Results of operations of the Group

In order to increase the informative value of the prior-year comparatives based on changes to the Company’s structure or exchange rate effects, we also describe selected figures in organic terms, by adjusting the figures for the prior-year period for changes in the composition of the Group, exchange rate effects, and other effects. Due to changes in the composition of the Group, the figures for the prior-year period presented on an organic basis decreased in the Europe operating segment, mainly in connection with the sale of the Romanian fixed-network business as of September 30, 2021, and in the Group Development operating segment, in connection with the sale of T‑Mobile Netherlands as of March 31, 2022. By contrast, the organic figures for the prior-year period in the United States operating segment increased in connection with the acquisition of Shentel as of July 1, 2021. The currency translation effects were primarily the result of the translation of U.S. dollars to euros.

Net revenue, service revenue

In the first half of 2022, we generated net revenue of EUR 56.2 billion, which was up EUR 3.2 billion or 6.1 % year-on-year. In organic terms, revenue increased by EUR 0.4 billion or 0.8 %, including positive net exchange rate effects of EUR 3.4 billion, with the aforementioned changes in the composition of the Group having the main net reducing effect of EUR 0.7 billion. Service revenue in the Group increased by EUR 4.3 billion or 10.4 % year-on-year to EUR 45.2 billion. In organic terms, service revenue increased by EUR 1.9 billion or 4.5 %.

For information on the extension of the definition of service revenue, please refer to the section “Group organization, strategy, and management.”

Our United States operating segment in particular contributed to the positive revenue trend with an increase of 10.7 %, mainly due to exchange rate effects. In organic terms, revenue remained more or less at the prior-year level, with higher service revenue being offset by lower terminal equipment revenues. Revenue in our home market of Germany was up on the prior-year level, increasing by 1.8 %. This was mainly driven by an increase in revenue in the fixed-network core business, primarily due to broadband business, and in mobile service revenues. In our Europe operating segment, revenue decreased by 1.8 % year-on-year in the first half of 2022, mainly due to the sale of the Romanian fixed-network business. In organic terms, however, revenue increased by 4.2 %. Organic growth was mainly driven by the strong performance of the mobile business, especially the increase in higher-margin mobile service revenues, increases in roaming and visitor revenues, and volume-driven increases in revenues from terminal equipment sales. The development of fixed-network service revenues improved. Revenue in our Systems Solutions operating segment was down 1.0 % year-on-year; in organic terms, it was down 0.6 %. This decrease was mainly driven by the expected decline in traditional IT infrastructure business, due in part to deliberate business decisions such as the reduction in end-user services. The positive trends, especially in the Digital Solutions portfolio unit, did not fully offset this decrease. Revenue in our Group Development operating segment declined by 28.7 % compared with the prior-year period, mainly due to the sale of T‑Mobile Netherlands. In organic terms, it increased by 5.8 %, thanks to the operational and structural growth of the GD Towers business unit.

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

Contribution of the segments to net revenue^a

%

Breakdown of revenue by region

%

At 65.3 %, our United States operating segment again provided by far the largest contribution to net revenue of the Group, up 2.8 percentage points above the level in the prior-year period. The proportion of net revenue generated internationally also increased from 76.5 % to 77.7 %.

Adjusted EBITDA AL, EBITDA AL

Adjusted EBITDA AL increased year-on-year by EUR 1.1 billion or 5.9 % to EUR 19.8 billion in the first half of 2022. In organic terms, adjusted EBITDA AL increased by EUR 0.1 billion or 0.7 %, including positive net exchange rate effects of EUR 1.2 billion, and with changes in the composition of the Group having a net reducing effect of EUR 0.2 billion. Adjusted core EBITDA AL, i.e., adjusted EBITDA AL excluding revenue from terminal equipment leases in the United States, thereby presenting operational development undistorted by the strategic withdrawal from the terminal equipment lease business, increased by EUR 2.0 billion or 11.5 % to EUR 19.0 billion.

