Good afternoon, welcome to Deutsche Telekom's webinar on accounting topics. This conference will be recorded and uploaded to the internet. The presentation will be available on the Investor Relations website. As you can see, with me today are Dr. Robert Hauber, Head of Group Controlling, and Andreas Puy from the Investor Relations team. Robert and Andreas will give an overview of various accounting topics that we hope will be of particular interest and useful to you. After this, we have time for Q&A. Before I hand over to Robert, please pay attention to our usual disclaimer, which you'll find in the presentation. Now it's my great pleasure to hand over to Robert.
Thank you, Hannes. Good afternoon to everybody, and also a very warm welcome from my side to our webinar on a couple of topics we consider to be of interest to you. We'll first spend some time on the effect of the deconsolidation of the tower business. The major focus today, however, will be on the accounting differences between U.S. GAAP and IFRS when it comes to KPIs like EBITDA, net income, free cash flow and net debt, or in other words, how to get from one figure to the other. We know that this has been a frequent source of misperceptions in the past. We hope that we can shed some light on a few related accounting complexities. In the end, I believe it's actually easier than you might have believed. I hope we fulfill this kind of expectation.
as said before, let us start with the deconsolidation of the tower business. As you all know, we agreed to contribute the GD Towers unit into a joint venture with DigitalBridge and Brookfield. we expect the closing of the transaction to happen in the next days or weeks. what is important, our guidance for the full year 2023 will assume that the GD Towers is not included for the full year. now let us have a look what happens to the Adjusted Core EBITDA of the segments and the group. let me start on the left side, and, first of all, we will lose in the GD segment the EBITDA AL of EUR 0.8 billion.
Please also keep in mind that we booked in 2022, EUR 0.1 billion for the held-for-sale effect, that is that net open seven. What's happening in the segment of Germany? First of all, as you can see on the slide, there will be a benefit against the situation pre the transaction. We had before the transaction, that's important in the headline, EBITDA and OpEx, not a depreciation of EUR 0.7. I will explain you in a second why this is not a leasing but an OpEx. This is a leasing between the segments, that is why, as it's deconsolidated on a group level, we decided and opted for the no group internal leasing liability with the introduction of IFRS 16.
After the closing, we will see a new leasing OpEx of EUR 0.9 billion, which you see here in the slide. That indicates that the costs are going a little bit up, but this is very much driven by the allocation of the interest portion because in the leasing IFRS, you have an interest part which is a little bit higher at the beginning and goes down later in the years and that is the reason why this is predominantly a little bit higher at the beginning. We have a further factor in this reconciliation, which looks a little bit strange, but which is easy to explain. This is the sale and leaseback gain, which is part of the usual sale and leaseback accounting.
In simple words, the gain, which comes from the fact that we are selling that, above the book value, will not be booked in the other operating income, as you maybe would expect it. Instead, this part will reduce our right-of-use assets, and thus consequently will reduce lower lease-related DNA going forward. We expect that this sale and leaseback effect will be around EUR 0.3 billion, and this will last EUR 0.3 billion per year. That's very much important. This will last for the next 8 years. All in all, the EBITDA AL for the German segment will be at the outset roughly EUR 0.1 billion higher than before the transaction.
In other words, the pro forma results in Germany in 2022 will be EUR 0.1 billion higher than the actual result. Please keep in mind, I will come back later to that this is a non-cash view, as the underlying cash payments are not affected neither by IFRS 16 nor the sale and leaseback accounting effect. I will come back later to that one when I explain the free cash flow effect. The effect on Austria and therefore the European segment is pretty much neutral, so that we finally expect that the impact on the pro forma Deutsche Telekom ex U.S.
EBITDA will be in the magnitude of EUR 0.7 billion, as you see it on the right side, on the slide, which is the sum of the magenta bars of the segment, GD and the segment Germany. Let's move on to the impact on the free cash flow and the net debt. What is obvious is that we will lose the cash EBITDA in the segment of GD. We will save some CapEx in a magnitude of EUR 0.3 billion on the other side. As mentioned on the previous slide, the EBITDA tailwind of EUR 0.1 billion expect from the segment Germany is non-cash. As we started this reconciliation from EBITDA AL here, we have to neutralize this effect, if you want to bridge it to the free cash flow AL.
