Selected notes to the consolidated statement of financial position

Trade and other receivables

At EUR 10.0 billion, trade and other receivables remained at the 2018 year-end level. Higher trade receivables in our Group Development operating segment amounting to EUR 0.2 billion, mainly from the acquired Tele2 Netherlands, offset declining volumes of receivables in the Europe, Germany, and Systems Solutions operating segments. Exchange rate effects, primarily from the translation from U.S. dollars into euros, increased the carrying amount slightly.

Contract assets

Contract assets arise from the application of IFRS 15 since the 2018 financial year. In prior periods, under IFRS 15, these would have led to the earlier recognition of revenue, in particular from the sale of goods and merchandise. Receivables from long-term construction contracts continue to be recognized under contract assets. At EUR 1.8 billion, contract assets remained level with the December 31, 2018 figure.

Inventories

Compared with December 31, 2018, inventories were EUR 0.2 billion higher at EUR 2.0 billion, due primarily to an increase in inventories of higher-priced smartphones in the United States operating segment.

Intangible assets and property, plant and equipment

Intangible assets increased by EUR 1.4 billion to EUR 66.4 billion. Additions totaling EUR 1.1 billion increased the carrying amount. They mainly comprised capital expenditures in the United States and Europe operating segments and in the Group Headquarters & Group Services segment. Changes in the composition of the Group increased the carrying amount by a further EUR 0.7 billion. The acquisition of Tele2 Netherlands in the Group Development operating segment resulted in identifiable intangible assets totaling EUR 0.5 billion at the acquisition date (including a customer base and existing spectrum licenses) in addition to goodwill of EUR 0.2 billion. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 0.8 billion. Depreciation charges reduced the carrying amount by EUR 1.2 billion.

Property, plant and equipment decreased by EUR 1.9 billion compared with December 31, 2018 to EUR 48.8 billion. EUR 2.5 billion of the decrease is due to the effect of the mandatory first-time application of IFRS 16 “Leases” as of January 1, 2019. Assets arising from finance leases that were reported under property, plant and equipment until December 31, 2018, for which Deutsche Telekom as the lessee bore substantially all the risks and rewards associated with the lease, are now recognized as rights to use the underlying leased assets. For more information on the application of the new accounting standard, please refer to the section “Accounting policies.” Depreciation and amortization of EUR 2.2 billion and disposals of EUR 0.1 billion also reduced the carrying amount. Additions of EUR 2.4 billion – especially to upgrade and build out the network in our United States operating segment and in connection with the broadband/fiber-optic rollout, the IP transformation, and mobile infrastructure in the Germany and Europe operating segments – increased the carrying amount. Effects of changes in the composition of the Group resulting from the acquisition of Tele2 Netherlands increased the carrying amount by EUR 0.3 billion. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 0.3 billion.

Right-of-use assets

As a consequence of the mandatory first-time application of IFRS 16 “Leases” as of January 1, 2019, the rights to use the underlying leased assets were recognized in the amount of the lease liability, adjusted by the amount of the prepaid or accrued lease payments. The remeasurement and reclassification effect reported amounted to EUR 16.2 billion as of January 1, 2019. This includes both rights to use lease assets recognized in the statement of financial position for the first time and rights to use assets arising from finance leases in the amount of EUR 2.5 billion that were previously recognized under property, plant and equipment. For more information on the application of the new accounting standard please refer to the section “Accounting policies.” As of March 31, 2019, the carrying amount increased to EUR 16.8 billion. Depreciation and amortization of EUR 0.9 billion was recognized in the first quarter of 2019.

Capitalized contract costs

Capitalized contract costs arise from the application of IFRS 15 since January 1, 2018. Capitalized contract assets increased by EUR 0.1 billion as of March 31, 2019 to EUR 1.8 billion, mainly due to a higher level of capitalized costs of obtaining a contract, in particular in the United States operating segment.

Trade and other payables

Trade and other payables decreased by EUR 0.5 billion to EUR 10.2 billion due to the reduction in the level of liabilities, mainly in the Europe and Germany operating segments. This was contrasted by an increase in liabilities in the United States operating segment, due in part to the building up of inventories of higher-priced smartphones as well as slightly positive exchange rate effects.

Other liabilities

Current and non-current other liabilities decreased by EUR 1.8 billion to EUR 4.2 billion. This is mainly attributable to the fact that, as a consequence of the first-time application of IFRS 16, liabilities from straight-line leases, mainly for cell sites, in the United States operating segment were no longer required to be reported. As of January 1, 2019, first of all, the lease terms underlying these liabilities were adjusted to the lease terms determined in accordance with IFRS 16, increasing shareholders’ equity, and the remaining prepaid expense was offset against the right-of-use asset. This reduced other liabilities by EUR 2.2 billion as of the transition date. For more information on the application of the new accounting standard, please refer to the section “Accounting policies.”

