41 Financial instruments and risk management For further information on financial instruments, please refer in particular to Note 2 “Trade receivables,” Note 11 “Other financial assets,” Note 13 “Financial liabilities and lease liabilities,” Note 28 “Finance costs,” and Note 30 “Other financial income/expense.” (XLS:) Download Carrying amounts, amounts recognized, and fair values by class and measurement category millions of € Amounts recognized in the statement of financial position in accordance with IFRS 9 Measurement category in accordance with IFRS 9 Carrying amount Dec. 31, 2019 Amortized cost Fair value through other comprehensive income without recycling to profit or loss Fair value through other comprehensive income with recycling to profit or loss Fair value through profit or loss ASSETS Cash and cash equivalents AC 5,393 5,393 Trade receivables At amortized cost AC 5,452 5,452 At fair value through other comprehensive income FVOCI 5,390 5,390 At fair value through profit or loss FVTPL 4 4 Other financial assets Originated loans and other receivables At amortized cost AC 4,282 4,282 Of which: collateral paid AC 637 637 Of which: publicly funded projects AC 1,350 1,350 At fair value through other comprehensive income FVOCI 0 0 At fair value through profit or loss FVTPL 121 121 Equity instruments At fair value through other comprehensive income FVOCI 293 293 At fair value through profit or loss FVTPL 22 22 Derivative financial assets Derivatives without a hedging relationship FVTPL 893 893 Of which: termination rights embedded in bonds issued FVTPL 630 630 Of which: energy forward agreements embedded in contracts FVTPL 0 0 Derivatives with a hedging relationship n.a. 1,439 287 1,152 Lease assets n.a. 197 Cash and cash equivalents and trade receivables directly associated with non-current assets and disposal groups held for sale AC 0 0 Equity instruments within non-current assets and disposal groups held for sale FVOCI 35 35 LIABILITIES Trade payables AC 9,431 9,431 Bonds and other securitized liabilities AC 51,644 51,644 Liabilities to banks AC 6,516 6,516 Liabilities to non-banks from promissory note bonds AC 699 699 Other interest-bearing liabilities AC 4,369 4,369 Of which: collateral received AC 1,273 1,273 Other non-interest-bearing liabilities AC 1,476 1,476 Lease liabilities n.a. 19,835 Finance lease liabilities n.a. n.a. Derivative financial liabilities Derivatives without a hedging relationship FVTPL 325 325 Of which: options granted to third parties for the purchase of shares in subsidiaries and associates FVTPL 7 7 Of which: energy forward agreements embedded in contracts FVTPL 146 146 Derivatives with a hedging relationship n.a. 1,319 1,253 66 Trade payables directly associated with non-current assets and disposal groups held for sale AC 29 29 Of which: aggregated by measurement category in accordance with IFRS 9 ASSETS Financial assets at amortized cost AC 15,127 15,127 Financial assets at fair value through other comprehensive income with recycling to profit or loss FVOCI 5,390 5,390 Financial assets at fair value through other comprehensive income without recycling to profit or loss FVOCI 328 328 Financial assets at fair value through profit or loss FVTPL 1,040 1,040 LIABILITIES Financial liabilities at amortized cost AC 74,164 74,164 Financial liabilities at fair value through profit or loss FVTPL 325 325 (XLS:) Download millions of € Amounts recognized in the statement of financial position in accordance with IFRS 9 Amounts recognized in the statement of financial position in accordance with IFRS 16 Fair value Dec. 31, 2019a Measurement category in accordance with IFRS 9 Carrying amount Dec. 31, 2018 Amortized cost Fair value through other comprehensive income without recycling to profit or loss Fair value through other comprehensive income with recycling to profit or loss Fair value through profit or loss Amounts recognized in the statement of financial position in accordance with IAS 17 Fair value Dec. 31, 2018a a The practical expedient under IFRS 7.29a was applied for information on specific fair values. ASSETS Cash and cash equivalents AC 3,679 3,679 Trade receivables At amortized cost AC 4,280 4,280 At fair value through other comprehensive income 5,390 FVOCI 5,703 5,703 5,703 At fair value through profit or loss 4 FVTPL 5 5 5 Other financial assets Originated loans and other receivables At amortized cost 4,317 AC 2,982 2,982 3,013 Of which: collateral paid AC 299 299 Of which: publicly funded projects AC At fair value through other comprehensive income FVOCI 0 0 At fair value through profit or loss 121 FVTPL 103 103 103 Equity instruments At fair value through other comprehensive income 293 FVOCI 324 324 324 At fair value through profit or loss 22 FVTPL 0 Derivative financial assets Derivatives without a hedging relationship 893 FVTPL 597 597 597 Of which: termination rights embedded in bonds issued 630 FVTPL 99 99 99 Of which: energy forward agreements embedded in contracts 0 FVTPL 12 12 12 Derivatives with a hedging relationship 1,439 n.a. 273 5 268 273 Lease assets 197 n.a. 147 147 Cash and cash equivalents and trade receivables directly associated with non-current assets and disposal groups held for sale AC 27 27 Equity instruments within non-current assets and disposal groups held for sale 35 FVOCI 34 34 34 LIABILITIES Trade payables AC 10,735 10,735 Bonds and other securitized liabilities 56,357 AC 49,033 49,033 51,736 Liabilities to banks 6,572 AC 5,710 5,710 5,749 Liabilities to non-banks from promissory note bonds 799 AC 497 497 578 Other interest-bearing liabilities 4,506 AC 1,878 1,878 1,927 Of which: collateral received AC 404 404 Other non-interest-bearing liabilities AC 1,608 1,608 Lease liabilities 19,835 n.a. n.a. Finance lease liabilities n.a. 2,472 2,472 2,695 Derivative financial liabilities Derivatives without a hedging relationship 325 FVTPL 242 242 242 Of which: options granted to third parties for the purchase of shares in subsidiaries and associates 7 FVTPL 10 10 10 Of which: energy forward agreements embedded in contracts 146 FVTPL 52 52 52 Derivatives with a hedging relationship 1,319 n.a. 836 486 350 836 Trade payables directly associated with non-current assets and disposal groups held for sale AC 36 36 Of which: aggregated by measurement category in accordance with IFRS 9 ASSETS Financial assets at amortized cost 4,317 AC 10,968 10,968 3,013 Financial assets at fair value through other comprehensive income with recycling to profit or loss 5,390 FVOCI 5,703 5,703 5,703 Financial assets at fair value through other comprehensive income without recycling to profit or loss 328 FVOCI 358 358 358 Financial assets at fair value through profit or loss 1,040 FVTPL 705 705 705 LIABILITIES Financial liabilities at amortized cost 68,234 AC 69,497 69,497 59,990 Financial liabilities at fair value through profit or loss 325 FVTPL 242 242 242 Trade receivables include receivables amounting to EUR 1.8 billion (December 31, 2018: EUR 1.7 billion) due in more than one year. The fair value generally equals the carrying amount. Disclosures on fair value When determining the fair value, it is important to maximize the use of current inputs observable in liquid markets for the financial instrument in question and minimize the use of other inputs (e.g., historical prices, prices for similar instruments, prices on illiquid markets). A three-level measurement hierarchy is defined for these purposes. If prices quoted in liquid markets are available at the reporting date for the respective financial instrument, these will be used unadjusted for the measurement (Level 1 measurement). Other input parameters are then irrelevant for the measurement. One such example is shares and bonds that are actively traded on a stock exchange. If quoted prices on liquid markets are not available at the reporting date for the respective financial instrument, but the instrument can be measured using other inputs that are observable on the market at the reporting date, a Level 2 measurement will be applied. The conditions for this are that no major adjustments have been made to the observable inputs and no unobservable inputs are used. Examples of Level 2 measurements are collateralized interest rate swaps, currency forwards, and cross-currency swaps that can be measured using current interest rates or exchange rates. If the conditions for a Level 1 or Level 2 measurement are not met, a Level 3 measurement is applied. In such cases, major adjustments must be made to observable inputs or unobservable inputs must be used. (XLS:) Download Financial instruments not measured at fair value, the fair values of which are disclosed nevertheless millions of € Dec. 31, 2019 Dec. 31, 2018 Level 1 Level 2 Level 3a Total Level 1 Level 2 Level 3 Total a Separation of embedded derivatives; the fair value of the entire instrument must be categorized as Level 1. ASSETS Originated loans and receivables 4,317 4,317 3,013 3,013 LIABILITIES Financial liabilities measured at amortized cost 40,460 27,144 630 68,234 41,342 18,548 100 59,990 Of which: bonds and other securitized liabilities 40,460 15,267 630 56,357 41,342 10,294 100 51,736 Of which: liabilities to banks 6,572 6,572 5,749 5,749 Of which: liabilities to non-banks from promissory notes 799 799 578 578 Of which: liabilities with the right of creditors to priority repayment in the event of default 0 0 0 0 Of which: other interest-bearing liabilities 4,506 4,506 1,927 1,927 Finance lease liabilities 2,695 2,695 (XLS:) Download Financial instruments measured at fair value millions of € Dec. 31, 2019 Dec. 31, 2018 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total ASSETS Trade receivables At fair value through other comprehensive income 5,390 5,390 5,703 5,703 At fair value through profit or loss 4 4 5 5 Other financial assets – Originated loans and other receivables At fair value through other comprehensive income 0 0 At fair value through profit or loss 114 7 121 93 10 103 Equity instruments At fair value through other comprehensive income 328 328 358 358 At fair value through profit or loss 22 22 0 Derivative financial assets Derivatives without a hedging relationship 263 630 893 486 111 597 Derivatives with a hedging relationship 