There is another tax effect due to the fact that the tower business was profitable. We are paying taxes within the tower business. This will be deconsolidated, therefore, within the future consolidated figures, we will have less tax of Deutsche Telekom. All in all, we expect a negative effect on the free cash flow of minus EUR 0.2 billion. However, there is one thing which we need to explain, that is basically that we will get from the operations in the future cash back. This will be in the first years, probably not be dividend, which would usually shown in the free cash flow statement, but rather of the effect that we get the payback of the shareholder loan. In our definition, this is not part of the free cash flow.
You will not see it here. This kind of cash which is then coming from the operations and then paid to DT will for sure then reduce the net debt. We are not showing it in the free cash flow definition. Therefore, you could say, if you consider that one, that the impact of the free cash flow is overall rather neutral. The impact on the net debt is very much like we have said in the announcement of the deal. We expect a cash inflow of around EUR 10.7 billion.
At the same time, we expect an increase in the lease liabilities of net EUR 4.5 billion, which is consisting of the two effects which you see here in the slide, which is on the one side, EUR 6 billion of new lease liabilities, which are then compensated a little bit by the deconsolidation of EUR 1.5 billion of current ground leases. The transaction will significantly decrease the net debt, including and excluding leases, and bring a considerable reduction in the leverage ratios. Turning on to the next page, where you see the full effect on our P&L. We didn't talk about revenue so far. That's why this chart gives you a full overview. Therefore, let me also explain you the effects on the revenues. We will lose EUR 0.3 billion of third-party revenues.
On the other side, we will continue to generate some revenues with the tower company, approximately EUR 50 million. The net impact will be around EUR 0.2 billion. In the middle you see then the effect on headline and EBITDA AL. The headline EBITDA loss will be only EUR 0.1 billion because we lose the former tower OpEx. On the way to the EBITDA AL adjusted, we slightly benefit from the deconsolidated lease OpEx for the existing ground leases. Of course, we have no lease OpEx from the no external MLA. You will recognize the total effect of the EUR 0.7 billion, which you also have seen on the page five. To make the picture complete, we need to consider the deconsolidation of other than lease DNA, and we covered the impact on taxes as well before.
Overall, net income. Unfortunately, I cannot show you the full picture. Overall, the net income will be slightly diluted by EUR 0.3 billion on first sight. However, this does not consider expected interest savings, which for sure will be a positive effect, and additional positive contribution from the JV on our financial income. We have not provided you with the exact quantitative impacts here, as the equity result will be dependent on the result of the purchase price allocation, which is not final yet. Interest savings will depend on our final decisions on how we use the proceeds in the next months. You can be sure there will be some. In a nutshell, we would only expect a very limited impact on the Adjusted Net Income. With that, let me hand over to Andreas.
Okay. Thanks, Robert. Good afternoon to all of you as well from my side. Let us now move on to the second main topic of today's presentation, the difference in the accounting of T-Mobile US in our IFRS books versus the disclosure under U.S. GAAP. The next slide is taken from the appendix of our Q3 presentation and shows some of the variance in current reporting of and for TMUS under the different accounting standards and also communication preferences, which can sometimes be a bit difficult to reconcile. There is the Adjusted Core EBITDA, the Adjusted EBITDA as per U.S. GAAP, and the Adjusted EBITDA AL as per IFRS. All these KPIs have their own growth rates, and even the bridging items can vary from year-over-year or quarter-over-quarter. Not everything is that complicated. Let us now first focus on the EBITDA.
As you know, the leading KPI for TMUS is the so-called Adjusted Core EBITDA. A reconciliation between Core EBITDA and the EBITDA after leases is simply the handset leasing revenue, which is being disclosed by TMUS. As you know, TMUS has de-emphasized handset lease as means of distribution, have chosen Core EBITDA as their key metric. Core EBITDA, of course, is a much better proxy for cash EBITDA than Adjusted EBITDA, including these handset leases. As you know, our Core EBITDA has been growing strongly. Our EBITDA has not. We decided to stick with the EBITDA, given the temporary nature of this headwind, this has resulted in a headwind for our reported EBITDA and additional complexity. The page here illustrates the magnitude of the impact from the handset lease unwinds. Which also impacted our top line by the same magnitude.
