Statement of the Board of Management on business development in 2017
Bonn, February 13, 2018
2017 was another successful financial year. In 2017, we once again met our key company targets. Net revenue increased by 2.5 percent to EUR 74.9 billion. We grew year-on-year in our domestic market, Germany, and in the Europe operating segment, and continued to record strong growth in the United States. The revenue trend was driven by strong customer additions both in mobile and broadband business. While we continued to win mobile market shares with our Un-carrier strategy in the United States, the success in Germany and Europe was primarily attributable to the marketing of convergent products. To further strengthen our competitiveness in Europe, we also want to transform our subsidiaries in Austria as well as in the Netherlands into convergent providers. To this end, at the end of 2017, we signed agreements to acquire the fixed-network providers UPC Austria and Tele2 Netherlands.
Adjusted EBITDA grew by 3.8 percent to EUR 22.2 billion. Free cash flow (before dividend payments and spectrum investments) totaled EUR 5.5 billion as forecast; this represents year-on-year growth of around 11.3 percent.
In the reporting year, profit/loss from operations (EBIT) increased to EUR 9.4 billion, which was higher than expected. The main reason for this increase is a sound operational development, driven by revenue growth and further enhanced cost efficiency. In addition, profit/loss from operations was positively affected by some special factors in the reporting year, including the reversal of the impairment loss on spectrum licenses at T-Mobile US and the sale of Strato and Scout24 AG. This trend was partially offset by higher amortization of intangible assets (including goodwill) and higher depreciation of property, plant and equipment compared with 2016 as a result of the high level of investment in building and expanding our mobile networks and fixed-network infrastructure, as well as for the forward-looking migration to IP as part of our integrated network strategy. Net profit increased by just under 30 percent to EUR 3.5 billion, mainly due to the improved development of operations and the reduction in the U.S. federal tax rate, which resulted in a non-cash deferred tax benefit at T-Mobile US. Developments in the share price and exchange rate prompted us to also recognize an impairment on our financial stake in BT in 2017. In addition, loss from financial activities was also impacted as a result of negative remeasurement effects from the exercise and measurement of embedded derivatives at T-Mobile US – mainly relating to the early repayment of financial liabilities to third parties outside of the Group. ROCE improved slightly year-on-year due largely to the positive special factors.
Net debt increased from EUR 50.0 billion to EUR 50.8 billion, primarily due to the acquisition of spectrum and a further year-on-year increase in capital expenditure for network build-out and modernization in the United States, Germany, and Europe.
Subject to approval by the relevant bodies and the fulfillment of other legal requirements, we continue to adhere to our shareholder remuneration strategy as planned and will propose to the shareholders’ meeting a dividend of EUR 0.65 per dividend-bearing share. We thus once again kept the promise we made at our Capital Markets Days in February 2015, which was to include our shareholders in the relative growth of free cash flow.
The trends in the industry, in particular on the European telecommunications markets, remain challenging, e.g., rising competition and strict regulatory requirements. The market for information and communications technologies, however, continues to grow. In order to succeed in the future, we continue to invest heavily in the key to our success: our network infrastructure. In 2017, we made investments (before spectrum) of EUR 12.1 billion, a substantially higher amount than in the prior year. In the fixed network, our focus was on investments in fiber-optic roll-out, IPTV, and the continued migration to an IP-based network. In mobile communications, we invested in LTE, increased network coverage, and upgraded capacity to meet increasing demand for high-speed data transmission rates. Including the spectrum payments, this figure was as much as EUR 19.5 billion, of which EUR 7.2 billion was attributable to the acquisition of valuable spectrum at the auction in the United States, where T-Mobile US was particularly successful. Despite this high level of investment, our rating remained solid through 2017, and we had unrestricted access to the capital market at all times.
Against this backdrop, we are reasserting our commitment to the strategic goal we set ourselves in 2014 of being the leading European telecommunications provider. With this goal in mind, in 2017 we continued to focus intently on delivering state-of-the-art networks, products, and services that give our customers simple, convenient access to the digital world. This keeps us in a good position to remain the driving force behind the creation of a modern and competitive digital Europe.