Systems Solutions

millions of €
  Dec. 31, 2017 Dec. 31, 2016 Change Change % Dec. 31, 2015
Order entry 5,241 6,851 (1,610) (23.5) 5,608
 
The prior-year comparative for 2016 was adjusted retrospectively due to the change in the structure of the Group implemented as of January 1, 2017.

Development of business

Order entry at our Systems Solutions operating segment declined markedly year-on-year and was well below our expectations for the reporting year. Although we managed to conclude new contracts in 2017, the level achieved was lower than the prior year, which had included several major deals. One reason for the decline in order entry was the market trend away from traditional IT business and toward cloud computing and digitalization, which resulted in shorter terms of contract. Strategic partnerships remain a key component of our plan to expand strategic growth areas such as the cloud and the Internet of Things. It means that we offer our partners’ services from our data centers in Germany. In addition, we use our global partner alliance ngena (Next Generation Enterprise Network Alliance) to provide our customers with international network connections and services at short notice. In this context, security and high availability play a key role for our customers as well as for us. Launched at the start of the reporting year, our Telekom Security unit provides the key underpinnings for our strategy to grow in digital innovation areas. We continue to offer the main pillars of the digital transformation with our solutions for the Internet of Things and for the cloud – along with the corresponding security solutions.

DEVELOPMENT OF OPERATIONS a

millions of €
    2017 2016 Change Change % 2015
Total revenue   6,918 6,993 (75) (1.1) 6,837
External revenue   5,504 5,678 (174) (3.1) 5,826
Loss from operations (EBIT)   (1,356) (150) (1,206) n. a. (373)
Special factors affecting EBIT   (1,477) (276) (1,201) n. a. (548)
EBIT (adjusted for special factors)   121 126 (5) (4.0) 175
EBIT margin (adjusted for special factors) % 1.7 1.8     2.6
Depreciation, amortization and impairment losses   (1,636) (428) (1,208) n. a. (473)
EBITDA   280 278 2 0.7 100
Special factors affecting EBITDA   (229) (252) 23 9.1 (481)
EBITDA (adjusted for special factors)   509 530 (21) (4.0) 581
EBITDA margin (adjusted for special factors) % 7.4 7.6     8.5
Cash Capex   (383) (402) 19 4.7 (432)
 
a The business of T-Systems Polska Sp. z o.o., which was previously organizationally assigned to the Systems Solutions operating segment, is now disclosed under the Europe operating segment as of September 1, 2017. Figures for prior periods were not adjusted.

Total revenue

Total revenue in our Systems Solutions operating segment was down slightly year-on-year to EUR 6.9 billion. The revenue trend differed in the course of the year. It decreased in the first half compared with the prior-year period, due to completion of the set-up phase of the toll collection system in Belgium in 2016. By contrast, revenue rose in the second half. Adjusted for the non-recurring effect from 2016, our telecommunications business grew year-on-year. On the other hand, revenue from our traditional IT business continued to decline. This business is marked by generally lower prices and declining order entry, especially for international business. Our strategic growth areas made a positive contribution, with revenue from cloud computing rising 19.2 percent year-on-year and from the Internet of Things by 4.9 percent. Our new Telekom Security unit generated revenue as well.

EBITDA, adjusted EBITDA

In the 2017 reporting year, our Systems Solutions operating segment recorded adjusted EBITDA of EUR 509 million compared with EUR 530 million in the prior year. Excluding the aforementioned non-recurring effect from the prior year, we reported a positive trend in line with our expectations despite a difficult ICT market, the provisions we had to set aside for certain corporate customer contracts, and the all-IP migration for some customer contracts. EBITDA remained roughly stable at EUR 280 million in the reporting year, up 0.7 percent year-on-year.

EBIT, adjusted EBIT

Adjusted EBIT in our Systems Solutions operating segment decreased by EUR 5 million year-on-year. The decline in order entry prompted impairment testing of the assets in the third quarter. An impairment loss on goodwill of EUR 1.2 billion was recognized as a result. That is why EBIT decreased by a substantial EUR 1.2 billion to minus EUR 1.4 billion.

Cash Capex

Cash capex in the Systems Solutions operating segment stood at EUR 383 million in the reporting period, down EUR 19 million compared to the prior year. Our consistently high level of capital expenditure is linked to our strategy of investing in the strategic growth areas of digital transformation, the Internet of Things, healthcare solutions, cloud computing, and cyber security. The continued expansion of the European toll collection system also increases the need for investment.