13 Financial liabilities and lease liabilities

The following table shows the composition and maturity structure of financial liabilities as of December 31, 2019:

Current and non-current financial liabilities increased by EUR 4.1 billion to EUR 66.3 billion compared with the prior year. Exchange rate effects, in particular from the translation of U.S. dollars into euros, raised the carrying amount by EUR 0.2 billion.

Bonds and other securitized liabilities increased by EUR 2.6 billion. This increase resulted in particular from the following bond issuances by Deutsche Telekom AG in the reporting year: euro bonds with a total volume of EUR 4.5 billion, pound sterling bonds with a total volume of GBP 0.4 billion (EUR 0.5 billion), U.S. dollar bonds of USD 0.1 billion (EUR 0.1 billion), and Australian dollar bonds of AUD 0.1 billion (EUR 0.1 billion). In addition, OTE PLC issued a euro bond with a volume of EUR 0.4 billion. Scheduled repayments of U.S. dollar bonds totaling USD 1.8 billion (EUR 1.6 billion), euro bonds totaling EUR 0.8 billion, and pound sterling bonds totaling GBP 0.3 billion (EUR 0.3 billion), had an offsetting effect. The net change of EUR 0.5 billion in commercial paper also decreased the carrying amount.

The increase of EUR 0.8 billion in liabilities to banks was mainly due to the positive net change of EUR 0.8 billion in the balance of short-term borrowings. This includes a Deutsche Bundespost treasury note (zero-coupon bond) issued in the past with a carrying amount of EUR 1.4 billion, which fell due on December 31, 2019 and was repaid on that date by a bank using its own funds.

For further information, please refer to Note 35 “Notes to the consolidated statement of cash flows.”

The first-time application of IFRS 16 resulted in finance lease liabilities being reclassified from financial liabilities to lease liabilities. Based on the carrying amounts as of December 31, 2018, this reclassification reduced financial liabilities by EUR 2.5 billion.

For further information on the application of the new accounting standard, please refer to the section “Initial application of standards, interpretations, and amendments in the financial year.”

The increase of EUR 2.5 billion in the carrying amount of other interest-bearing liabilities primarily relates to the spectrum licenses acquired in the Germany operating segment for EUR 2.2 billion. In place of a lump-sum payment, government representatives agreed to let us pay the purchase price in annual installments from 2019 through 2030. After deducting collateral of EUR 36 million and the first, already paid installment of EUR 0.1 billion, the resulting financial liabilities had a carrying amount of EUR 2.0 billion. Payment by installment was granted on the condition that Deutsche Telekom assumes additional build-out obligations.

The carrying amount of derivative financial liabilities increased by EUR 0.6 billion. The measurement of forward-payer swaps concluded for future borrowings at T‑Mobile US with a total volume of USD 9.6 billion gave rise to a remeasurement loss recognized directly in equity of EUR 0.6 billion.

For further information on derivative financial liabilities, please refer to Note 41 “Financial instruments and risk management.”

Deutsche Telekom has established ongoing liquidity management. To ensure the Group’s and Deutsche Telekom AG’s solvency and financial flexibility at all times, Deutsche Telekom maintains a liquidity reserve in the form of credit lines and cash. This liquidity reserve is to cover the capital market maturities of the next 24 months at any time.

In addition to the reported liabilities to banks, Deutsche Telekom had standardized bilateral credit agreements with 21 banks for a total of EUR 12.6 billion as of December 31, 2019. As of December 31, 2019, a transaction of EUR 0.6 billion was temporarily deducted from a credit line. In the prior year, EUR 0.6 billion of these credit lines had been utilized. Pursuant to the credit agreements, the terms and conditions depend on Deutsche Telekom’s rating. The bilateral credit agreements have an original maturity of 36 months and can, after each period of twelve months, be extended by a further twelve months to renew the maturity of 36 months. From today’s perspective, access to the international debt capital markets is not jeopardized.

The first-time application of IFRS 16 led to the recognition of current and non-current lease liabilities totaling EUR 18.1 billion. These also included the finance lease liabilities that used to be reported under financial liabilities.

For further information on the application of the new accounting standard, please refer to the section “Initial application of standards, interpretations, and amendments in the financial year.”

The carrying amount of the recognized lease liabilities increased to EUR 19.8 billion as of December 31, 2019. Lease liabilities primarily relate to the United States, Europe, and Group Development operating segments. In addition, there are lease liabilities in the Group Headquarters & Group Services segment in connection with the leasing of real estate and technical sites.

For further information on lessee relationships, please refer to Note 8 “Right of use assets – lessee relationships.”

In the 2019 financial year, there were no significant expenses for variable lease payments that were not included in the measurement of lease liabilities. All cash outflows in connection with leases amounted to EUR 4.7 billion in the 2019 financial year.

As of December 31, 2019, future payment obligations for leases that have not yet begun and which are not taken into account in the measurement of lease liabilities amounted to EUR 0.3 billion.

The following tables show the contractually agreed (undiscounted) interest payments and repayments of the non-derivative financial liabilities, the lease liabilities, and the derivatives with positive and negative fair values:

All instruments held at December 31, 2019 and for which payments were already contractually agreed were included. Planning data for future, new liabilities were not included. Amounts in foreign currency were each translated at the closing rate at the reporting date. The variable interest payments arising from the financial instruments were calculated using the last interest rates fixed before December 31, 2019. Financial liabilities that can be repaid at any time are always assigned to the earliest possible time period. In accordance with § 2 (4) of the German Act on the Transformation of the Deutsche Bundespost Enterprises into the Legal Structure of Stock Corporation (Stock Corporation Transformation Act – Postumwandlungsgesetz), the Federal Republic is guarantor of all Deutsche Telekom AG’s liabilities that were already outstanding as at January 1, 1995. At December 31, 2019, this figure was a nominal EUR 0.5 billion (December 31, 2018: EUR 1.8 billion).