1,439 1,439 273 273 LIABILITIES Derivative financial liabilities Derivatives without a hedging relationship 172 153 325 180 62 242 Derivatives with a hedging relationship 1,319 1,319 836 836 Of the equity instruments measured at fair value through other comprehensive income and recognized under other financial assets, the instruments presented in the different levels constitute separate classes of financial instruments. In each case, the fair values of the total volume of equity instruments recognized as Level 1 are the price quotations at the reporting date. The listed bonds and other securitized liabilities are assigned to Level 1 or Level 2 depending on the market liquidity of the relevant instrument. Consequently, issues denominated in euros or U.S. dollars with relatively large nominal amounts are to be classified as Level 1, the rest as Level 2. The fair values of the instruments assigned to Level 1 equal the nominal amounts multiplied by the price quotations at the reporting date. The fair values of the instruments assigned to Level 2 are calculated as the present values of the payments associated with the debts, based on the applicable yield curve and Deutsche Telekom’s credit spread curve for specific currencies. The fair values of liabilities to banks, liabilities to non-banks from promissory notes, and other interest-bearing liabilities are calculated as the present values of the payments associated with the debts, based on the applicable yield curve and Deutsche Telekom’s credit spread curve for specific currencies. Since there are no market prices available for the derivative financial instruments in the portfolio assigned to Level 2 due to the fact that they are not listed on the market, the fair values are calculated using standard financial valuation models, based entirely on observable inputs. The fair value of derivatives is the price that Deutsche Telekom would receive or have to pay if the financial instrument were transferred at the reporting date. Interest rates of contractual partners relevant as of the reporting date are used in this respect. The middle rates applicable as of the reporting date are used as exchange rates. In the case of interest-bearing derivatives, a distinction is made between the clean price and the dirty price. In contrast to the clean price, the dirty price also includes the interest accrued. The fair values carried correspond to the full fair value or the dirty price. The equity instruments measured at fair value through other comprehensive income comprise a large number of investments in strategic, unlisted individual positions. Deutsche Telekom considers the chosen measurement through other comprehensive income without recycling to profit or loss to be appropriate because there are no plans to use the investments for short-term profit-taking. At the date of disposal of an investment, the total cumulative gain or loss is reclassified to retained earnings. Acquisitions and disposals are based on business policy investment decisions. (XLS:) Download Investments in equity instruments at fair value through other comprehensive income millions of € 2019 2018 FAIR VALUE AS OF DECEMBER 31 328 358 Dividends recognized in profit/loss on investments divested in the reporting period 0 on investments still held at the reporting date 0 3 Fair value at the derecognition date of instruments divested in the reporting period 225 91 Cumulative gains reclassified in the reporting period from other comprehensive income to retained earnings 82 Of which: from the disposal of investments 60 Of which: from the conversion of preference shares into common shares 22 Cumulative losses reclassified in the reporting period from other comprehensive income to retained earnings 0 47 Of which: from the disposal of investments 0 47 (XLS:) Download Development of the carrying amounts of the financial assets and financial liabilities assigned to Level 3 millions of € Equity instruments at fair value through other comprehensive income Derivative financial assets at fair value through profit or loss: termination rights embedded in bonds issued Derivative financial assets at fair value through profit or loss: energy forward agreements embedded in contracts Derivative financial liabilities at fair value through profit or loss: energy forward agreements embedded in contracts Carrying amount as of January 1, 2019 358 99 12 (52) Additions (including first-time categorization as Level 3) 96 0 0 0 Decreases in fair value recognized in profit/loss(including losses on disposal) (66) (20) (113) Increases in fair value recognized in profit/loss(including gains on disposal) 594 8 20 Decreases in fair value recognized directly in equity (29) Increases in fair value recognized directly in equity 128 Disposals (225) 0 0 0 Currency translation effects recognized directly in equity 0 3 0 (1) CARRYING AMOUNT AS OF DECEMBER 31, 2019 328 630 0 (146) The equity instruments assigned to Level 3 that are measured at fair value through other comprehensive income and carried under other financial assets are equity investments with a carrying amount of EUR 313 million measured using the best information available at the reporting date. As a rule, Deutsche Telekom considers transactions involving shares in those companies to have the greatest relevance. Transactions involving shares in comparable companies are also considered. The proximity of the relevant transaction to the reporting date, and the question of whether it was conducted at arm’s length, are relevant for deciding which information is used for the measurement. Furthermore, the degree of similarity between the object being measured and comparable companies must be taken into consideration. Based on Deutsche Telekom’s own assessment, the fair values of the equity investments at the reporting date could be determined with sufficient reliability. For the development of the carrying amounts in the reporting period, please refer to the table above. At the reporting date, investments with a carrying amount of EUR 35 million were held for sale, while there were no plans to sell the remaining investments. In the case of investments with a carrying amount of EUR 190 million, transactions involving shares in these companies took place at arm’s length sufficiently close to the reporting date, which is why the share prices agreed in the transactions were to be used without adjustment for the measurement as of December 31, 2019. In the case of investments with a carrying amount of EUR 71 million, an analysis of operational indicators (especially revenue, EBIT, and liquidity) revealed that the carrying amounts were equivalent to current fair values. Due to better comparability, previous arm’s-length transactions involving shares in these companies are preferable to more recent transactions involving shares in similar companies. In the case of investments with a carrying amount of EUR 52 million, for which the last arm’s length transactions relating to shares in these companies took place some time ago, a measurement performed more recently relating to shares in similar companies provides the most reliable representation of the fair values. Here, multiples to the reference variable of expected revenue (ranging between 3.3 and 8.4) were taken. The 25 percent quantile, the median, or the 75 percent quantile was used for the multiples depending on the specific circumstances. If other values had been used for the multiples and for the expected revenue amounts, the fair values calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table below. In addition, non-material individual items with a carrying amount of EUR 15 million (when translated into euros) are included with differences in value of minor relevance. For the development of the carrying amounts in the reporting year, please refer to the table above. The derivatives without a hedging relationship assigned to Level 3 and carried under derivative financial assets relate to options embedded in bonds issued by T‑Mobile US with a carrying amount of EUR 630 million when translated into euros. The options, which can be exercised by T‑Mobile US at any time, allow early redemption of the bonds at fixed exercise prices. Observable market prices are available regularly and also at the reporting date for the bonds as entire instruments, but not for the options embedded therein. The termination rights are measured using an option pricing model. Historical interest rate volatilities of bonds issued by T‑Mobile US and comparable issuers are used for the measurement because these provide a more reliable estimate at the reporting date than current market interest rate volatilities. The absolute figure used for the interest rate volatility at the current reporting date was between 1.0 and 1.9 percent. The spread curve, which is also unobservable, was derived on the basis of current market prices of bonds issued by T‑Mobile US and debt instruments of comparable issuers. The spreads used at the current reporting date were between 1.3 and 2.3 percent for the maturities of the bonds and between 0.5 and 1.0 percent for shorter terms. For the mean reversion input, which is likewise unobservable, 10 percent was used. In our opinion, the values used constitute the best estimate in each case. If other values had been used for interest rate volatility, spread curve or mean reversion, the fair values calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table below. In the reporting period, net income of EUR 528 million when translated into euros was recognized under Level 3 in other financial income/expense for unrealized gains for the options in the portfolio at the reporting date. Please refer to the table above for the development of the carrying amounts in the reporting period. The changes in value recognized in profit or loss in the reporting period were mainly attributable to fluctuations in the interest rates and historical interest rate volatilities in absolute terms that are relevant for measurement. Due to their distinctiveness, these instruments constitute a separate class of financial instruments. For the development of the carrying amounts in the reporting year, please refer to the table above. (XLS:) Download