Profitability and financial position of the Group

Profitability

ROCE increased by 4.5 percentage points in the reporting period to 9.0 %. This was due to significant growth in net operating profit after taxes (NOPAT), while the average amount of net operating assets (NOA) remained almost constant over the year. The significant increase in NOPAT was mainly attributable to the development of special factors. Special factors totaling EUR 10.5 billion had a positive effect on EBIT in the reporting year, whereas EBIT was impacted by overall negative special factors amounting to EUR 5.2 billion in the prior year. The main driver for the development of special factors in the reporting year was the deconsolidation gain from the sale of GD Towers and the reduction in expenses associated with the integration of Sprint at T‑Mobile US. By contrast, at EUR 2.8 billion, the increase in loss of associates and joint ventures included in the consolidated financial statements using the equity method had a reducing effect on NOPAT. This was attributable to impairment losses recognized in the reporting year of EUR 2.6 billion and EUR 0.1 billion, respectively, on the carrying amounts of the investments in GD Towers and in GlasfaserPlus.

In 2023, NOPAT amounted to EUR 22.8 billion, up from EUR 11.3 billion in the prior year. At EUR 253.5 billion, average NOA remained almost constant compared with 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. There have been no changes resulting from our finance management in the reporting year. We will present our plans for the coming years at the Capital Markets Day scheduled for 2024.

Changes in net debt

millions of €

Net debt decreased by EUR 10.1 billion to EUR 132.3 billion, mainly due to the strong increase in free cash flow (before dividend payments and spectrum investment) and the cash proceeds from the sale of GD Towers. By contrast, net debt was increased mainly by the share buy-back programs at T‑Mobile US.

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, 2023 amounted to EUR 2.7 billion (December 31, 2022: EUR 2.8 billion). At the end of 2023, this solely related to factoring agreements in the United States operating segment. The agreements are used in particular for active receivables management.

On May 19, 2023, the rating agency Standard & Poor’s raised the long-term rating from BBB to BBB+ with a stable outlook. 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 2.82x, 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 4.7 billion year-on-year to EUR 16.1 billion. The following effects impacted on this development:

Net cash from operating activities increased by EUR 1.5 billion to EUR 37.3 billion on the back of the good business performance. Lower cash outflows in connection with the integration of Sprint in the United States also had an increasing effect. However, the trend in net cash from operating activities was negatively impacted by the sale of T‑Mobile Netherlands and GD Towers, as well as by exchange rate effects. In particular, the increase in tax payments of EUR 0.4 billion and the increase in net interest payments of EUR 0.1 billion also had a reducing effect.

Cash capex (before spectrum investment) decreased by EUR 4.4 billion to EUR 16.6 billion. Cash capex in the United States operating segment decreased by EUR 4.3 billion to EUR 9.1 billion, mainly as a result of higher cash outflows in the prior year for the accelerated build-out of the 5G network and the integration of Sprint. In the Group Development operating segment, cash capex decreased, mainly due to the sales of T‑Mobile Netherlands and GD Towers. In the Germany operating segment, capital expenditure totaled around EUR 4.6 billion in the reporting year, EUR 0.2 billion more than in the prior year, with much of this figure going towards the fiber-optic build-out. In the Europe operating segment, cash capex stood at EUR 1.8 billion, which was on a par with the prior-year level. We continue to invest here in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy. In the Systems Solutions operating segment, our capital expenditure stood at the prior-year level of EUR 0.2 billion. Lower investments in the Cloud portfolio area were offset by higher investments in the Road Charging portfolio area, due to increased demand for on-board units.

An increase of EUR 1.0 billion in cash outflows – in particular in the Germany and United States operating segments – for the repayment of lease liabilities reduced free cash flow AL.

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.