It is to be expected that handset lease revenues will further diminish in 2023, and so this headwind and the resulting complexity will become increasingly irrelevant from this year onwards. Next, let us take a closer look at the bridge between IFRS and U.S. GAAP. As we principally use the same handset lease revenue figure in both accounting worlds, the difference between Core EBITDA and Adjusted EBITDA as per U.S. GAAP and Adjusted EBITDA after leases and Adjusted Core EBITDA as per IFRS is the same. Typically, the Adjusted EBITDA after leases of DT for TMUS is a bit lower than the U.S. GAAP result for the Adjusted EBITDA. There are many different bits and pieces that are being assessed slightly different between the two accounting worlds. However, when looking at the most relevant items, you end up with a relatively small number of factors.
First, there is the share-based compensation of TMUS in a magnitude of roughly EUR 0.4 billion in the first nine months, which is not included in TMUS's U.S. GAAP-adjusted EBITDA, but included under IFRS. This is simply a question of the definition of the adjusted EBITDA. The second element is the impact of IFRS 16, which is another EUR 0.4 billion negative. What is behind that? Under U.S. GAAP, leasing expenses are straight-lined over the time of a contract, while under IFRS 16, there is a so-called front-loading of the expense due to the interest element. While in a multi-year view, the expenses in both worlds are the same, the front-loading effect of IFRS 16 initially leads to higher lease costs in IFRS 16. A second, less important element here within the negative EUR 0.4 billion is the so-called T3 transaction.
We will cover that in detail a bit later, but you know, the essence here is in U.S. GAAP, T3 is depreciation, but in IFRS, it is leasing OpEx. The third element is an item we will also come back to later when talking about net debt, the spectrum lease. The spectrum leases are simply a contractual liability under U.S. GAAP, and as such, part of the OpEx. Under IFRS, a non-leasing financial liability, which means that the expenses are lower below the EBITDA, and consequently increase the IFRS 16 EBITDA for TMUS by $0.3 billion. All of these effects mentioned so far are pretty consistent over time, that is not true for the next and last one. The fourth element of significance is the treatment of the so-called Renewable Energy Purchase Agreement or RAPAs.
These agreements are embedded derivatives under IFRS, but not under U.S. GAAP. The fluctuation of this derivative is other operating income or expense under IFRS. While the impact in the nine months of this year was rather limited, they can be highly volatile from quarter to quarter. You may, for instance, recall that in the 3rd quarter, the impact of the PPAs was -EUR 0.1 billion, and in the full year 2021, there was a positive impact of +EUR 0.3 billion. That was the main reason why the so-called bridge between U.S. GAAP and IFRS was actually at zero. Unfortunately, these effects are not really predictable. Other elements do exist as well, but as you can see, they play only a minor role in the bigger scheme of things.
In a nutshell, we would expect the bridge to be at roughly $0.6 billion annually in a typical year under the assumption that the derivative result is zero, which is our base case for planning purposes. Moving on to the next slide and to the net income. Probably one of the biggest mysteries from the outside on first sight, but fortunately not that difficult to reconcile. All things considered, the relevant effects are principally timing related. Let us begin with reported net income of TMUS. TMUS does not report pay or publish an adjusted net income. We have to start at $1.1 billion of net income in the nine months 2022. The impact of a derivatives was -$0.3 billion is a big difference between the two accounting worlds.
They are part of the ongoing operational result under IFRS, but not included in U.S. GAAP. This leaves you with reported net income for TMUS under IFRS of $4.8 billion. The special factors itself are identical to the special factors shown by TMUS in their quarterly reports, except for one item, the stock-based compensation. Because this is kind of a special factor for the adjusted EBITDA purposes of the U.S. GAAP results of TMUS, it is still also being included in the reported net income as per U.S. GAAP. Therefore, we subtract the stock-based compensation from the special factors and only add back the $4.4 billion of merger-related costs, the $1.5 billion wireline write-off, the $0.5 billion of others as per TMUS's disclosure. We apply a deferred tax rate of 25% on this.