Sensitivitiesa of the carrying amounts of the financial assets and financial liabilities assigned to Level 3 depending on unobservable inputs millions of € Equity instruments at fair value through other comprehensive income Derivative financial assets at fair value through profit or loss: termination rights embedded in bonds issued Derivative financial liabilities at fair value through profit or loss: energy forward agreements embedded in contracts a Change in the relevant input parameter assuming all other input parameters are unchanged. b Interest rate volatility shows the magnitude of fluctuations in interest rates over time (relative change). The larger the fluctuations, the higher the interest rate volatility. c The spread curve shows, for the respective maturities, the difference between the interest rates payable by T‑Mobile US and the interest rates on U.S. government bonds. d Mean reversion describes the assumption that, after a change, an interest rate will revert to its average over time. The higher the selected value (mean reversion speed), the faster the interest rate will revert to its average in the measurement model. e Renewable energy credits is the term used for U.S. emission certificates. Multiple next-level-up quantile 6 Multiple next-level-down quantile (16) Expected revenues +10% 4 Expected revenues -10% (4) Interest rate volatilityb +10% 9 Interest rate volatilityb -10% (10) Spread curvec +100 basis points (269) Spread curvec -100 basis points 335 Mean reversiond +100 basis points (4) Mean reversiond -100 basis points 1 Future energy prices +10% 62 Future energy prices -10% (63) Future energy output +5% 4 Future energy output -5% (5) Future prices for renewable energy creditse +100% 21 Future prices for renewable energy creditse from zero (21) With a carrying amount of EUR -146 million when translated into euros, the derivatives without a hedging relationship assigned to Level 3 and carried under derivative financial liabilities relate to energy forward agreements embedded in contracts entered into by T‑Mobile US. These agreements consist of two components: the energy forward agreement and the acquisition of renewable energy credits by T‑Mobile US. The contracts have been entered into with energy producers since 2017 and run for terms of between 12 and 20 years from the commencement of commercial operation. In the case of two energy forward agreements, commercial operations have already begun; with the others, commercial operations are set to begin between 2020 and 2021. The respective settlement period of the energy forward agreements, which are accounted for separately as derivatives, also starts when the facility begins commercial operation. Under the energy forward agreements, T‑Mobile US receives variable amounts based on the facility’s actual energy output and the then current energy prices, and pays fixed amounts per unit of energy generated throughout the term of the contract. The energy forward agreements are measured using valuation models because no observable market prices are available. The value of the derivatives is materially influenced by the facility’s future energy output, for which T‑Mobile US estimated a value of 2,899 gigawatt hours per year at the reporting date. The value of the derivatives is also significantly influenced by future energy prices, which are not observable for the period beyond around five years. Further, the value of the derivatives is materially influenced by the future prices for renewable energy credits, which are also not observable. For the unobservable portion of the term, T‑Mobile US used on-peak energy prices of between EUR 13.23/MWh and EUR 59.64/MWh when translated into euros and off-peak prices of between EUR 9.01/MWh and EUR 39.67/MWh when translated into euros. An average on-peak/off-peak ratio of 47 percent was used. In our opinion, the values used constitute the best estimate in each case. If other values had been used for future energy prices, future energy output, or future prices of renewable energy credits, the fair values calculated would have been different. These hypothetical deviations (sensitivities) are shown in the table above. In the reporting period, a net expense of EUR 104 million (when translated into euros) was recognized under the Level 3 measurement in other operating income/expense for unrealized losses for the derivatives. Please refer to the corresponding table for the development of the carrying amounts in the reporting period. The market-price changes in the reporting period were largely attributable to changes in observable and unobservable energy prices and to interest rate effects. Due to their distinctiveness, these instruments constitute a separate class of financial instruments. In the view of T‑Mobile US, the contracts were entered into at current market conditions, and the most appropriate parameters for the unobservable inputs were used for measurement purposes. The transaction price at inception was zero in each case. Since the unobservable inputs have a material influence on the measurement of the derivatives, the respective amount resulting from initial measurement was not carried on initial recognition. Instead, these amounts are amortized in profit or loss on a straight-line basis over the period of commercial energy generation (for a total amount of EUR 13 million per year when translated into euros). This amortization adjusts the effects from measuring the derivatives in each accounting period using the respective valuation models and updated parameters. All amounts from the measurement of the derivatives are presented in net terms per contract in the statement of financial position (derivative financial assets/liabilities) and in the income statement (other operating income/expenses). The difference yet to be amortized in the income statement developed as follows during the reporting period: (XLS:) Download Energy forward agreements millions of € Development of the not yet amortized amounts 2019 2018 Measurement amounts on initial recognition 151 112 Measurement amounts on initial recognition (additions during the reporting period) 27 39 Measurement amounts amortized in profit or loss in prior periods (3) 0 Measurement amounts amortized in profit or loss in the current reporting period (6) (3) Currency translation adjustments 3 0 MEASUREMENT AMOUNTS NOT AMORTIZED AS OF DECEMBER 31 172 148 For the trade receivables, loans issued, and other receivables assigned to Level 3, which are measured either at fair value through other comprehensive income or at fair value through profit or loss, the main factor in determining fair value is the credit risk of the relevant counterparties. If the default rates applied as of the reporting date had been 1 percent higher (lower) with no change in the reference variables, the fair values of the instruments would have been 1 percent lower (higher). The financial liabilities measured at fair value through profit or loss and assigned to Level 3 include derivative financial liabilities with a carrying amount of EUR 7 million resulting from an option granted to third parties for the purchase of shares in an associate of Deutsche Telekom. The option was granted in connection with a sale of shares in this associate, and no notable fluctuations in value are expected. Due to their distinctiveness, the instruments assigned to Level 3 and described above constitute a separate class of financial instruments in each case. (XLS:) Download Net gain/loss by measurement category millions of € Recognized in profit or loss from interest and dividends Recognized in profit or loss from subsequent measurement Recognized directly in equity from subsequent measurement Recognized in profit or loss from derecognition Net gain (loss) At fair value Currency translation Impairments/allowances At fair value Debt instruments measured at amortized cost 2019 23 n.a. 662 (165) n.a. (41) 479 2018 27 n.a. 1,059 (80) n.a. (145) 861 Debt instruments measured at fair value through profit or loss 2019 14 1 n.a. n.a. n.a. 6 21 2018 10 0 n.a. n.a. n.a. (3) 7 Debt instruments measured at fair value through other comprehensive income 2019 0 n.a. n.a. (257) (26) 0 (283) 2018 0 n.a. n.a. (322) 23 51 (248) Equity instruments measured at fair value through profit or loss 2019 0 (6) n.a. n.a. n.a. (2) (8) 2018 0 0 n.a. n.a. n.a. 0 0 Equity instruments measured at fair value through other comprehensive income 2019 1 n.a. n.a. n.a. 99 n.a. 100 2018 2 n.a. n.a. n.a. (620) n.a. (618) Derivatives measured at fair value through profit or loss 2019 n.a. 363 n.a. n.a. n.a. n.a. 363 2018 n.a. (382) n.a. n.a. n.a. n.a. (382) Financial liabilities measured at amortized cost 2019 (1,768) n.a. (678) n.a. n.a. n.a. (2,446) 2018 (1,820) n.a. (963) n.a. n.a. n.a. (2,783) 2019 (1,729) 358 (16) (422) 73 (37) (1,774) 2018 (1,781) (382) 96 (402) (597) (97) (3,163) Interest from financial instruments is recognized in finance costs, dividends in other financial income/expense (income from investments). For further information, please refer to Note 28 “Finance costs” and Note 30 “Other financial income/expense.” The other components of the net gain/loss are recognized in other financial income/expense, except for allowances on trade receivables that are classified as debt instruments measured at amortized cost and debt instruments measured at fair value through other comprehensive income, which are reported under other operating expenses. For further information, please refer to Note 2 “Trade receivables.” The net gain from the subsequent measurement for financial instruments allocated to the measurement category at fair value through profit or loss (EUR 358 million) also includes interest and currency translation effects. The net currency translation gains on financial assets classified as debt instruments measured at amortized cost (EUR 662 million) are primarily attributable to the Group-internal transfer of foreign-currency loans taken out by Deutsche Telekom’s financing company, Deutsche Telekom International Finance B.V., on the capital market. These were offset by corresponding currency translation losses on capital market liabilities of EUR 678 million. These include currency translation gains from