All operating segments, with the exception of Group Development – where development was affected by the sale of T‑Mobile Netherlands – made a positive contribution to the development of adjusted EBITDA AL. In our United States operating segment, adjusted EBITDA AL increased by 9.3 %, essentially due to exchange rate effects. In organic terms, adjusted EBITDA AL declined by 1.3 % year-on-year. Adjusted core EBITDA AL increased by EUR 1.9 billion or 19.6 % to EUR 11.7 billion. Our Germany operating segment contributed to the increase thanks to high-value revenue growth and improved cost efficiency with 3.3 % higher adjusted EBITDA AL. In organic terms, too, adjusted EBITDA AL grew by 3.3 % year-on-year. Adjusted EBITDA AL in our Europe operating segment increased by 1.1 %. In organic terms, adjusted EBITDA AL grew by 5.7 %, again making a significant positive contribution to earnings. Organic revenue growth was more than sufficient to offset the increases in indirect costs in particular. In our Systems Solutions operating segment, adjusted EBITDA AL increased by 15.7 % and, in organic terms also by 15.7 %. Efficiency effects from our transformation program and increased revenue in our growth areas exceeded the decline in earnings in the traditional IT infrastructure business. Adjusted EBITDA AL in our Group Development operating segment declined by 18.1 % year-on-year due to the sale of T‑Mobile Netherlands as of March 31, 2022. In organic terms, it increased by 15.0 %, since the GD Towers business posted consistent growth on the back of rising volumes and was further strengthened by the development of the Austrian cell tower business.

EBITDA AL increased by EUR 0.9 billion or 5.4 % year-on-year to EUR 18.5 billion, with special factors changing from EUR ‑1.1 billion to EUR ‑1.2 billion. Expenses incurred in connection with staff restructuring totaled EUR 0.6 billion, up EUR 0.1 billion against the prior-year level. Net expenses of EUR 0.1 billion were recorded as special factors under effects of deconsolidations, disposals and acquisitions. These effects included income of EUR 1.7 billion from the deconsolidation of GlasfaserPlus and a further EUR 0.9 billion from the sale of T‑Mobile Netherlands. Net expenses of EUR 2.8 billion, mainly in connection with integration costs incurred as a result of the merger of T‑Mobile US and Sprint, had an offsetting effect. These expenses included in particular discounts on terminal equipment for former Sprint customers whose devices can no longer be used in the T‑Mobile US mobile network, and expenses arising in connection with the decommissioning of the Sprint mobile network. The latter primarily comprise additional depreciation, amortization and impairment losses from reductions in the useful lives of leased network technology for cell sites in the United States. In the prior-year period, net expenses of EUR 0.6 billion were recorded as special factors under effects of deconsolidations, disposals and acquisitions. These expenses also related to the business combination with Sprint and were partially offset by income from the sale of the Dutch cell tower business. The impairment losses amounted to EUR 0.2 billion and mainly related to right-of-use assets used in connection with the former Sprint’s fiber-optic-based wireline network. Other special factors affecting EBITDA AL amounted to EUR ‑0.3 billion and included expenses of EUR 0.4 billion for the settlement reached and the further proceedings pending in consequence of the cyberattack on T‑Mobile US, offset by payments on account from insurance companies of EUR 0.1 billion in connection with damage sustained in the catastrophic flooding in North Rhine-Westphalia and Rhineland Palatinate in July 2021.