This resulting EUR 4.8 billion are then added to the EUR 0.8 billion to arrive at an Adjusted Net Income for TMUS of EUR 5.6 billion. We have to distribute this result according to the shareholding on minorities. For DT, we therefore arrive at an Adjusted Net Income contribution of EUR 2.7 billion of TMUS in the first 9 months. Let's now move on to the free cash flow. As promised, this is by far much easier to handle. You can see that under IFRS, we have a slightly higher free cash flow result for U.S. free cash flow than under U.S. GAAP. What is driving this principally and structurally? We've heard that name before. It is the spectrum lease. U.S. GAAP considered this as an ongoing contract with payments recorded within the cash flow generated from operations.
Under IFRS, this is a financial liability, where the repayment of liability is recorded in the cash flow from financing activities. Other elements are not so significant and stem from a variety of different factors. Let us now move on to the net debt. When you look at the net debt outside in, you may be tempted to do the following calculation. You start at the net debt ex leases for DT as we disclose it. It has EUR 110 billion. You will subtract the 70 billion of U.S. debt as per TMUS U.S. GAAP disclosure, adjust for the currency, which was around +EUR 2 billion. You arrive at a figure of EUR 38 billion for the ex U.S. business. However, this figure is missing the correct value by around EUR 5 billion.
The correct figure for the net debt ex leases for the European business is around 33. Conversely, in our books, the net debt of TMUS is EUR 77 billion and not 71. What is driving this difference? The reason is basically twofold. First, there are differences in the accounting standards. Second, TMUS and DT group are using a different definition of net debt. First, there is a so-called tower obligation of approximately EUR 2 billion. This is a part of a tower obligation of $4 billion disclosed by TMUS. We will cover the other EUR 2 billion a bit later. Also known, this part of a tower obligation, also known under the name Global Signal. In 2005, Sprint entered into a lease out and lease back arrangement of approximately 6,400 sites with Global Signal.
That is a third party that was subsequently then acquired by Crown Castle. Due to its specific nature, this transaction is classified as a financing transaction, both under US GAAP and IFRS. However, whereas we chose to present this as part of our net debt, TMUS decided to define its net debt as excluding tower obligation. In both accounting worlds, the assets and liabilities are on the balance sheet and we record interest expenses on it. The second bigger factor is the treatment of spectrum leases. We've talked about that item already regarding the EBITDA and the free cash flow bridges on the previous pages. TMUS leases spectrum from various partners with varying expiration terms that generally extend through 2050. The total spectrum lease and service commitments, including renewal periods, are around $6 billion.
These leases are a financial liability, not a leasing liability under IFRS, and as such, part of the net debt with a net present value of EUR 2 billion. In U.S. GAAP, these liabilities are not liabilities, but basically a contractual liability or obligation to be executed and is not reflected on the balance sheet, neither as financial liability nor as a leasing liability. There is the other. This EUR 1 billion of difference is mainly attributable to the different treatment of embedded derivatives and slightly different factoring treatment. Let us now move on to the view of the net debt, including leases, and do the same exercise. Let us begin again with the IFRS 16 figure of EUR 152 billion. We then subtract EUR 71 billion of TMUS's U.S. GAAP net debt.
We further subtract the $34 billion of operating lease liabilities we all know from TMUS's disclosure, or adjusted for currency, EUR 35 billion, and only the operating lease liabilities. As for financing, these liabilities are already included in the net debt of TMUS as per U.S. GAAP. When you would arrive at EUR 46 billion of net debt increases for the ex U.S. business and would be off the right figure by approximately EUR 8 billion, as correct figure is EUR 38 billion. What is now included in the EUR 8 billion? There are three items we already know from the previous page. First, the tower obligation or Global Signal with EUR 2 billion. Second, the spectrum lease with another EUR 2 billion. The number three, others with EUR 1 billion. Additionally, another tower obligation of EUR 2 billion.
