Results of operations of the Group

NET REVENUE

In the reporting year, we generated net revenue of EUR 73.1 billion, which was well above the prior-year level by EUR 3.9 billion. 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 continued to rise: Customers increasingly chose to lease high-value terminal equipment in connection with the JUMP! On Demand business model introduced by T-Mobile US in June 2015. In our home market of Germany, revenue decreased by 1.7 percent, primarily due to lower revenue from non-contract mobile devices. In the Europe operating segment, revenue also decreased by 2.1 percent year-on-year, mainly as a result of the spin-off of the energy resale business in Hungary as of January 1, 2016. In addition, revenue continued to come under pressure from decisions by regulatory authorities and persistently intense competition in the telecommunications markets in our national companies, especially in the Netherlands. Despite billing for the completion of the set-up phase of the toll collection system in Belgium in the first quarter of 2016, revenue in our Systems Solutions operating segment decreased 3.5 percent year-on-year. In general, the downward price trend in ICT business had a negative effect on net revenue. In our Group Headquarters & Group Services segment, revenue declined year-on-year, mainly on account of revenue lost in connection with the sale of our online platform t-online.de and our digital marketing company InteractiveMedia in November 2015 as well as the realignment of the Group Innovation+ unit.

Adjusted for slightly negative net exchange rate effects and negative effects of changes in the composition of the Group of EUR 0.2 billion, revenue increased by EUR 4.1 billion or 6.0 percent. For details on the revenue trends in our Germany, United States, Europe, and Systems Solutions operating segments as well as at our Group Headquarters & Group Services, please refer to the section “Development of business in the operating segments”.

Contribution of the segments to net revenue
 millions of €
  2016 2015 Change Change % 2014
Net revenue 73,095 69,228 3,867 5.6 % 62,658
Germany 22,041 22,421 (380) (1.7) % 22,257
United States 33,738 28,925 4,813 16.6 % 22,408
Europe a 12,747 13,024 (277) (2.1) % 13,221
Systems Solutions a 7,907 8,194 (287) (3.5) % 8,252
Group Headquarters & Group Services 2,212 2,275 (63) (2.8) % 2,516
Intersegment revenue (5,550) (5,611) 61 1.1 % (5,996)
 
a Business customer operations at Magyar Telekom in Hungary, which had previously been organizationally assigned to the Systems Solutions operating segment, have been managed and reported under the Europe operating segment since January 1, 2016. Comparative figures have been adjusted retrospectively.

At 46.2 percent, our United States operating segment again provided the largest contribution to net revenue of the Group. This was an increase of 4.4 percentage points compared with the prior year, due in particular to ongoing strong customer additions. By contrast, the contributions by our other operating segments and the Group Headquarters & Group Services segment decreased. The proportion of net revenue generated internationally continued to increase, from 63.8 percent to 66.3 percent.

Chart: Breakdown of revenue by region
Chart: Contribution of the segments to net revenue

EBITDA, ADJUSTED EBITDA

Excluding special factors, adjusted EBITDA increased year-on-year by EUR 1.5 billion to EUR 21.4 billion in the reporting year. This development was primarily driven by our United States operating segment, which recorded an increase in its adjusted EBITDA contribution of EUR 1.9 billion, mainly as a result of the continued success of the Un-carrier initiatives. The revenue effects from the JUMP! On Demand terminal equipment lease model also contributed to the increase in adjusted EBITDA as the related costs were depreciated over the lease term and thus were excluded from adjusted EBITDA. In 2016, EBITDA adjusted for special factors was stable year-on-year in our Germany operating segment. Efficiency gains across all functions compensated for lower revenue. Adjusted EBITDA declined in our Europe operating segment – primarily as a result of competition and regulation – and in our Systems Solutions operating segment, mainly due to the accounting treatment of risks from individual corporate customer contracts. Our Group Headquarters & Group Services segment’s adjusted EBITDA had benefited in the prior year from a positive non-recurring effect. Exchange rate effects and effects from changes in the composition of the Group had only minimal impact on the development of adjusted EBITDA.

