decreasing by EUR 67 million to EUR -104 million.

Cash capex

Cash capex in the Systems Solutions operating segment stood at EUR 265 million in the reporting period, compared with EUR 177 million in the prior-year period. Capital expenditures remain focused on developing our operations in growth areas, such as cloud computing, the Internet of Things, SAP, security, digital solutions, and toll collection systems. In parallel, we are investing in the upgrade of our in-house IT systems.