As for TMUS's balance sheet, the tower obligation has a value of $4 billion U.S. dollars, which is made up of Global Signal and the so-called T3 sale and leaseback transaction. What is T3? In 2012, TMUS entered into a sale and leaseback agreement with Crown Castle, involving approximately 6,200 tower sites. Due to the specific nature of these contracts and subtle differences in the way how this contract was assessed by IFRS and U.S. GAAP, this transaction was a so-called failed sale and leaseback under U.S. GAAP, but a leasing contract under IFRS. The assets remained on the balance sheet of TMUS as property, plant, and equipment, and the purchase price paid is a financial liability.
Whereas they were assessed as a leasing contract under IFRS and with the introduction of IFRS 16, then recorded as a leasing liability on the balance sheet. Again, in a nutshell, the tower obligation consists of two items: Global Signal transaction done by Sprint and the T3 transaction done by T-Mobile US. Both are a financial liability under U.S. GAAP, but excluded from the net debt presentation. In IFRS 16, Global Signal is a financial liability and T3 the leasing liability. What do we want you to take away from today's webinar? First, on the tower transaction, this will lead to a significant deleveraging of DT group. Overall impact on free cash flow and EPS is rather limited. Keep in mind the accounting treatment of the cash flow, of the cash inflow from joint venture in the first two years being in cash from financing activities.
However, we will make this transparent. Second, on the U.S. The key message, I think, is that the reconciliation of free cash flow, EBITDA, and net income between the two accounting worlds in the end is not that difficult as you may believe on first sight. On the net debt, I think the key message here is that the leverage of the ex U.S. business is considerably lower than you would think. This was, I've come to the end of my prepared remarks, and we're now looking forward to your questions, and I hand it back over to Hannes.
Excellent. Thank you very much, Robert, and thank you very much, Andreas, for these explanations. Now we can start with the Q&A part and give you a bit of time for questions. If you like to ask a question via Webex, please press the lift hand. I will then announce your name when it's your turn. You need to unmute yourself, please. You will also get a pop-up on your screen, which will ask you to unmute yourself for a second time. You need to do that, too. If you call in from a touch tone telephone and want to ask a question, please press star three to ask a question. I will announce your name when it's your turn to ask this question. You need to unmute yourself, and for this, please press star six.
Star 3 to ask a question, star 6 to unmute yourself. With that, if you wanna cancel a question, please press lift hand again, if you're on the Webex, channel, and if you use your phone, please press star 3 again. It's almost as complicated as the accounting, but I'm sure you can handle it. The first question is from Ottavio at SocGen. Ottavio, please.
Hi, could you hear me?
Yes.
I hope you also see me. Let's say that.
Here I not yet see, but yeah, now we can see you as well.
Yeah, perfect.
Excellent. Thank you.
Perfect. First of all, thank you very much. It does clarify a number of points that it's always unclear to follow through, so that's pretty useful. My question related to the first part of the presentations on the tower. Now, it's pretty clear how you do the accounting, but I just want to understand a bit of the sensitivity because, it's clear the cash proceeds. When you come to the leases, is it correct that you only capitalize the first term of the lease, not the number of years you plan to use the towers? If you can give us a bit of sensitivity, if you would have capitalized not the eight or probably it's eight years from memory should be the first term, but 16 or 32, how would have been the impact?
Is it also the case that like happened in the U.S., in the next eight years, if the status quo remain as it is, we're going to get more liabilities coming into the balance sheet because you have to renew, and therefore you have to capitalize the lease again, and therefore will be added to the balance sheet. If you can also tell us about the WACC you use on the NPV? The fourth one, this is basically the impact next year, but I believe that GD Towers is investing a lot to build new towers. If you can give us a bit of sensitivity how the impact will move over the next 6-8 years, at least for the first term of the lease?
Let me start. I think the accounting treatment is that the first eight years will be accounted for, and that's it. I mean, of course, you know, you can take the eight years and scale forward, go forward eight years and assume that there will be a, you know, a new agreement if and it's up to you how you want to, let's say, take account of this. Also you are surely aware that durations differ and eight years is probably a pretty fair duration for an average tower liability in the context of our industry. Again, we're not commenting on the extensions in terms of their nominal value or present value.
