Financial position of the Group and profitability

Finance management

Our finance management ensures our Group’s ongoing solvency and hence its financial equilibrium. The fundamentals of Deutsche Telekom’s finance policy are established each year by the Board of Management and overseen by the Supervisory Board. Group Treasury is responsible for implementing the finance policy and for ongoing risk management. In order to ensure we have scope for financing, we continuously monitor the development of net debt, Deutsche Telekom AG’s rating, financial flexibility, and free cash flow AL.

Changes in net debt

millions of €

Other effects of EUR 0.4 billion include, among other factors, recognition of liabilities for the acquisition of media broadcasting rights, financing options under which the payments for trade payables become due at a later point in time by involving banks in the process, and offsetting effects from the measurement of embedded derivatives at T‑Mobile US.

Other financing options

Off-balance-sheet financial instruments mainly relate to the sale of receivables by means of factoring. Total receivables sold as of December 31, 2020 amounted to EUR 3.1 billion (December 31, 2019: EUR 4.2 billion). This mainly relates to factoring agreements in the United States and Germany operating segments. The year-on-year decline was mainly attributable to the contractual termination of a revolving factoring agreement in the Germany operating segment. The agreements are used in particular for active receivables management.

Furthermore, in the reporting year, we chose financing options totaling EUR 0.2 billion (2019: EUR 0.7 billion) which extended the period of payment for trade payables from operating and investing activities by involving banks in the process and which upon payment are shown under cash flows used in/from financing activities. As a result, we show these payables under financial liabilities in the statement of financial position.

As announced in 2018, rating agency Standard & Poor’s downgraded Deutsche Telekom AG’s rating from BBB+ to BBB with a stable outlook on completion of the business combination of T‑Mobile US and Sprint. We are therefore still a solid investment-grade company with access to the international capital markets.

To ensure financial flexibility, we primarily use the KPI “relative debt.” This is a core component of our finance strategy and an important performance indicator for investors, analysts, and rating agencies.

Free cash flow AL (before dividend payments and spectrum investment) decreased by EUR 0.7 billion year-on-year to EUR 6.3 billion. The following effects impacted on this development:

Excluding interest payments for zero-coupon bonds and the premature termination of forward-payer swaps concluded for borrowings at T‑Mobile US, net cash from operating activities increased by EUR 4.4 billion. The sustained strong performance of the operating segments, especially the United States, including Sprint, had an increasing effect on net cash from operating activities. Higher (net) interest payments, which were up by EUR 2.1 billion in total, mainly as a result of the financial liabilities recognized and the restructuring begun in connection with the acquisition of Sprint, and the related increase in financing, including the handling charges incurred for a briefly utilized bridge loan facility, had a negative effect. Income tax payments decreased by EUR 0.1 billion compared with the prior year. Factoring agreements of EUR 0.8 billion had a negative impact on net cash from operating activities in the reporting year, mainly as a result of the contractual termination of a revolving factoring agreement in the Germany operating segment. In the prior year, factoring agreements had had negative effects of EUR 0.3 billion.

Cash capex (before spectrum investment) increased by EUR 3.9 billion to EUR 17.0 billion, largely on account of the inclusion of Sprint and the ongoing 5G network build-out in the United States. Cash capex in the Germany operating segment decreased slightly. Capital expenditure in the Germany operating segment totaled around EUR 4.2 billion in 2020, in particular for the build-out of the 5G and fiber-optic networks. In the Europe operating segment, cash capex stood at EUR 1.8 billion, which was slightly up on the prior year. Here, we also continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.

The increase in repayments of lease liabilities was due in particular to payments for leases in the United States operating segment, partly as a result of the inclusion of Sprint, and partly as a result of payments for new leases concluded in 2020 for network technology and cell sites in connection with the 5G network build-out.

For further information on the statement of cash flows, please refer to Note 35 “Notes to the consolidated statement of cash flows” in the notes to the consolidated financial statements.

Profitability

ROCE decreased by 0.5 percentage points in the reporting period to 4.6 %. This was due to stronger percentage growth in average operating assets (NOA) than in net operating profit after taxes (NOPAT). Both NOPAT and average NOA were affected by the business combination of T‑Mobile US and Sprint. Thus, the positive development of NOPAT in 2020 was driven primarily by a substantial increase in EBIT at T‑Mobile US. Overall, NOPAT amounted to EUR 9.2 billion in 2020, up from EUR 6.9 billion in 2019. At the same time, average NOA increased, due in particular to the spectrum licenses; property, plant and equipment; and right-of-use assets acquired as part of the Sprint transaction and the modification of the agreement concerning the lease and use of cell sites between T‑Mobile US and American Tower. The average amount of net operating assets (NOA) increased to EUR 201.5 billion in 2020 from EUR 135.6 billion in the prior year. In addition to the inclusion of Sprint, the development of NOA also reflects our consistently high investment volume.

For further information on the definition of ROCE and the methods used to calculate this key performance indicator, please refer to the section “Management of the Group.”