derivatives that Deutsche Telekom used as hedging instruments for hedge accounting in foreign currency (EUR 179 million; 2018: EUR 143 million). Finance costs from financial liabilities measured at amortized cost (expense of EUR 1,768 million) primarily consist of interest expense on bonds and other (securitized) financial liabilities. The item also includes interest expenses from the accumulation of interest added back and interest income from interest discounted from trade payables. However, it does not include the interest expense and interest income from interest rate derivatives Deutsche Telekom used in the reporting year to hedge the fair value risk of financial liabilities. For further information, please refer to Note 28 “Finance costs.” Principles of risk management. Deutsche Telekom is exposed in particular to risks from changes in exchange rates, interest rates, and market prices that affect its assets, liabilities, and forecast transactions. Financial risk management aims to limit these market risks through ongoing operational and finance activities. Selected derivative and non-derivative hedging instruments are used for this purpose, depending on the risk assessment. However, Deutsche Telekom only hedges the risks that affect the Group’s cash flow. Derivatives are exclusively used as hedging instruments, i.e., not for trading or other speculative purposes. To reduce the credit risk, hedging instruments are generally only concluded with leading financial institutions whose credit rating is at least BBB+/Baa1. In addition, the credit risk for derivatives with a positive market value is generally minimized through collateral agreements with all core banks. Furthermore, the limits for deposits are also set and monitored on a daily basis depending on the rating, share price performance, and credit default swap level of the respective counterparty. The fundamentals of Deutsche Telekom’s financial policy are established by the Board of Management and overseen by the Supervisory Board. Group Treasury is responsible for implementing the financial policy and for ongoing risk management. Certain transactions require the prior approval of the Board of Management, which is also regularly briefed on the severity and amount of the current risk exposure. Group Treasury regards effective management of the market risk as one of its main tasks. The main risks relate to foreign currencies and interest rates. Currency risks. Deutsche Telekom is exposed to currency risks from its investing, financing, and operating activities. Risks from foreign currencies are hedged to the extent that they influence the Group’s cash flows. Foreign-currency risks that do not influence the Group’s cash flows (i.e., the risks resulting from the translation of assets and liabilities of foreign operations into the Group’s reporting currency) are generally not hedged, however. Deutsche Telekom may nevertheless also hedge this foreign-currency risk under certain circumstances. Foreign-currency risks in the area of investment result, for example, from the acquisition and disposal of investments in foreign companies. Deutsche Telekom hedges these risks. If the risk position exceeds EUR 100 million, the Board of Management must make a special decision on how the risk shall be hedged. If the risk position is below EUR 100 million, Group Treasury performs the currency hedging itself. At the reporting date, Deutsche Telekom was not exposed to any significant risks from foreign-currency transactions in the field of investments. Foreign-currency risks in the financing area are caused by financial liabilities in foreign currency and loans in foreign currency that are issued to Group entities for financing purposes. Group Treasury hedges these risks in full. Cross-currency swaps and currency derivatives are used to convert financial obligations and intragroup loans denominated in foreign currencies into the Group entities’ functional currencies. At the reporting date, the foreign-currency liabilities for which currency risks were hedged mainly consisted of bonds in U.S. dollars and pounds sterling. On account of these hedging activities, Deutsche Telekom was not exposed to any significant currency risks in the area of financing at the reporting date. The Group entities predominantly execute their operating activities in their respective functional currencies. Payments made in a currency other than the respective functional currency result in foreign-currency risks in the Group. These mainly relate to payments for telecommunications services (procurement of network technology and mobile communications equipment as well as payments to international telecommunications companies and for the provision of connection services) and IT services (procurement of IT hardware, software, and services). Deutsche Telekom generally uses currency derivatives for hedging purposes. On account of these hedging activities, Deutsche Telekom was not exposed to any significant exchange rate risks from its operating activities at the reporting date. For the presentation of market risks, IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes of relevant risk variables on profit or loss and shareholders’ equity. In addition to currency risks, Deutsche Telekom is exposed to interest rate risks and price risks in its investments. The periodic effects are determined by relating the hypothetical changes in the risk variables to the balance of financial instruments at the reporting date. It is assumed that the balance at the reporting date is representative for the year as a whole. Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and being of a monetary nature; differences resulting from the translation of financial statements into the Group’s presentation currency are not taken into consideration. Relevant risk variables are generally all non-functional currencies in which Deutsche Telekom has contracted financial instruments. The currency sensitivity analyses are based on the following assumptions: Major non-derivative monetary financial instruments (liquid assets, receivables, interest-bearing securities and/or debt instruments held, interest-bearing liabilities, lease liabilities, non-interest-bearing liabilities) are either directly denominated in the functional currency or are transferred to the functional currency through the use of derivatives. Exchange rate fluctuations therefore have no effects on profit or loss, or shareholders’ equity. Non-interest-bearing securities or equity instruments held are of a non-monetary nature and therefore are not exposed to a currency risk as defined by IFRS 7. Interest income and interest expense from financial instruments are also either recorded directly in the functional currency or transferred to the functional currency using derivatives. For this reason, there can be no effects on the variables considered in this connection. In the case of fair value hedges designated to hedge currency risks, the changes in the fair values of the hedged item and the hedging instrument attributable to changes in exchange rates balance out almost completely in the income statement in the same period. As a consequence, these financial instruments are not exposed to currency risks with an effect on profit or loss, or shareholders’ equity, either. Cross-currency swaps are always assigned to non-derivative hedged items, so these instruments do not have any currency effects, either. Deutsche Telekom is therefore only exposed to currency risks from specific currency derivatives. Some of these are currency derivatives that are part of an effective cash flow hedge for hedging payment fluctuations resulting from changes in exchange rates in accordance with IFRS 9. Volatility in exchange rates of the currencies on which these transactions are based affects the hedging reserves in shareholders’ equity and the fair value of these hedging instruments. Others are currency derivatives that are neither part of one of the hedges defined in IFRS 9 nor part of a natural hedge. These derivatives are used to hedge planned transactions. Changes in exchange rates of the currencies on which such financial instruments are based affect other financial income or expense (net gain/loss from remeasurement of financial assets and liabilities to fair value). If the euro had gained (lost) 10 percent against all currencies at December 31, 2019, the hedging reserves in shareholders’ equity and the fair values of the hedging instruments before taxes would have been EUR 4 million higher (lower) (December 31, 2018: EUR 14 million higher (lower)). The hypothetical effect of EUR 4 million on profit or loss primarily results from the currency sensitivities EUR/USD: EUR 12 million and EUR/GBP: EUR -8 million. If the euro had gained (lost) 10 percent against all currencies at December 31, 2019, other financial income and the fair value of the hedging instruments before taxes would have been EUR 52 million higher (lower) (December 31, 2018: EUR 40 million lower (higher)). The hypothetical effect of EUR 52 million on profit or loss primarily results from the currency sensitivities EUR/GBP: EUR 69 million, EUR/USD: EUR -18 million, and EUR/HUF: EUR 1 million. Interest rate risks. Deutsche Telekom is exposed to interest rate risks, mainly in the euro zone and in the United States. The interest rate risks are managed as part of the interest rate management activities. For the debt position in euros a maximum variable percentage is set on an annual basis. The debt position of T‑Mobile US in U.S. dollars is primarily determined through fixed-income securities with issuer cancellation rights. The composition of the liabilities portfolio (ratio of fixed to variable) is managed by issuing primary (non-derivative) financial instruments and, where necessary, also deploying derivative financial instruments. Regular reports are submitted to the Board of Management and Supervisory Board. Including derivative hedging instruments, an average of 57 percent (2018: 63 percent) of the debt position denominated in euros had a variable rate of interest in 2019. In U.S. dollars, the variable-rate percentage decreased compared with 2018 from 17 percent to 16 percent. There were no significant