As you also know, it's, there's free extensions, the total duration is around 30 years. On the second question, we are not disclosing the WACC. We are disclosing the liability. Of course, we have annual increases related to the volume growth of the towers. Since we have coverage increase in Germany, also there will be a capped, let's say, inflation related increase, capped at 3%. You also have the growth value of the leases, which is the EUR 6 billion. You could actually almost reverse it out, but we are not providing this number. Maybe, Andreas, you take over here.
I mean, look, Ottavio, how you should look at this, and, you know, I don't really want to give guidance here, but, you know, there are a couple of things you know. You know that we want to expand the mobile network in Germany. We have been crystal clear on that on our Capital Markets Day. We have been crystal clear on that one during, you know, the entire flow of presentations we did so far. What is going to happen from an accounting perspective is we now have a leasing contract on the number of sites. Let's assume we're adding additional sites to the network next year, then this basically would constitute a new leasing contract and thus then constitute a new leasing liability. That is how it's going to work mechanically.
Is this going to be, in the end, finally a big surprise to you? I don't think so, because in the end, it is also not a big surprise to us because it is part of our planning. You know that we've always communicated that we want to further extend our network reach and also the network density in Germany. Okay?
Okay. I'm not sure if this, you know, completely answers, the, your questions, but, that's as much as we can provide right now. Of course, we will have to, also, talk about these things as we move along. Currently, I'm not seeing, further, questions. Just a reminder, if you want to ask questions, through the Webex channel, lift your hand. If you want to ask, questions through the phone, please, press star three. I'm seeing that we have a question from Mathieu. Mathieu, can we please have your question? Mathieu Robilliard.
Hello. Can you hear me?
Very well.
Great. Thank you.
Thank you.
Thank you very much for the presentation. That was very helpful. I had a question about how the rating agencies look at all these adjustments that you described with regards to the net debt at TMUS, the net debt at the group, when they define their ratings. I mean, is that something that is well understood and taken into consideration by the rating agencies to your knowledge, or is there some work to be done there?
The rating agencies I mean, these are all completely transparent items, right? That are fully understood by the rating agency. As you know, the rating agencies make their adjustments. They adjust for leases. They will, you know, try to have a consistent view of the indebtedness of the company. We are both in, you know, investment grade anyway, so I think they are well understood. I think that's an interesting discussion, how rating agencies look at to the previous question from Ottavio, how they look at the accounting treatment versus the economic realities of tower leases, right? In the end, all tower leases are basically perpetual. The accounting treatment can be very different.
Surely we are not known for short durations. We are known for long durations. I would say this is all very transparent to the credit world. I think it is less transparent to the equity markets, which is why we, you know, provided this, let's say, additional explanations today. Not sure if this is, let's say, I can't speak for the rating agencies in precise detail. Anything you want to add, Robert or Andreas?
No, I think I fully agree with Hannes. I mean, we do have our annual conversations with the rating agencies. They are fully aware of our planning, and they are also fully aware of a balance sheet and let's say, you know, a bit complicated issues, you know, of coming from one accounting world to the other.
Okay. Thanks much, Hugh. I can see you made it back well to Britain. Next we have James Ratzer from New Street, please.
Yes. Hi, can you hear me okay?
Very well. Yeah.
Great. Yes, thank you. Sorry, I can't get the video. It doesn't seem to work. Yes, as long as you can hear me, that's great. Two questions, please. The first one was, and I might have misheard you on this, but with regard to the tower net debt, I think I heard you talk about a shareholder loan for that. If it's possible, if I did hear that correctly, if it's possible just to kind of run through the structure of that shareholder loan, how that would be accounted. Is there a corresponding asset that we need to take into account on that? Secondly, given we're talking about accounting, I was wondering if I could just go a little bit off-piste and ask about your pension accounting, please, in Germany.
I think, you know, as of the H1 reports, you were talking about a EUR 3.9 billion pension liability. Could you just remind us, under German law, what are the requirements or not to be able to show how you're reducing that pension deficit? Thank you.
