Profitability and financial position of the Group

Profitability

ROCE increased by 0.4 percentage points in the reporting period to 4.5 %. This was due to stronger percentage growth in net operating profit after taxes (NOPAT) than in the average amount of net operating assets (NOA) over the year. The positive development in NOPAT year-on-year was driven primarily by the increase in adjusted EBITDA AL. Higher total expenses classified as special factors – mainly in the United States operating segment – had an offsetting effect. These arose in connection with higher integration and restructuring costs to realize cost efficiencies as a result of the business combination of T‑Mobile US and Sprint and the reduction in the useful life of leased network technology for cell sites. The increase in NOA is due in part to the acquisition of additional spectrum licenses by T‑Mobile US and the associated increase in intangible assets. In addition, the development of NOA reflects our consistently high investment volume.

In 2022, NOPAT amounted to EUR 11.3 billion, up from EUR 9.4 billion in the prior year. The average amount of net operating assets (NOA) increased to EUR 253.4 billion in 2022 from EUR 229.0 billion in the prior year.

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.”

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 €

The modification of the arrangements between T‑Mobile US and Crown Castle resulted in an overall increase in net debt of EUR 7.4 billion, due to an increase in right-of-use assets and in lease liabilities of EUR 6.6 billion each and an increase in property, plant and equipment and in other financial liabilities of EUR 0.8 billion each. Other effects of EUR 0.6 billion include, among other factors, the recognition of liabilities for the acquisition of media broadcasting rights, share buy-backs at our subsidiaries, and contrasting measurement effects in connection with derivatives.

Other financing options

Off-balance-sheet financing instruments mainly relate to the sale of receivables by means of factoring. Total receivables sold as of December 31, 2022 amounted to EUR 2.8 billion (December 31, 2021: EUR 3.3 billion). At the end of 2022, this solely related to factoring agreements in the United States operating segment. The year-on-year decline was mainly attributable to the scheduled termination of factoring agreements in the Germany operating segment. The agreements are used in particular for active receivables management.

On April 22, 2022, the rating agency Standard & Poor’s raised its rating outlook for Deutsche Telekom AG from “stable” to “positive” and also confirmed its long-term rating of BBB. Standard & Poor’s considers an upgrade to our long-term rating within the next two years to be possible. 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. At 3.07x, we have deviated from the target range of 2.25x to 2.75x in the reporting year, as expected, on account of the business combination of T‑Mobile US and Sprint. We expect to be back in the target range by the end of 2024.

Free cash flow AL (before dividend payments and spectrum investment) increased by EUR 2.7 billion year-on-year to EUR 11.5 billion. The following effects impacted on this development:

Net cash from operating activities increased by EUR 3.6 billion to EUR 35.8 billion on the back of the good business performance. Exchange rate effects also had an increasing effect on net cash from operating activities. Factoring agreements resulted in positive effects of EUR 0.1 billion on net cash from operating activities in the reporting year. In the prior year, factoring agreements had had negative effects of EUR 0.1 billion. Higher cash outflows in connection with the integration of Sprint in the United States and an increase of EUR 0.4 billion in net interest payments in particular had a decreasing effect.

Cash capex (before spectrum investment) increased by EUR 3.0 billion to EUR 21.0 billion. Cash capex in the United States operating segment increased by EUR 3.0 billion to EUR 13.4 billion, mainly as a result of the accelerated build-out of the 5G network, the integration of Sprint, and exchange rate effects. In the Germany operating segment, cash capex increased by EUR 0.3 billion. Capital expenditure in the Germany operating segment totaled around EUR 4.4 billion in 2022, in particular for the build-out of the fiber-optic and 5G networks. In the Europe operating segment, our investments remained stable at EUR 1.8 billion. 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. Cash capex in the Group Development operating segment totaled EUR 0.3 billion and was thus down EUR 0.2 billion year-on-year. The reduction is mainly due to the sale of T‑Mobile Netherlands and lower build-out investments made by GD Towers compared with the prior year.

Lower cash outflows for the decrease in the principal portion of repayments of lease liabilities were due in particular to leases in the United States operating segment.

For further information on the statement of cash flows, please refer to Note 37 “Notes to the consolidated statement of cash flows” in the notes to the consolidated financial statements.