Deutsche Telekom at a glance

We keep our promises: In 2016, we once again met our annual forecast. Net revenue increased substantially as planned. And with adjusted EBITDA of EUR 21.4 billion, we exceeded our target of around EUR 21.2 billion. Free cash flow was exactly on target despite a consistently high level of capital expenditure. Our shareholders also benefited from the positive development of business in the form of a dividend payment of EUR 0.55 per share for the 2015 financial year, which meant they were able to participate in the growth of free cash flow of around 9 percent.

Net revenue increased again year-on-year from EUR 69.2 billion to EUR 73.1 billion – an increase of 5.6 percent – driven once again by the strong U. S. business, where revenue was up 16.6 percent. In our home market of Germany, revenue decreased by 1.7 percent, primarily due to lower revenue from non-contract mobile devices. Business in our Europe operating segment remained under regulatory and competitive pressure. The 2.1 percent decline was mainly a result of the spin-off of the energy resale business in Hungary as of January 1, 2016. Despite the completion of the set-up phase of the toll collection system in Belgium in early 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.

Chart: Net revenue

Adjusted EBITDA increased substantially by 7.6 percent compared with 2015. As with revenue, the growth driver was our U. S. business, which recorded an increase of 28.7 percent. In our Germany operating segment, adjusted EBITDA remained stable against the prior year, while in our Europe operating segment it decreased in particular due to competitive and regulatory pressure. Adjusted EBITDA also declined in our Systems Solutions operating segment as a result of the accounting treatment of risks from individual corporate customer contracts.

The adjusted EBITDA margin of 29.3 percent was up on the prior-year level. The operating segments with the strongest margins are still Germany with 39.9 percent and Europe with 32.1 percent.

Our EBIT increased substantially by EUR 2.1 billion compared with the prior year to EUR 9.2 billion, mainly as a result of income of around EUR 2.5 billion from the sale of our stake in the EE joint venture. The transactions for the exchange of spectrum licenses made in the United States during the year and the sale of further parts of our share package in Scout24 AG also made a positive contribution to the development of EBIT. Higher amortization of intangible assets (including goodwill) and higher depreciation of property, plant and equipment reduced EBIT.

Chart: Ebit

Despite strong EBIT growth, net profit declined by EUR 0.6 billion or 17.8 percent. This is due in part to the increase in losses 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 for this decrease. The tax expense in 2016 amounted to EUR 1.4 billion, up EUR 0.2 billion year-on-year. Profit attributable to non-controlling interests increased compared with 2015 by EUR 0.2 billion.

Chart: Net profit/ loss

Net debt increased in the reporting year by EUR 2.4 billion to EUR 50.0 billion. This was attributable to the acquisition of mobile spectrum for EUR 2.7 billion, dividend payments – including to non-controlling interests – of EUR 1.6 billion, exchange rate effects of EUR 0.8 billion, and payments to external pension funds (allocation under contractual trust agreement: EUR 0.3 billion). Free cash flow (EUR 4.9 billion) as well as the sale of parts of our share package in the Scout24 group (EUR 0.1 billion) reduced net debt.

Chart: Net dept

Cash capex (including spectrum investment) decreased by EUR 1.0 billion to EUR 13.6 billion. This was mainly due to spectrum acquired for EUR 2.7 billion, primarily in the United States and in Europe, down from EUR 3.8 billion in total in the prior year. Cash capex (before spectrum investment) increased slightly year-on-year to EUR 11.0 billion in the reporting year. The focus was principally on our Germany, Europe, and United States operating segments, where cash capex increased in connection with investments made in building out and modernizing our networks.

Chart: Cash capex

Despite continuing to invest heavily in building out our network, free cash flow increased to EUR 4.9 billion. The overall positive development of business was reflected in improved net cash from operating activities, which more than compensated for the higher level of investment.

Chart: Free cash flow

Our key performance indicator ROCE (return on capital employed) improved by 0.9 percentage points in the reporting period to reach 5.7 percent. This positive trend was due to a substantial increase in net operating profit after taxes (NOPAT), which more than offset the rise in the average amount of net operating assets (NOA) over the year. The main positive factors influencing NOPAT in 2016 were income from the sale of our stake in the EE joint venture and income from transactions for the exchange of spectrum licenses at T-Mobile US. These positive factors were partially offset by the impairments of goodwill and property, plant and equipment recognized in the financial year. The increase in average NOA is largely related to the build-up of assets in our United States and Germany operating segments. In Germany, this development was largely due to the investments made as part of our integrated network strategy. In the United States, the increase in NOA was not only down to ongoing network build-out, but also to the acquisition of spectrum and spectrum exchange transactions. For a more detailed explanation, please refer to the section “Development of business in the Group”.

Chart: Roce