Results of operations of the Group

Net revenue

In 2019, we generated net revenue of EUR 80.5 billion, which was 6.4 percent or EUR 4.9 billion up on the prior-year level. Even adjusted for positive net exchange rate effects of EUR 1.9 billion – mainly from the translation of U.S. dollars into euros – as well as positive effects of changes in the composition of the Group in the net amount of EUR 0.7 billion resulting primarily from the acquisitions of UPC Austria and Tele2 Netherlands, revenue increased by EUR 2.2 billion or 2.8 percent.

Our United States operating segment contributed to the positive revenue trend with an increase of 10.7 percent – or, adjusted for exchange rate effects, of 5.0 percent. This increase was due primarily to higher service revenues from the rise in the average branded customer base, triggered in particular by the continued growth in existing and greenfield markets, and the growing success in new customer segments and rate plans. In our German home market, revenue increased by 0.9 percent compared with the prior year, due in particular to the strong performance in mobile business, which benefited from higher service and terminal equipment revenues, and higher IT and broadband revenues from fixed-network business. In our Europe operating segment, revenue was up by 2.4 percent year-on-year; adjusted for exchange rate effects and for the inclusion of UPC Austria and the sale of Telekom Albania, it increased by 1.4 percent. Factors in this increase were growth in revenue from our broadband, TV, and wholesale business. Mobile revenue remained at a consistently high level. Total revenue in our Systems Solutions operating segment was down 1.9 percent year-on-year. The upward revenue trend in our growth areas public cloud, security, and health was not sufficient to offset the declines in traditional IT operations and in telecommunications business. Revenue in our Group Development operating segment increased significantly year-on-year on the back of positive developments in operations in the Netherlands and in the GD Towers unit, due in particular to the revenue contributions from Tele2 Netherlands taken into account since the beginning of 2019.

For further information on revenue development in the operating segments, please refer to the section “Development of business in the operating segments.”

Contribution of the segments to net revenue^a

%

^a For further information, please refer to Note 36 “Segment reporting” in the notes to the consolidated financial statements.

Breakdown of revenue by region

%

At 50.2 percent, our United States operating segment again provided the largest contribution to net revenue of the Group and was up 1.9 percentage points above the level in the prior year. The proportion of net revenue generated internationally increased from 67.8 percent to 69.5 percent.

EBITDA AL, adjusted EBITDA AL

Excluding special factors, adjusted EBITDA AL increased year-on-year by EUR 1.7 billion or 7.2 percent to EUR 24.7 billion in 2019. This increase was attributable to positive net exchange rate effects of EUR 0.5 billion and slightly positive effects of changes in the composition of the Group. Excluding these effects, adjusted EBITDA AL increased by EUR 1.0 billion or 4.2 percent. All operating segments made a positive contribution to this development: Adjusted EBITDA AL of our United States operating segment had a noticeably positive effect on the back of the higher service revenue. Our Germany operating segment contributed to this result thanks to a positive revenue trend, lower personnel costs, and the successful implementation of further efficiency enhancement and digitalization measures with 2.4 percent higher adjusted EBITDA AL. Adjusted EBITDA AL in our Europe operating segment increased by 5.0 percent. Even adjusted for the inclusion of UPC Austria and the sale of Telekom Albania, and assuming constant exchange rates, it grew by 3.1 percent. Successfully implemented efficiency enhancement measures are taking effect in our Systems Solutions operating segment in the form of higher adjusted EBITDA AL. The increase in adjusted EBITDA AL in our Group Development operating segment was driven by revenue growth and efficient management of costs as well as by the earnings contributed by Tele2 Netherlands, acquired in early 2019.