EBITDA increased substantially by EUR 4.2 billion year-on-year to EUR 22.5 billion; this included positive net special factors of EUR 1.1 billion, relating primarily to income of around EUR 2.5 billion from the sale of our stake in the EE joint venture on January 29, 2016. Income of EUR 0.5 billion in total was generated from transactions for the exchange of spectrum licenses between T-Mobile US and two competitors in March and September 2016. The sale of further parts of the share package in Scout24 AG in April and December 2016 generated income of around EUR 0.1 billion. The sale of shares in connection with the IPO of Scout24 AG had already resulted in income of EUR 0.3 billion in the prior year. Expenses incurred in connection with staff-related measures and non-staff-related restructuring expenses totaled EUR 1.7 billion, up slightly year-on-year. Furthermore, expenses of around EUR 0.1 billion from the decommissioning of the MetroPCS CDMA network had an impact. In the prior-year period, these expenses had amounted to EUR 0.4 billion. The special factors affecting the 2015 figures included income from the divestiture of our online platform t-online.de and our digital marketing company InteractiveMedia for a total amount of EUR 0.3 billion. 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
  2016
millions of €
 Proportion of adjusted Group EBITDA % 2015
millions of €
Proportion of adjusted Group EBITDA % Change
millions of €
Change % 2014
millions of €
EBITDA (adjusted for special factors) in the Group 21,420 100.0 19,908 100.0 1,512 7.6 % 17,569
Germany 8,800 41.1 8,790 44.2 10 0.1 % 8,810
United States 8,561 40.0 6,654 33.4 1,907 28.7 % 4,296
Europe 4,094 19.1 4,329 21.7 (235) (5.4) % 4,471
Systems Solutions 582 2.7 740 3.7 (158) (21.4) % 797
Group Headquarters & Group Services (576) (2.7) (552) (2.8) (24) (4.3) % (667)
Reconciliation (41) (0.2) (53) (0.2) 12 22.6 % (138)

EBIT

Group EBIT stood at EUR 9.2 billion, up EUR 2.1 billion against the prior-year period. This increase is mainly due to the effects described under EBITDA. A year-on-year increase in depreciation, amortization and impairment losses of EUR 2.0 billion reduced EBIT. Amortization of intangible assets and depreciation of property, plant and equipment were EUR 1.5 billion higher than in the prior year. These were mainly recognized in connection with the build-out of the 4G/LTE network and the JUMP! On Demand program launched in our United States operating segment in June 2015.

The Europe operating segment recognized impairments of goodwill in the amount of EUR 0.5 billion in the reporting year. The majority of this amount related to the Netherlands cash-generating unit. In addition, impairment losses on property, plant, and equipment totaling EUR 0.2 billion were recognized, which also mainly related to the Europe operating segment. For further details, please refer to Note 22 “Depreciation, amortization and impairment losses” in the notes to the consolidated financial statements.

PROFIT (LOSS) BEFORE INCOME TAXES

Despite a substantial increase in EBIT, profit before income taxes decreased by EUR 0.2 billion year-on-year to EUR 4.5 billion, due to the increase of EUR 2.4 billion in our loss from financial activities. The EUR 2.2 billion impairment of our financial stake in BT, which was recognized in profit and loss, was one of the main factors in this increase. This impairment comprises both the share price effect and the exchange rate effect. In the reporting year, we received a final dividend of around EUR 0.2 billion in connection with the sale of our stake in the former EE joint venture, and further dividend payments also amounting to around EUR 0.2 billion from our financial stake in BT. In 2015 we received dividend payments of EUR 0.4 billion from the EE joint venture. In the financial year, an impairment loss of EUR 50 million was recognized on our associate Ströer SE & Co. KGaA, which is accounted for using the equity method. Contrary effects arose from the subsequent measurement of embedded derivatives at T-Mobile US, which resulted in minus EUR 0.1 billion; however, this was slightly better than the prior-year figure. Finance costs amounted to EUR 2.5 billion, putting the figure at just EUR 0.1 billion under the prior-year level.