fluctuations in the course of the reporting year. Interest rate risks are presented by way of sensitivity analyses in accordance with IFRS 7. These show the effects of changes in market interest rates on interest payments, interest income and expense, other income components, and, if appropriate, shareholders’ equity. The interest rate sensitivity analyses are based on the following assumptions: Changes in the market interest rates of non-derivative financial instruments with fixed interest rates only affect income if these are measured at their fair value. As such, all financial instruments with fixed interest rates that are carried at amortized cost are not subject to interest rate risk as defined in IFRS 7. In the case of fair value hedges designated for hedging interest rate risks, the changes in the fair values of the hedged item and the hedging instrument attributable to changes in interest rates balance out almost completely in the income statement in the same period. This means that interest-rate-based changes in the measurement of the hedged item and the hedging instrument largely do not affect income and are therefore not subject to interest rate risk. In the case of interest rate derivatives in fair value hedges, however, changes in market interest rates affect the amount of interest payments. As a consequence, they have an effect on interest income and are therefore included in the calculation of income-related sensitivities. Changes in the market interest rate regarding financial instruments that were designated as hedging instruments in a cash flow hedge to hedge payment fluctuations resulting from interest rate movements affect the hedging reserve in shareholders’ equity and are therefore taken into consideration in the equity-related sensitivity calculations. Changes in market interest rates affect the interest income or expense of non-derivative variable-interest financial instruments, the interest payments of which are not designated as hedged items of cash flow hedges against interest rate risks. As a consequence, they are included in the calculation of income-related sensitivities. In addition, changes in the market interest rate had an impact on the carrying amount of trade receivables recognized at fair value and originated loans and other receivables. However, these changes in value are not managed. Changes in the market interest rate regarding interest rate derivatives (interest rate swaps, cross-currency swaps) that are not part of a hedging relationship as set out in IFRS 9 affect other financial income or expense and are therefore taken into consideration in the income-related sensitivity calculations. Currency derivatives are not exposed to interest rate risks and therefore do not affect the interest rate sensitivities. If the market interest rates had been 100 basis points higher at December 31, 2019, profit or loss before taxes would have been EUR 553 million (December 31, 2018: EUR 23 million) lower. If the market interest rates had been 100 basis points lower at December 31, 2019, profit or loss before taxes would have been EUR 617 million (December 31, 2018: EUR 70 million) higher. This simulation includes the effects from the financial instruments assigned to Level 3 described above. The hypothetical effect of EUR 617 million/EUR -553 million on income primarily results from the potential effects of EUR 585 million/EUR -521 million from interest rate derivatives, and EUR 32 million/EUR -32 million from non-derivative, variable-interest financial liabilities. Potential effects from interest rate derivatives are partially balanced out by the contrasting performance of non-derivative financial instruments, which cannot, however, be shown as a result of applicable accounting standards. If the market interest rates had been 100 basis points higher (lower) at December 31, 2019, the hedging and revaluation reserves in equity before taxes would have been EUR 1,201 million higher (EUR 1,272 million lower) (December 31, 2018: EUR 673 million higher (EUR 672 million lower)). Other price risks. As part of the presentation of market risks, IFRS 7 also requires disclosures on how hypothetical changes in risk variables affect the price of financial instruments. Important risk variables are stock exchange prices or indexes. Aside from the value-creating factors in the financial instruments assigned to Level 3 described above, there were no other price risks at the reporting date. Deutsche Telekom is exposed to a credit risk from its operating activities and certain financing activities. As a rule, transactions with regard to financing activities are only concluded with counterparties that have at least a credit rating of BBB+/Baa1, in connection with an operational credit management system. At the level of operations, the outstanding debts are continuously monitored in each area, i.e., locally. Credit risks are taken into account through individual allowances and allowances calculated at portfolio level. The solvency of the business with corporate customers, especially international carriers, is monitored separately. In terms of the overall risk exposure from the credit risk, however, the receivables from these counterparties are not so extensive as to justify extraordinary concentrations of risk. (XLS:) Download Maximum credit risk of financial assets millions of € Classes of financial instruments (IFRS 7) Measurement category (IFRS 9) 2019 2018 Originated loans and other receivables AC 4,282 2,952 FVOCI 0 0 FVTPL 121 103 Cash and cash equivalents AC 5,392 3,679 Trade receivables AC 5,452 4,280 FVOCI 5,390 5,699 FVTPL 4 5 Contract assets (IFRS 15) n.a. 1,874 1,764 Lease receivables n.a. 196 147 Enlarge table (XLS:) Download Development of allowances millions of € General approach Simplified approach 12-month expected credit losses Lifetime expected credit losses Stage 1 – No change in credit risk since initial recognition Stage 2 – Significant increase in credit risk since initial recognition, not credit-impaired Stage 3 – Credit-impaired at the reporting date (not purchased or originated credit-impaired) Cash and cash equivalents Originated loans and other receivables Cash and cash equivalents Originated loans and other receivables Cash and cash equivalents Originated loans and other receivables Trade receivables Contract assets Lease assets AC AC FVOCI AC AC FVOCI AC AC FVOCI AC FVOCI n.a. n.a. January 1, 2019 0 (4) 0 0 0 0 0 0 0 (1,465) (277) (26) 0 Reclassification due to a change in business model 66 (65) 0 Additions (8) (384) (242) (20) Use 342 10 (1) Reversal 186 22 11 Other (59) Foreign currency effect DECEMBER 31, 2019 0 (4) 0 0 0 0 0 (8) 0 (1,314) (552) (36) 0 There were no material transfers in the general approach. (XLS:) Download Credit rating of financial assets measured at amortized cost or at fair value through other comprehensive income millions of € Dec. 31, 2019 Dec. 31, 2018 Contractual obligations fulfilled to date Disruptions in performance already occurred Non-performing Total Depreciation, amortization and impairment losses Contractual obligations fulfilled to date Disruptions in performance already occurred Non-performing Total Depreciation, amortization and impairment losses GENERAL APPROACH (SHORT TERM) 12-month expected credit losses (stage 1) 8,224 8,224 6,167 6,167 Lifetime expected credit losses Significant increase in credit risk, but not credit-impaired (stage 2) 103 103 9 9 Credit-impaired at the reporting date, but not purchased or originated credit-impaired (stage 3) 28 28 (4) 30 30 8,224 103 28 8,355 (4) 6,167 9 30 6,206 0 GENERAL APPROACH (LONG TERM) 12-month expected credit losses (stage 1) 1,326 1,326 455 455 Lifetime expected credit losses 1 1 Significant increase in credit risk, but not credit-impaired (stage 2) 0 0 0 Credit-impaired at the reporting date, but not purchased or originated credit-impaired (stage 3) 0 0 1,326 1 0 1,327 0 455 0 0 455 0 SIMPLIFIED APPROACH Trade receivables 11,083 434 1,159 12,676 (100) 8,759 448 776 9,983 (98) Contract assets 1,901 1 7 1,909 (7) 1,757 8 0 1,765 (2) Lease receivables 197 197 130 14 3 147 0 13,181 435 1,166 14,782 (107) 10,646 470 779 11,895 (100) FINANCIAL ASSETS THAT ARE PURCHASED OR ORIGINATED CREDIT-IMPAIRED Receivables 4 4 0 22,735 539 1,194 24,468 (111) 17,268 479 809 18,556 (100) (XLS:) Download Gain/loss on full write-off of trade receivables millions of € 2019 2018 2017 Expenses for full write-off of receivables 53 139 81 Income from recoveries on receivables written off 11 20 105 (XLS:) Download Offsetting of financial instruments millions of € Dec. 31, 2019 Dec. 31, 2018 Trade receivables Trade payables Derivative financial assets Derivative financial liabilities Trade receivables Trade payables Derivative financial assets Derivative financial liabilities Gross amounts subject to enforceable master netting arrangements or similar agreements 202 208 1,702 1,491 376 424 759 1,016 Amounts set off in the statement of financial position in accordance with IAS 32.42 (98) (98) (137) (137) Net amounts presented in the statement of financial position 104 110 1,702 1,491 239 287 759 1,016 Amounts subject to enforceable master netting arrangements or similar agreements and not meeting all offsetting requirements in accordance with IAS 32.42 (37) (37) (1,653) (1,000) (27) (27) (733) (618) Of which: amounts related to recognized financial instruments (37) (37) (446) (446) (27) (27) (333) (333) Of which: amounts related to financial collateral (including cash collateral) (1,207) (554) (400) (285) NET AMOUNTS 67 73 49 491 212 260 26 398 Offsetting is applied in particular to receivables and liabilities at Deutsche Telekom AG and Telekom Deutschland GmbH for the routing of international calls via the fixed network and for roaming fees in the mobile network. In line with the contractual provisions, in the event of insolvency all derivatives with a positive or negative fair value that exist with the respective counterparty are offset against each other, leaving a net receivable or liability. The net amounts are normally recalculated every bank working day and offset against each other. When the netting of the positive and negative fair values of all derivatives was positive from Deutsche