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

A reconciliation of the definition of EBITDA with the “after leases” indicator (EBITDA AL) can be found in the following table:

Profit/loss from operations (EBIT)

Group EBIT increased to EUR 8.7 billion, up EUR 1.5 billion or 20.5 % against the prior-year period. This increase is due in particular to the effects described under adjusted EBITDA AL and EBITDA AL in connection with the gains on deconsolidation. At EUR 14.3 billion, depreciation, amortization and impairment losses were EUR 0.7 billion higher than in the prior-year period, with depreciation and amortization increasing by EUR 0.3 billion. In the United States operating segment, a reduction in the useful life of leased network technology for cell sites following the business combination of T‑Mobile US and Sprint increased depreciation of the corresponding right-of-use assets by EUR 1.1 billion. By contrast, depreciation on property, plant and equipment in the United States operating segment declined due to the ongoing strategic withdrawal from the terminal equipment lease business. In the Group Development operating segment, depreciation and amortization were down on the prior-year level in connection with the fact that T‑Mobile Netherlands had been held for sale until it was sold and accordingly the related depreciation and amortization had been suspended, and in connection with the subsequent sale of T‑Mobile Netherlands. Impairment losses increased year-on-year by EUR 0.4 billion to EUR 0.5 billion. The impairment losses recorded in the reporting period mainly related to assets of the former Sprint’s fiber-optic-based fixed network.

Profit before income taxes

Profit before income taxes increased by EUR 2.1 billion to EUR 7.2 billion. Loss from financial activities decreased year-on-year from EUR 2.2 billion to EUR 1.5 billion, with other financial income improving from EUR 0.2 billion to EUR 1.0 billion. This was thanks in particular to positive measurement effects from a forward transaction to hedge the price of acquiring T‑Mobile US shares in the future and to less pronounced negative measurement effects from derivatives of T‑Mobile US embedded in bonds compared with the prior-year period. Positive measurement effects from the amortization and subsequent measurement of the stock options to buy shares in T‑Mobile US received from SoftBank in June 2020 were slightly up on the prior-year level. The interest component from the measurement of provisions and liabilities increased by EUR 0.4 billion. However, finance costs also increased from EUR 2.3 billion to EUR 2.5 billion.

Net profit, adjusted net profit

Net profit increased year-on-year by EUR 2.6 billion to EUR 5.4 billion. The tax expense increased by EUR 0.2 billion to EUR 1.4 billion. Profit attributable to non-controlling interests decreased by EUR 0.6 billion to EUR 0.3 billion, with the decrease being primarily attributable to our United States operating segment. Excluding special factors, which had a positive overall effect of EUR 0.7 billion on net profit, adjusted net profit in the first half of 2022 amounted to EUR 4.7 billion, up EUR 1.4 billion against the prior-year period.

For further information on tax expense, please refer to the section “Income taxes” in the interim consolidated financial statements.

The following table presents the reconciliation of net profit to net profit adjusted for special factors:

Earnings per share, adjusted earnings per share

Earnings per share is calculated as net profit divided by the weighted average number of ordinary shares outstanding, which totaled 4,972 million as of June 30, 2022. This resulted in earnings per share of EUR 1.09, compared with EUR 0.59 in the prior-year period. Earnings per share adjusted for special factors affecting net profit amounted to EUR 0.94 compared with EUR 0.70 in the prior-year period.

Special factors

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

Employees

As of June 30, 2022, the Group’s headcount was down by 2.7 % compared with the end of 2021. In our Germany operating segment, the number of employees declined by 2.3 % against year-end 2021, largely due to the take-up of socially responsible instruments as part of staff restructuring activities, such as dedicated retirement and phased retirement. The total number of full-time equivalent employees in the United States operating segment decreased by 3.2 % from June 30, 2022 compared to December 31, 2021 – primarily due to intentional headcount rationalization to manage costs. In our Europe operating segment, the headcount was down slightly by 1.8 % compared with the end of the prior year, in particular in Croatia, Slovakia, and Poland. The headcount in our Systems Solutions operating segment was up 1.6 % against the end of 2021. The effect on headcount of our efficiency enhancement measures was more than offset by increased staff requirements in our growth areas. In the Group Development operating segment, the sharp year-on-year decrease in headcount of 69.0 % was due to the sale of T‑Mobile Netherlands as of March 31, 2022. The headcount in the Group Headquarters & Group Services segment was down 1.2 % compared with the end of 2021, mainly due to ongoing staff restructuring at Vivento.