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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.

Calculation of net debt

millions of €

 

 

 

 

 

 

Dec. 31, 2021a

Dec. 31, 2020

Change

Change
%

Dec. 31, 2019

Bonds and other securitized liabilities

93,857

87,702

6,155

7.0

51,644

Liabilities to banks

4,003

5,257

(1,254)

(23.9)

6,516

Other financial liabilities

13,730

14,149

(419)

(3.0)

8,189

Lease liabilities

33,767

32,715

1,052

3.2

19,835

Financial liabilities and lease liabilities

145,357

139,823

5,534

4.0

86,184

Accrued interest

(1,012)

(1,035)

23

2.2

(748)

Other

(855)

(703)

(152)

(21.6)

(739)

Gross debt

143,490

138,085

5,405

3.9

84,697

Cash and cash equivalents

7,617

12,939

(5,322)

(41.1)

5,393

Derivative financial assets

2,762

4,038

(1,276)

(31.6)

2,333

Other financial assets

969

881

88

10.0

940

Net debt

132,142

120,227

11,915

9.9

76,031

a

Including the net debt of T-Mobile Netherlands included under liabilities directly associated with non-current assets and disposal groups held for sale as of December 31, 2021.

Changes in net debt

millions of €

Changes in net debt (bar chart)

Other effects of EUR 0.1 billion included a large number of smaller effects.

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, 2021 amounted to EUR 3.3 billion (December 31, 2020: EUR 3.1 billion). This mainly relates to factoring agreements in the United States and Germany operating segments. The increase against the prior year resulted from normal fluctuations in the contractual sales volumes executed. The agreements are used in particular for active receivables management.

In the reporting year, we did not choose any financing options (2020: options chosen totaling EUR 0.2 billion) under which payments for trade payables from operating and investing activities became due at a later point by involving banks in the process and which upon payment are shown under net cash used in/from financing activities. As a result, we show these payables under financial liabilities in the statement of financial position.

The rating of Deutsche Telekom AG

 

 

 

 

 

Standard & Poor’s

Moody’s

Fitch

Long-term rating / outlook

 

 

 

Dec. 31, 2019

BBB+ / CreditWatch negative

Baa1 / negative

BBB+ / stable

Dec. 31, 2020

BBB / stable

Baa1 / negative

BBB+ / stable

Dec. 31, 2021

BBB / stable

Baa1 / stable

BBB+ / stable

Short-term rating

A-2

P-2

F2

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 as of April 1, 2020. In June 2021 the rating agency Moody’s upgraded the rating outlook for Deutsche Telekom AG. The Moody’s rating is now Baa1 with a stable outlook. We are therefore still a solid investment-grade company with access to the international capital markets.

Financial flexibility

 

 

 

 

 

 

 

 

2021

2020

2019

Relative debta

 

 

 

Net debt

3.06x

2.78x

2.65x

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA (adjusted for special factors)

 

 

 

Equity ratio

%

28.9

27.4

27.1

a

Relative debt is calculated on a quarterly basis and the calculation of the figure for 2020 includes as an input for the first quarter of 2020 historic pro forma figures for Sprint, which was included in the United States operating segment.

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 3.06x, 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.

Calculation of free cash flow AL

millions of €

 

 

 

 

 

 

2021

2020

Change

Change
%

2019

Net cash from operating activities

32,171

23,743

8,428

35.5

23,074

Interest payments for zero-coupon bonds

0

1,600

(1,600)

(100.0)

0

Termination of forward-payer swaps at T‑Mobile US

0

2,158

(2,158)

(100.0)

0

Net cash from operating activitiesa

32,171

27,501

4,670

17.0

23,074

Cash capex

(26,366)

(18,694)

(7,672)

(41.0)

(14,357)

Spectrum investment

8,388

1,714

6,674

n.a.

1,239

Cash capex (before spectrum investment)

(17,978)

(16,980)

(998)

(5.9)

(13,118)

Proceeds from the disposal of intangible assets (excluding goodwill) and property, plant and equipment

139

236

(97)

(41.1)

176

Free cash flow (before dividend payments and spectrum investment)a

14,332

10,756

3,576

33.2

10,133

Principal portion of repayment of lease liabilitiesb

(5,521)

(4,468)

(1,053)

(23.6)

(3,120)

Free cash flow AL (before dividend payments and spectrum investment)a

8,810

6,288

2,522

40.1

7,013

a

Before interest payments for zero-coupon bonds and before termination of forward-payer swaps at T-Mobile US (both in 2020).

b

Excluding finance leases at T-Mobile US.