Telekom’s perspective, the counterparty provided Deutsche Telekom with cash pursuant to the collateral contracts mentioned in Note 1 “Cash and cash equivalents.” The credit risk was thus further reduced. When the netting of the positive and negative fair values of all derivatives was negative from Deutsche Telekom’s perspective, Deutsche Telekom provided cash collateral to counterparties pursuant to collateral agreements. The net amounts are normally recalculated every bank working day and offset against each other. The cash collateral paid is offset by corresponding negative net derivative positions of EUR 554 million at the reporting date, which is why it was not exposed to any credit risks in this amount at the reporting date. For further information, please refer to Note 11 “Other financial assets.” The collateral paid is reported under originated loans and other receivables within other financial assets. On account of its close connection to the corresponding derivatives, the collateral paid constitutes a separate class of financial assets. Likewise, the collateral received, which is reported as other interest-bearing liabilities under financial liabilities, constitutes a separate class of financial liabilities on account of its close connection to the corresponding derivatives. According to agreement, no cash collateral was provided for interest rate swaps concluded by T‑Mobile US with a nominal value of EUR 4.0 billion (when translated into euros). The fair values of the unhedged interest rate swaps at the reporting date were negative in each case from the perspective of T‑Mobile US (total value of EUR -490 million (when translated into euros)). In accordance with the terms of bonds issued by T‑Mobile US, T‑Mobile US has the right to terminate the bonds prematurely under specific conditions. The rights of early termination constitute embedded derivatives and are presented separately as derivative financial assets in the consolidated statement of financial position. Since they are not exposed to any credit risk, they constitute a separate class of financial instruments. There were no other significant agreements reducing the maximum exposure to the credit risks of financial assets. The maximum exposure to credit risk of the other financial assets thus corresponds to their carrying amounts. Liquidity risk. For further information, please refer to Note 13 “Financial liabilities and lease liabilities.” Hedge accounting Fair value hedges. To hedge the fair value risk of fixed-interest liabilities, Deutsche Telekom primarily uses interest rate swaps and forward interest rate swaps (pay variable, receive fixed) denominated in EUR, GBP, and USD. Fixed-income bonds denominated in EUR, GBP, and USD were designated as hedged items. The changes in the fair values of the hedged items resulting from changes in the EURIBOR, GBP LIBOR, or USD LIBOR swap rate are offset against the changes in the value of these interest rate swaps.In addition, cross-currency swaps mainly in the EUR/USD and EUR/GBP currency pairs are designated as fair value hedges, which convert fixed-income foreign currency bonds into variable-interest EUR bonds to hedge the interest rate and currency risk. The changes in the fair value of the hedged items resulting from changes in the USD LIBOR and the GBP LIBOR swap rate as well as the USD and GBP exchange rate are offset against the changes in the fair value of these cross-currency swaps. The aim of the fair value hedges is thus to transform the fixed-income bonds into variable-interest debt, thus hedging the fair value (interest rate risk and currency risk) of these financial liabilities. Credit risks are not part of the hedging. Cash flow hedges – interest rate risks. Deutsche Telekom mainly uses payer interest rate swaps and forward payer interest rate swaps (pay fixed, receive variable) to hedge the cash flow risk of existing and future debt. The interest payments to be made in the hedging period are the hedged items and are recognized in profit or loss in the same period. Hedged items may be individual liabilities, portfolios of liabilities, or combinations of liabilities and derivatives (aggregate risk exposure). The changes in the cash flows of the hedged items resulting from changes in the USD LIBOR rate and the EURIBOR rate are offset against the changes in the cash flows of the interest rate swaps. The aim of this hedging is to transform the variable-interest bonds into fixed-income debt, thus hedging the cash flows of the financial liabilities. Credit risks are not part of the hedging. Cash flow hedges – currency risks. Deutsche Telekom entered into currency derivative and cross-currency swaps (pay fixed, receive variable) to hedge cash flows not denominated in a functional currency. The payments in foreign currency to be made in the hedging period are the hedged items and are recognized in profit or loss in the same period. The terms of the hedging relationships will end in the years 2020 through 2033. In the case of rolling cash flow hedges for currency risks, short-term currency forwards are entered into, which are then extended by means of follow-up transactions. At each reporting date, the effectiveness of the fair value and cash flow hedges is reviewed prospectively based on the main contractual features and determined retrospectively in the form of a statistical regression analysis; rolling foreign currency hedges are reviewed using the dollar offset test. All hedging relationships were sufficiently effective as of the reporting date. Hedging of a net investment. The hedges of the net investment in T‑Mobile US against fluctuations in the U.S. dollar spot rate de-designated in prior periods did not generate any effects in 2019. The amounts recognized in total other comprehensive income would be reclassified in the event of the disposal of T‑Mobile US. (XLS:) Download Conditions of derivative financial instruments in hedging relationships millions of € 2020 Nominal amount Average hedge rate Average swap rate received Average swap rate paid Average margin paid FAIR VALUE HEDGES Interest rate risk EURIBOR 4,615 0.3649% 6M EURIBOR 0.0000% USD LIBOR GBP LIBOR Cross-currency risk USD/EUR GBP/EUR Other CASH FLOW HEDGES Currency risk Buy USD/EUR 247 1.1102 GBP/EUR 83 0.8362 Other 29 Sell USD/EUR 173 1.0632 Interest rate risk EURIBOR USD LIBOR (XLS:) Download millions of € 2021–2024 Nominal amount Average hedge rate Average swap rate received Average swap rate paid Average margin paid FAIR VALUE HEDGES Interest rate risk EURIBOR 6,453 0.6228% 6M EURIBOR 0.3186% USD LIBOR 2,449 2.4249% 3M USD LIBOR 0.8962% GBP LIBOR 352 1.2500% 3M GBP LIBOR 0.7870% Cross-currency risk USD/EUR GBP/EUR Other 79 CASH FLOW HEDGES Currency risk Buy USD/EUR 3 1.1373 GBP/EUR 770 0.9072 6.5000% 6.5718% Other 24 Sell USD/EUR 197 1.0990 Interest rate risk EURIBOR 7,178 6M EURIBOR -0.2099% 0.3263% USD LIBOR 3,562 3M USD LIBOR 4.9986% 3.0242% (XLS:) Download millions of € 2025 and thereafter Nominal amount Average hedge rate Average swap rate received Average swap rate paid Average margin paid FAIR VALUE HEDGES Interest rate risk EURIBOR 9,200 1.4384% 6M EURIBOR 0.7661% USD LIBOR 3,665 4.3042% 3M USD LIBOR 1.5948% GBP LIBOR 470 2.5590% 6M GBP LIBOR 0.6477% Cross-currency risk USD/EUR 1,557 1.1221 8.7500% 3M EURIBOR 5.8751% GBP/EUR 796 0.8799 2.8571% 3M EURIBOR 1.0062% Other 481 CASH FLOW HEDGES Currency risk Buy USD/EUR 1,758 1.3620 8.7863% 7.7873% GBP/EUR 441 0.9122 7.9388% 7.5811% Other Sell USD/EUR Interest rate risk EURIBOR 1,000 6M EURIBOR 0.1120% 0.5966% USD LIBOR 10,998 3M USD LIBOR 3.6857% 0.5350% (XLS:) Download Nominal and carrying amounts of derivative financial instruments in hedging relationships millions of € 2019 2018 Nominal amount of the hedging instruments Carrying amount of the hedging instruments Change in value of the hedging instruments in the reporting period for determining ineffectiveness Nominal amount of the hedging instruments Carrying amount of the hedging instruments Change in value of the hedging instruments in the reporting period for determining ineffectiveness in foreign currencies in euros Financial assets Financial liabilities in foreign currencies in euros Financial assets Financial liabilities Disclosure of the hedging instruments in the statement of financial position In this and the following tables on hedging relationships, losses are shown as negative amounts unless explicitly stated otherwise. FAIR VALUE HEDGES Other financial assets/financial liabilities Interest rate risk 27,204 1,029 (39) 783 23,705 264 (129) 85 Of which: EUR 20,268 16,374 Of which: USD 6,865 6,114 7,500 6,549 Of which: GPB 700 822 700 782 Cross-currency risk 2,912 124 (26) 257 2,373 4 (221) 43 Other financial assets/financial liabilities Of which: USD 1,747 1,557 1,747 1,557 Of which: GPB 700 796 300 339 Of which: other 560 478 CASH FLOW HEDGES Other financial assets/financial liabilities Currency risk 3,725 166 (18) 251 4,121 5 (95) (107) Buy USD/EUR 2,580 2,008 2,584 2,004 GBP/EUR 1,171 1,294 1,429 1,574 Other 52 70 Sell USD/EUR 416 371 540 473 Interest rate risk 22,739 120 (1,235) (747) 8,383 (391) (391) Other financial assets/financial liabilities USD LIBOR 16,350 14,561 9,600 8,383 EURIBOR 8,178 (XLS:) Download Disclosures on hedged items in hedging relationships millions of € Carrying amount of the hedged items (including cumulative fair value hedge adjustment) Cumulative adjustments to the carrying amount of the designated fair value hedges Change in the fair value of the hedged items for determining ineffectiveness in the reporting period Remaining balance of cumulative adjustments to the carrying amount of the de-designated fair value hedges Balance of amounts recognized in other comprehensive income relating to hedged risk (existing hedging relationships)a Balance of amounts recognized in other comprehensive income relating to hedged risk (terminated hedging relationships) Presentation of the hedged items in the statement of financial position a Figures include non-controlling interests. FAIR VALUE HEDGES Financial liabilities Interest rate risk 2019 28,019 857 (774) 304 n.a. n.a. 2018 23,749 62 (67) 319 n.a. n.a. Cross-currency risk 2019 2,981 24 (299) 0 n.a. n.a. 2018 2,102 (254) (13) 0 n.a. n.a. CASH FLOW HEDGES n.a. Currency risk 2019 n.a. n.a. (244) n.a. 83 8 2018 n.a. n.a. 103 n.a. (19) 8 Interest rate risk 2019 n.a. n.a. 727 n.a. (1,140) 0 2018 n.a. n.a. 393 n.a. (393) (16) HEDGE OF NET INVESTMENT n.a. Currency risk 2019 n.a. n.a. 0 n.a. 794 n.a. 2018 n.a. n.a. 0 n.a. 0 794 (XLS:) Download Gains/losses from hedge accounting millions of € Hedge ineffectiveness of existing hedging relationships recognized in profit or loss Changes in fair value recognized directly in other comprehensive income Amounts reclassified to profit or loss from other comprehensive income due to occurrence of the hedged items (designated hedging relationships)a Amounts reclassified to profit or loss from other comprehensive income due to occurrence of the hedged items (dedesignated hedging relationships)a Total change in other comprehensive income Presentation of the reclassified effective amounts in profit or loss Presentation of the ineffectiveness in profit or loss a Negative amounts represent gains in the income statement. FAIR VALUE HEDGES n.a. Other financial income (expense) Interest rate risk 2019 9 n.a. n.a. n.a. n.a. 2018 18 n.a. n.a. n.a. n.a. Cross-currency risk 2019 (42) n.a. n.a. n.a. n.a. 2018 30 n.a. n.a. n.a. n.a. CASH FLOW HEDGES Net revenue/goods and services purchased/other financial income (expense) Other financial income (expense) Currency risk 2019 7 244 (143) 0 101 2018 (4) 11 (114) 0 (103) Interest rate risk 2019 (20) (727) (21) 16 (732) Interest expense 2018 (1) (393) 0 82 (311) The recorded ineffectiveness in the income statement mainly results from the different discount rates of the hedged items (fixed-income) and designated hedging instruments (fixed-income and variable-interest). Furthermore, cross-currency interest rate hedges are impacted by effects from cross currency basis spreads, which are included in the hedging instruments, but not in the hedged items. For some hedges, the characteristics of hedging instruments and hedged items differ, resulting in ineffectiveness. In the case of interest rate hedges on highly probable future borrowings, ineffectiveness could arise if time shifts occur. The relative amounts of the ineffectiveness are not expected to increase significantly in the future. Furthermore, there are no other potential sources of ineffectiveness. (XLS:) Download Reconciliation of total other comprehensive income from hedging relationshipsa millions of € Designated risk components (effective portion) Cash flow hedges Hedges of net investment Total designated risk components Total other comprehensive income Currency risk Interest rate risk Currency risk Hedging costsb a Figures include non-controlling interests. b In the 2018 and 2019 financial years, hedging costs relate entirely to cross currency basis spreads. Balance at January 1, 2019 (10) (409) 794 375 58 433 Changes recognized directly in equity 244 (727) 0 (483) (9) (492) Reclassification to profit or loss due to occurrence of the hedged item (143) (5) 0 (148) 2 (146) BALANCE AT DECEMBER 31, 2019 91 (1,141) 794 (256) 51 (205) Derivatives. The following table shows the fair values of the various derivatives. A distinction is made depending on whether these are part of an effective hedging relationship as set out in IFRS 9 (fair value hedge, cash flow hedge, net investment hedge) or not. Other derivatives can also be embedded, i.e., a component of a composite instrument that contains a non-derivative host contract. (XLS:) Download millions of € Net carryingamountsDec. 31, 2019 Net carryingamountsDec. 31, 2018 ASSETS Interest rate swaps Without a hedging relationship 6 121 In connection with fair value hedges 1,029 264 In connection with cash flow hedges 120 0 Currency forwards/currency swaps Without a hedging relationship 49 24 In connection with cash flow hedges 5 2 Cross-currency swaps Without a hedging relationship 206 339 In connection with fair value hedges 124 4 In connection with cash flow hedges 161 3 Other derivatives in connection with cash flow hedges 0 0 Other derivatives without a hedging relationship 3 2 Embedded derivatives 630 112 LIABILITIES Interest rate swaps Without a hedging relationship 34 31 In connection with fair value hedges 39 128 In connection with cash flow hedges 1,235 391 Currency forwards/currency swaps Without a hedging relationship 59 36 In connection with cash flow hedges 4 3 In connection with net investment hedges 0 0 Cross-currency swaps Without a hedging relationship 78 112 In connection with fair value hedges 26 221 In connection with cash flow hedges 14 91 Other derivatives in connection with cash flow hedges 0 0 Other derivatives without a hedging relationship 7 12 Embedded derivatives 146 52 Transfer of financial assets Factoring transactions with substantially all risks and rewards being transferred Deutsche Telekom is party to several factoring agreements under which it sells current trade receivables on a revolving basis; under these agreements, Deutsche Telekom has the right to decide on a case-by-case basis whether and to what extent the revolving nominal volume will be used. Sales exceeding this amount must be agreed on a case-by-case basis. The risks relevant for the risk assessment with respect to the receivables sold are the credit risk and the late-payment risk, which are transferred to the buyer of the receivables in full in return for payment of a fixed purchase price discount. Losses relating to certain receivables are reimbursed up to a maximum amount under a credit insurance policy, which reduces the credit risk. The receivables sold until the reporting date were derecognized in full. At the derecognition date, the fixed purchase price discount is expensed. Deutsche Telekom continues to perform receivables management against payment for the receivables sold. For the disclosures on the receivables sold, please refer to the table below. Expenses of EUR 24 million (EUR 230 million on a cumulative basis since commencement of the agreement) were recognized for a factoring agreement that expired in the 2019 financial year. Factoring transactions involving the splitting of significant risks and rewards as well as the transfer of control There is also a revolving factoring transaction in place under which a bank is required to purchase trade receivables from charges from sales of handsets payable over a period of up to two years. Deutsche Telekom has the right to decide on a case-by-case basis whether the revolving nominal volume will be used and to what extent. The risks relevant for the risk assessment with respect to the receivables sold are the credit risk and the late-payment risk. Deutsche Telekom bears credit risk-related losses from the various tranches up to a certain amount in each case; the other credit risk-related losses are borne by the bank. The late-payment risk is borne in full by Deutsche Telekom. Due to the allocation of the material risks between Deutsche Telekom and the bank, substantially all the risks and rewards of ownership of the receivables were neither transferred nor retained. Control of the receivables sold was transferred to the bank because it has the practical ability to resell the receivables. The bank has the right to sell all receivables overdue back to Deutsche Telekom. The purchase price corresponds to the nominal amount and is payable in the month following the buy-back. This does not affect the allocation of the credit risk-related losses, as such losses would be passed back to the bank in line with the agreed risk allocation. All receivables sold have been derecognized. At the derecognition date, the fair value of the expected losses is expensed as financial liabilities. Please refer to the table below for the disclosures on the continuing involvement resulting from the receivables sold. Expenses of EUR 4 million (EUR 68 million on a cumulative basis since commencement of the agreement) were recognized for factoring agreements terminated in the financial year. Factoring transactions involving the splitting of significant risks and rewards with control remaining at Deutsche Telekom In addition, there are several factoring agreements in place under which Deutsche Telekom sells – on a revolving basis – trade receivables from consumers and business customers relating to both charges already due and charges from sales of handsets payable over a period of up to two years. In two transactions, subsidiaries of Deutsche Telekom sell receivables to structured entities that are also subsidiaries of Deutsche Telekom and were established for the sole purpose of these factoring agreements. The required funding is provided to these structured entities in the context of Deutsche Telekom’s general Group financing. These structured entities have no assets and liabilities other than those resulting from the purchase and sale of the receivables under factoring agreements. They resell the receivables to a second structured entity in each case. Deutsche Telekom does not consolidate the two second structured entities because it has no control over these entities’ relevant activities. In one of the transactions, the second structured entity resells the ownership interests in the receivables to two banks and a third structured entity on a pro-rata basis. Deutsche Telekom does not consolidate this third structured entity either because it likewise does not control this entity’s relevant activities. The structured entities not consolidated by Deutsche Telekom are financed by the external buyers of the receivables. In the other transaction, the second structured entity transfers the legal role of creditor for the receivables to a bank that performs this role on behalf of the investors who have beneficial ownership of the receivables (administrative agent). These investors are a bank and two other structured entities. Deutsche Telekom does not consolidate these other structured entities either because it likewise has no control over these entities’ relevant activities. The two other structured entities are financed through the issue of commercial paper to third parties outside the Group or, alternatively, through a credit facility provided by a bank. In a third transaction, receivables are sold directly to a structured