The Group’s finance strategy builds on the principles and aims of financial management. In addition to the interests of shareholders, the strategy also takes lender requirements into account. The goal is for the Group to maintain its financial flexibility and low cost of capital by ensuring a high degree of continuity and predictability for investors.
A key component of this strategy is a target rating of “BBB+”, which is managed via a dynamic performance metric known as funds from operations to debt (FFO to debt), calculated on a rolling 12-month basis. Our strategy additionally includes a sustained dividend policy and clear priorities regarding the use of excess liquidity, which will initially be used for investing in the operating business and to fund a portion of our pension liabilities. Once this has been achieved, we would aim to improve our rating to “A–” before using liquidity for additional dividend payments or share repurchases.
Funds from operations (FFO) represents operating cash flows before changes in working capital plus interest and dividends received less interest paid and adjusted for operating leases, pensions and non-recurring income or expenses, as shown in the following calculation. In addition to financial liabilities and available cash and cash equivalents, the figure for debt also includes operating lease liabilities as well as unfunded pension liabilities.
|A.23 FFO to debt|
|Operating cash flow before changes in working capital||2,109||2,234|
|Interest and dividends received||59||72|
|Adjustment for operating leases||1,055||1,104|
|Adjustment for pensions||198||153|
|Funds from operations (FFO)||3,769||3,608|
Reported financial liabilities
|Financial liabilities related to the sale of Deutsche Postbank AG||4,164||4,344|
|Financial liabilities at fair value through profit or loss||115||137|
|Adjustment for operating leases||5,527||5,295|
|Adjustment for pensions||5,323||5,639|
|Surplus cash and near-cash investments1||2,893||2,286|
|FFO to debt (%)||35.2||32.3|
|1||Surplus cash and near-cash investments are defined as cash and cash equivalents and investment funds callable at sight, less cash needed for operations.|
FFO to debt declined versus the prior year, primarily due to the decrease in our liquidity as a result of higher capital expenditure. Funds from operations also decreased slightly in the reporting year.