Free cash flow AL (before dividend payments and spectrum investment) increased by EUR 2.5 billion year-on-year to EUR 8.8 billion. The following effects impacted on this development:

Net cash from operating activities increased by EUR 4.7 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. A net increase of EUR 0.7 billion overall in interest payments, mainly as a result of the financial liabilities assumed and the restructuring carried out in connection with the acquisition of Sprint, and the related increase in financing, decreased the carrying amount. Income tax payments increased by EUR 0.2 billion compared with the prior year. Factoring agreements resulted in negative 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 0.8 billion, mainly as a result of the contractual termination of a revolving factoring agreement in the Germany operating segment.

Cash capex (before spectrum investment) increased by EUR 1.0 billion to EUR 18.0 billion, largely on account of the inclusion of Sprint and the ongoing 5G network build-out in the United States. In the Germany operating segment, cash capex decreased by EUR 0.1 billion. Capital expenditure in the Germany operating segment totaled around EUR 4.1 billion in 2021, in particular for the build-out of the 5G and fiber-optic networks. In the Europe operating segment, our investments were on a par with the prior-year level 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.

The increase in repayments of lease liabilities was due in particular to payments for leases in the United States operating segment. The increase resulted from the inclusion of Sprint for the full year for the first time in the reporting year and from advance payments made by T‑Mobile US for the lease of cell sites.

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

millions of €

 

 

 

 

 

 

2021

2020

2019

ROCE

%

4.1

4.6

5.1

Profit (loss) from operations (EBIT)

 

13,057

12,804

9,457

Share of profit (loss) of associates and joint ventures accounted for using the equity method

 

(102)

(12)

87

Net operating profit (NOP)

 

12,956

12,792

9,544

Tax (imputed tax rate 2021: 27.8 %; 2020: 27.8 %; 2019: 27.8 %)

 

(3,602)

(3,556)

(2,653)

Net operating profit after taxes (NOPAT)

 

9,354

9,236

6,891

Cash and cash equivalents

 

7,617

12,939

5,393

Intangible assets

 

132,647

118,066

68,202

Property, plant and equipment

 

61,770

60,975

49,548

Right-of-use assetsa

 

30,777

30,302

17,998

Non-current assets and disposal groups held for sale and liabilitiesb

 

3,491

664

68

Investments accounted for using the equity method

 

938

543

489

Operating working capital

 

7,702

6,458

2,983

Other provisions

 

(9,463)

(9,033)

(6,663)

Net operating assets (NOA)

 

235,479

220,914

138,018

Average net operating assets (Ø NOA)

 

229,035

201,545

135,618

a

The calculation method used to determine this financial performance indicator was adjusted in 2019 as a result of the new IFRS 16 accounting standard.

b

Excluding the carrying amounts of companies accounted for using the equity method.

ROCE decreased by 0.5 percentage points in the reporting period to 4.1 %. This was due to stronger percentage growth in average operating assets (NOA) than in net operating profit after taxes (NOPAT). The increase in NOA is primarily due 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. The year-on-year development of NOPAT is primarily impacted by higher expenses classified as special factors, mainly in the United States operating segment. 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. In the prior year, NOPAT had been positively affected by the partial reversal of impairment losses on spectrum licenses, which had increased the carrying amount.

Overall, NOPAT amounted to EUR 9.4 billion in 2021, up from EUR 9.2 billion in the prior year. The average amount of net operating assets (NOA) increased to EUR 229.0 billion in 2021 from EUR 201.5 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.”

5G
New communications standard (launched from 2020), which offers data rates in the gigabit range, converges fixed-network and mobile communications, and supports the Internet of Things.
Glossary
AL – After Leases
Since the start of the 2019 financial year, we have taken the effects of the first-time application of IFRS 16 “Leases” into account when determining our financial performance indicators. “EBITDA after leases” (EBITDA AL) is calculated by adjusting EBITDA for depreciation of the right-of-use assets and for interest expenses on recognized lease liabilities. When determining “free cash flow after leases” (free cash flow AL), free cash flow is adjusted for the repayment of lease liabilities.
Glossary