entity. This structured entity holds the receivables and allocates the risks and rewards resulting from these to Deutsche Telekom and a bank on the basis of contractual arrangements. It is financed through the issue of commercial paper to third parties outside the Group or, alternatively, through a credit facility provided by a bank. Deutsche Telekom does not consolidate the structured entity because it does not control the relevant activities. The receivables being sold are selected from the relevant portfolios, either in an automated process in compliance with the eligibility criteria set out in the receivables purchase agreement or based on the decision of the relevant structured entity taking an obligatory minimum volume into account. The increase in the contractual maximum volume compared with the previous year results from the possibility to sell additional credit classes in a transaction at otherwise unchanged conditions. Receivables are sold on a daily basis and billed on a monthly basis. The purchase price up to a specific amount will be paid out immediately upon sale; remaining portions of the purchase price will only be paid to the extent that the volume of receivables sold in the relevant portfolio decreases further accordingly or the characteristics of the receivables change. In all transactions, Deutsche Telekom is obligated to buy back aged receivables and receivables for which a write-off is imminent at nominal value. Such buy-backs would not affect the allocation of the credit risk-related losses in any way, as the latter would be passed back to the buyers in line with the agreed risk allocation. The cash flows resulting from the buy-backs normally occur in the month following the buy-back. None of the structured entities has business activities other than the purchase or sale of trade receivables or other investments. In none of the transactions is Deutsche Telekom exposed to risks other than the credit risk and late-payment risk resulting from the sold receivables agreed in the respective agreement. In other transactions, receivables are sold directly to buyers outside the Group without the involvement of structured entities. If more receivables are purchased in individual portfolios, the purchase price payment is deferred until the maximum program volume decreases further accordingly. In all those transactions, Deutsche Telekom has the right to decide whether receivables are sold and in which volume. In individual portfolios, receivables for which a write-off is imminent are sold back to Deutsche Telekom. Here the purchase price corresponds to the actual proceeds from collection or disposal and is payable after Deutsche Telekom receives these proceeds from collection or disposal. These buy-backs would affect neither the allocation of the credit risk-related losses nor Deutsche Telekom’s liquidity situation. In a portfolio, the existing credit insurance reimburses losses relating to certain receivables to a specific maximum amount and thus reduces the exposure to loss. The risks relevant for the risk assessment with respect to the sold receivables are based on the credit risk and the late-payment risk. Deutsche Telekom bears certain portions of the credit risk in the individual transactions. The other credit risk-related losses are borne by the respective buyers. The late-payment risk in all transactions continues to be borne in full by Deutsche Telekom. Substantially all the risks and rewards of ownership of the receivables were neither transferred nor retained (allocation of the material risks and rewards between Deutsche Telekom and the buyers). Deutsche Telekom continues to perform servicing for the receivables sold. Under the factoring agreements in which structured entities are engaged, buyers have the unilateral right to transfer the servicing to third parties for no specific reason. Although Deutsche Telekom is not authorized to use the receivables sold other than in its capacity as servicer, it retains control over the receivables sold because the buyers and the structured entities do not have the practical ability to resell the purchased receivables. At the time the receivables are sold, the fair value of the expected losses is expensed. Expected future payments are presented as a component of the associated liability. In transactions with structured entities, certain portions of the purchase price are initially held back and, depending on the amount of the actual defaults, are only paid to Deutsche Telekom at a later date. To the extent that such portions of the purchase price are expected to be received in the future, they are recognized at fair value. Deutsche Telekom continues to recognize the trade receivables sold to the extent of its continuing involvement, i.e., in the maximum amount with which it is still liable for the credit risk and late-payment risk inherent in the receivables sold, and recognizes a corresponding associated liability presented in liabilities to banks. The receivables and the associated liability are then derecognized in the extent to which Deutsche Telekom’s continuing involvement is reduced (particularly when payment is made by the customer). The carrying amount of the receivables is subsequently reduced by the extent to which the actual losses to be borne by Deutsche Telekom resulting from the credit risk and the late-payment risk exceed the losses initially expected. This amount is recognized as an expense. Please refer to the table below for the disclosures on the continuing involvement resulting from the receivables sold. On January 16, 2020, a factoring agreement existing at the reporting date for the revolving sale of trade receivables from consumers and business customers relating to charges already due ended when the contract expired. The receivables with an aggregate nominal volume of EUR 840 million that had been sold directly to buyers outside the Group and had not yet been paid by the customers were bought back when the agreement ended. Receivables that had arisen, been sold, and been derecognized up to and including the reporting date December 31, 2019 were bought back at fair value and are recognized in this amount. Receivables that had arisen and been sold from January 1, 2020 were bought back at their nominal amount, no longer derecognized, and are recognized at the transaction price. Since there is no longer an intention to sell the portfolio of bought-back receivables in the future, the receivables are measured at amortized cost. (XLS:) Download Transfer of financial assets millions of € 2019 Transfer of substantially all risks and rewards Allocation of substantially all risks and rewards Transfer of control Retention of control Full transfer of the credit and late-payment risk Partial transfer of the credit risk and retention of most of the late-payment risk Partial transfer of the credit risk and full retention of the late-payment risk With the involvement of structured entities Without the involvement of structured entities Total End of contract terms 2021–2022 2021 2020–2023 2020–2022 Contractual maximum volume 184 90 4,959 1,040 6,273 Purchase prices to be paid immediately 184 80 2,154 1,040 3,458 Volume of receivables sold as of the reporting date 91 42 3,007 1,101 4,241 Scope of volume of receivables sold in the reporting year 71–127 24–30 1,889–2,337 992–1,133 Provision for receivables management 0 0 0 4 4 CONTINUING INVOLVEMENT Maximum credit risk (before credit insurance) 14 600 80 694 Credit insurance 27 23 50 Maximum late-payment risk 0 82 4 86 Carrying amount of the continuing involvement (asset side) 0 682 84 766 Carrying amount of the associated liability 0 733 118 851 Fair value of the associated liability 0 51 34 85 BUY-BACK AGREEMENTS Nominal value of receivables that can be bought back at the nominal amount 42 2,887 2,929 Nominal value of receivables that can be bought back at the collected amount 120 840 960 PURCHASE PRICE DISCOUNTS RECOGNIZED IN PROFIT OR LOSS, PROGRAM FEES, AND PRO-RATA LOSS ALLOCATIONS Current reporting year 1 1 240 62 304 Cumulative since commencement of the agreement 4 5 1,064 350 1,423 (XLS:) Download millions of € 2018 Transfer of substantially all risks and rewards Allocation of substantially all risks and rewards Full transfer of the credit risk and full retention of the late-payment risk Transfer of control Retention of control Partial transfer of the credit risk and retention of most of the late-payment risk Partial transfer of the credit risk and full retention of the late-payment risk Full transfer of the credit and late-payment risk With the involvement of structured entities Without the involvement of structured entities Total End of contract terms 2020–2022 2022 2019 2019–2023 2019–2022 Contractual maximum volume 197 250 620 4,734 925 6,726 Purchase prices to be paid immediately 197 250 390 2,115 925 3,877 Volume of receivables sold as of the reporting date 133 285 393 2,949 904 4,664 Scope of volume of receivables sold in the reporting year 62–147 144–285 92–420 1,708–2,161 881–1,120 Provision for receivables management 0 2 0 0 4 6 CONTINUING INVOLVEMENT Maximum credit risk (before credit insurance) 87 584 46 717 Credit insurance 33 150 17 200 Maximum late-payment risk 1 5 75 3 84 Carrying amount of the continuing involvement (asset side) 0 659 49 708 Carrying amount of the associated liability 1 681 80 762 Fair value of the associated liability 1 22 31 54 BUY-BACK AGREEMENTS Nominal value of receivables that can be bought back at the nominal amount 379 2,822 – 3,201 Nominal value of receivables that can be bought back at the collected amount 15 127 814 956 PURCHASE PRICE DISCOUNTS RECOGNIZED IN PROFIT OR LOSS, PROGRAM FEES, AND PRO-RATA LOSS ALLOCATIONS Prior reporting year 1 37 8 187 53 286 Cumulative since commencement of the agreement 3 206 68 824 290 1,391 schließen Roaming Refers to the use of a communication device or just a subscriber identity in a visited network rather than one’s home network. This requires the operators of both networks to have reached a roaming agreement and switched the necessary signaling and data connections between their networks. Roaming comes into play when cell phones and smartphones are used across national boundaries.