Systems Solutions

For further information on changes resulting from the first-time application of the IFRS 16 “Leases” accounting standard, please refer to the section “Management of the Group.”

Order entry

Development of business

The 2019 financial year was dominated by efforts to establish our realigned Systems Solutions business. Investments in growth areas and innovation fields (such as the public cloud, the Internet of Things (IoT), digital solutions, security) create the basis for us to continue to focus our segment strategy on a sustainable shift into strategic growth areas. In parallel, we are working to strengthen our telecommunications operations and successfully manage the decline in traditional IT business.

With this in mind, we are executing a comprehensive transformation program, launched in 2018, under which we realigned our organization and workflows, adjusted capacities, developed a new strategy for our portfolio, and created three offering clusters. Ten portfolio units look after not only our traditional IT and telecommunications businesses, but also our growth areas (public cloud, Internet of Things (IoT), digital solutions including health, security, SAP, classified ICT, and road charging). Consistent with our efforts to implement the Group’s strategy pillar “Lead in business productivity,” the next step in the course of 2020 will be to combine our telecommunications business for business customers with that of our Germany operating segment.

Order entry in our Systems Solutions operating segment was up by 8.2 percent in the reporting year, continuing the positive development of the already strong prior year. This growth is primarily due to a positive trend in our growth areas, in particular digital solutions, public cloud, and also road charging.

Development of operations

Total revenue

Total revenue in our Systems Solutions operating segment in the reporting year amounted to EUR 6.8 billion, down slightly on the prior-year level. 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. The general downward trend in traditional IT operations was primarily a result of the decline in our international corporate customer operations and the falling market trend in our core market of Western Europe, as well as of deliberate portfolio decisions (such as the termination of desktop services).

EBITDA AL, adjusted EBITDA AL

In the reporting year, adjusted EBITDA AL at our Systems Solutions operating segment increased by EUR 77 million year-on-year to EUR 519 million, mainly due to effects from our transformation program and a positive development in the Open Telekom Cloud. EBITDA AL increased by EUR 12 million compared with the prior year to EUR 188 million. The disparity between EBITDA AL and adjusted EBITDA AL is mainly due to portfolio streamlining activities. As a result of both this and ongoing restructuring measures, special factors were up EUR 65 million year-on-year.

EBIT, adjusted EBIT

Adjusted EBIT in our Systems Solutions operating segment increased by EUR 108 million year-on-year to EUR 140 million. The effects described under adjusted EBITDA AL were the main drivers of this increase. Whereas previously expenses had been recognized in connection with operating leases, the right-of-use assets recognized in this context since the application of accounting standard IFRS 16 as of January 1, 2019 result in particular in higher depreciation charges. EBIT increased by EUR 73 million in the reporting year to EUR -218 million, also due to the effects described under EBITDA AL.

Cash capex

Cash capex in the Systems Solutions operating segment stood at EUR 384 million in the 2019 financial year, compared with EUR 462 million in the prior year. This decrease was a result of high investments in a new ERP system in 2018. Capital expenditures remain focused on developing our operations in growth areas, such as the Internet of Things (IoT), digital solutions, and security.