EBITDA AL increased by EUR 1.6 billion or 7.3 percent year-on-year to EUR 23.1 billion, with special factors changing from EUR -1.5 billion to EUR -1.6 billion. Net expenses incurred in connection with staff-related measures were recorded as special factors and decreased by EUR 0.2 billion year-on-year to EUR -0.9 billion. In addition, expenses of EUR 0.6 billion incurred in connection with the approval process for the business combination of T‑Mobile US and Sprint were recorded as special factors. In the prior year, expenses incurred in this context accounted for EUR 0.2 billion. The transfer of our stake of around 11 percent in Ströer SE & Co. KGaA to Deutsche Telekom Trust e.V. as plan assets in August 2019 resulted in income from divestitures classified as special factors of EUR 0.1 billion.

For further information on the development of EBITDA AL/adjusted EBITDA AL in our segments, please refer to the section “Development of business in the operating segments.”

EBIT

Group EBIT stood at EUR 9.5 billion in the reporting year, up EUR 1.5 billion or 18.2 percent against the prior year. This increase is partly due to the effects described under EBITDA AL. At EUR 17.7 billion, depreciation, amortization and impairment losses were EUR 3.8 billion higher than in the prior year, due in particular to the depreciation charge for right-of-use assets required to be recognized for the first time in accordance with IFRS 16. In the prior-year period, expenses had been recognized in EBITDA in connection with operating leases. Impairment losses on intangible assets and property, plant and equipment – mainly in our Europe operating segment in the national company in Romania – reduced EBIT by EUR 0.4 billion in total. In the prior year, impairment losses totaling EUR 0.7 billion had been recognized, mainly on goodwill in the Europe operating segment in the national companies in Poland and Romania. Depreciation of property, plant and equipment and amortization of intangible assets were EUR 0.5 billion higher than in the prior year, mainly due to the consistently high investment volume in past years – the prior-year period had included depreciation and amortization on finance lease assets.

For further information on depreciation, amortization and impairment losses, please refer to Note 27 “Depreciation, amortization and impairment losses” in the notes to the consolidated financial statements.

Profit before income taxes

At EUR 7.3 billion, profit before income taxes was EUR 2.1 billion higher than in the prior year, with loss from financial activities decreasing by EUR 0.7 billion to EUR 2.2 billion. This improvement was attributable in particular to an increase of EUR 0.6 billion in the share of profit/loss of associates and joint ventures accounted for using the equity method, up from EUR 0.1 billion. This item had been negatively impacted by an effect of EUR 0.6 billion in 2018 due to the settlement in connection with ending the Toll Collect arbitration proceedings. Other financial income/expense also improved by EUR 0.6 billion to EUR 0.1 billion, mainly due to positive measurement effects from embedded derivatives at T‑Mobile US. By contrast, finance costs increased by EUR 0.5 billion, because the subsequent measurement of recognized lease liabilities since the application of IFRS 16 added EUR 0.9 billion to finance costs. Favorable refinancing terms had a reducing effect on finance costs compared with the prior year.

Net profit/loss, adjusted net profit/loss

Net profit increased year-on-year by EUR 1.7 billion to EUR 3.9 billion. Tax expense came to EUR 2.0 billion compared with EUR 1.8 billion in the prior year. Profit attributable to non-controlling interests increased by EUR 0.2 billion year-on-year to EUR 1.4 billion, mainly in our United States operating segment. Excluding special factors, which had an effect of EUR 1.1 billion on net profit, adjusted net profit in 2019 amounted to EUR 4.9 billion, i.e., EUR 0.4 billion higher than in the prior year.

(Unadjusted) earnings per share, adjusted earnings per share

Earnings per share is calculated as net profit divided by the adjusted weighted average number of ordinary shares outstanding, which totaled 4,743 million as of December 31, 2019. With net profit in the amount of EUR 3.9 billion, this gives earnings per share of EUR 0.82. Unadjusted earnings per share in the prior year had amounted to EUR 0.46. Adjusted earnings per share increased to EUR 1.04 in the reporting year. Adjusted earnings per share in the prior year had amounted to EUR 0.96.

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 tables present a reconciliation of EBITDA AL, EBIT, and net profit/loss to the respective figures adjusted for special factors.