NET PROFIT (LOSS)

Net profit decreased by EUR 0.6 billion to EUR 2.7 billion. The tax expense in 2016 amounted to EUR 1.4 billion, up EUR 0.2 billion year-on-year. For further information, please refer to Note 26 “Income taxes” in the notes to the consolidated financial statements. Profit attributable to non-controlling interests increased compared with 2015 by EUR 0.2 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. For further information on the development of our results of operations, please refer to the disclosures under “Notes to the consolidated income statement” in the notes to the consolidated financial statements.

The following table presents a reconciliation of EBITDA, EBIT, and net profit/loss to the respective figures adjusted for special factors.

Consolidated income statement and effects of special factors
millions of €
  EBITDA
2016
EBIT
2016
EBITDA
2015
EBIT
2015
EBITDA
2014
EBIT
2014
EBITDA/EBIT 22,544 9,164 18,388 7,028 17,821 7,247
Germany (910) (910) (545) (545) (254) (254)
Staff-related measures (854) (854) (402) (402) (223) (223)
Non-staff-related restructuring (38) (38) (112) (112) (9) (9)
Effects on earnings from business combinations and other transactions 0 0 0 0 0 0
Other (18) (18) (31) (31) (22) (22)
United States 406 406 (425) (425) (52) (52)
Staff-related measures (11) (11) (50) (50) (133) (133)
Non-staff-related restructuring 0 0 0 0 0 0
Effects on earnings from business combinations and other transactions 417 417 (382) (382) 78 78
Impairment losses 0 0 0
Other 0 0 7 7 3 3
Europe (131) (730) (221) (264) (131) (153)
Staff-related measures (135) (135) (177) (177) (91) (91)
Non-staff-related restructuring (7) (7) (14) (14) (9) (9)
Effects on earnings from business combinations and other transactions 24 24 31 31 (5) (5)
Impairment losses (599) (43) (22)
Other (13) (13) (61) (61) (26) (26)
Systems Solutions (337) (362) (647) (713) (540) (549)
Staff-related measures (204) (204) (367) (367) (286) (286)
Non-staff-related restructuring (9) (9) (259) (263) (205) (212)
Effects on earnings from business combinations and other transactions 0 0 (4) (4) (23) (23)
Other (124) (149) (17) (79) (26) (28)
Group Headquarters & Group Services 2,098 2,098 319 303 1,229 1,200
Staff-related measures (434) (434) (213) (213) (174) (174)
Non-staff-related restructuring (27) (27) (48) (48) (54) (54)
Effects on earnings from business combinations and other transactions 2,575 2,575 574 574 1,631 1,631
Impairment losses 0 0 (29)
Other (16) (16) 6 (10) (174) (174)
Group reconciliation (2) (1) (1) (1) 0 0
Staff-related measures 0 0 (1) (1) 0 0
Non-staff-related restructuring 0 0 0 1 0 0
Effects on earnings from business combinations and other transactions (1) 0 1 1 0 0
Other (1) (1) (1) (2) 0 0
Total special factors 1,124 501 (1,520) (1,645) 252 192
EBITDA/EBIT (adjusted for special factors) 21,420 8,663 19,908 8,673 17,569 7,055
Profit (loss) from financial activities (adjusted for special factors)   (2,323)   (2,233)   (2,784)
Profit (loss) before income taxes (adjusted for special factors)   6,340   6,440   4,271
Income taxes (adjusted for special factors)   (1,858)   (1,927)   (1,474)
Profit (loss) (adjusted for special factors)   4,482   4,513   2,797
Profit (loss) (adjusted for special factors) attributable to            
Owners of the parent (net profit (loss))
(adjusted for special factors)
  4,114   4,113   2,422
Non-controlling interests
(adjusted for special factors)
  368   400   375