Let me maybe take the first part, and maybe I was not precise at the beginning. The issue is that we put the shareholder loan into this JV and now what very likely is going to happen, that there will be a cash flow from the JV back to us. At the beginning, we thought this will be dividends, but it is rather that the JV is paying back this kind of shareholder loan. The problem is, according to our free cash flow definition, dividends would qualify for free cash flow. However, a payback of the shareholder loan does not qualify for free cash flow, and this is exactly why it is not mentioned here.
When you look at the net debt, for sure, when there is a payback on the, on the shareholder loan, despite of the fact that we do not account it in the free cash flow, it has a positive impact on the net debt. That's why I was explaining that one. Hopefully this explains your question.
In terms of order of magnitude, I think we can say it's a EUR couple of hundred million repayment in the first two years. That's the expectation. Thereafter, we would expect to move to dividend payments from the JV. This is functionally equivalent. Financially, it's equivalent. It's just a matter of what, how you call the animal in this case. It's not a very significant, let's say, financial item from that perspective. It's just the way how the deal has been structured in this particular area. In terms of our pension liability, there is the first and most important thing is there's no pension, let's say no obligation in Germany to cover any deficit. That said, we have a very high coverage ratio.
I think it's 60% or so most recently. If that order of, I don't know, Andreas.
I would have to look it up.
continue on this one. it's, it is we do have a high coverage ratio. Even if it was lower, we would have no obligation to fill it up.
The improvement in the pension deficit in the year 2022 was primarily driven by the development of interest rates, because the discounting effect of that has reduced the deficit.
Great. Next, we have a question from a telephone. I don't know who it is, but maybe if you get called, please, just introduce yourself. If we could have the question, please. Bear with us. It's coming. It's Adam Fox-Rumley from HSBC, we think.
Can you hear me?
Yes, we can hear you. Thank you.
Perfect. I hope I haven't got the wrong end of the stick with this question, but obviously the breakdown between the net debt numbers between the group, between the U.S. and everything else is very interesting. I just wondered if the absolute level of debt within the ex-U.S. business was kind of trending downwards in your kind of future projections or relatively stable and the kind of group debt reduction was coming in the U.S. I hope that makes sense as a question.
It makes great sense as a question. Of course, the context of today is to basically look at the numbers as they are, rather than how they will develop. As they stand, the main point is in that, you know, the ex-U.S. debt, according to IFRS, both including and excluding leases, is substantially smaller than you would derive from taking the Group debt and deducting, let's say, the items that would be seen, would be disclosed as debt, in the usual accounts. You can find all of these items in the accounts. There's no, let's say, magic here.
It's just, let's say that the bridge needs to be displayed in the way that we have done it today, so that you get a full understanding of it. In terms of how this will develop going forward, well, actually, that's where the two streams of this presentation come together. On the one hand, you have the ex-U.S. debt, but then you have the tower transaction, which will, of course, upon completion, reduce our debt excluding leases by EUR 10.7 billion when it closes, and our debt including leases by EUR 6.2 billion, as per the presentation. Subject to, let's say final minor, let's say, adjustments that might arise. That's the first thing that will happen to this debt.
The other thing that will happen to this debt is that from this debt, this debt will typically be reduced by the free cash flow ex-U.S. It will typically increase by the dividend payment, and it will further increase by all ex-U.S. sorry, U.S. shareholder distributions that we are taking. Once we decide to sell into the T-Mobile buyback, this debt will be further reduced. Those are the main moving parts, but of course we are beyond the impact of the tower transaction. We are not, let's say, guiding on this today. We have no more. Thank you for the questions so far.
I have no further questions lined up, so maybe give it a couple of seconds to see if anyone has, like, some last-minute questions. If not, I mean, and to repeat, it's the hand-raising on the Webex and the star 3 on the touchtone phone, plus let's say the other things you need to do. I guess we wrap it up here. As you know, we, you know, this has been, you know, a lot of stuff. Although not all completely surprising, I would hope, but hopefully helpful. If you have follow-up questions, please contact us in the IR department and we can lead you through this. We will then hopefully provide all the further explanation that might be necessary.
Thank you again for taking the time this afternoon and we look forward to talking to you soon. We have obviously a few dates for that lined up. Thanks again. Goodbye.
Thank you very much.
Goodbye.