Systems Solutions

SELECTED KPIs

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. For more information, please refer to Note 31 “Segment reporting” in the notes to the consolidated financial statements.

Chart: Selected KPIs
             
     Dec. 31, 2016 Dec. 31, 2015 Change Change % Dec. 31, 2014
Order entry millions of € 6,605 5,608 997 17.8 % 7,107
Computing & Desktop Services            
Number of servers managed and serviced units 74,336 62,590 11,746 18.8 % 61,654
Number of workstations managed and serviced millions 1.77 1.71 0.06 3.5 % 1.58
Systems Integration            
Hours billed millions 7.1 5.3 1.8 34.0 % 6.1
Utilization rate % 83.3 82.9   0.4 %p 83.8

Development of business

In the reporting year, our Systems Solutions operating segment experienced a slight downward trend compared with the prior year, although our Market Unit profited from the completion of the set-up phase of our corporate customer project to build and operate an electronic toll collection system in Belgium. Strengthened by our realignment, we performed particularly well with our standard solutions from the growth area of cloud computing, where we are growing faster than the market in most market segments. Another key component in the expansion of our cloud business is strategic partnerships. This means we offer our partners’ services from our data centers in Germany. The aspects of security and high availability play a key role for T-Systems and our customers. 9

We successfully secured further new deals in Germany and abroad in 2016. The order volume was higher than expected in the reporting period: While we had indeed forecast an increase, growth was actually stronger than anticipated. This was attributable, on the one hand, to delays with order entries that we had expected in 2015 and, on the other, to two additional major contracts that we signed at the end of 2016 and that were not included in our initial planning. To meet the requirements from the new deals, we are continuously modernizing and consolidating our ICT resources. Thus the number of servers managed and serviced increased by 18.8 percent compared with 2015. At the data centers, technical advances made it possible to set up ever larger and higher-performance units, which had a positive impact on our cost efficiency. The number of workstations managed and serviced increased by 3.5 percent year-on-year.

DEVELOPMENT OF OPERATIONS

             
millions of €            
    2016 2015 Change Change % 2014
Total revenue   7,907 8,194 (287) (3.5) % 8,252
Loss from operations (EBIT)   (330) (541) 211 39.0 % (447)
Special factors affecting EBIT   (362) (713) 351 49.2 % (549)
EBIT (adjusted for special factors)   32 172 (140) (81.4) % 102
EBIT margin (adjusted for special factors) % 0.4 2.1     1.2
Depreciation, amortization and impairment losses   (575) (634) 59 9.3 % (704)
EBITDA   245 93 152 n. a. 257
Special factors affecting EBITDA   (337) (647) 310 47.9 % (540)
EBITDA (adjusted for special factors)   582 740 (158) (21.4) % 797
EBITDA margin (adjusted for special factors) % 7.4 9.0     9.7
Cash Capex   (1,058) (1,151) 93 8.1 % (1,156)

Total revenue

Total revenue in our Systems Solutions operating segment in the reporting year amounted to EUR 7.9 billion, a year-on-year decrease of 3.5 percent.

Revenue of our Market Unit, i. e., essentially our business with external customers, was down 2.9 percent compared with 2015 to EUR 6.5 billion. Both national and international revenue in this unit declined, despite the completion of the set-up phase of the toll collection system in Belgium in the first quarter of 2016. The general downward price trend in ICT business and exchange rate effects had a negative impact on the Market Unit’s revenue.

In our Telekom IT business unit, which mainly pools our Group’s domestic internal IT activities, revenue stood at EUR 1.4 billion, down 6.1 percent. This planned decrease against prior years was attributable to further IT cost savings made by our Group.

EBITDA, adjusted EBITDA

In 2016, adjusted EBITDA in our Systems Solutions operating segment was 21.4 percent lower than in 2015. The Market Unit’s EBITDA contribution declined by EUR 51 million year-on-year, mainly due to the accounting treatment of risks from individual corporate customer contracts. Measures we introduced to cut costs and enhance efficiency, and the positive billing effect after the completion of the set-up phase of the toll system in Belgium only partially offset this effect. Telekom IT posted adjusted EBITDA of EUR 68 million. This year-on-year decrease of EUR 91 million was mainly due to further IT cost savings made by the Group. The adjusted EBITDA margin of our Systems Solutions operating segment decreased from 9.0 percent in the prior year to 7.4 percent.

EBITDA increased by EUR 152 million compared with the prior year to EUR 245 million, mainly as a result of a EUR 310 million decrease in special factors, primarily due to restructuring programs in the prior year.

EBIT, adjusted EBITDA

Adjusted EBIT decreased by EUR 140 million compared with 2015 to EUR 32 million, due in particular to the negative one-time effects in the Market Unit described under EBITDA and to lower contributions from Telekom IT. Decreases in depreciation, amortization and impairment losses due to the migration of IT platforms had a slightly offsetting effect on adjusted EBIT. Hence the adjusted EBIT margin decreased from 2.1 percent to 0.4 percent in the reporting year.

Cash capex

Cash capex decreased by 8.1 percent year-on-year, due to enhanced efficiency, for example as a result of the standardization of the ICT platforms and the consolidation of data centers. Our level of investment remains high at EUR 1.1 billion and is attributable to the increasing advancement of the digitization of enterprises. For this reason, we are investing in growth areas and in digital innovation areas, such as digital transformation and the Internet of Things, cloud computing, and cyber security.