Financial liabilities

Current and non-current financial liabilities increased by EUR 3.7 billion to EUR 65.9 billion compared with the end of 2018.

On March 28, 2019, the shareholders’ meeting of Deutsche Telekom AG resolved in accordance with the proposal by the Board of Management on the appropriation of net income to pay a dividend of EUR 0.70 for each no par value share carrying dividend rights. This resulted in a total dividend payment of EUR 3.3 billion. As of March 31, 2019, current financial liabilities increased accordingly. The dividend was paid to shareholders at the beginning of April 2019.

In addition, the following borrowings or repayments of debt were made:

In the first quarter of 2019, Deutsche Telekom AG issued euro bonds with a total volume of EUR 1.8 billion and pound sterling bonds with a total volume of GBP 0.4 billion (EUR 0.5 billion). Scheduled repayments of promissory notes in the amount of EUR 0.2 billion in the first quarter of 2019 had an offsetting effect. The net change of EUR 0.5 billion in commercial paper and net short-term borrowings of EUR 0.6 billion also reduced the carrying amount of the financial liabilities.

An increase in the carrying amount of the financial liabilities compared with December 31, 2018 of around EUR 0.2 billion in total relates to exchange rate effects in the United States operating segment.

The mandatory first-time application of IFRS 16 as of January 1, 2019 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 the financial liabilities by EUR 2.5 billion. For more information on the application of the new accounting standard, please refer to the section “Accounting policies.”

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

Lease liabilities

The mandatory first-time application of IFRS 16 as of January 1, 2019 led to the recognition of current and non-current lease liabilities totaling EUR 18.1 billion. These also include the finance lease liabilities that used to be reported under financial liabilities. The carrying amount of the recognized lease liabilities increased to EUR 18.7 billion as of March 31, 2019. Overall, lease liabilities in the amount of EUR 4.1 billion are due within one year. For more information on the application of the new accounting standard, please refer to the section “Accounting policies.”

Contract liabilities

Contract liabilities arise from the application of IFRS 15 since January 1, 2018. Compared with March 31, 2019, the carrying amount of current and non-current contract liabilities decreased by EUR 0.1 billion to EUR 2.2 billion. These mainly comprise deferred revenues.

Provisions for pensions and other employee benefits

Provisions for pensions and other employee benefits increased from EUR 5.5 billion as of December 31, 2018 to EUR 5.8 billion, mainly due to interest rate adjustments which resulted in an actuarial loss of EUR 0.2 billion to be recognized directly in equity.

As of March 31, 2019, Deutsche Telekom changed the method it uses to calculate the discount rate in the euro zone, Switzerland, and the United Kingdom for determining pension obligations in accordance with IAS 19. The discount rate continues to be determined based on the yields of high-quality European corporate bonds with an AA rating, mapped in a yield curve showing the corresponding spot rates. The changes result from a change in provider for the determination of the yield curves.

Under the new method, adjustments are made in relation to the selection of the bonds available on the market (previous data basis: Bloomberg; data basis after adjustment: Thomson Reuters) as well as in the determination of the yield curve from this data. The first step is to remove bonds with special options (e.g., put or call options) or other properties (e.g., low-volume bonds, bundled bonds, bonds pertaining to a specific country) from the available portfolio. Then a regression curve is determined based on the bond market so as to identify potential outliers (calculated using the double standard deviation) and likewise remove these from the bond portfolio for determining the interest rate. The yield curve determined using this method is subsequently applied to the cash flows in the pension plans so as to determine an equivalent uniform discount rate.

The Group’s pension obligations are based on pension commitments mainly in Germany, Greece, and Switzerland. Without the change, the discount rate would be 0.15 percentage points lower in Germany, 0.13 percentage points lower in Greece, and 0.03 percentage points lower in Switzerland, and the defined benefit obligations would be EUR 211 million higher.

Shareholders’ equity

Shareholders’ equity decreased by EUR 0.7 billion as of December 31, 2018 to EUR 42.8 billion, due in particular to the resolved dividend of EUR 3.3 billion paid out by Deutsche Telekom AG. The subsequent measurement of equity instruments directly in equity and the remeasurement of defined benefit plans reduced the carrying amount by EUR 0.2 billion in each case. By contrast, the profit of EUR 1.3 billion increased shareholders’ equity. The transition to the IFRS 16 accounting standard likewise increased the carrying amount. The cumulative effect of this was an increase of EUR 0.3 billion in retained earnings (including shares attributable to non-controlling interests) recognized directly in equity as of January 1, 2019. Currency translation effects of EUR 0.5 billion recognized directly in equity and capital increases from share-based payments of EUR 0.1 billion increased shareholders’ equity. Shareholders’ equity increased as a result of the acquisition of Tele2 Netherlands in the Group Development operating segment which led to transactions with owners totaling EUR 0.5 billion and effects of changes in the composition of the Deutsche Telekom Group of EUR 0.2 billion. For more information, please refer to the section “Changes in the composition of the Group.”